2023 is a challenging year for innovative medical device companies.

With the gradual normalization of the collection of high-value consumables, the industry landscape is undergoing a profound transformation. From early heart stents, artificial joints, and spine products to today's artificial crystals and sports medicine products, the scope of collection in the field of high-value consumables continues to expand.

This not only had a significant impact on the production and operation models of major high-end medical device manufacturers, but also brought significant adjustments to the supply and demand relationship, price system, and market competition environment of the entire medical industry chain.

The core goals of the collection policy are to reduce medical costs, improve the accessibility of medical services, and achieve price optimization and rational allocation of resources through large-scale centralized negotiations and procurement.

However, in this process, companies must face increased price pressure, reduced profit margins, and redistribution of market share. In this context, medical device companies urgently need to meet challenges through multi-dimensional strategies such as technological innovation, cost control, and market expansion to maintain competitiveness and seek new development opportunities.

With the current Hong Kong stock companies successively announcing their 2023 results, judging from the performance of various domestic Hong Kong stock medical device companies, the industry is already divided. Some companies are speeding up, while others are already showing a slowing trend. Using the latest financial reports as a window, by horizontally comparing the key financial data of some similar companies, you will find out the highlights of the best ones.

After multiple rounds of collection, the revenue pattern of the industry was divided

In the context of the collection policy, there have been significant changes in the revenue pattern of the medical device industry.

In particular, in the past two years, in the winning bid situation of multiple rounds of collection, especially the latest Beijing-Tianjin-Hebei “N+3” collection and distribution, it can be clearly seen from the distribution of the agreed procurement volume. The selected products that won first place in Group A and Group B will receive 20% of the agreed purchase volume. This means that the industry is undergoing a rapid integration process, and the market pattern is gradually being concentrated on leading companies. Companies that can accurately grasp collection opportunities are often able to achieve or exceed expectations.

Source: Hebei Medical Security Bureau

For example, previously, Peijia Medical's neurointerventional products achieved significant revenue growth through continuous bid wins during collection. At the beginning of the year, the revenue growth of the neurological intervention business was expected to be no less than 50%, while the actual revenue growth of this segment's business reached 78.1%.

Meanwhile, Guichuang Tongqiao also quickly seized market share for related products by successfully winning bids in multiple rounds of “N+3” procurement in Henan and Beijing-Tianjin-Hebei. According to Guichuang Tongqiao's annual report, its Tongqiao Phoenix intracranial spring ring achieved rapid release through collection, with a domestic market share of about 10% in 2023.

However, not all companies are succeeding in this wave of harvesting. The revenue of some companies did not meet expectations, mainly due to the rapid progress and normalization of harvesting, making it difficult for these companies to break through in the fierce market competition.

By comparing the market's previous revenue forecasts for various companies, Guichuang Tongqiao achieved revenue of 530 million yuan in 2023, an increase of 58.0% over the previous year. Compared with other manufacturers, it achieved growth exceeding expectations.

Data source: public data, financial reports of various companies

Judging from the quality and sustainability of revenue, some companies saw a sharp jump in their trade accounts receivable, while others still showed strong bargaining power downstream, with almost no accounts receivable. From another perspective, this also shows that market differentiation is progressing rapidly. Resources and channels are being concentrated at the top, and the industry may be cleared faster than expected.

Data source: public data, financial reports of various companies

In such a market environment, companies that can successfully break through and achieve rapid volume growth usually have a series of comprehensive advantages, including but not limited to competitive prices, complete product pipelines, extremely fast market response, excellent mass production and manufacturing capabilities, and stable production costs.

This is not only a test of the price competitiveness of medical device companies, but also an overall challenge to their comprehensive strength. In this process, only those companies that meet the standards can stand out in collection and achieve sustainable growth and development.

At the same time, the gross margins of major high-end medical device manufacturers also showed varying degrees of rise and fall.

The reason is that market prices have declined due to the collection policy, and the gross margins of most companies have been pressured, and there have been varying degrees of decline. This is certainly a severe test for medical device manufacturers that rely on high gross margins to maintain operations. They need to find ways to reduce costs and improve efficiency while maintaining product quality to cope with changes in the market.

Considering the market environment with intensive collection, sales expenses are more flexible. Well, if you compare the difference between gross margin and sales rate, you can better see the ability of an enterprise to control operating costs.

Data source: public data, financial reports of various companies

As can be seen, Minimally Invasive Neuroscience, Xianruida Healthcare, and Guichuang Tongqiao are all steadily improving and maintaining high management and operation efficiency, so they can quickly achieve “self-hematopoiesis” profitability. Among them, Minimally Invasive Brain Science and Xianruida have both achieved profits, while Guichuang Tongqiao achieved an adjusted net profit of 7.03 million yuan in 2023, which was corrected for the first time.

Looking at it from a long-term perspective, collection will continue to have a profound impact on the medical device industry in the next few years. In a “price-for-volume” market environment, the revenue and profit levels of various companies will continue to be under pressure. Companies that are unable to quickly adapt to market changes and achieve the ability to “self-hematopoietic” may gradually lose market share or even face the risk of withdrawing from the market.

This is not only a test of the company's ability to control costs, but also a challenge to the efficiency of the enterprise's operation. Companies that can operate efficiently will undoubtedly have an advantage in competition and have more strategic space and development potential.

Next, along with the advancement of subsequent collection and the clean-up of the industry, the last remaining in the market will also be companies that focus on research and development of high-value and differentiated innovative products and a global strategic layout.

Two key capabilities to achieve growth: rich pipeline reserves+offshore strategy

First, see innovation. Under the normalization of collection, the market environment changes rapidly. Therefore, for a medical device company, it depends not only on the company's pipeline layout, but also on the efficiency of the company's implementation of the product layout.

Data source: public data, financial reports of various companies

Take Guichuang Tongqiao as an example. Guichuang Tongqiao's performance is ahead of the industry in terms of the number of products launched and product development efficiency. As an innovative medical device company spanning the two core tracks of neurology and periphery, Guichuang Tongqiao has shown the potential to iterate and become a vascular interventional medical device platform company.

From 2021 to 2023, Guichuang Tongqiao attached great importance to R&D investment, focused on product innovation, and continued to launch differentiated and clinically valuable products. Up to now, Guichuang Tongqiao has established 64 product pipelines. Of these, 39 products have obtained NMPA approval for listing, and 8 products have obtained EU CE certification.

In addition, Guichuang Tongqiao is also actively cooperating with innovative global medical device companies to further enhance the rich company's product pipeline by introducing cutting-edge medical technology and breakthrough innovative products, enhance the competitiveness and influence of the global market, and inject more potential for subsequent long-term steady development. For example, the company has reached a strategic cooperation with Avinger, which is expected to commercialize products such as Pantheris OCT image-guided plaque removal catheters in the domestic market by 2025.

Compared with other innovative medical device manufacturers in China, for example, there are about 30 minimally invasive brain science product pipelines, about 30 types of Xianruida medical product pipelines, and about 40 models of Peijia medical product pipelines. Guichuang Tongqiao's extensive product portfolio enables the company to cover a more comprehensive medical field and form more performance growth points, thereby expanding its market share. At the same time, it also helps Guichuang Tongqiao diversify operating risks and ensure that it can maintain steady growth in the face of market fluctuations or challenges in a single product line.

Next, I saw them go out to sea. While seizing domestic procurement policy opportunities, expanding overseas market business will effectively raise the company's value curve.

Data source: public data, financial reports of various companies

Judging from the growth rate of overseas business revenue, Minimally Invasive Brain Science and Guichuang Tongqiao showed a stronger expansion momentum, and overseas revenue CAGR both achieved three-digit growth from 2021 to 2023. In contrast, Peijia Healthcare has yet to achieve overseas business revenue. Looking at the share of overseas business, Minimally Invasive Brain Science accounts for the highest share of overseas revenue, but it is only 4.76% of revenue. It can be expected that the vast overseas market is expected to open up the racetrack for innovative domestic medical device companies.

Dr. Zhao Zhong, Chairman and CEO of Guichuang Tongqiao (02190.HK), once said, “In the past, we completed basic products on a large scale, but in the next 5 to 10 years, our development goal is to truly compete with European and American products in markets such as Europe, the United States, Southeast Asia, South America, and Eastern Europe.”

At present, the development trajectory of Guichuang Tongqiao has fully demonstrated that it is moving steadily along this strategy, showing a “more blooming” trend in the European Union, the Middle East, and South America. At present, Guichuang Tongqiao and its subsidiaries have obtained nearly 100 authorized patents, and have developed many self-developed products in more than 20 countries and regions around the world.

Compared to other domestic peers, Guichuang Tongqiao set up a localization team in Europe at an early stage, while also establishing a local logistics and warehousing center in Italy. More localized market positioning and marketing strategies, as well as a deep understanding of local market needs, gave Guichuang Tongqiao's overseas business more momentum to grow. This growth momentum may indicate the company's potential and prospects in the global medical device market.

epilogue

Overall, behind the normalization of procurement in the field of high-value consumables is the gradual deepening of supply-side reforms in the medical and pharmaceutical sector.

In this era of change, the requirements for innovative medical device companies are also getting higher and higher. Only enterprises with strong comprehensive strength, rich business pipelines, and huge size can move forward steadily in the midst of market fluctuations and show a “strong person is strong” pattern.

It can be said that this round of reforms not only tests the adaptability of enterprises, but also points out the direction for the future development of the industry. As far as the market is concerned, it is to find platform-based medical device companies that have rich high-value differentiated pipelines, have shown self-profitability, and continue to advance a global layout, and ultimately achieve continuous growth, and give them more valuation.