Abstract

China's medical beauty market has entered a period of prosperity.The market size of China's medical beauty in 2019 is 143.6 billion yuan, corresponding to 3.6% of the penetration rate of medical beauty, the annual repurchase frequency of about 1.6 times per capita and the sub-average consumption amount of about 5909 yuan. In 2015-19, China's medical and beauty industry expanded rapidly with a CAGR of 22.5%, but there is still 6 times more room for per capita diagnosis and treatment, penetration and other indicators than overseas markets. Benefiting from the gradual release of demand, the continuous abundance of product supply, and the entry of industrial capital, we expect that the industry will remain high in the next 5-10 years. Among them, the light medical beauty project represented by injection and skin beauty is expected to seize a larger market share.

The medical and beauty service chain is long, and the whole chain excavates the layout opportunity.Split from top to bottom along the industrial chain, the main links include upstream raw material suppliers, mid-stream pharmaceutical equipment manufacturers and equipment suppliers, downstream medical and beauty service organizations, and customer acquisition channels. From the perspective of the pattern of benefit distribution, the upstream raw materials and mid-stream pharmaceutical equipment and equipment links have higher technical barriers and qualification barriers, which are the most concentrated links in the industrial chain, among which domestic brands are emerging as a new force in the pharmaceutical equipment sector. market share continues to rise On the other hand, the profit space of downstream institutions and customer acquisition channels is relatively thin, which we think is related to the scattered competition pattern, low chain rate, lack of standardization and other factors at the present stage, and there is more room for integration in the future.

All aspects of business model carding: ① medical and pharmaceutical equipment:We believe that the essence of pharmaceutical equipment business is high R & D threshold and re-cultivation of high-value consumables. For pharmaceutical manufacturers, with reference to the development process of Erjian, the first-mover advantage formed by R & D and innovation can win them an exclusive time window for more than 3 years. At the same time, continuous product upgrading and innovation can effectively prolong the life cycle of individual products, and a successful market cultivation strategy is an important catalyst for building hot-selling products.② downstream institutions:We believe that the pain point of chain replication of downstream institutions lies in the high difficulty of standardization of professional doctors, managers and service chains, horizontal reference to the development of leading companies in ophthalmology and dentistry, the establishment of training mechanism and the standardization of management process.

Risk:Regulatory policy risk; medical malpractice risk.

Text

Summary: China's medical and beauty industry has entered a rapid growth channel.

China's medical and beauty industry has entered a rapid growth channel.At the macro level, China's per capita GDP exceeded US $10, 000 for the first time in 2019, which objectively provided economic support for the rise of medical consumption; at the meso level, the gradual improvement of national policies and the continuous entry of industrial capital created a good industrial environment for the vigorous development of the medical industry. At the micro level, the release of demand for medical beauty brought about by the rise of "appearance economy" and the landing of a large number of new products brought about by the technological progress of medical beauty push the medical beauty industry into a prosperous period from the two dimensions of demand and supply.

Medical beauty combines the attributes of medical treatment and consumption track, and it is a high-quality track with strong consumption stickiness and natural consumption upgrading.From makeup to medical beauty, from the development of "beauty economy", it plays a more direct role, has a faster effect than basic skin care products, and improves the skin state more thoroughly than color makeup products, and then has a strong consumer stickiness and repurchase intention. In 2019, the scale of China's medical and beauty industry is 143.6 billion yuan, corresponding to 3.6% of the penetration rate of medical customers, nearly 15 million consumer groups of medical beauty, and the annual repurchase frequency of about 1.6 times per capita. We estimate that the average unit price of treatment in China is about 5909 yuan. Among them, the annual consumption of heavy medical users can reach more than 10,000 yuan, and there is more room for exploring the value of a single customer.

The medical and beauty industry has a long chain, and the whole chain excavates the layout opportunity.On the whole, the upstream raw materials and the middle reaches of medicine and equipment have deep moat barriers, which is a more concentrated link in the medical and beauty industry chain, which mainly tests the R & D strength, differentiated product pipeline layout and market cultivation ability of enterprises; the overall competition pattern of downstream service links is relatively scattered, and we believe that there is more room for integration in the future.

In this report, we systematically sort out the development status of China's medical and beauty industry, the subdivision of the market structure, the benefit distribution between the upstream and downstream of the industrial chain, the main participants in each link and the competition pattern. By reviewing the development process of markets at home and abroad and the path of the rise of leading companies, we deconstruct the key competitive elements of each link of the industrial chain, and finally provide reference for the carding of investment opportunities.

Chart: a picture to understand the average annual consumption of medical beauty services

Chart: a list of the main products of the light medical beauty project and their skin levels

An overview of China's medical and beauty industry: hundreds of billions of high-speed growth track, permeability contains broad room for improvement

In this chapter, we will systematically sort out the scale and growth rate of China's medical and beauty industry, core user portraits, subdivision plate structure, and regulatory policy requirements. In this chapter, we try to answer several questions: how big are the "floating" and "underwater" markets of Chinese medical beauty? How is the customer portrait of Chinese medical consumers? What are "baby needles", "young girl needles" and "baby needles"? Which medical programs are rising rapidly, and what is the current market size and growth rate?

China has become the second largest medical market in the world.

China's medical beauty market has entered a period of prosperity.According to Frost & Sullivan data, the market size of China's medical beauty service industry is 143.6 billion yuan in 2019, second only to the United States and the second largest in the world. In 2015-19, the compound growth rate of China's medical beauty market was 22.5%, which is in a period of rapid growth. The agency also expects the industry to continue to expand at a compound growth rate of 17.3 per cent in 2019-24 (of which, affected by the epidemic, growth slowed to 5.7 per cent in 2020, and it expects to return to rapid growth of more than 20 per cent in 2021).

Chart: the market size of the global medical and beauty industry

Chart: the market size of China's medical and beauty industry

The increase in the amount of treatment is the main driver, which confirms the increase in the proportion of light medicine and beauty.In order to understand the microstructure behind the growth of China's medical and beauty market, we divide the industry scale into the total number of courses and the unit price of treatment according to the volume and price.

Total number of courses:According to Frost & Sullivan, the number of medical and beauty services in China increased from 10.2 million in 2015 to 24.3 million in 2019, a compound growth rate of 24.2%. The agency also expects the number of medical and beauty services in China to reach 57.7 million by 2024, with a compound growth rate of 18.9% in 2019-24.

We further split the total number of medical customers and the annual consumption frequency per capita under the number of courses:Total customer base of ①:According to the head Leopard Research Institute, the penetration rate of China's medical and beauty projects in 2019 is 3.6%. Combined with the population data of the Bureau of Statistics, taking the female population aged 20-59 as the base, we estimate that the penetration corresponds to the total number of Chinese medical and beauty users of about 14.82 million, which is basically the same as the 15.2 million Chinese medical users of 2020E estimated by Ai Media Consulting.Annual per capita consumption frequency of ②:Combined with the total number of courses and the total number of customers, we estimate that the per capita annual consumption frequency of Chinese medical and beauty users in 2019 is about 1.6, which is in an upward trend in the past few years, confirming the increase in the proportion of high-frequency light medical beauty projects.

Unit price of course of treatment:Combined with the industry scale and total treatment volume data published by Frost & Sullivan, we estimate that the unit price of medical and beauty treatment in China has dropped from 6245 yuan in 2015 to 5909 yuan in 2019, which also confirms that the proportion of light medicine with low treatment price has increased in the past few years. On the whole, we believe that the growth structure of permeability growth and volume increase is consistent with the characteristics of China's medical and beauty industry which is in the early stage of development.

Chart: number of cosmetic treatments per thousand people in China (2019)

Chart: the changing trend of unit price of medical treatment in China

Chart: Ai Media Consulting calculates the number of Medical users in China

Chart: comparison of penetration rates of medical and beauty programs in major countries

Medical beauty customer group: women in high-line cities are the main consumption

Women are the main consumption, and the demand of men contains further room for release.According to the statistics of ISAPS and So-young International Inc data Research Institute, in 2020, women accounted for 89% of Chinese medical and beauty users, which were the main consumers, and their proportion remained relatively stable in 2018-20 years; the proportion of men accounted for 11%, which was lower than the global level of about 5ppt. There is still a lot of room for men to seek beauty.

High-line urban groups account for a high proportion, and there is a broad market space for sinking.According to Fastdata,2017-19, the proportion of new first-tier and second-tier cities continues to increase. By 2019, the combined proportion of first-tier and new first-tier users is more than 70%, and second-tier users account for nearly 17%, while there is still plenty of room for users in the sinking market. From the perspective of permeability, we estimate that the penetration rates of medical beauty in 2019 are 19.3% 12.1% 4.4% / 0.5%, respectively, decreasing step by step. We believe that the main reasons why Chinese medical users are mainly located in high-line cities at the present stage are as follows: ① high-line cities have a higher level of education and disposable income, ② is influenced by trendy culture, KOL and other external environment, the concept of seeking beauty is more advanced, and the supply of ③ medical products and services is more abundant. Supported by the research data of iResearch, 84.3% of the medical users in China have received undergraduate education or above, and 62.3% of the users have a monthly income of more than 20000 yuan.

Young people are open and love beauty, and mature users are in the lead in spending power.In terms of age distribution, according to So-young International Inc data Research Institute, 20-30-year-old medical beauty users are the mainstream, accounting for 63%. We believe that it is related to the younger generation being deeply affected by the "appearance economy" and the rise of new media, resulting in higher acceptance of medical beauty. However, considering that the overall age of the customer group using So-young International Inc App is relatively low, we expect that the age distribution of actual medical beauty users may be higher than this data. From the perspective of spending power, iResearch consulting data show that the average annual consumption of users over 30 years old is the highest, reaching 5000-6000 yuan, which shows higher spending power and willingness than the average annual consumption of 1000-2000 yuan of 20-year-old users.

Chart: sex ratio of Chinese medical users

Chart: monthly household income of Chinese medical users in 2020

Chart: urban grade distribution of medical users in China

Chart: urban penetration rates of different line levels of Chinese medical users in 2019

Chart: penetration rate of different age groups of Chinese medical users in 2019

Chart: 2018 demand for medical beauty and average annual consumption of different age groups in China

Market segmentation and structure carding: light medical beauty is the trend of the times

According to the need for surgery, medical beauty projects can be divided into two categories: surgical category and non-operative category (also known as light medical beauty).Among them, surgical projects (the market size in 2019 is about 83.6 billion yuan, the same below) include facial medicine (facial contour plastic surgery, such as eyes, nose, etc., 13 billion yuan), body care (body contour plastic surgery, such as chest and buttocks, 9.1 billion yuan), skin medical treatment (hair transplant, etc., about 25.1 billion yuan), oral medicine (orthodontics, etc., about 36.4 billion yuan) Non-surgical items (60 billion yuan), also known as light medical beauty, include injections (hyaluronic acid, Botox, etc., 30.9 billion yuan), skin cosmetology and other items (photoelectricity, sound waves, private care, etc., about 29.1 billion yuan).

It is the right time for the rise of light medical beauty.Benefiting from lower risk and faster recovery, China's light medical beauty market has continued to expand at a faster growth rate than the industry as a whole in recent years, with a size of about 60 billion yuan in 2019, accounting for 42% of the medical beauty market share in 2014-19. The compound growth rate of the young medical beauty market is about 24.6%. According to Frost & Sullivan, the size of China's light medical beauty market is expected to reach 144.3 billion yuan in 2024, corresponding to a compound growth rate of 19.2% in 2019-24.

Hyaluronic acid and Botox are mainstream injection projects, and the supply of products continues to expand.Injection projects account for half of the light medical projects, with a market size of 30.9 billion yuan in 2015 and 24.4% of CAGR in 2019-19. Among the injection projects, hyaluronic acid and botulinum toxin projects have high market acceptance and broad market prospects. In addition, with the approval of more products such as "Children's face Needle" and "Young Girl Needle", we expect the injection market to show a more diversified pattern.

The skin beauty category takes the lead in the growth rate and is expected to undertake the upgrading of skin care consumption.The skin beauty project grew at a compound rate of 24.8% in 2014-19, and CAGR is expected to reach 17.9% in 2019-2024, according to Frost & Sullivan. Benefiting from more obvious efficacy and lower risk (usually not broken skin or superficial skin), we believe that skin beauty programs are expected to undertake the upgrading of skin care consumption and replace some of the less effective traditional skin care products.

Chart: market structure of Chinese Medical and Beauty Industry (2019)

Chart: medical beauty products "commonly known as" comparison table

Industry regulation is tightening to squeeze the grey area, leading companies are expected to benefit

The medical and beauty industry belongs to a strong regulatory zone, with upstream, middle and downstream full-link supervision.The state has issued relevant policies and regulations on the production, sale, management and use of medical supplies (drugs, devices) in the medical and beauty industry, as well as the qualifications of medical institutions and medical personnel. Among the common medical and beauty products, hyaluronic acid injection is suitable for the supervision of three types of medical devices, and botulinum toxin injection is suitable for the supervision of narcotic drugs.

The "underwater market" still occupies a large share, and stricter regulation releases potential demand space.Due to the contradiction between the limited supply side and the rapid growth of demand brought about by the strict supervision of the industry, there is a certain scale of "underwater market" in the medical and beauty industry, including: ① fake products, that is, products without any qualification certification; ② "parallel imports", that is, products that have been registered in overseas markets, but have not yet been registered and approved in the domestic market. In addition, ③ in the regulatory review, beyond the scope of use, such as Class I or Class II medical device license products, beyond the scope of the development of three types of medical device projects, makeup brand products beyond the scope of broken skin use has also been repeatedly prohibited. According to iResearch Consulting data:

In terms of diagnosis and treatment institutions:In 2019, the number of institutions that legally carry out medical and beauty programs is only 12%, and the proportion of legal compliance doctors is only 24%.

In terms of medical devices:In 2019, the proportion of formal injections in China's medical and beauty industry was only 33%; in legal institutions, "parallel imports" / fake equipment accounted for 10%, respectively, and fake equipment accounted for as much as 90% in illegal institutions.

Chart: the degree of regularization of China's medical and beauty industry is still low.

Overseas: driven by economic development, technological progress and policy support, China's medical and beauty market has begun a period of rapid development.

In this chapter, by reviewing the development experience of the medical and beauty industry in overseas mature markets, we try to sort out the rising logic behind it, so as to provide reference for the Chinese market. We find that the development of overseas medical and beauty market is driven by multiple factors, such as economic development, technological progress, policy support and so on. Looking back at the Chinese market, we believe that China already has the objective conditions to support the rapid development of the medical and beauty industry. We will also try to answer the following questions in this chapter: when will the medical and beauty market in the United States and South Korea start to take off? Can the first-mover advantage brought by technological leadership be maintained? What is the difference in the speed of approval of new technology transmission among countries?

A Review of the Development of Medical Beauty Market in the United States, South Korea and China

United States: continuous technological Innovation establishes the position of the largest Medical Beauty Market in the World

As the largest medical beauty market in the world, the development process of the United States can be divided into three stages:

The embryonic period (1917-1970): the improvement of the regulatory policy system is the initial driving force to promote the development of the industry.The American medical and cosmetic industry originated from plastic surgery during World War I, and for nearly 30 years, the American Association of plastic Surgeons (ASPS)[1]Self-discipline associations, "Journal of plastic surgery" and other authoritative journals, plastic surgery foundation and other official foundations have been established to promote the standardized development of the medical and beauty market.

In 1969, the United States formally brought plastic surgery into the medical regulatory system of general surgery, and improved the relevant laws and regulations in time. FDA adopted the same strict examination and supervision of drugs, consumables and devices in the medical and beauty industry as in the medical industry, while government departments also adopted omni-directional supervision for doctors, medical institutions and terminal products, which opened a new stage of standardized development of the medical and beauty industry in the United States.

Rapid development period (1970-2011): the rise of demand brought about by economic development and the supply revolution brought about by technological maturity jointly promote the industry to enter a period of rapid development.

① demand side: the trend of per capita GDP in the United States is highly related to the development of medicine and beauty, and the rise of demand is driven by the promotion of consumption power.In 1978, the per capita GDP of the United States exceeded 10, 000 U.S. dollars, and consumer projects represented by medical beauty entered a period of rapid development; correspondingly, the Internet bubble around 2000 and the subprime mortgage crisis around 2008 dragged down medical and beauty consumption. In 2008, the growth rate of medical treatment volume in the United States turned negative and then declined for four consecutive years compared with the same period last year. Until 2012, with the recovery of economic growth, the growth rate of the total number of medical courses in the United States changed from negative to positive.

② supply side: technological progress and innovation have brought new projects to the ground, leading companies have been established to accelerate the development of the industry.The United States has long led the development of global medical technology, bringing solid first-mover advantages.

For example, liposuction technology was first discovered by American Fischer and son in the 1970s. American dermatologists Jeffrey Alan Klein and Patrick Lillis revolutionized this technology in 1985, which greatly reduced the risk of surgery and promoted the rapid growth of liposuction in the United States. In 2004, the number of liposuction procedures in the United States reached a peak of nearly 480000, and the plastic demand ranked first in the world. According to ASAPS, the market for liposuction in the United States reached about $760 million in 2020.

For example, three major non-surgical projects, laser hair removal, Botox injection and hyaluronic acid injection, were approved by FDA in 1997, 2002 and 2003 respectively and were first listed in the United States. The first-mover advantage brought by technological innovation makes its project firmly in the lead in the local and global markets. according to ASPS, Botox injection, hyaluronic acid injection and laser hair removal account for 28%, 17% and 5% of the treatment volume of non-surgical programs in the United States respectively in 2020. According to Frost & Sullivan, Botox accounted for 79% and 65% of the botulinum toxin market in the United States and the world respectively in 2018. Although its global market share declined with the introduction of new products, it still maintained a solid lead.

Mature integration period (from 2011 to now): industry integration continues to advance, third-party platforms and other service institutions rise to further improve the industrial chain.With the gradual improvement of industry regulation and the rise of the compliance threshold of the industry, leading enterprises have opened the market integration, such as Apax's acquisition of laser beauty equipment leader Xenolong in 2017 and Aberway's acquisition of medical beauty leader Erjian in 2020, to promote the market to further mature.

At the same time, Real-self, an American medical and beauty Internet platform, was founded in 2006, which helps consumers make decisions through popular science among users, qualification verification of resident doctors, and cooperation with professional research institutions and industry associations, marking the improvement of supporting services in the medical and beauty industry chain. As of 2017, the number of Real-self comments exceeded 2 million and the number of visitors exceeded 94 million.

Chart: the development of American medical beauty industry

Chart: the total number of treatments in the American medical market

Chart: total consumption of American Medical and Beauty Market

Chart: volume structure of American medical programs (2007 vs 2020)

Korea: industrial Policy supports the Rapid Development of Medical and Beauty Industry

Although the scale of Korean medical beauty market is far from that of the United States, as one of the pillar industries in South Korea, the rapid development of Korean medical beauty is inseparable from the support of policy. Its development process can be divided into three stages:

► sprouting period (1950s-1970s): leading pharmaceutical enterprises have been established, the upstream and downstream of the industrial chain is beginning to take shape.After the Korean War, plastic surgery technology began to be introduced into South Korea; at this stage, plastic hospitals and head pharmaceutical equipment companies such as Big Bear and LG were set up one after another, and plastic surgery industry associations were also established, and the upper and lower reaches of the industrial chain were initially formed; in 1973, South Korea took "plastic surgery" as a medical specialty, marking the development of the industry to a new level of supervision.

► rapid growth period (1970 s-2009): the rapid economic development drives the release of demand, and the downstream services are becoming more and more perfect.

① demand side: the rapid growth of per capita GDP provides demand support for the development of the medical and beauty industry.In the era of Park Chung-hee, South Korea's "Han River Miracle" continued to promote the process of industrialization and modernization, led to rapid economic development, and made South Korea one of the "four Little Dragons of Asia". By 1994, the per capita GDP of South Korea exceeded 10, 000 US dollars for the first time, and the compound growth rate of South Korea's per capita GDP was 13.4% from 1970 to 2000. The rapid economic development has provided support for the rise of the medical and American industry.

② supply side: with the support of policy, the industry chain of medical and beauty supporting services has been rapidly improved.Benefiting from the strong promotion of the South Korean government, around 2000, the medical and beauty industry cluster formed around Jiangnan region developed rapidly, and important institutions such as BK plastic Hospital, Yuanchen Hospital and Dream plastic surgery were set up one after another. At the same time, on the product side, the conditions for approval of products that are usually approved by the FDA of the United States in South Korea are relatively relaxed, so new projects from Europe and the United States can quickly enter the Korean market. Take Botox botulinum toxin as an example, in 2002, the US FDA approved Botox for moderate to severe frowning lines, and in 2004, it was approved by Korea KFDA for use in South Korea, while China was not approved for the first time until 2009, which lagged behind the United States and South Korea by 7 years and 5 years respectively.

► mature and stable period (from 2009 to now): medical tourism is legalized, and policies promote the accelerated maturity of the industry.Since 2007, the South Korean government has repeatedly issued supportive policies to promote the development of medical tourism industry from the dimensions of funds, service system, visa procedures, after-sales service and so on. Among them, in 2007, the South Korean government allocated 570 million won to provide an one-stop service system for overseas consumers entering the country for medical care. In 2009, South Korea introduced the Medical Tourism Law, which legalized the management of the medical tourism industry. In 2017, South Korea's Ministry of Health and Welfare launched the Comprehensive Plan for Medical Progress and Foreign patient attraction (2016-2021), which raised the medical and beauty tourism industry to the height of the national strategy, and put forward the goal of receiving 1 million medical tourists in 2020. Under this catalysis, medical beauty has gradually become one of the pillar industries in South Korea, moving towards the development stage of domestic maturity and foreign expansion.

Chart: Korean medical and beauty industry development history chart

Chart: market size of medical and beauty industry in South Korea

Chart: per capita GDP and growth rate in South Korea

Chart: cosmetic surgery in South Korea (2013-2018)

Chart: when Remagi went on sale in the United States, South Korea and China

Chart: when Botox went public in the United States, South Korea and China

On the contrary, China: the medical and beauty market has begun a stage of rapid development.

Referring to the development of the medical and beauty industry in mature markets such as the United States and South Korea, we believe that economic development is the core foundation for the medical and beauty market to take off, and technological innovation and supply improvement are the necessary conditions for the development of the medical and beauty market. The blessing of industrial capital and policies is an effective catalyst to accelerate the development of the industry.

Looking back at the Chinese market, since 1929, with the introduction of modern plastic surgery technology into China, it has opened the way for the development of China's medical and beauty industry. After nearly a hundred years of development, we believe that the current medical beauty market in China has stood on the starting point of rapid development:

► demand-side awakening drives consumption power release:In 2019, domestic per capita GDP broke through the US $10,000 mark for the first time, laying the foundation for the growth of medical and beauty consumption; at the same time, the rise of new media such as short videos and live broadcasts objectively promoted the rise of "beauty economy" and "self-pleasing" consumption consciousness, and also became the driving force for the release of medical and beauty consumption demand.

► industry chain and product supply continue to improve:Around 2000-2010, private medical and beauty institutions were born one after another, and 688363.SH, 300896.SZ, 000963.SZ, So-young International Inc and other enterprises were also set up successively. The medical and beauty industry chain is becoming more and more perfect. In recent years, with the listing of related targets, the entry of industrial capital also catalyzes the industry to enter a period of accelerated development. At the same time, medical and beauty products and services are also accelerated to be registered in China, and the supply side is becoming more and more abundant to further release the industry space.

Improvement of ► supervision and promotion of policy support:In 1994, the Health and Family Planning Commission listed the department of medical cosmetology as a first-class diagnosis and treatment project for the first time, indicating that the development of China's medical and beauty industry began to get on the right track. Subsequently, the national universal management measures and hierarchical management standards for the medical and beauty industry were introduced, industry authoritative associations and self-regulatory organizations were formed, and the industry started standardized development. In 2021, China issued a policy to support Hainan's high-end medical beauty industry, actively introduce and promote medical beauty technology, and create a medical beauty industry and exchange platform, which is expected to bring new opportunities for the development of the medical beauty industry in the future.

Chart: the development process of Chinese medical beauty market

Source: NMPA, Ministry of Commerce, China plastic surgery Association, Zhiwang, Qingke, China International Capital Corporation Research Department

Chart: comparison of medical beauty markets in China, South Korea and the United States

Measurement of Market Space of Medical and Beauty Industry in China

For mature markets such as South Korea and the United States, there is still much room for growth in China's medical and beauty market. Using the analytical framework of the first chapter, we divide the scale of medical and beauty terminal consumption into volume and price dimensions, in which consumption is further divided into two dimensions: customer group and per capita consumption frequency, based on which the market space of Chinese medical beauty is calculated. We estimate that by 2024, the size of China's medical and beauty market is expected to reach 3250 yuan, with a compound growth rate of about 17.7% in 2019-24.

► crowd infiltration:According to the data of the head Leopard Research Institute, the penetration rate of medical beauty projects in China is 3.6% in 2019, which is about 4-6 times more than that in the United States and South Korea. In the local market, the penetration rate of medical beauty in first-tier and new first-tier cities is more than 3 times higher than that in second-tier cities. We believe that with the popularity of light medical beauty programs, the overall penetration rate of medical beauty is expected to further improve.

► consumption stickiness:Medical beauty products have strong consumer stickiness and repurchase properties, especially light medical beauty products belong to the high frequency category, which usually needs to be repurchased every 3-6 months; at the same time, with the further enrichment of light medical beauty projects and services, especially with the launch of multi-project combined treatment programs with better treatment effects, we expect that the improvement of consumer demand for integrated skin management is expected to continue to promote the number of consumer items.

Average price of ► course:With the improvement of national spending power and the promotion of technological progress, we expect the price of a single project to rise moderately. But at the same time, we should pay attention to the relationship between the consumption frequency and the average price of the course of treatment.

Chart: main assumptions and data sources

Chart: measurement of medical beauty market space

The composition of medical beauty industry chain and the carding of the competition pattern of each link

In this chapter, we focus on the composition of the medical and beauty industry chain, the distribution of interests in each link, and sort out the market competition pattern of each sector. In this chapter, we try to answer the following questions: what is the price increase rate of medical and beauty products? How much proportion of the value of the industrial chain have been taken away by raw material merchants, pharmaceutical equipment dealers, and medical institutions respectively? Can the first-mover advantage of large items remain stable? At what stage has the domestic substitution of medical and beauty consumables developed? How to split the cost structure and single store model of downstream institutions? On the whole, we believe that the upstream raw materials and pharmaceutical equipment are relatively deep moats and the value of the industrial chain is relatively concentrated, while the downstream institutional structure is relatively scattered and there is a large space for integration; in the long run, with the development of the industry becoming more mature, the value of each link of the industrial chain may exist opportunities for redistribution.

An overview of the industrial chain: the moat in the upper and middle reaches is deep, the pattern in the lower reaches is scattered, and the channels for getting guests are diversified.

Along the top-to-bottom split of the industry chain, we divide the medical and beauty industry chain into four links: upstream raw material suppliers, mid-stream pharmaceutical equipment manufacturers / equipment suppliers, downstream medical and beauty service organizations, and customer acquisition channels.

Chart: an overview of China's medical and beauty industry chain and its main participants

The medical and beauty service chain is long, and the price will be increased step by step along the industrial chain.

From the point of view of the price increase rate, take the common hyaluronic acid injection as an example, the raw material cost of a single hyaluronic acid injection is usually 30 yuan, the ex-factory price of the drug manufacturer is about 300 yuan, and the terminal price can reach more than 1,000 yuan:

► ex-factory price:The ex-factory price of hyaluronic acid injection is about 250-350 yuan per unit, such as Avery and Emeifei of Emeike, run Baiyan and Runzhi of Huaxi Biology, Haiwei of Hao Haisheng, and Haiwei of Hao Haisengke. The ex-factory prices of some mid-and high-end positioning and long-term positioning products can reach 700 yuan per unit, such as Jiaolan of 688366.SH and Yimei of Emeike. Among them, the cost of raw materials usually ranges from 21 to 45 yuan, accounting for 10% of the ex-factory price.

► terminal price:The terminal selling price of hyaluronic acid injection is usually up to 50-3000 yuan per unit, which is about 2-6 times higher than the ex-factory price, and some high-end products can reach 5000-8000 yuan per unit. Among them, the positioning and price belt of overseas brands are generally higher than those of domestic brands.

The added value of pharmaceutical equipment brands is relatively high, and the bargaining power of downstream institutions under two-way pressure is weak.

Based on the medical and beauty industry chain, we take hyaluronic acid injection as an example, refer to the profit level of listed companies in each link, and split the benefit distribution pattern of each link. On the whole, the mid-stream pharmaceutical equipment manufacturers and upstream raw material suppliers have the highest added value in the overall industrial chain, while the downstream medical and beauty service institutions show a large number of corporate losses and relatively meagre profits.

We believe that the distribution of the medical beauty value chain reflects the difference in bargaining power brought about by the barrier intensity of each link and the competitive environment. Among them, the upstream raw materials and mid-stream pharmaceutical equipment and equipment links have higher technical and qualification barriers and strong bargaining power, while the downstream medical and beauty service institutions and customer acquisition channels have strong service attributes, the market is relatively scattered, and there is room for integration.

Chart: profit margin level of participants in each link of medical and beauty industry chain

Chart: medical and beauty industry chain and price increase rate (take hyaluronic acid injection as an example)

Chart: split of cost and expense structure of downstream institutions in China (2020)

The essence of Pharmaceutical equipment Business: high R & D threshold and High-value consumables with re-cultivation attribute

By tracking the sales volume, ex-factory price and gross profit margin of pharmaceutical equipment products of listed companies, we think that a single pharmaceutical equipment product has a strong life cycle attribute.

① sales:With the approval of the license as the starting point, the sales contribution of hyaluronic acid injection in the first year is usually less than 50 million yuan. after a cultivation cycle of 1-2 years, it is expected to enter a rapid growth stage, but the cultivation cycle of long-acting products with higher pricing and injection difficulty (such as Bonidas) is significantly longer than that of ordinary hyaluronic acid products. In the 7th-8th year, with the entry of competitive products leading to the intensification of market competition and the iterative upgrading of the product itself, its sales may enter a recession cycle. For example, as a product launched in 2009, Aimei launched "Yimei one plus one" as an iterative upgrade in 2016, so that Yimei's sales shrank significantly after 2017.

② ex-factory price:On the whole, the product pricing strategy is basically stable, and the ex-factory price of some products may be reduced by about single digits each year due to intensified competition; but the upgrading and innovation of products can effectively reverse this trend, taking the high-end series as an example. with the introduction of "Panda Needle", its ex-factory price increased by more than 10% in 2018-19.

③ gross profit margin:On the whole, the gross profit margin per product is less affected by its life cycle and pricing strategy, and keeps rising steadily.

Chart: sales change curve of Aimeke's products

Chart: the change curve of ex-factory price of Aimeke products.

Chart: the change curve of gross profit margin of Aimeke's products

From the changing trend of product life cycle and market share, the leading advantage of large items will also be diluted with the entry of competitive products, but the user mind and continuous technology iteration occupied by its first-mover advantage are still expected to maintain the leading trend.We reviewed the changes in sales and global market share of Botox, a large global product. In 2002, FDA of the United States approved Baotuo for the first time in the field of medicine and beauty. With strong technical advantages and first-mover layout advantages, Baotuo firmly ranked first in the global Botox market shipments, and its global Botox market share reached 86% in 2005. Since then, with the entry of South Korean and European competitors, its market share has declined moderately, but still maintained a solid lead, and by 2018, Botox's global market share has dropped to about 65%.

Chart: a review of the development of Botox.

Business model review: how is the leading company refined?

In this chapter, we focus on the two links of medical and pharmaceutical equipment manufacturers and service institutions, by reviewing the development process of leading enterprises, sort out the key to their business model, and provide reference for the growth of domestic companies. In this chapter, we try to answer the following questions: what is the secret of ElJianji's everlasting? What are the pain points in the process of the chain of medical and American downstream institutions?

Pharmaceutical equipment link: both medicine and consumption attributes, product + marketing to create a way to win

The pharmaceutical equipment link has both the attributes of medicine and consumer industry.The pharmaceutical equipment link of the medical and beauty industry has the dual attributes of medicine and consumer goods, which not only has a certain threshold of technology and license, but also needs strong marketing and channel delivery. Reviewing the development process of the industry, the leading companies are all enterprises with outstanding advantages in products and marketing, but the differences in their genes determine that their emphasis is slightly different: pharmaceutical companies pay attention to products and form high barriers in technology, patents, licenses and other fields through high R & D investment and school-enterprise cooperation, such as Eljian, LG Chemistry, Huons and so on. Daily chemical enterprises pay attention to marketing, the original strong product line to establish a brand image, rely on channel construction to quickly seize the market, such as Philojia, Gao Demei and so on. In this chapter, we choose Erjian as the representative for detailed analysis.

Erjian: a global medical beauty leader with both R & D and marketing.

Development process: diversified medicine leader, medical beauty business advantage is outstanding.Erjian is a global pharmaceutical industry leader founded in 1948, focusing on the ophthalmology market in the early stage, and then successfully expanded its business to the central nervous system, medical beauty, digestive urinary and other sectors through a series of mergers and acquisitions and product line expansion. to achieve steady growth, the company's revenue reached 16.09 billion US dollars in 1991, with a compound annual growth rate of 25 per cent from 2019 to 2019. In June 2020, Aijian was acquired by AbbVie, ABBV.US for US $63 billion, renamed Aesthetics and focused on medical and beauty business. at present, Aijian has five major brands, including Botox, hyaluronic acid, breast beauty, shaping and other areas of medical beauty.

Chart: Erjian's revenue history

Revenue composition: the product line is complete, and the large single product performance is strong.Split by product, the company's revenue from Botox / hyaluronic acid / eye drops / central nervous system drugs accounted for 24%, 8%, 17%, 11% respectively in 2019, and did not rely on a single product. Among them, the company's two leading products, Botox product Botox and hyaluronic acid product Juvederm, have grown rapidly, accounting for 18% of the company's total revenue from 11% in 2015, which is an important driving force for the company's performance growth. Specifically, Botox Botox achieved revenue of 1.66 billion US dollars in 2019, corresponding to 17.9% of CAGR in 2015-19. In terms of terminal sales, Botox accounted for 65% of the global market share in 2018, making it the most well-known Botox single product in the world. Qiaoyadeng, a hyaluronic acid product, had revenue of $1.24 billion in 2019 and 21.3 per cent of CAGR in 2015-19, with a global market share of about 6 per cent in factory terms.

Chart: Erjian Aesthetic Brand Matrix

Chart: medical American version of Botox and Qiaoyadeng 2015-19 revenue

Chart: global terminal market share of Botox in 2018

Throughout the development history of Erjian Medical and Beauty Plate, we believe that its success mainly stems from three major advantages:

► R & D is deeply focused, and Botox takes the lead in large single products.

First-mover advantage + product strength makes Baotuoshi a leading position in the world.Botox, as a single product of Erjian University, its medical indications can be traced back to 2002, more than three years ahead of the second MyoBloc, with obvious first-mover advantages; in recent years, with the approval of new products, its market share has declined, but its global market share is still as high as 65% in 2018, with a solid advantage. From the point of view of product power, Botox has obvious advantages in the fields of dispersion, excipients and so on.

Continue to expand the indications and prolong the life cycle of the single product.According to ClinicalTrials data, as of May 2021, the total number of Erjian research projects has reached 900, of which the number of Botox special studies is 212, accounting for more than 20%. Partners include Columbia University, New York University School of Medicine and other well-known universities and research institutes around the world. Under the continuous in-depth excavation, the indications of Botox have expanded to dozens around the world, and the strength of the products has lasted for a long time.

The rate of R & D expenditure is high, and the efficiency is the leading in the world.Over the years, Erjian's R & D expenditure rate has been basically maintained at more than 15%, and the high R & D cost has kept the product in the lead. And R & D efficiency is high. Erjian ranks fifth in the R & D input-output ratio of global pharmaceutical companies selected by Forbes in 2014, alongside pharmaceutical giant Roche.

With reference to the experience of Botox, we believe that it is an effective way for pharmaceutical equipment manufacturers to take the first product layout as the starting point, then focus deeply on research and development, and prolong the life cycle of individual products through the continuous expansion of indications, so as to eventually help the core large items.

Chart: summary of major indications approved by Botox in major regions (as of 2020)

► marketing promotion bonus to establish a leading image in the industry

Erjian products are currently listed in more than 100 countries, on the basis of product strength support, mature marketing and promotion ability is also the key to its successful expansion. We take Erjian's marketing promotion in the Chinese market as an example to analyze:

Take doctors and institutions as a starting point to establish a professional reputation.Erjian entered the Chinese market in 2009 and is headquartered in Shanghai. By setting up a self-built team, it has set up a medical cosmetology department, a shaping department, a medical education department, a consumer marketing department, etc., to carry out product management, hospital operation, consumer education and other activities. We believe that compared with the agent model, the self-built team is better able to standardize and specialize the control promotion. In the face of the domestic market with large potential demand but not yet standardized, Erjian's following travel agencies and doctors are the starting point to carry out marketing activities and establish a professional reputation.

In terms of ① institutional training:Erjian launched the Flying Tiger Project in 2010, established the Eljian College in 2017, invested 100 million yuan to establish the world's first innovation center in Chengdu in 2019, and carried out in-depth cooperation with medical institutions and doctors in the form of lectures and training. transfer professional knowledge on anatomical basis, aesthetic evaluation, injection techniques and consumer communication to domestic doctors, and actively promote the development of domestic medical and aesthetic technology.

In terms of ② industry norms:Erjian worked closely with the China plastic surgery Association to jointly write and launch the Evaluation Standard for Medical and Beauty institutions in 2014, assist in holding China's first micro-plastic public welfare project in 2015, and actively promote the self-discipline and standardized ecological construction of China's medical and beauty industry.

Chart: Erjian China Marketing campaign

► 's mature capital operation, forward-looking layout and improvement of product pipeline

Several high-quality acquisitions have helped Erjian to improve the layout of the medical and American production line.Since the 1990s, Erjian has gradually expanded its medical and beauty product pipeline through several high-quality acquisitions, including the acquisition of Oculinum in 1989 to master the core technology of botulinum toxin, and the acquisition of Groupe Corn é al Lab in 2007 to consolidate its position in the hyaluronic acid market. in addition, Erjian has also expanded all areas of medical beauty such as breast beauty, lipolysis and shaping through acquisitions, reflecting its forward-looking layout.

Chart: the road to the operation of Eljian Capital