Investor Network Cai Jun

Editor Wu Yue

By the end of November this year, Lepu (Beijing) Medical device Co., Ltd. (300003.SZ, hereinafter referred to as "Lepu Medical") has been spun off and listed on the stock market.

In the first three quarters of this year, Lepu Medical achieved operating income of 7.762 billion yuan, down 10.11% from the same period last year, while the net profit belonging to shareholders of listed companies was 1.81 billion yuan, down 5.78% from the same period last year.

In response, Lepu Medical said the decline was due to the high revenue base of COVID-19 antigen testing reagents in 2021, which saw a 77 per cent drop in revenue from the same period last year; excluding relevant factors, revenue from conventional business increased by 18.45 per cent compared with the same period last year.

In fact, due to the changes of various factors in the industry, Lepu Medical gradually divides its products into innovative and traditional types, corresponding to non-collection and collection respectively. At a time when innovative products drive revenue growth, the company spun off subsidiaries of related businesses.

So far, Lepu Medical has been divided into three subsidiaries listed on the stock market. One of them terminated and two succeeded. In the industry, minimally invasive Medicine (00853.HK) also uses this "routine" and has been spun off and listed on the stock market. The story of innovative R & D and capital operation seems to continue.

Innovative products are split and listed.

The business segment of Lepu Medical is divided into medical devices, drugs, medical services and so on. Among them, medical devices made the greatest contribution, with sales of 4.324 billion yuan in the first three quarters of this year, accounting for 55.7% of the operating income in the same period.

If subdivided, the medical devices of Lepu Medical can be divided into cardiovascular, in vitro diagnosis, surgical anesthesia and so on. The company said in its three-quarter report that the combined revenue of cardiovascular and surgical anesthetic devices increased by 42.76% compared with the same period last year, and its central vascular devices contributed most of the revenue.

Stripping off the income composition layer by layer, the "strategy" of Lepu Medical has gradually emerged. "Strategy" begins with the collection of medical devices, with the continuous deepening of collection, the company's products are gradually divided into two parts, namely, innovative and traditional, corresponding to non-collection and collection respectively.

Innovative products have become the main driver of performance growth. In the first half of this year, revenue from innovative products such as coronary artery and structural heart disease in the cardiovascular field of Lepu Medical increased by 61% and 12.5% respectively compared with the same period last year. At the same time, the company also said that it will launch electrophysiological products in due course, and is expected to become a new growth pole.

What is more noteworthy is that Lepu Xintai Medical Technology Co., Ltd. (hereinafter referred to as "Xintai Medical", 02291.HK), a subsidiary of structural heart disease innovative products, was listed on the Hong Kong Stock Exchange in November. In the first half of this year, Xintai Medical's operating income and net profit were 125 million yuan and 24 million yuan respectively.

From incubation innovation to split listing, from product research and development to capital operation, Lepu Medical is not the only one in the industry. Prior to this, minimally invasive Medical successfully split its five subsidiaries to market, including Cardiac Medicine, Xintong Medical, minimally invasive Robotics, minimally invasive brain Science, minimally invasive electrophysiology, and so on. Corresponding to aortic and peripheral blood vessels, structural heart disease, surgical robotics, neural intervention, electrophysiology and other innovative businesses.

The significance of spin-off listing is to help subsidiaries raise more funds in the short term, which will be used for research and development to bring more products to the market, as well as to expand more product lines of the parent company. The subsidiaries of Lepu Medical and minimally invasive Medical are listed on the market, raising a total of more than 1.3 billion yuan and 6 billion yuan respectively. Whether Lepu Medical will continue to spin off the innovative device business and go public in the future is worth following up.

There are also some concerns that a break-up may lead to a reduction in the market capitalization of the parent company, but this is not necessarily the case. On January 1 and November 29 this year, the market capitalization of minimally invasive Medical Care was 42.278 billion yuan and 33.103 billion yuan respectively, while that of Lepu Medical was 40.838 billion yuan and 42.858 billion yuan respectively, unaffected.

COVID-19 's antigen business decreased significantly compared with the same period last year.

Revenue from innovative products is growing, but in vitro diagnostics are dragging down the company's performance.

In the first three quarters of this year, Lepu Medical's COVID-19 antigen business accounted for 7.5 per cent of total revenue, down 77 per cent from a year earlier. Based on the company's revenue of 7.762 billion yuan in the same period, the revenue of the business is 582 million yuan.

According to the data, Beijing Lepu Diagnostic Technology Co., Ltd. (hereinafter referred to as "Lepu Diagnostics"), a subsidiary of Lepu Medical, is the largest component of the company's in vitro diagnosis business, including COVID-19 antigen. In 2021, a large number of the business products were exported abroad, driving the operating revenue of Lepu Diagnostics to rise by 270.8% year-on-year to 3.76 billion yuan.

In March this year, the COVID-19 antigen product diagnosed by Lepu was approved in China. However, similar products have long been the "Red Sea market" in China, and National Healthcare Security Administration also made it clear that the price of products and testing reagents is capped at 15 yuan per person.

Due to various factors, the company's COVID-19 antigen revenue in the first half of this year was 480 million yuan, down 80 per cent from the same period last year. In the same period, the operating income of Lepu diagnosis was 1.614 billion yuan, down 42.42% from the same period last year. Based on this calculation, the revenue of the business in the third quarter was 182 million yuan. If this level is maintained in the fourth quarter, the annual revenue of the business will be about 800 million to 900 million yuan.

In contrast, in 2021, according to the disclosed revenue and deceleration in the first three quarters of this year, the company's income from COVID-19 Antigen was 1.03 billion yuan. Combined with the revenue of 3.76 billion yuan diagnosed by Lepu in the same year, the revenue of the business was 1.1 billion yuan to 1.5 billion yuan that year. It is speculated that the company's COVID-19 antigen revenue may fall by 80 to 90 per cent in 2022 compared with the same period last year.

Once upon a time, Lepu diagnosed that there was a plan for the listing of Kechuang board.

In 2021, Lepu Medical announcement terminated the IPO process of Lepu diagnosis. Prior to this, Lepu Diagnostics has received a second round of inquiries from regulators. The company said that the reason for the termination was that the in vitro diagnosis business was composed of multiple legal entities, so the audit inquiry repeatedly involved the issue of inter-industry competition. "when the conditions are ripe, the company will start the work of spin-off and listing."

Split listing has a small scale.

Medical devices split listing of the "strategy", Lepu Medical also used the pharmaceutical sector.

In the first three quarters of this year, Lepu Medical said that revenue in the pharmaceutical sector was basically flat compared with the same period last year. In the first half of this year, the sector's revenue was 1.748 billion yuan, down 1.93% from the same period last year, accounting for 32.8% of the revenue in the same period.

If the drug plate is split again, it can be divided into generic drugs, API drugs and innovative drugs. In the first half of this year, the income of generics and APIs was 1.534 billion yuan and 214 million yuan respectively, down 1.64% and 4% respectively from the same period last year. During the reporting period, innovative drugs had no products on the market, so there was no income.

It is worth noting that, like medical devices, drugs are collected and uncollected, corresponding to imitation pharmaceuticals and innovative drugs respectively. The company leaves generic drugs on the list, and innovative drugs are split and listed independently.

In February this year, 02157.HK Biotechnology Co., Ltd., which specializes in innovative drugs, listed on the Hong Kong Stock Exchange. Different from the company's traditional cardiovascular drugs, Lepu Biology specializes in oncology track. In September, the subsidiary announced again that it planned to list in Science and Technology Innovation Board, with a net fund-raising expected to be no more than 2.5 billion yuan.

The split operation of Lepu Medical is therefore on a small scale. As of November 29th, the market capitalization of Lepu Medical, Lepu Biology and Xintai Medical was 42.858 billion yuan, 14.968 billion yuan and 10.125 billion yuan, totaling 67.951 billion yuan.

It is worth noting that the total market capitalization of the five enterprises in the "minimally invasive department" in the same period is 103.275 billion yuan. In terms of performance, the operating income of minimally invasive Medical and Lepu Medical in the first half of this year was 2.9 billion yuan and 5.33 billion yuan respectively.

In addition to the planning of the capital market, Lepu Medical's actions are more than that.

In the first three quarters of this year, Lepu Medical's non-recurrent income attributed to shareholders of listed companies was 5.3277 million yuan, compared with-164 million yuan in the same period in 2021. The company said that the change from loss to profit was caused by the fluctuation of Junshi's stock price.

However, Lepu Medical did not disclose its share of Junshi, and the company is not one of the top 10 shareholders of Junshi. It is worth noting that the company's investment income in the first three quarters of this year-63 million yuan, compared with the same period in 2021-130 million yuan has narrowed. In 2021, the company's investment income was-397 million yuan, of which the current loss recognized by the disposal of Junshi biological shares was 298 million yuan. (produced by thinking Finance) ■