On June 22nd, the medical device sector of Hong Kong stocks rose across the board. Aikang Medical rose by more than 17%, Chunli Medical by more than 18%, Shandong Weigao Group Medical Polymer by more than 6%, and minimally invasive Medical by more than 4%.

On the evening of June 21, the joint procurement office of high-value consumables organized by the state issued an announcement on the national collection of artificial joints."National Organization artificial joint centralized volume procurement announcement" (No. 1) further refined the relevant contents of the previous April national consultation letter. The announcement gives a comprehensive explanation on the product categories, procurement rules, bidding rules and so on.

This announcement continues the basic contents and principles of the previous draft, and improves the details of the rules. According to the disclosed grouping rules, we believe that the current high sales of domestic leaders are expected to be divided into Group A, if divided into Group A, then there is a high probability of winning the bid.

The products with high clinical demand will be divided into group A, and the domestic joint faucet is expected to meet the conditions.

The purchase products are the first total hip replacement and the first total knee arthroplasty, the former is divided into ceramic-ceramic, ceramic-polyethylene, alloy-polyethylene three systems, the latter is regarded as a system. The declared price includes the price of each component and the accompanying service fee, and the disinfection fee shall be borne by the medical institution itself.

The same product system is divided into two groups An and B according to the purchasing demand of medical institutions, the supply capacity of enterprises and the quality of products.

1) 85% of the enterprise's products in the same product system before the cumulative intended purchase volume.

2) commitment to meet the procurement needs of all allied prefectures and cities

3) Ceramic-polyethylene and alloy-polyethylene hip joint products are made of high crosslinked polyethylene. It can be seen that domestic joint leaders with a high market share of sales, such as Aikang Medical (18.3% of sales market share in 2019), are expected to be assigned to Group A.

Grouping becomes the key to collection and acquisition. If domestic products are assigned to Group A, the probability of winning the bid will be significantly increased.

The rules stipulate that when there are less than 7 in group A, the above conditions shall be met 2) and 3) the enterprises shall replenish the purchase quantity according to the intention of the medical institutions from more to less in order, up to 7.

In the same bidding unit, the shortlisted enterprises are determined according to the order of enterprise competitive price from low to high. If the number of enterprises in group An is 7-8, then at least one can lose the election, the probability of winning the bid is high, and the price reduction is expected to be relatively small. If domestic products are assigned to Group A, with obvious price advantages relative to imported brands, they are more likely to win the bid.

Comparatively speaking, the enterprises in group B will be significantly more than those in group A, and most of the enterprises in group B are domestic enterprises, and the competition is more fierce. Therefore, we think that whether we can be selected into Group A will become the key prerequisite for the success of this collection.

The agreed purchase quantity is determined according to the intended purchase quantity, and the surplus medical institutions choose independently.

After determining the winning result, determine the agreed purchase quantity of each medical institution in two steps:

1) the selected product system with the lowest price in the same bidding unit is allocated to the corresponding medical institution according to the purchase demand reported by the medical institution, and the other selected product system is allocated to the corresponding medical machine according to the intended purchase quantity of the medical institution.

2) the medical institution shall fill in the purchase demand but fail to select the intended purchase quantity of the product system (that is, the surplus), it shall be independently selected by the medical institution from the selected product system under the same product system category (except for the product system with the highest price in the calculation of the product system category).

The intended purchase quantity has yet to be announced, and we will continue to pay attention to the follow-up bid winning results and the price decline of each product.

This collection of artificial joint prosthesis is the second national-level high-consumption collection after coronary stent, which has been implemented for nearly half a year. We think that this collection has been adjusted and improved according to the actual implementation of coronary stent collection. It is of great significance to guide the policy of controlling the cost of consumables in the future. We expect that the collection will be completed in the next 1-2 months, and we suggest that we continue to pay attention to the follow-up bid winning results and the price reduction of each product.

China International Capital Corporation's latest interpretation is as follows:

The main results are as follows: 1) the grouping is divided into groups according to the product type and the demand of medical institutions, and the domestic imports are not distinguished, which is beneficial to the import substitution of domestic large-scale enterprises.

2) the enterprise first chooses to declare the type of product, and then the medical institutions fill in the demand, fully respecting the clinical demand and the independent choice of the enterprise.

3) from the point of view of the successful selection rules, due to the relatively high concentration of joints and more clinical use of head enterprises, we expect the market share of the top 9 companies in the industry to be close to 85%. Therefore, the number of head enterprises in Group An is expected to be limited, the elimination rate is low; Group B is relatively competitive; but the overall elimination rate is low, and the driving force for substantial price reduction is small.

From the perspective of the weight rule, the enterprise with the lowest price obtains the purchase demand; the others are selected to obtain the intended purchase quantity; the surplus is freely distributed in excluding the products with the highest price selected in the selection; the low-cost enterprises do not get a large number of markets and still focus on the demand of medical institutions.

Therefore, we believe that the bidding rules fully respect the needs of medical institutions, and the core of this price reduction is:

1) guarantee to be shortlisted in order to get the demand from the hospital, and maintain a certain price to strive for the surplus.

2) because medical institutions tend to relatively high-priced products based on their own choice, large-scale enterprises will not be able to gain too much market share to make up for the loss of price reduction, even if the price is greatly reduced, thus limiting their willingness to compete at a low price.

3) for enterprises with low recognition of their own medical institutions, competition at low prices can not be exchanged for considerable market share.

4) the products with the highest price can not participate in the distribution of surplus, which still ensures a certain degree of competition.

It is suggested that we should focus on Aikang Medical, Shandong Weigao Group Medical Polymer and Chunli Medical, which have high market share and high recognition of medical institutions, and Dabo Medical and minimally invasive Medical treatment, which are newly entered the joint field and have a good reputation in the industry.

Risk hint: collection price drop more than expected; failed to win the bid risk; purchase volume is less than expected.