Interpreting the US stock market | The difficult issue of profitability remains to be solved. How does BETTERS MED (BDMD.US) impress investors?

Recently, Baird (Suzhou) Medical Co., Ltd., the substantive controlling company of Baird Medical Investment Holdings Limited (referred to as "BETTERS MED"), officially listed on Nasdaq in the United States through a reverse merger with a Special Purpose Acquisition Company (SPAC) ExcelFin Acquisition (XFIN). Prior to this, the listing process of BETTERS MED (BDMD.US) was very convoluted. The company had planned to have a hearing on the Hong Kong Stock Exchange in September 2022, but due to regulatory policies, the continued downturn of the Hong Kong biopharmaceutical market, among other reasons, the company later announced a delay in its Hong Kong IPO. In June 2023, the company reached a final merger agreement with the SPAC ExcelFin Acquisition Corp. ("ExcelFin"), with the intention that after the transaction is completed, it will operate as Baird Medical Investment Holdings Limited. According to the merger agreement, the pre-merger equity value is $300 million, and the implied pro forma enterprise value after the merger is approximately $370 million. Betters shareholders will convert their existing Betters shares 100% into Baird Medical common stock. Compared to traditional IPOs, SPAC listings require less time, and Nasdaq's enthusiasm and valuation levels for biotechnology companies are relatively high, providing more flexible listing options for biopharmaceutical companies. However, from a market trend perspective, since its listing, BETTERS MED's stock price has been steadily declining, dropping by 62% since October, indicating a lack of confidence from market investors. Declining product sales affecting performance Public information shows that BETTERS MED's history dates back to June 2012, as a developer and provider of leading microwave ablation medical devices for minimally invasive treatment of tumors in China. The company's proprietary microwave ablation medical devices are used to treat benign and malignant tumors, including thyroid nodules, liver cancer, lung cancer, and breast masses. Microwave ablation is a technology that uses microwave energy to destroy cells and tissues, which can be applied to diseases such as thyroid nodules, breast nodules, liver cancer, and lung cancer. It has features such as high safety, good efficacy, and enhancement of various immune cell activities in the human body. It is understood that the company's revenue in 2023 was $31.5 million, a year-on-year decrease of 10.35%, with a net profit of $27.23 million, a decrease of 2.86% year-on-year. For 2024, the estimated revenue is approximately $42.2 million, with adjusted EBITDA of around $20.1 million. The company disclosed that changes in selling prices resulted in a decrease in revenue of approximately $1.1 million, while changes in product sales volumes led to a revenue decrease of about $4 million. The prospectus shows that BETTERS MED has a total of 8 products, of which 3 have received market approvals, including microwave ablation therapy devices and needles for treating liver cancer and thyroid nodules, long microwave ablation needles, and fine microwave ablation needles. By the end of November 2023, the microwave ablation system and disposable product combination of BETTERS MED's subsidiary Baird (Suzhou) Medical Co., Ltd., the microwave ablation needle, had officially entered the U.S. market for sale as a regulated Class II device. In terms of revenue structure, until the first five months of 2022, the company's revenue in the field of microwave ablation needles was $545.2 million, accounting for a high proportion of total revenue at 85.5%, indicating a significant reliance on the microwave ablation needle business. In 2023, the company's cost of revenue decreased by approximately $2.8 million compared to the previous year, with gross profit decreasing from $28 million in the 2022 fiscal year to $27.2 million in the 2023 fiscal year. The company stated that to better meet customer demands, they added two lines to the original microwave ablation (MWA) needle configuration, leading to increased costs. The company reported that in comparison to the previous year, the cost structure in 2023 more accurately reflected the true operating conditions of the core business. Regarding sales and marketing expenses, as the company gradually shifted its strategy from direct sales to sales through distributors, the number of employees in the internal sales and marketing departments decreased from 79 to 32, resulting in a $1 million reduction in sales and marketing expenses in 2023, down to $2.5 million. Sales expenses as a percentage of total revenue were 10.2% in the 2022 fiscal year and 8.1% in the 2023 fiscal year. The company indicated that they expect steady progress in U.S. sales in 2024, which may lead to an increase in sales expenses. In the 2023 fiscal year, the company's research and development expenses were $4.3 million, an increase of $400,000 compared to the 2022 fiscal year, accounting for 13.6% and 11.0% of total revenue for the 2023 and 2022 fiscal years, respectively. The increase in research and development expenses was primarily due to increased FDA certification fees, CE Marking fees, endoscopic ultrasound system costs, and research and development expenses for AI ablation systems and devices. According to Frost & Sullivan data, based on sales revenue for microwave ablation needles in 2022, BETTERS MED ranks first among suppliers of microwave ablation medical equipment for treating thyroid nodules and breast masses in China. In terms of sales revenue in 2022, the company is the third largest supplier of microwave ablation medical devices in China. Cancer incidence in China continues to rise Public information shows that ablation technology is a commonly used method for treating tumors, which can destroy cancer cells through high temperatures, low temperatures, or chemical substances. Common ablation technologies include radiofrequency ablation, laser ablation, high-intensity focused ultrasound ablation, microwave ablation, and cryoablation. For the diagnosis of tumors, it is necessary to determine the location and size of the tumor through imaging tests and obtain a pathological tissue sample for further diagnosis and classification. Although microwave ablation and radiofrequency ablation both use heat effects to kill cancer cells, there are differences in principles, indications, advantages and disadvantages, safety, etc.Microwave ablation is suitable for tumor therapy in solid organs such as the liver, kidney, and lungs, especially for larger or multiple tumors. On the other hand, radiofrequency ablation is suitable for the treatment of malignant tumors such as liver cancer, kidney cancer, and lung cancer, particularly for smaller or single tumors.The "2022-2027 China Tumor Radiotherapy Industry Market Outlook Forecast and Future Development Trends Report" released by the China Commercial Industry Research Institute shows that with the increasing popularity of minimally invasive surgery, the promotion of microwave ablation therapy in different hospitals, and the expansion of indications for microwave ablation therapy, the Chinese microwave ablation market is experiencing rapid growth. The size of the Chinese microwave ablation market in 2023 is 38.7 billion yuan, a year-on-year increase of 29.87%; analysts at the China Commercial Industry Research Institute predict that the size of the Chinese microwave ablation market will reach 50.7 billion yuan in 2024. In the first half of this year, based on the latest data from the national cancer registration and follow-up monitoring, the National Cancer Center of China published the burden of malignant tumors in China in 2022 in the top global journal "JNCC", updating the trends in the incidence and mortality of cancer in China from 2000 to 2018. The data shows that in 2022, there were 4.82 million new cancer cases in China, nearly 530,000 more than in 2015, an increase of over 12%; there were approximately 2.57 million new cancer deaths, with lung cancer still the leading cancer in China, ranking first in both incidence and mortality. The data shows that the top five types of cancer among new cases are lung cancer, colorectal cancer, thyroid cancer, liver cancer, and gastric cancer, accounting for 57.42% of new cancer cases. From 0-74 years old, the cumulative probability of cancer in the Chinese population is 21.42%, equivalent to 1 in every 5 people developing cancer in their lifetime. The funding environment is becoming more favorable, which is expected to drive a valuation recovery for Chinese concept stocks as a whole. From a fundamental perspective, BETTERS MED has no significant advantages in terms of revenue scale and market share, and its financial performance has been poor, causing the company's stock price to continue to be under pressure. In order to restore market investors' confidence, BETTERS MED will face many challenges in the future.