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News Jun 5, 2020 05:24 pm EqualOcean

BGI Genomics's BRCA1/2 Gene Mutation Detection Kit Passes Approval for Innovative Medical Devices by SFDA

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Research EO
Aug 9, 2020 12:23 am ·

Investment Research Report: The Medical Devices Industry in China in 2020

Background China's medical devices field has never been considered a high-end market – not even now. But the climate and circumstances are changing very fast. In the old days, advanced medical devices were all imported and provided for inland consumers under strict controls. As for technology, talents and capital are becoming one force; domestic substitution has become an unstoppable trend. It implies the upcoming rise of the industry and the high-speed growth of those local companies in the medical devices industry. Since 2018, China has become the fourth largest medical device market worldwide, following the US, western Europe and Japan. As the population ages, domestic demand is expected to expand further. Moreover, after the recent accelerated economic development, people require higher-end healthcare services and products. The gap between consumer expectations and actual supply drives industry players to flow into a more sophisticated market. To catch up on the wind of medical devices, investors need to know which particular segments in the broad industry to aim for and what companies are performing well in the Chinese market. Thus, EqualOcean analyzes the macro-level drives, pinpoints benchmark companies in the top three limelight segments and assembles lists of promising picks. After the analysis, we believe the medical device industry in China is a relatively ‘dormant’ gold mine with the full potential to be exploited. Since the outbreak of COVID-19, China has depicted a very resilient economy and a dynamic market. The anti-fragile capability is rooted in a relatively stable society and consumption potential of the large-number population. In this report… We have applied a blended methodology in our research and analysis.  In the first chapter, Market Dynamics, we primarily use the PEST matrix to constitute the analytical framework for comprehensive coverage. Besides, the data-driven analysis in the report outlines China's capital and investment flow and policy overview. In Chapter 2, Fast Growth & Multi-baggers, we choose one benchmark company for each particular segment – medical imaging, heart stents and orthopedics. With a detailed financial look into these target examples, we build multiple models to reevaluate companies.  In Chapter 3, we pick out the top 15 public medical device companies and 15 most noteworthy private companies. These 30 companies represent the current and future look of the industry. Key takeaways What is the next step for these industry players?  It can be a mixed strategy:  1) taking back the domestic dominance in the high-end market by lower price;  2) expanding overseas market by relatively high-quality products, especially in developing markets.   Some exhibits in the report, Target market 1: Medical equipment market. (Shown in the analysis of Mindray Medical) Target market 2: Cardiovscular intervention devices market. (Shown in the analysis of Lepu Medical) Target market 3: Orthopedics implants market. (Shown in the anaysis of Weigao Group) Public company picks Private company picks Companies mentioned in this report: Mindray Medical Lepu Medical Weigao Medical Beijing Aerospace Changfeng Guangdong Biolight Meditech Neusoft SonoSpace Medical Autobio Diagnostics Kinetic Medical  Double Medical MicroPort Scientific Sinocare Wandon Medical Blue Sail Medical Kinetic Medical Jafron Biomedical LifeTech Sciences AK Medical Sanyou medical  Ovctek Hahai Biological Dian Diagnostics BGI Genomics Yuyue Medical Medtrum Medical United Imaging BrosMed Medical Darma Medical DK Medtech Huiyihuiying New Horizon Health InferVision Vocel Cloud

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Jul 16, 2020 10:57 pm ·

Chinese CT Maker Neusoft Eyes the Booming Star Market

► The biggest Chinese CT provider is about to hit the Star Market. ► Compared to its peers, Neusoft Medical has a lot to do in terms of R&D and selling model. As one of the subsidiaries of Neusoft Group – a Chinese healthcare IT solution provider – Neusoft Medical recently applied to go public on Star Market. Unlike the parent company, which is listed on the A-share market, Neusoft Medical has chosen to go public on Star Market for a fundraising amount close to CNY 965.08 million. According to the prospectus, Neusoft Medical plans to utilize the raised funds to facilitate research projects for the core products, technology and equipment and establish distribution channels, boost brand development and training systems. To be listed on the Star Market, the company picked the listing rule that the estimated market value shall be over CNY 1 billion and the net profit of the last year higher than CNY 100 million. Neusoft Medical’s prospectus discloses that its net profits were CNY 11.68 million, CNY 82.76 million and CNY 35.13 million from 2017 to 2019. However, it still faces the risk of IPO failure – if the market value at the issuance date does not reach the IPO requirement (over CNY 1 billion). Business strength: A comprehensive product portfolio Neusoft Medical is a tier-one medical equipment manufacturer. It is mainly engaged in the R&D, production, distribution and related solutions circling the core product portfolio, covering computed tomography (CT), magnetic resonance imaging (MRI), digital subtraction angiography (DSA), general X-ray (GXR), Ultrasound (US), positron emission tomography and computed tomography (PET/CT), radiation therapy (RT) and in vitro diagnostic (IVD). Known as one of the few medical equipment providers that owns comprehensive imaging and diagnostics equipment, Neusoft Medical has expanded its business to over 100 countries and regions, including over 80 markets in the coverage of the One Belt One Road project. Since 2017, the company has developed a more balanced business structure, as the digital medical diagnostic equipment business represented a fallen share from 74.82% in 2017 to 65% in 2019. Meanwhile, the equipment service and training business has been growing – from 16.82% in 2017 to 25.20% in 2019 – which indicates it is more focused on establishing a long-term customer relationship. The three years also saw a twisted path for the company's net margin, from 3.57% in 2017, 8.76% in 2018 to 4.29% in 2019. In the abnormal year 2018, the company sold out a medical incubation center as an intangible asset at a price of over CNY 52.5 million. The proceeds were recorded as part of the total CNY 59.66 million extraordinary operating profits, which account for 3.1% of the entire 2018 revenue. Competition landscape The Chinese medical devices industry is experiencing a limelight phase, with an increasing number of new policies launching intensively and making heavy capital injections. Local Chinese brand companies are sparing no effort in utilizing the golden time. The National Medical Products Administration shows that the Chinese medical device companies amounted to 18,699 in 2018 from 16,169 in 2014, at a CAGR of 3.7%. Faced with fierce competition from foreign peers in terms of product technology and service quality, Chinese players need to find their niche competitiveness. Neusoft Medical engages in an extensive range of digital imaging equipment,  supplementing activities with compatible post-sale services. With substantial industry experience in CT equipment, now it has become the most prominent Chinese manufacturer in this field. As of the end of 2019, the company and its subsidiaries had delivered all kinds of medical diagnostic equipment for over 38.000 units. According to the company's prospectus, there are a total of nine competitors Neusoft Medical is directly facing, including four foreign players and five Chinese brands. A clear advantage is that Neusoft has the most comprehensive portfolio, with eight product lines, while none of the other Chinese companies can do that. GE Medical and Siemens medical are the only two most similar in terms of the product coverage – indeed, they represent a combined 53.5 % Chinese market share of the CT scanners. When it comes to the topic of investability, Neusoft Medical can be compared with three Chinese public companies – Wandong Medical (600055:SH), Mindray Medical (300760:SZ) and SonoScape Medical (300633:SZ). In terms of the selling expense ratio over total revenue, the last three years saw a general trend in Wandong, Mindray and Neusoft, except SonoScape, which grew over 5%. As for the R&D investment, Neusoft had the highest ratio against the revenue, as high as 22.03%, a nearly doubled rate of the industry average. The most expensive medical device company Mindray Medical only had 10.13%, and SonoScape and Wandong Medical have 19.18% and 8.14% each. However, to have a better understanding of this ratio, it is crucial to reference the other two perspectives, R&D capitalization and pipeline diversity. During the last three years, Neusoft has maintained an R&D capitalization rate of approximately 12% – 14%, while recording an expense ratio of 8.5% – 11%. An increase in the capitalization R&D indicates higher efficiency in converting R&D input into potentially profitable assets. The other perspective on the above-industry-average R&D investment concerns the product pipeline diversity. Neusoft has the most comprehensive product coverage; the R&D investment ratio per product type averages at 2.4%. Wandong and Mindray can reach 3.57% and 2.95% in terms of R&D investment per product line. The long path after the public debut There is a long path ahead of Neusoft Medical. Maybe in the long-term future, Neusoft may take on an expansion path similar to Mindray, which spent the first few years acquiring growing companies inbound and outbound. However, it may face a more significant risk coming from goodwill impairment. The company recorded a loss of over CNY 23.55 million in goodwill impairment loss in 2018 and CNY 8.92 in 2019. More than that, it also faces risks from bad debts. It recorded a loss of CNY 6.96 million in the failure of collecting accounts receivables. In 2019, Neusoft had lower receivables turnover 1.54x than the average of the three comparables mentioned above:  Wandong Medical 1.31x, SonoScape 3.37x and Mindray 9.89x. Even though the company explains that this is because Neusoft adopts an installment-charging mode, the considerable gap indicates that it has a relatively weaker voice in the downstream distribution side.

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Analysis · 2
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Analysis EO
Jul 12, 2020 10:52 am ·

Top 10 Market Cap Chinese Medical Device Companies: Champions and Runners-Up

► Top 10 Chinese medical device companies are selected by market capital. ► Mindray Medical has the highest market cap but is too big to keep R&D-driven. The Chinese A-share market is experiencing a boom, with a record deal value amount at over CNY 1.5 trillion within four trading days. This craze surely has a powerful impact on the medical devices field – a fast-growing business. The medical device industry in China sped up only in recent years due to substantial capital injections, advanced technologies and supportive policies. The current premature stage indicates much potential for growth soon and the exciting emergence of new high-tech companies. A glance at top 10 Chinese medical devices by market cap Here, the top 10 Chinese medical device companies are mentioned, to provide a brief look into local benchmarks in the industry. Some companies have been steadily operating for over 20 years and are recently moving into a new growth stage or reorienting in unprecedented directions due to fierce market competition. Some younger companies have quickly found their value position by advanced resource-upgrading throughout the industry chain. Among the ten companies, there are two clinical medical equipment companies, three high-value medical device providers (such as heart stents, orthopedics implants and ophthalmology), four IVD manufacturers and only one in the home-use medical device area. Based on a general overview of the top ten companies, some companies stand out from the rest. Besides Mindray (300760:SZ), which has the highest market cap, Yuyue Medical (002223:SZ) at 10th position is the only listed home-use medical device company in the top-ten market cap rank.    Mindray: too big to sprint Mindray, the champion company, stands at the top position with an unbeatable valuation of over CNY 380 billion. As suggested by EqualOcean’s fundamental analysis, the company has come this far through frequent acquisitions and strengthening regional distribution channels. The conglomerate provides equipment in life information and support, IVD (in vitro diagnosis) and medical imaging. These three major businesses have been hot picks since the outbreak of COVID-19. However, the conglomerate relies more on the robust R&D foundation and strong global selling network.  When a company gets bigger, the slower the giant grows – an aspect especially indicated by the R&D efficiency. Yuyue: keeping agile in the C-end selling Even though Yuyue medical is ranked 10th in the top ten list, it is the champion company in the home-use medical device segment. One advantage for companies in this segment is that they have more flexibility in selling strategies because they provide end consumers with small medical gadgets, from sphygmomanometers to glucose meters, massage devices, etc. As a previous EqualOcean analysis said, they can not only invest in developing their technology (R & D) but also seek a new growth direction as they shift to a more efficient selling strategy. This is exactly what Yuyue has been trying and will continue to try in the near future. The COVID-19 crisis has created a mania for home healthcare. Yuyue has spared no effort in utilizing this trend. It has been cooperating with the two most prominent e-commerce platforms in China,  Taobao and JD.com. Now the online vendor has an over 1.13 million followers on the Taobao platform alone, with an over 480 thousand sales record of one single SKU (Stock Keeping Unit) – a household digital manometer.

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Analysis EO
Jun 24, 2020 11:42 am ·

Mindray, the Dominant A-share Medical Device Maker: Not a COVID-19 Speculator

► Mindray has a solid foundation for future growth based on market exposure to over 190 countries and regions. ► After so many years of acquisitions, it has become a more selling-driven model despite many efforts on R&D. COVID-19, the black swan incident to end them all, has been causing pain across a broad spectrum of industries. At the same time, it raised a collective focus on healthcare and soaring demand for medical devices, especially those life auxiliary equipment items such as respirators, biochemical analyzers and color ultrasound devices. Mindray Medical (300760:SH), as the most significant medical device provider listed on the A-market, has evolved into a thriving organism. According to the Ministry of Industry and Information Technology, this April Mindray received orders for respirators to the tune of over 10 thousand, scheduled till June. Success in a time of worldwide medical emergency follows prolonged phases of organic growth. The year of 2019 saw the company's domestic revenue grow 20% and overseas sales break through by 10%. The medical device market in China has surpassed the Japanese market, becoming the second largest globally in 2018. Indeed this golden market has always been desirable to some world-class manufacturers, such as Medtronic, Johnson & Johnson and Philips. According to China's Big Health Investment Report, 2018–2020, the domestic market size grew from CNY 126 billion in 2010 to CNY 448.4 billion in 2017 at a CAGR of 19.9%. This market size is expected to reach CNY 800 billion by using an anticipated CAGR of 21.3% from 2018 to 2020. The increased demand accelerated due to COVID-19 and tech-driven productivity triggered by the 2018 healthcare reform. Business overview Mindray mainly engages in the research, development and manufacturing processes of three fields: life information and support, in-vitro diagnosis (IVD) and medical imaging. Besides these, this Shenzhen-based company has expanded its product lines through a series of acquisitions, including orthopedics, endoscopy and other high-value consumable devices. As the largest revenue source, the life information and support business includes monitors, defibrillators, anesthetic machines, respirators, operating lamps and other life support equipment. In the IVD arena, Mindray provides reagents, analyzers, calibrators and controls. In 2015, it occupied a 0.62%  global market, according to the China Association of Medical Equipment. As for medical imaging, a tech-driven field, color ultrasound devices are the core products in the spectrum of Mindray’s portfolios. In China’s market of medical devices, one of the biggest challenges for domestic manufacturers is the competition with those big-name foreign brands. It can be taken as a general situation in all those small segments of this vast industry. The top three foreign competitors of Mindray are Philips, GE and Beckman Coulter (the US). However, some rising domestic brands with independent R&D capabilities are fast-growing. It is essential to understand this kind of growth in a more detailed way – is Mindray flowing with a general average trend or outperforming the industry benchmark? Organic growth makes profits Many indicators can assess profitability. Here in the fundamental analysis of this medical device company, ROE (Return on Equity) can explain profitability from a more comprehensive perspective. Mindray’s ROE grew from 15% in 2014 to 27.91% in 2019, with a bottom at 10% in 2015 and a peak at 47% in 2017. The last six years saw Mindray gain a fast growth from 2015 to 2017, indicated by its profitability increasing from 10% to 47%. From 2014 to 2016, when this company was busy leveraging debt to inject its liquidity for mergers and acquisitions, its net margin and the asset turnover ratio pulled the ROE performance down, especially in 2015. Into 2017, the ROE started to decrease mainly due to a fall in leverage, despite a stable increase in asset turnover and net margins. From this history, it seems that the equity multiplier and the net margin are the two drivers determining the return on equity. However, for a manufacturer, it is not common to see the profitability with sudden jumps and falls. When considering the varying equity multiplier and its previous annual reports, it is not hard to explain the volatile changes in Mindray's merger and acquisitions. It is commonly acknowledged that the acquisition is typical in the medical device arena. The rationales behind this strategy are costly R&D investment and a high entry threshold. Mindray has been playing this strategy since 2008 – the time when the financial crisis broke out. Seven years later, it acquired 12 companies, including three foreign companies and nine domestic ones. The outbound purchases help integrate those cutting-edge technologies on global-wide and local distribution channels. Those domestic acquisitions expand new business coverage in a diversification strategy. One prominent result is that Mindray has deployed subsidiaries in 32 countries in North America, Europe, Africa, Asia and Latin America and managed over 7,600 employees globally, including over 20% of researchers. Another direct impact brought by this M&A expansion strategy intertwined with high leverage is unusually high goodwill. Since 2014, the goodwill value has been over CNY 1.3 billion and accrued increasing impairment loss. Frequent acquisitions also impact overall profitability directly. In a consolidated financial report, Mindray gathers net revenues from all its subsidiaries. Additionally, the synergies out of the integrated selling distribution channels, R&D collaboration and improved production efficiency lay a positive impact on profitability. From 2014 to 2019, Mindray demonstrated strong internal-driven growth in its profitability, indicated by the five-year CAGR of net margin 9.725 and its growth margin of 0.56%. Sales-driven or R&D-driven? Undoubtedly, inorganic growth has played a considerable role in Mindray’s development path over all these years. On the other hand, from the perspective of endogenous growth, it is vital to have a more precise understanding of the critical growth driver. Only in this way can we assess how far away the ceiling and sustainability are. As a conglomerate giant in the medical device arena, Mindray has largely strengthened its distribution arms through global acquisitions and regional cooperation. Typically, there are two sales modes: direct selling and distribution. Mindray adopts selling models according to the market environment and the quality of distribution resources. The US market mainly utilizes direct selling mode to reach end-users by tendering bids and business negotiations with all-tier medical institutions, including private clinics, hospitals, pharmaceutical corporations, Group Purchase Organizations (GPOs), etc. However, on the domestic market and other developing countries' markets, a mixed strategy with an anchor on distribution is used to cover all kinds of end-users more efficiently. The brand has to gain more recognition among the company's distributors globally, indicated by the upward brand efficacy line below. Meanwhile, this company has anchored more resources in the R&D process to cement its core competency. During the last six years, the company saw a five-year CAGR of 11.8% in R&D investment and a similar 11.58% CAGR in selling expenses. However, when it comes to comparing the expenditure efficiency to create revenue, the R&D conversion (revenue / R&D expenses) shows a slightly better six-year performance with a 4.37% CAGR, compared to 4.09% CAGR in the selling expenses efficiency. Shortly after the listing on the A-share market (2014 – 2017), Mindray slowly became R&D-driven, with a 6.73% three-year CAGR of R&D efficiency rate (revenues divided by R&D investment). However, during the last three years (2017 – 2019), R&D investment sped up to 0.93% CAGR. One noteworthy thing is that, although the R&D efficiency was slowly improved in 2017 – 2019 at a CAGR less than 1%, it still reached a new historical high of 9.04% in 2019. This implies that the intellectual synergies in the R&D area by global acquisitions of advanced technologies have started to work. As another hint, Mindray’s researchers increased to 2,508 in 2019 from 1,764 in 2017, a 42.2% growth in these two years. Furthermore, this company completed 73 registrations of medical devices to 509 pieces last year. Indeed, the values created by R&D are considerable. However, in a comparative look at  growth speed, this medical device seems to be and will remain more sales-driven than R&D-driven, at least for the ensuing few years. We can assume that these companies will continue their heavy investment in R&D, regardless of expenses or capitalization. This will maintain the current sales models in all the involved markets. Considering the three-year CAGR of revenues, R&D investment and selling expenses, calculated as 21.76%, 20.75% and 14.99%, we expect growth rates of 22%, 20% and 15% for its revenue, R&D investment and selling expenses. In 2023, it is still likely to see a more powerful selling engine at 6.09% than R&D motor at 4.37%. The two data tables above show that a selling-based dynamic pushes revenue faster than R&D-based mode in more probable situations. New tech bursts out with more growth potential Medical imaging is one of three primary businesses of Mindray – but so far represents the smallest revenue source. From another perspective, it has the highest growth potential. This April, this company announced it would utilize 5G technology in smart auxiliary diagnosis and digitized workflow. For a giant medical device company like Mindray, inorganic growth is a crucial phase indicating maturity. Nevertheless, the robust technology foundation should not be neglected. It may seem that the R&D investment efficiency on revenue works more slowly right now, but it is an investment for more future possibilities.

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Updated 18 hours ago · Lieyunwang.com

GeneMind Biotech Closes Series B of CNY 140 Mn

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Sep 28, 2020 12:12 pm · Shunwei Capital

AI-Based Drug Research Platform XtalPi Closes Series C at USD 318.8 Mn

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Sep 28, 2020 10:06 am · National Medical Products Administration

China's NMPA Reduces Paperwork for Inland Producers to Make Exotic Medical Devices

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Sep 23, 2020 11:11 am · VCbeat

Tongshu Gene Closes Series B of Multi-Hundreds Millions

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Sep 22, 2020 12:23 pm · China Trade News

Medical Cosmetic Manufacture IMEIK Goes Public, Raising CNY 3.57 Bn

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Sep 18, 2020 12:24 pm · Tencent Tech

JD Health’s New Move on Hong Kong IPO

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Sep 18, 2020 10:58 am · VCbeat

Biotech IMAB’s In-Process New Drug Enters Clinical Trials

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