Is there a need for Ardmore Medical to rush out its IPO?

SURGERIES are delicate procedures, never without risk. So are initial public offerings (IPOs).

The doctors at Ardmore Medical Group, which specialises in orthopaedic surgery, aesthetics and pain management, are planning an IPO on the Catalist board.

Investors should study the risk factors listed in Ardmore's offer document before they take a punt.

One key concern relates to the death of a patient under the care of founder and chief executive Sean Ng. Dr Ng accounts for 42.9 per cent of group revenue and his profit contribution is in the same range.

In November 2016, the patient died after a total knee replacement procedure performed by Dr Ng at a local hospital resulted in a surgical complication.

Very rarely do knee surgeries result in death and an inquiry by the Coroner's Court is still ongoing.

The hospital conducted its own internal inquiry as well, following which it suspended Dr Ng from admitting and operating on patients in its premises for eight months. Dr Ng was still able to see patients at his private clinic at the hospital during this period but had to perform operations elsewhere.

The hospital also lodged a complaint to the Singapore Medical Council (SMC) against Dr Ng in May 2017 for insufficient documentation and medical assessment, including making certain retrospective entries, among other things.

The medical watchdog has since convened a Complaints Committee to investigate the complaint.

The thing is, SMC probes are notoriously slow-moving and if the case is escalated to a Disciplinary Tribunal, it could take years before a verdict is reached.

Until then, Ardmore's investors can only hope for the best since the fate of a key revenue generator is unknown.

In response to queries from The Business Times last week, Dr Ng said that under the Medical Registration Act, he could not share any details on what transpired in the operating theatre in 2016 until the case is closed.

"The Complaints Committee investigation is of a very serious nature," he added via e-mail: "I have been advised by my lawyers that the CC investigation... will become quasi-criminal in nature if referred to the Disciplinary Tribunal."

The downside risks are not small. If Dr Ng is found guilty of any charges framed by the tribunal, his licence could be suspended or revoked, the offer document stated.

To mitigate the risks for investors, Ardmore hired a second orthopaedic surgeon in December last year who can take over Dr Ng's cases if the need arises, it said.

The group also aims to reduce Dr Ng's contribution to the group by recruiting more doctors. It hired two anaesthetists in the last two years, which brings the total number of doctors to five, including Dr Ng's wife and co-founder, who is an aesthetics doctor.

Anaesthesiology commands higher margins than orthopaedic surgery, while margins are lowest for aesthetics.

Dr Ng has also agreed to indemnify Ardmore from all expenses and claims that may be incurred from civil suits arising from the knee surgery complaint, as well as another unrelated complaint.

(The second complaint was filed in 2017 by a patient who alleged that Dr Ng had failed to diagnose the cause of her symptoms correctly. The SMC dismissed the complaint and the patient has submitted an appeal.)

But there is no indemnifying Ardmore from any reputational or financial damage in the event that the group loses Dr Ng's services.

Precedence doesn't look pretty.

In 2017, TalkMed Group lost 13 per cent of its market value in one day after its CEO Ang Peng Tiam was suspended for eight months for professional misconduct.

The charges stemmed from a complaint by the family of a deceased patient treated by Dr Ang in 2010.

The prominent oncologist accounted for 40 to 50 per cent of TalkMed's group revenue, and patient visits fell even though the group sought to reassure investors that all of Dr Ang's cases would be handed over to his colleagues.

TalkMed shares are currently languishing near their 52-week low, which translates to a 12-month dividend yield of 3.6 per cent. Ardmore has no dividend policy for now.

While the timing of Ardmore's IPO may look opportunistic, given the SMC verdict hanging over its CEO's head, Dr Ng begs to differ.

"We view the IPO not as an endpoint but a process of growth," he told BT.

He stressed that no vendor shares will be sold in the IPO. Dr Ng, his brother and the other doctors will still hold a majority stake in Ardmore post-IPO, through their joint investment vehicle, he said.

But timing also determines valuations, which rely on future earnings, and Dr Ng has not addressed the uncertainty over what one botched knee job could mean for the future of the group.

If the IPO does go ahead, it would suggest that Ardmore's sponsor and issue manager SAC Capital as well as the Singapore Exchange can live with this known unknown. It will then be up to the market to decide if the pricing is sufficiently discounted to reflect the potential risks in subscribing for the shares.

Ardmore could consider delaying its public share sale till after the investigation is closed.

After all, it has a net cash position and is in no urgent need for funding. It made a pro forma net profit of S$4.1 million on revenue of S$10 million for 2018.

It is yet to announce how much it intends to raise through the IPO, and has said only in general terms that the proceeds will be used for organic and inorganic growth.

Postponing the IPO is not necessarily a bad thing.

A longer runway could mean a longer track record, a larger footprint and the removal of a key overhang.

Wouldn't an IPO then interest more investors and fetch a better price for Ardmore shares too?