Seeking certainty in uncertainty.

"Investors Net" Cai Jun

In the uncertain environment, Lepu Medical Technology (stock code 300003.SZ, hereinafter referred to as the "company") splits its third subsidiary and listed it.

So far, the company has split two subsidiaries and listed them. In terms of performance, the company and its peers have entered a period of weakness. The previous years' "determined efforts" in capital operations, coupled with uncertain prospects for performance growth, led to more questioning.

In the current domestic medical device market, a more diverse landscape is emerging. After division and listing, the rise of consumer medical treatment came with some aftermath, and each player is exploring its own path of progress at this uncertain time.

The beginning of an era.

At the end of the 1970s, the national college entrance examination was restored, and the fate of countless people changed. Among the vast number of students, Pu Zhongjie was one of them.

In 1979, 16-year-old Pu Zhongjie was admitted to Xi'an Jiaotong University. After an opportunity for further study, he stayed to work at the Beijing Institute of Special Steel, conducting research on special metal materials. As a studious person from a young age, Pu Zhongjie was quickly appreciated by his superiors and given special training. In the early 1990s, he was selected to go to Florida International University in the United States to work on the development of biomedical materials.

Across the ocean at that time, science and technology and business were booming. Among the students studying abroad, Zhang Chaoyang, who majored in physics at Massachusetts Institute of Technology, founded Sohu.com. Pu Zhongjie's fate was also similar. During his studies abroad, he came into contact with advanced heart stent products, which became a pivot for his own career.

In 1998, the Sohu brand was officially launched. In the same year, Pu Zhongjie and his wife Zhang Yue'e jointly invested in the registration of the American WP company. A year later, the couple returned to China to officially establish Lepu Medical Technology. At that time, Pu Zhongjie had already applied for a number of technical patents in the United States, which attracted the attention of various institutions.

At the beginning of the venture, Lepu Medical Technology's shareholders included China Shipbuilding Heavy Industry, the US WP company, and there was a small episode during the start-up phase. Initially, Pu Zhongjie's position in the company was Technical Director, and business operations were led by China Shipbuilding Heavy Industry. However, after the company's heart stent failed to sell well after going public, he was put in charge as General Manager.

Switching from technical R&D to business operations, Pu Zhongjie was well prepared. The company acquired Tian Dihe and Xie, which were previously jointly established by himself and ****yu, respectively, and had a relatively mature sales network at the time. After assets were injected, the company gradually overcame difficulties and entered an upward phase.

****yu, Pu Zhongjie, and Zhang Yue'e, who were classmates at Xi'an Jiaotong University, are known as the "Three Heroes of Lepu" in the market. Before listing, ****yu increased his capital in the company four times and was personally involved in the capital-driven wealth wave. At that time, local players in the medical device industry began to rise, and each company relied on its channel layout and pricing strategies to seize market share. Lepu Medical Technology, MicroPort, and Shandong Jiwei stood out, and a new evolution quietly emerged.

Capital operation that widened the gap.

From 2004 to 2008, the narrative of medical devices revolved around the development path of technology. Afterwards, capital operations widened the gap between different players. After the sedimentation of sand, the law of the survival of the fittest slowly emerged.

At that time, in the heart stent market, the technology was shifting from traditional bare stents to drug-eluting stents, which can be further divided into two types: Sirolimus and Paclitaxel, and other such types. Domestic manufacturers took aim at this trend and accelerated their research and development efforts. Soon, MicroPort successfully obtained approval for the Sirolimus type.

In the industry, Pu Zhongjie is known for his diligence and pragmatism. His diligence is reflected in the long hours he spends in the research and development laboratory, and his pragmatism lies in his judgment of the market, which often involves adjusting the pipeline. After MicroPort succeeded, Lepu Medical Technology felt the pressure and intensified its research and development efforts. In 2005, the company finally obtained registration for the drug-eluting stent, gaining a foothold in the market.

However, the reality for domestic manufacturers is that technological breakthroughs are only the first step, and imported brands have a strong say in the leading hospitals. Private enterprises are sinking to the grassroots level to gain more ground. Pu Zhongjie once described himself as a farmer, studying in the United States for a few years, and coming back to work in the fields. In those days, private enterprises opened up a new world through being down-to-earth. In 2007, the combined market share of the three major domestic manufacturers for drug-eluting stents was around 75%.

Market competition is like a marathon; when you are well-prepared, take two steps; when the market explodes, take a leap. Afterwards, each manufacturer uses the capital market to run a different route. In 2009 and 2010, Lepu Medical and MicroPort went public on the Shenzhen Stock Exchange and the Hong Kong Stock Exchange, respectively. Jiwei Medical was invested by Weigao Group and later sold to Blue Sail Medical and controlled by it.

Different capital paths determine the fate of several companies later on. After 2015, the medical device market changed suddenly. Bulk procurement pointed directly to high-margin heart stents, but the capital environment opened a window of "spin-off IPO". In the maneuvering and rushing, Lepu Medical and MicroPort performed a spin-off drama from the dimension of survival and competition.

So far, Lepu Medical has split into Heartstec Medical and Lepu Biological, and had also intended to split Lepu Diagnostics, but later terminated. Heartstec Medical is an asset acquired by the company in 2008, with a main product of occluders. Starting from 2013, the company acquired two generic drug companies to enter the drug track, and acquired innovative drug companies in 2018 to lay out PD-1, PD-L1, and related assets after they were injected into Lepu Biological and then went public in 2022.

On the other hand, MicroPort has split into Endovastec Medical, Heartone Medical, MicroPort Robotics & Automation, Mindray Medical and MicroPort EP. It also intends to split MicroPort Arrhythmia in 2023, but there has been no news since then.

After expansion, the Lepu and MicroPort systems emerged in the medical device industry. The difference between the two is that they both dance well with long sleeves when it comes to spin-off IPOs, but Lepu covers multiple sectors while MicroPort focuses on the segmented track of devices. As of June 21, the market values of Lepu and MicroPort are approximately RMB 38 billion and RMB 50 billion, respectively. After the expansion, the crisis strikes.

Steadfastness in whimsicality

From being a device manufacturer to a capital player, Lepu Medical and MicroPort Medical's "fierce attack" has gradually raised doubts. Some voices in the market believe that the essence of the medical industry is to invest more in R&D and provide better products, and that capital operation is a "supplement" that adds to it. Inverting priorities will result in losses outweighing gains.

In March, MicroPort Medical released its financial report and found themselves in the eye of the storm. Within this year, the company must repay two debts totaling over RMB 5 billion and its revenue in 2023 is about RMB 7 billion, with a net loss exceeding RMB 4.5 billion. To raise funds, it has communicated with multiple financial institutions and is expected to receive more than RMB 2 billion in credit support.

After the liquidity issue of MicroPort Medical has been exposed, the market is waiting for the performance of Lepu Medical.

In 2023, Lepu Medical's revenue and net income attributable to shareholders of listed companies are RMB 7.98 billion and RMB 1.258 billion, respectively, a year-on-year decrease of 24.78% and 42.91%, respectively. The decline in performance is related to the extracorporeal diagnostic business affected by the epidemic policy adjustment during the reporting period. Excluding such business, the medical device sector revenue increased by 6.7% YoY.

The weakness of performance has led the market to re-examine Lepu Medical's global strategy. Some voices believe that domestic manufacturers cannot rely on capital financing to find direction, but must build a moat. At present, the external environment of medical equipment is whimsical, but the company has demonstrated a certain degree of steadfastness, planning product diversification and continued spin-offs to strengthen its long-term viability.

Internally, the company focuses on R&D of anti-cancer drugs in the pharmaceutical sector, and enriches consumer medical lines, such as somatostatin, botulinum toxin, and low-concentration atropine eye drops. In terms of devices, in addition to clinical products, mass-consumer products such as blood glucose meters, hyaluronic acid needles, and OK lenses have been introduced.

In terms of external capital operations, the company uses the same mode of operation. In April 2023, the company injected assets such as Tiandihuohe and Putian Medical Treatment into Binqin Medical Treatment; in June, the company increased investment with three external institutions, with an overall valuation of 1.2 billion yuan; in July, it announced plans to spin off Binqin Medical Treatment and list on the Shenzhen Stock Exchange. So far, Binqin Medical Treatment is in the guidance stage for listing.

Perhaps the complexity of medical equipment will continue for several years. To cross many mountains, Lepu Medical Technology will face many variables in the future. Seeking certainty in uncertainty is longer and more valuable. (Produced by Thinking Finance) ■