Tangjia Medical Continues to Post Losses with High Debt Ratios: Distribution Model May Face Challenges, How to Navigate the Red Sea of Weight Loss Drugs?

How does AI Tongji Medical differentiate itself in the endoscopic weight loss market from GLP-1 drugs?

“Harbor Business Watch” Xu Huijing

In January 2024, a minimally invasive medical device called the Gastric Bypass Stent System (GBS) was approved for market launch through the National Medical Products Administration’s special review process for innovative medical devices (“Green Channel”). It became China’s first Class III innovative medical device approved for endoscopic treatment of obesity.

The commercialization operator of this groundbreaking product—Hangzhou Tongji Medical Technology Co., Ltd. (hereinafter, Tongji Medical)—formally submitted its IPO prospectus to the Hong Kong Stock Exchange in February 2026, planning to list on the Main Board under Chapter 18A, with ICBC International and CICC International serving as joint sponsors.

However, behind the halo of this “first” product, issues revealed in Tongji Medical’s IPO prospectus—such as ongoing losses, reliance on a single product, limited commercialization experience—are also noteworthy.

1

Revenue growth still accompanied by continuous losses, high debt ratio, negative cash flow

According to the prospectus and Tianyancha, Tongji Medical was founded in 2016. It is a China-based medical device company focused on providing innovative solutions for the treatment and full-cycle management of metabolic diseases.

Financial data shows that in 2024 and the first nine months of 2025 (hereinafter, the reporting period), Tongji Medical’s operating revenue was 12.709 million yuan and 20.863 million yuan, respectively; losses were 65.957 million yuan and 54.942 million yuan; adjusted net losses were 64.713 million yuan and 53.519 million yuan.

Regarding this, Liu Shengyu, partner at Gaohe Investment Management, believes that from a commercialization perspective, the core issue is that the business scale has not yet formed effective support, with revenue being relatively small, while rigid expenses such as marketing, management, and R&D remain high, ultimately leading to cash flow deficits.

Renowned economist Song Qinghui states that, from a financial structure perspective, Tongji Medical’s current losses are not surprising and are even consistent with the typical development trajectory of innovative medical device companies. The company was established relatively recently; its core product, GBS, was only approved for commercialization in early 2024. During the reporting period, revenue was only in the millions, while investments in R&D, clinical trials, registration, and market education remain high, naturally putting short-term profits under pressure. Industry experience shows that Class III innovative device companies often go through a long “R&D investment—growth ramp-up—scale profitability” cycle, so judging their business prospects solely based on current losses is insufficient.

However, it is important to objectively note that the scale of losses relative to revenue remains large, indicating that commercialization efficiency has yet to be validated, and fixed cost absorption capacity is weak. Key future indicators to watch include: 1) GBS procedure penetration rate and hospital coverage speed; 2) gross profit margin improvement per device and consumable; 3) whether sales expense ratio can decrease as scale increases. If revenue does not enter a rapid growth phase in the next two to three years, sustained losses could pressure valuation. Overall, current losses are “understandable but not yet safe,” and the speed of commercialization realization will be a decisive factor.

During the reporting period, the net cash flow from operating activities was -43.568 million yuan and -49.043 million yuan, respectively, remaining negative.

This phenomenon reflects the company’s R&D-driven and early-stage commercialization business model. During the period, R&D expenses were 41.126 million yuan and 32.538 million yuan, accounting for 54.5% and 46.6% of total operating expenses, respectively.

Specifically, in 2024, revenue mainly came from GBS commercialization sales, with a cost of 2.427 million yuan, gross profit of 10.282 million yuan, gross margin about 80.9%. During the same period, sales and marketing expenses were 16.596 million yuan, administrative expenses 17.733 million yuan, and R&D costs 41.126 million yuan. The relatively high costs resulted in overall losses.

In contrast, in the first nine months of 2025, revenue increased to 20.863 million yuan, more than five times the 3.186 million yuan in the same period of 2024, mainly due to the increase in GBS implantation procedures from 94 to 1,419 cases. However, due to continued investments in sales, marketing, administration, and R&D, the company’s loss for the period remained at 54.942 million yuan.

Tongji Medical states that since its founding, it has continuously incurred significant operating losses and expects to remain unprofitable in the short term. During the historical reporting periods, the company’s operating activities generated negative net cash flows. Whether the company can generate net profit from operations largely depends on the successful development and commercialization of its core and other ongoing R&D products.

As of September 30, 2025, Tongji Medical’s total assets were 77.75 million yuan, total liabilities reached 106 million yuan, with an asset-liability ratio exceeding 136%, net debt of 28.39 million yuan, and a current ratio of 0.5x, below the safe threshold of 1.

2

Product reliance on GBS, top five customers account for nearly half

Another major challenge for Tongji Medical is product dependence. During the reporting period, nearly all revenue came from sales of the core product GBS. GBS is a pioneering minimally invasive medical device used to treat obesity. It is a flexible, recyclable sleeve stent that, when placed endoscopically, creates an impermeable barrier between the gastric mucosa and the duodenum and proximal jejunum, reducing nutrient absorption and promoting hormonal regulation to achieve weight loss.

Since its commercial launch in China in April 2024, GBS has been used in over 2,500 procedures. As of the latest date, more than 300 hospitals in China have performed endoscopic surgeries using GBS, and the company has trained over 600 hospital doctors.

However, reliance on a single product poses significant risks: the company’s main revenue source is GBS. If market demand for this product falls short of expectations or external factors adversely affect it, the company’s business and performance could be severely impacted. Additionally, the product faces competition from other treatments, such as GLP-1 receptor agonist weight-loss drugs, traditional weight-loss surgeries, and other interventions.

Meanwhile, Tongji Medical is actively expanding its product pipeline, including GBS-SH (for MASH with obesity), GBS-DM (for type 2 diabetes with obesity), as well as degradable gastric balloons (DIGB) and removable gastric balloons (RIGB). Notably, GBS-SH received Breakthrough Device Designation from the FDA in October 2024, making the company the only Chinese firm with this recognition as of the latest date.

Regarding customer concentration, during the period, revenue from the largest customer accounted for 19.6% and 15.3% of annual or period revenue, respectively; revenue from the top five customers accounted for 60.8% and 48.9%. Although declining, customer concentration remains high.

Supplier concentration is also notable: procurement costs from the largest supplier accounted for 5.0% and 8.0% of total procurement during the period; from the top five suppliers, costs accounted for 16.2% and 27.7%.

Additionally, the company currently employs a hybrid sales model in mainland China, combining sales through certified distributors and direct sales. During the period, distributor sales accounted for 99.1% and 99.6% of revenue. The company has limited control over distributor operations; if key distributors terminate cooperation or act improperly, it could adversely affect business.

Song Qinghui believes that with over 90% of revenue from distribution, this approach is reasonable in the short term but carries certain structural risks long-term. For an innovative device company still in the market education stage, relying on mature distribution networks allows rapid access to hospital end-users, reduces the need for building a large sales team, and accelerates product deployment. Early reliance on distribution is common in the industry. From an efficiency standpoint, this helps the company achieve “light asset volume growth” during initial commercialization.

However, maintaining nearly 100% reliance on distribution channels also limits the company’s bargaining power and control over end-users, which could pose three risks: 1) channel profit margins are squeezed, limiting gross margin improvement; 2) insufficient control over hospital demand and promotion pace; 3) if centralized procurement or pricing negotiations change, over-reliance on distribution could amplify pricing pressures.

Therefore, a more balanced development path would involve maintaining distribution coverage while gradually strengthening direct sales and clinical promotion in key regions, increasing direct control over core hospitals and physicians. The market generally favors a “volume-driven distribution, quality-enhanced direct sales” upgrade. If distribution remains dominant in the next two to three years, the market may discount the company’s long-term channel moat.

Liu Shengyu notes that using distributors as the main channel allows rapid market penetration and clinical case accumulation, but this “price-to-volume” strategy also means profits are shared with distributors, which compresses margins and puts pressure on performance.

3

Rich R&D pipeline, limited commercialization experience

For this IPO, Tongji Medical plans to raise funds for R&D and commercialization of its core product GBS, key products (including GBS-SH, GBS-DM, and gastric balloon combinations DIGB and RIGB), other products and R&D projects, as well as working capital and general corporate purposes.

From an R&D perspective, as of September 30, 2025, the company’s internal R&D team comprised 36 members, including 16 with master’s degrees or higher. The team has dedicated functions for process and quality design, with experienced members most holding over five years of industry expertise. As of the latest date, the company held 179 patents and patent applications, including 77 granted patents and 60 applications in China, and 20 granted patents and 22 applications overseas.

During the reporting period, R&D expenses for the core product were 9 million yuan and 11.4 million yuan, representing 21.9% and 35.0% of total R&D expenses, respectively. The company plans to continue increasing R&D investment to advance ongoing projects.

However, Tongji Medical has limited experience in medical device commercialization. Its core product GBS was only approved in early 2024 and is in the initial commercialization stage. The company relies on its internal sales and marketing team to promote hospital adoption, train physicians, and conduct academic promotion. Large-scale commercialization faces potential challenges, such as shortages of professional sales personnel, complex hospital procurement processes, and steep learning curves for physicians.

Moreover, GBS offers a minimally invasive, reversible treatment option for obesity, but the related market in China is still in its early stages, lacking mature clinical standards, with limited awareness among physicians and patients. Market acceptance depends on multiple factors, including regulatory indications, physician and patient perceptions of safety and efficacy, availability of long-term safety data, timing of competing products, treatment affordability, insurance or commercial reimbursement, etc.

Notably, as of the latest date, GBS has been included in the local medical insurance reimbursement lists of 25 provinces, including Sichuan, Shandong, Hebei, Henan, Shanghai, Guangdong, and Jiangsu. However, China currently lacks a unified national framework for high-value medical devices, with regional differences in reimbursement indications, patient eligibility, reimbursement rates, and annual payment caps.

Additionally, external observations indicate that GBS costs about 30,000–50,000 yuan per treatment, while GLP-1 weight-loss drugs (such as semaglutide, tirzepatide) cost about 10,000–20,000 yuan annually. Over a three-year cycle, GBS’s total cost may be comparable or even advantageous to drug therapy; however, the high upfront payment and immediate cash outflow could weaken the willingness of average weight-loss patients to pay upfront.

Clinically, GBS shows differentiated weight loss effects. According to the prospectus, pivotal clinical trials for GBS in obesity treatment show an average weight loss percentage (TWL%) of 8.5% at 3 months and 12.5% at 6 months, with significant metabolic improvements. In comparison, the 68-week TWL% for semaglutide is about 15–17%, and for tirzepatide about 20–22%. Although the absolute weight loss is slightly lower, GBS as a one-time intervention can achieve sustained metabolic benefits without long-term medication, avoiding rebound weight gain due to poor adherence.

Furthermore, GLP-1 drugs require continuous injections to maintain efficacy, with patient compliance costs (injection frequency, gastrointestinal side effects, regular follow-ups) not included in pure price comparisons. GBS typically involves a 3–6 month placement period, after which no ongoing medication is needed, potentially offering lower long-term management costs. Given that current patients tend to prefer “low-threshold, interruptible” drug treatments, GBS’s potential long-term cost advantages and differentiated efficacy still need more clinical evidence and innovative payment models to translate into market advantage.

Finally, regarding ownership structure, the company’s founder, Chairman, CEO, and Executive Director Zuo Yuxing directly holds 28.96% of shares and controls an additional 6.98% through employee stock ownership platform Zhoushan Aizhong. As of the latest date, Mr. Zuo directly and indirectly controls approximately 35.94% of the issued share capital, constituting the pre-IPO controlling shareholder. (Harbor Finance)