New share preview | Taimei Medical re-submits application: accumulated losses of 1.26 billion in three years, urgently needs to be listed "blood transfusion"

Digital empowerment has now become the consensus of the pharmaceutical industry. With the deepening of digitalization, the future of healthcare will undergo a digital transformation involving the entire healthcare system. From digital personal health management for consumers to digital upgrades for the entire industry, there is still a huge space for digital upgrades in the pharmaceutical industry, and the restructuring of the industry chain will bring new development opportunities. Standing at the industry forefront, Taimei Medical has begun to sprint for a listing on the Hong Kong Stock Exchange. After its first attempt failed, the company submitted a listing application to the Hong Kong Stock Exchange main board on July 30, with CICC and Morgan Stanley as its joint sponsors. Accumulated losses of 1.26 billion yuan in three years According to the prospectus, as a digital solutions provider focused on the medical science industry in China, Taimei Medical designs and provides industry-specific software and digital services to accelerate the research and development and marketing of medical science products such as innovative drugs and medical devices. Specifically, Taimei Medical Technology's cloud software and digital services are mainly provided through its two digital collaboration platforms (TrialOS and PharmaOS). The company's digital collaboration platforms play a pivotal role in connecting various parties in the medical science industry chain, including pharmaceutical and medical device companies, hospitals, third-party service providers, patients, and regulatory agencies. According to data from Zhusi Consulting, Taimei Medical Technology is the only supplier in China that can provide a one-stop digital solution from research and development to marketing for the medical science industry. Since its establishment in 2013, due to filling the gap in digital clinical trials in China, coupled with the trend of precision in China's drug approval reform, Taimei Medical has attracted investments from well-known institutions. Kai Feng Ventures, Northern Light Ventures, Wuyuan Capital, SoftBank China Capital, Sequoia Capital, Zhejiang Business Venture, Jinjiao Langqiu entity, GQCY Element Xi, Changzhou Ivy, YF Fund, Zhuhai Fuheng (Halyang), and Qichuang Keyuan, among many other luxury investment institutions, have holdings totaling over 3 billion yuan. As a pivotal role, the company's platform connects all parties involved in the research and marketing of life sciences, covering pharmaceutical companies, hospitals, third-party service providers, patients, and regulatory agencies. According to data from Zhusi Consulting, the company is the only supplier in China that can provide a one-stop digital solution from research and development to marketing for the life science industry. As of March 31, 2024, the company has provided services to over 1,400 pharmaceutical companies and entrusted research institutions, covering 21 of the world's top 25 pharmaceutical companies and 90 of the top 100 innovative enterprises in China's China Meheco Group. According to data from Zhusi Consulting, in terms of customer numbers, Taimei Medical has become the most widely used digital solution provider in the field of medical science research and marketing in China. While the company has been well received by customers, its revenue has been steadily increasing. In the three months ending March 31st in 2021 to 2024 (referred to as the reporting period), the company achieved revenues of approximately 4.66 billion yuan, 5.49 billion yuan, 5.73 billion yuan, and 1.32 billion yuan respectively, with a compound annual growth rate of 10.88%. Gross profit was approximately 1.64 billion yuan, 1.85 billion yuan, 1.79 billion yuan, 380 million yuan, and 500 million yuan respectively, with a compound annual growth rate of 4.37%. In recent years, the company's revenue has mainly come from its digital services, including digital clinical research services and IRC services. During the reporting period, revenue from this business continued to grow, reaching 2.68 billion yuan, 3.38 billion yuan, 3.70 billion yuan, and 86.7 million yuan respectively; its share of total revenue also continued to rise, reaching 57.6%, 61.6%, 64.5%, and 65.7% respectively. At the same time, sales revenue from the company's cloud software is not stable. According to the prospectus, this business includes SaaS products, customized software, and related technical support. Its revenue increased from 1.97 billion yuan in 2021 to 2.11 billion yuan in 2022, but dropped to 2.01 billion yuan in 2023; its share of total revenue decreased from 42.3%, 38.4%, 35.2% to 34.3%. Despite the continuous growth in revenue, Taimei Medical is still in a state of loss. During the reporting period, the company incurred losses of approximately 4.80 billion yuan, 4.23 billion yuan, 3.56 billion yuan, and 1.18 billion yuan respectively, with a total accumulated loss of approximately 12.6 billion yuan over three years. According to the prospectus, during the reporting period, the losses mainly stemmed from the rapid development of the company's various businesses, leading to a significant increase in personnel expansion-related salary and stock payment amounts, combined with various cost increases related to business development. The company's operating income could not cover the increased main business costs and period expenses, ultimately resulting in a significant net loss during the reporting period. Reflected in the financial statements, the company's administrative expenses were approximately -2.67 billion yuan, -2.89 billion yuan, -2.69 billion yuan, and -1.4 billion yuan, with a compound annual growth rate of 0.38%; administrative expenses as a percentage of losses were approximately 55.65%, 68.42%, 75.46%, and 114.44% respectively. Continuous losses have led to poor cash flow performance for the company. During the reporting period, the company's cash flow from operating activities amounted to -2.12 billion yuan, -3.29 billion yuan, -3.51 billion yuan, and -1.13 billion yuan, all negative. Meanwhile, the company's cash and cash equivalents were approximately 13.24 billion yuan, 6.79 billion yuan, 6.68 billion yuan, and 5.78 billion yuan, showing a significant shrinkage. With a significant decrease in cash and ongoing losses, Taimei Medical urgently needs a "blood transfusion" through an IPO. Industry growth slowing down Thanks to the emergence of SaaS products, the digitalization threshold for medical science companies has been lowered, leading to a surge in demand for digitalization in the medical science industry. The combination of cloud software and digital services has created commercial value for the research and marketing of the medical science industry in China. In 2023, the overall penetration rate of digital solutions is still relatively low, at 0.9%, and is expected to increase to 1.5% by 2028. By 2027, the market size of digital solutions for research and marketing in the Chinese life science sector is expected to reach 2 billion yuan.43 billion yuan, with a compound annual growth rate of 20.2% from 2023 to 2028. However, it is important to note that this growth rate has slowed significantly compared to the growth rate of 34.1% from 2019 to 2023.In the highly decentralized market of China's medical science research and digital marketing solutions, the top five market participants accounted for 23.1% of the market share in terms of revenue in 2023. According to data from Zhoushi Consulting, the company ranked first in the market with a 5.9% market share in the same year. It is worth noting that the gap between the top three is not significant. Furthermore, TaiMei Medical's business is mainly focused on the domestic market. In the global clinical research project market competition, the company faces certain competitive disadvantages due to brand recognition and overseas project experience. At the same time, the clients of foreign-funded enterprises are mostly large multinational pharmaceutical companies, while TaiMei Medical Technology's service targets are mainly domestic pharmaceutical companies and small to medium-sized multinational pharmaceutical companies, which also results in lower unit prices and gross profit margins for TaiMei Medical compared to foreign-funded enterprises. In summary, TaiMei Medical has seized a certain development initiative in the Chinese life science research and digital marketing solutions market, achieving revenue growth. However, facing a series of development challenges such as industry growth slowing down, intense market competition, and difficult profitability, TaiMei Medical needs to overcome these obstacles one by one.