Core views

The company is in a leading position in the field of heart valve intervention in China. Since the commercialization of TAVR products in Q4 '21, clinical feedback has been good, and interventional valve products have been released rapidly; in addition, the company has comprehensive and in-depth product development and development in the field of aortic valve, mitral and tricuspid valve treatment, and is expected to continue to consolidate the company's leading position in the field of heart valves.

The company's neurological intervention business is at the forefront of domestic companies. With the continuous enrichment of product pipelines under development and the continuous advancement of commercialization of certified products, the company's neurological intervention business is expected to maintain rapid development.

occurrences

The company released its 2023 mid-year report

Recently, the company released its 2023 annual report. The company achieved revenue of 225 million yuan in the first half of the year, an increase of 89% over the previous year, net profit of -2.12 yuan, a year-on-year increase of 130.6% in losses, and -0.31 yuan in eps.

Brief review

The interim report's performance was in line with expectations. The growth rate of the neural intervention business slightly exceeded expectations. The company achieved revenue of 225 million yuan, an increase of 89% over the previous year, net profit of -2.12 yuan, and a year-on-year increase of 131% in losses. The company's overall performance was in line with expectations. By business type, 23H1's heart valve intervention business achieved revenue of 108 million yuan, an increase of 107% over the previous year. The rapid growth in the company's valve intervention business was mainly due to the further increase in hospital coverage of the company's products and the rapid release of second-generation recyclable products. 23H1's neurological intervention business reached 117 million yuan, an increase of 76% over the previous year. The revenue growth rate exceeded expectations, mainly due to the rapid release of the company's new ischemic products after the launch. The increase in profit side losses is mainly due to the company's continued increase in sales and R&D investment, as well as several 23H1 BD projects triggering milestone payments.

Looking ahead to the second half of '23, the number of surgeries in the TAVR industry and neurological intervention industry is expected to grow rapidly. We expect the company's heart valve business segment to more than double, and the neurological intervention business segment is expected to maintain growth of around 50%.

Heart valve intervention business hospital coverage and market share continued to increase 23H1 The company's heart valve intervention business achieved revenue of 108 million yuan, an increase of 107% over the previous year. The rapid growth in the company's valve intervention business was mainly due to further increase in hospital coverage of the company's products and the rapid release of second-generation recyclable products. By the end of June '23, the company's TAVR products had added coverage to more than 120 hospitals, with a total coverage of nearly 410 hospitals, and a sales team of 199 people. 23H1 has completed 1,250 TAVR product terminal implants, exceeding the annual volume of surgical implants in 22 years. We expect 23H1's TAVR product market share to exceed 20%. Since the commercialization of the company's TAVR products in Q4 in '21, clinical feedback has been good, and market share has steadily increased.

Research and development of innovative heart valve intervention products is progressing steadily, and several pipeline development progress is in the leading position in the field of aortic valve intervention: the company's third-generation product, TaurusNXT, uses non-glutaraldehyde cross-linked tissue treatment technology to effectively remove the effects of valve calcification caused by glutaraldehyde on valve life, thereby greatly improving the durability and biocompatibility of artificial valves. The product is currently in the multi-center registration clinical stage. It is expected to be marketed in about 25 years. The clinical progress of this product is ahead of similar products in China; the fourth-generation product TaurusApex uses polymer materials to replace organisms The material is expected to further improve the durability and biocompatibility of artificial valves, and can also simplify the manufacturing process of valve products and reduce production costs. This product is currently in the animal testing stage; the company cooperated with Jenavalve to introduce a domestic Triology aortic Valve Interventional Product. It is currently the only product that has obtained CE certification to treat aortic valve reflux and aortic stenosis. This product completed 2 commercial implantation cases in Hong Kong, China in May 23, and officially launched multiple centers in mainland China in July 23 A registered clinical trial. In addition, the company's shockwave valve treatment system is currently in the scientific research and clinical stage. This product can be used to treat patients with hypercalcified valves, greatly increasing the activity of the patient's native valves, thereby improving hemodynamic performance.

The field of mitral and tricuspid valve intervention: HighLife, a transcatheter replacement product developed by the company, uses the concept of a mid-ring valve and an annular valve ring. The annular valve ring automatically centers and aligns the valve prosthesis when transported to the mitral valve position to achieve adaptation and self-coaxial. Currently, this product is undergoing registered clinical trials in China; GeminiOne, the company's self-developed mitral valve transcatheter relationship repair product, is currently in the multi-center registration clinical stage; the company and inBQ8 have completed two cases of catheter in Europe tricuspid valve replacement products MonarQ is a humanitarian clinical implant and plans to conduct an early feasibility study of the product in the US.

As of the end of August 23, the company's heart valve intervention business had 5 commercialized products and 9 products under development. A total of 5 products had obtained special approval from the NMPA for innovative medical devices (“Lutong”), and the company's development progress for second and tricuspid valve repair and replacement products ranked in the leading position in the domestic market. We expect the company to consolidate its competitive barriers in the valve field with a complete pipeline of innovative products and gradually increase the company's market share in future market competition.

The neural intervention product portfolio layout was initially formed. After the launch of the innovative products, it gradually entered a period of rapid release 23H1. The company's neurological intervention business achieved 117 million yuan, an increase of 76% over the previous year. The revenue growth rate exceeded expectations, mainly due to the rapid release of the company's new ischemic products after the launch. At 23H1, the company's hemorrhagic, ischemic, and pathway products accounted for 27%, 39%, and 33% of the company's neurological intervention business revenue, respectively. Compared with the same period last year, the revenue share of hemorrhagic products in the neurological intervention business declined, and the share of ischemic products increased markedly. By the end of June '23, the sales team for the company's neurological intervention business had 85 people, covering a total of 2,100 hospitals.

By business, the bleeding product 23H1 achieved revenue of 32 million yuan, an increase of 8% over the previous year. The lower growth rate is expected to be related to the gradual implementation of the Spring Ring Provincial Alliance Collection Terminal in the first half of the year. The company's bleeding products have been approved for 4 spring ring products, which fully meet the diverse needs of clinicians. The spring ring auxiliary stent under development by the company can assist spring ring products to treat complex, wide-necked intracranial aneurysms. The ischemic product 23H1 achieved revenue of 46 million yuan, an increase of 176% over the previous year, mainly due to the rapid release of innovative products launched in '22. With the company's thrombolic stents, suction catheters, and balloon catheters suitable for acute ischemia being launched one after another, the company can provide doctors with one-stop product solutions in the field of acute ischemia to meet doctors' diverse clinical needs. Furthermore, intracranial stents for intracranial stenosis and ischemia have been enrolled in registered clinical trials. The 23H1 channel product achieved revenue of 39 million yuan, an increase of 90% over the previous year. The high increase in sales of channel products was mainly due to the company's bleeding and rapid release of ischemic products.

As of the end of August 23, the company's neurological intervention business had 16 commercial products and 8 products under development. We believe that the perfect product pipeline has gradually enhanced the company's competitiveness in the field of neurological intervention, and the company's neurological intervention business is expected to usher in rapid development.

Financial data is basically normal. The decrease in cash on hand is mainly due to the gross margin of the BD Milestone Expense Expense Company 23H1 being 76.9% (+6.9pct), mainly due to the scale effect caused by the continuous approval and listing of new products with high margins to achieve commercialization volume; R&D expenses were 171 million yuan (+105%), and the R&D expense ratio was 76% (+5.95pct). The sharp increase in R&D expenses was mainly due to one-time expenses and increased investment in research and development projects; sales expenses were 172 million yuan (+85.71%), and the sales cost ratio was At 76.5% (-1.48 pct), the sharp increase in sales expenses was mainly due to increased marketing education and sales channel construction; management expenses were 62 million yuan (+5%), and the management cost rate was 27.7% (-22.4 pct). The company's total cash, cash equivalents, and term deposits fell from 1.84 billion yuan at the end of '22 to 1.16 billion yuan (-37%) at the end of June '23. The decrease in cash on hand was mainly due to several 23H1 BD projects triggering milestone payments. Currently, the company's working capital is sufficient.

The company is driven by a two-wheel valve and neurological intervention business. It is optimistic that the company is in a leading position in the field of heart valve intervention in China. Since the commercialization of TAVR products in Q4 '21, clinical feedback has been good, and interventional valve products have been released rapidly; in addition, the company has a comprehensive and in-depth product development bureau in the field of aortic valve, mitral valve and tricuspid valve treatment, and is expected to continue to consolidate the company's leading position in the field of heart valves. The company's neurological intervention business is at the forefront of domestic companies. With the continuous enrichment of product pipelines under development and the continuous advancement of commercialization of certified products, the company's neurological intervention business is expected to maintain rapid development.

We expect the company's operating income for 2023-2025 to be 476, 7.85 and 1,225 million yuan, respectively, with year-on-year increases of 89.62%, 65.11%, and 59.87%, respectively. Net profit to return to the mother will be -2.67, -238 million, and -61 million yuan respectively, and losses will narrow year by year. Up to now, the total amount of the company's remaining BD project milestones outstanding is about 300 million yuan. Excluding the impact of this one-time fee, we expect the company's adjusted net profit to reverse losses in 2024-2025.

Give a buy rating.

Risk warning

1) The price reduction for centralized procurement exceeded expectations: There is a possibility that the company's TAVR products will be included in the collection in the future. After the collection is completed, the company is likely to adjust the factory prices of related products, which will affect the company's performance growth.

2) Increased competition in the industry: There is competition in the heart valve intervention and neurological intervention markets. Each manufacturer may adopt different competitive strategies based on its own market position. It is not ruled out that individual manufacturers have a low price competition strategy, which intensifies competition in the industry.

3) Marketing promotion falls short of expectations: If the current commercialized product market expansion is later than expected by the market, the performance growth of related companies may be affected to a certain extent.

4) Progress in the research pipeline falls short of expectations: R&D barriers in the field of heart valve intervention and neurological intervention are high, clinical operation of related surgeries is difficult, and the development progress of some products under development may fall short of market expectations.

5) Increased compliance requirements in the medical industry: Due to industry policy factors such as increased compliance requirements in the medical industry, admission of some new products may be affected, and there is a risk that our performance predictions may not be met.