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 AI · Tangji Medical Plans to Mitigate Distributor Dependency Risks

“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 entity behind this groundbreaking product—Hangzhou Tangji Medical Technology Co., Ltd. (hereinafter, Tangji Medical)—formally submitted its IPO prospectus to the Hong Kong Stock Exchange in February 2026, aiming 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 Tangji Medical’s IPO prospectus—such as ongoing losses, product reliance on a single offering, limited commercialization experience—are also noteworthy.

1. Revenue Growth Still Accompanied by Continued Losses, High Debt Ratio, Negative Cash Flow

According to the prospectus and Tianyancha, Tangji 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 from January to September 2025 (hereinafter, the reporting period), Tangji Medical’s operating revenues were 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.

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

Economist Song Qinghui notes that, from a financial structure standpoint, Tangji Medical’s current losses are not surprising and are somewhat typical of innovative medical device companies’ development trajectories. The company is relatively young; its core product, GBS, was only approved for commercialization in early 2024. During the reporting period, revenue was in the millions, while investments in R&D, clinical trials, registration, and market education remain high, naturally putting short-term profit under pressure. Industry experience suggests that Class III innovative device companies often go through a long “R&D investment—growth ramp-up—scale profitability” cycle. Therefore, judging their business prospects solely based on current losses is insufficient.

However, it is important to objectively recognize 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 accelerate significantly 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, 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 cost of sales at 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 high costs resulted in overall losses.

In the first nine months of 2025, revenue increased to 20.863 million yuan, over five times the 3.186 million yuan in the same period of 2024, mainly due to the increase in GBS implantations from 94 to 1,419 cases. However, due to continued investments in sales, marketing, administration, and R&D, the company still reported a loss of 54.942 million yuan.

Tangji Medical states that since its founding, it has consistently incurred significant operational 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 it can turn a profit from operations largely depends on the successful development and commercialization of its core and other ongoing products.

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

2. Product Reliance on GBS, Top Five Customers Account for Nearly Half of Revenue

Another major challenge for Tangji 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 device used to treat obesity. It is a flexible, retrievable sleeve stent placed via endoscopy, creating an impermeable barrier between the gastric mucosa and the duodenum/nearby jejunum to reduce nutrient absorption and promote hormonal regulation, thereby aiding weight loss.

Since its commercial launch in China in April 2024, GBS has been used in over 2,500 implantations. As of the latest data, more than 300 hospitals in China perform GBS endoscopic procedures, and the company has trained over 600 doctors.

However, reliance on a single product poses risks: if market demand for GBS falls short of expectations or external factors negatively impact it, the company’s business and performance could suffer significantly. Additionally, GBS faces competition from other treatments, such as GLP-1 receptor agonist weight-loss drugs, traditional bariatric surgery, and other interventions.

Meanwhile, Tangji Medical is actively expanding its product pipeline, including GBS-SH (for obesity with MASH), GBS-DM (for obesity with type 2 diabetes), and new products like biodegradable gastric balloons (DIGB) and removable gastric balloons (RIGB). Notably, GBS-SH received FDA breakthrough device designation in October 2024, making the company the only Chinese firm with such recognition as of the latest data.

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, while the top five suppliers contributed 16.2% and 27.7%.

Additionally, the company currently employs a hybrid sales model in mainland China, combining distributor sales (which accounted for 99.1% and 99.6% of revenue during the period) and direct sales. 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 structural risks long-term. For innovative device companies still in market education phases, relying on mature distribution networks allows rapid hospital access, reduces the need for building a large sales team, and accelerates product deployment—common early-stage industry practice. From an efficiency perspective, this supports “asset-light volume growth” during commercialization.

However, maintaining near 100% reliance on distribution channels also limits the company’s bargaining power and control over end-user hospitals, which could lead to three risks: 1) channel profit sharing limits gross margin improvement; 2) insufficient control over hospital demand and promotion pace; 3) potential price pressures if centralized procurement or pricing negotiations change, as over-reliance on distribution could amplify pricing risks.

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. Market trends favor a “volume-driven distribution, quality-enhanced direct sales” upgrade. If distribution remains dominant over the next two to three years, the market may view the company’s long-term channel moat with some skepticism.

Li Shengyu notes that while a distributor-based channel can quickly penetrate markets and build clinical cases, this “price-to-volume” strategy also means profits are shared with distributors, compressing margins and exerting pressure on performance.

3. Rich R&D Pipeline but Limited Commercialization Experience

For this IPO, Tangji 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, ongoing research, and general corporate purposes.

Regarding R&D strength, 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 averaging over five years in the industry. As of the latest data, the company holds 179 patents and patent applications, including 77 granted patents in China, 60 pending applications, 20 granted overseas patents, and 22 pending overseas applications.

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 expenditure, respectively. The company plans to increase R&D investment to advance ongoing projects.

However, Tangji Medical’s experience in medical device commercialization is limited. Its core product GBS was only approved in early 2024 and is in the initial commercialization phase. 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 market in China is still in early development, lacking established clinical standards. Physician and patient awareness is limited. Market acceptance depends on multiple factors, including regulatory indications, perceptions of safety and efficacy, availability of long-term safety data, timing of competing products, treatment affordability, insurance coverage, and reimbursement policies.

Notably, as of the latest data, GBS has been included in local medical insurance reimbursement lists in 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 the cost per GBS treatment is approximately 30,000–50,000 yuan, while GLP-1 weight-loss drugs (e.g., semaglutide, tirzepatide) cost about 10,000–20,000 yuan annually. Over a three-year cycle, GBS’s total cost may be comparable or advantageous to drug therapy; however, the high upfront payment and immediate cash flow impact could reduce willingness among average weight-loss patients to pay out-of-pocket.

Clinically, GBS shows competitive weight loss results. The IPO discloses that key clinical trials for GBS in obesity treatment report an 8.5% total weight loss (TWL%) at 3 months, 12.5% at 6 months, with significant metabolic improvements. In comparison, semaglutide’s 68-week TWL% is about 15–17%, and tirzepatide’s 72-week TWL% is about 20–22%. While the absolute weight loss is slightly lower, GBS’s one-time intervention can provide sustained metabolic benefits without long-term medication adherence, reducing rebound risks associated with poor compliance.

Furthermore, GLP-1 drugs require ongoing injections to maintain efficacy, with patient adherence costs—including injection frequency, gastrointestinal side effects, and regular follow-ups—not included in pure price comparisons. GBS typically involves a 3–6 month placement period, after which no continuous medication is needed, potentially offering lower long-term management costs. Given patient preferences for “low-threshold, interruptible” treatments, GBS’s long-term cost advantages and differentiated efficacy still require more clinical evidence and innovative payment models to fully realize market advantages.

Finally, regarding ownership structure, founder and Chairman/CEO Zuo Yuxing directly owns 28.96% of the company and controls an additional 6.98% through employee stock ownership platform Zhoushan Aizhong. As of the latest data, Zuo directly and via Aizhong controls approximately 35.94% of the issued share capital, making him the pre-IPO controlling shareholder. (Harbor Finance)