Price spread ratio reaches 18%, holding 40% equity of major customers! Corey Redi's second IPO push, will its Northern Exchange debut go smoothly?

Daily Economic News Reporter: Yan Yinchang    Editor: Huang Bowen

A “hidden champion” that holds nearly half of the domestic radiotherapy positioning market share was asked the same core question twice by regulators at a critical IPO (initial public offering) juncture: What exactly is your relationship with your largest customer?

At 9 a.m. on March 13, Guangzhou Clarity Medical Equipment Co., Ltd. (hereinafter “Clarity Medical”) will have its first review meeting at the Beijing Stock Exchange.

The Daily Economic News reporter notes this is its second attempt to go public.

In September 2022, the Growth Enterprise Market (GEM) listing committee rejected its application; three years later, shifting to the Beijing Stock Exchange, regulators’ concerns have shifted from “growth potential” to “performance authenticity.”

According to the prospectus, Clarity Medical is a developer and manufacturer specializing in tumor radiotherapy positioning devices and rehabilitation auxiliary equipment. In the radiotherapy field, based on sales, the company’s global market share of positioning products in 2023 is 7.0%, ranking third; domestically, it holds 42.5%, ranking first.

However, behind its market share, regulators’ two rounds of inquiries focused on a core issue: since the company’s largest customer is also a joint venture in which it holds 40% of the shares, is the pricing of product sales fair under this relationship?

Additionally, Clarity Medical plans to raise 259 million yuan through the Beijing Stock Exchange IPO to expand production. Confronted with issues such as reliance on a single supplier, related-party transaction pricing differences, and fluctuations in its own production and sales rates, there is significant uncertainty whether the new capacity can be smoothly absorbed by the market.

Hospital Laboratory Director Turns Entrepreneur, Dominates Nearly Half of the Domestic Market

In 1979, 20-year-old Zhan Ren became a teacher at Shiyan Health School in Hubei Province. Two years later, he joined the First Affiliated Hospital of Dongfeng Motor Corporation (a tertiary hospital), where he was promoted to head of the laboratory department over ten years. In 1991, Zhan moved south to Guangdong, working as a technical manager at Hong Kong Jia’an Technology Limited. In 1996, he founded a trading company, and in 2000, officially established Guangzhou Clarity Medical Equipment Co., Ltd., the predecessor of Clarity Medical.

This experience within the healthcare system laid the foundation for Clarity Medical’s later business network, while his work in hospital laboratories familiarized him with procurement processes and decision-making mechanisms in medical institutions. In 2001, his wife Li Li, who was a head nurse at the tumor center of Shiyan People’s Hospital, joined the company. The couple’s combined expertise—one in channels, the other in clinical practice—formed the earliest business DNA of this medical device company.

The prospectus shows that Clarity Medical adopts a sales model primarily based on distributors, supplemented by direct sales. During the reporting period, about 70% of revenue came from distributors. It is common in the medical device industry to access hospitals through distributors, but Clarity Medical’s distributor network has two notable features.

First, there are significant differences in gross profit margins between domestic and international markets. From 2022 to the first half of 2025 (hereinafter “the reporting period”), the company’s domestic gross profit margins were 68.81%, 66.72%, 64.96%, and 64.08%, respectively, while overseas margins were 57.76%, 56.89%, 56.88%, and 56.21%. Domestic margins are higher by 7.87 to 11.05 percentage points. The company explains that overseas competitors are mainly European and American firms with stronger brand premiums, and as a late entrant, the company adopts more competitive pricing strategies; domestically, the inclusion of direct sales and distribution models, with distributors handling negotiations and commercial activities, results in relatively higher prices.

Second, certain distributors enjoy price support. During the reporting period, the gross profit margins for related-party distributors such as Xi’an Silk Road Tong and Wuhan Clarity Medical were lower than the overall domestic distributor level. For example, Xi’an Silk Road Tong’s margins in 2022 and 2023 were similar to the company’s overall domestic margins, but from 2024 onward, margins declined to 53.65% in 2024 and 52.28% in the first half of 2025—about 11 percentage points lower than the overall domestic distributor margins. The company explains that in these provinces, terminal prices have fallen, and to maintain market share, internal approval processes granted price support.

This flexible channel strategy has helped Clarity Medical establish roots in the domestic market. According to a Frost & Sullivan report, in the radiotherapy field, based on sales, the company’s positioning products ranked third globally in 2023 with a 7.0% market share, and first domestically with 42.5%.

Holding 40% of a Major Customer; Price Difference Up to 18%

In Clarity Medical’s distributor list, the U.S. company Klarity Medical Products, LLC. holds a special position. During the reporting period, Klarity has been the company’s largest customer, and Clarity Medical owns 40% of Klarity; the remaining 60% is held by an independent third party.

This “both customer and partner” relationship has made the pricing of transactions between the two a focus of regulators’ inquiries.

In response, the company disclosed that the average price of radiotherapy positioning membranes sold to Klarity in the first half of 2025 was 159.48 yuan per unit, compared to an average of 194.96 yuan per unit sold to other overseas distributors during the same period, representing an 18.20% price difference. The gross profit margin for the former was 64.89%, and for the latter, 71.37%.

The company explains this as a “preferential price” for a strategic partner, with Klarity bearing part of the additional U.S. tariffs. The inquiry response detailed the pricing adjustment mechanism: in June 2024 and June 2025, due to changes in U.S. tariffs on China, both sides negotiated to share the tariff costs through discounts. Furthermore, Clarity Medical states that Klarity, as its overseas market strategic partner, has significantly higher procurement volume and contributes to brand promotion and feedback, justifying some price concessions.

While this explanation has business logic, questions remain: where are the boundaries of these discounts? Could they harm the company’s own interests?

Additionally, during the reporting period, Klarity’s accounts receivable showed overdue payments, some of which were offset against accounts payable. This indicates that Clarity Medical both sells products to Klarity and purchases goods or services from it, with mutual offsets.

The inquiry response shows that these offsets mainly involve joint participation in exhibitions and FDA registration-related expenses. The company and Klarity jointly bear exhibition costs, and Klarity acts as its U.S. FDA agent, handling product registration and annual fee payments.

The company emphasizes that offsetting receivables and payables only applies to overdue, reconciled amounts, in accordance with Chinese Civil Code and foreign exchange regulations. This “double-entry” settlement method is uncommon in business practice and makes the cash flow less transparent.

Klarity’s own financial situation adds further uncertainty. Data shows that Klarity posted a net loss of $476,400 in 2024 and a continued loss of $1.036 million in the first half of 2025; during this period, its expense ratio increased from 44.41% in 2022 to 62.22% in the first half of 2025. The losses are attributed to high labor and operational costs, as well as substantial legal expenses from patent infringement lawsuits. During the reporting period, Klarity was involved in two patent lawsuits, with legal fees for the Qfix-related case totaling $1.3579 million.

The inquiry response indicates that the sponsor conducted a special review of Klarity, including obtaining its cash flow data, verifying downstream customer sales, and checking logistics documents. However, regulators’ second round of questions continued to probe whether the gross profit retained by Klarity was substantially used for sales activities, whether funds flowed out to related parties, and whether there was any commercial bribery.

Furthermore, Clarity Medical faces a high dependency on a single supplier. The prospectus shows that the core raw material, polycaprolactone, has long relied heavily on the UK supplier Ingevity UK Ltd. Although a domestic supplier, Hunan Juren, was introduced in 2024, in the first half of 2025, procurement from Ingevity still accounted for 27.41%.

Can the market absorb the doubled capacity expansion?

In fact, Clarity Medical’s IPO journey has been quite turbulent. The company first attempted to list on the GEM in December 2021; in September 2022, the GEM listing committee rejected its application; now, it is trying to “break through” at the Beijing Stock Exchange.

It is noteworthy that the regulators’ focus has shifted with each review. During the initial attempt on the GEM, the core concern was whether the main business had growth potential, considering industry development trends and market competition; whether, with the implementation of volume-based procurement policies, there was a risk of shrinking main business revenue despite high market share.

This time, the questions have shifted to: Are the distributor revenues genuine? Are related-party transactions fair? Where has Klarity’s funds gone?

The focus has moved from “growth” to “authenticity.”

Between the two inquiries, Clarity Medical adjusted its fundraising plan. The initial application included a “working capital supplement” of 40 million yuan, but the revised plan removed this item, reducing total proposed fundraising from 299 million yuan to 259 million yuan. During the reporting period, the company distributed a total cash dividend of 50.058 million yuan.

The core project for this IPO is the “Radiotherapy Positioning and Rehabilitation Product Headquarters Construction Project,” which plans to add annual capacity of 600,000 radiotherapy positioning membranes and 80,000 thermoplastic shaping pads. In 2024, the production of these two products was 548,500 and 39,500 units, respectively, with the capacity expansion of thermoplastic shaping pads more than doubling current output.

Is there sufficient market support for such expansion?

In the first half of 2025, the utilization rate of radiotherapy positioning membranes and thermoplastic shaping pads reached 96.13%, with existing orders steadily increasing from 22.17 million yuan in 2022 to 44.37 million yuan in the first half of 2025. However, inventory and sales efficiency data are less encouraging.

During the reporting period, the company’s inventory value rose from 49.39 million yuan at the end of 2022 to 75.11 million yuan in June 2025, an increase of over 50% in two and a half years. The company explains this as a proactive stock-up to meet growing orders. But whether this inventory buildup can be sustained depends on how quickly products can reach end markets.

Taking the highly anticipated radiotherapy positioning system as an example, its sales-to-production ratio was only 51.61% in 2023 and 68.35% in 2024. Nearly half of the produced equipment was not sold but converted into inventory or prototypes.

Similarly, the thermoplastic shaping pad, used for personalized fixation of the patient’s neck and back during radiotherapy, had sales of 31,100, 29,800, 38,300, and 17,500 units over the four periods, with growth not significant; its revenue share also declined from 6.21% in 2022 to 5.08% in the first half of 2025.

A more fundamental issue may be the industry’s space. In today’s rapidly evolving tumor treatment landscape, is the “cake” of radiotherapy itself still expanding?

According to data from the International Agency for Research on Cancer (IARC), new cancer cases worldwide continue to rise. But treatment methods are no longer dominated by surgery, chemotherapy, and radiotherapy alone. The rise of targeted drugs and immunotherapy is profoundly changing traditional tumor treatment pathways.

This is also reflected in clinical practice. According to the “14th Five-Year” survey on radiotherapy equipment, although the number of accelerators in China is increasing, utilization rates in some primary hospitals are not high. If the relative importance of radiotherapy in tumor treatment shifts subtly, the market ceiling for “supporting consumables” like thermoplastic shaping pads may be much lower than the company anticipates.

For the above issues, the Daily Economic News reporter sent interview emails to Clarity Medical on March 11, but as of press time, no reply has been received.

Daily Economic News