MICROPORT NEURO (02172): Who benefits the most from group purchasing?

On January 12, MICROPORT NEURO (02172) released a profit announcement. For the year ending December 31, 2024 (reporting period), the expected net profit of the group is estimated to be between 2.36 billion to 2.7 billion RMB, an increase of approximately 75% to 100% compared to the same period last year. The group achieved a 5-year compounded annual growth rate of about 55% in adjusted net profit from 2020 to 2024. The board of directors of MICROPORT NEURO attributes the significant improvement in performance to the increase in hospital coverage and market share, as well as doubling of overseas business revenue. It is expected that MICROPORT NEURO's revenue will grow by double digits during the reporting period. Additionally, through the implementation of supply chain improvements and cost-saving measures, operational efficiency has increased significantly, enhancing profitability. With the strong performance, MICROPORT NEURO, as a leading company in the field of neurointerventional medical devices in China, has seen overall growth in revenue driven by hospital penetration and product accessibility. In the domestic market, the company has maintained its position as the top domestic player in recent years. In terms of product layout, MICROPORT NEURO has a comprehensive and complete product portfolio, with 21 products approved and commercialized in China by the first half of 2024, and 14 products in different stages of development. Among them, 4 products have been approved by the National Medical Products Administration and ranked first among neurointerventional medical device companies in China. In 2024, the explosive performance of MICROPORT NEURO has been anticipated. In the first half of 2024, the company successfully launched 5 products, including NeuroGuard Neurovascular Balloon Catheter, Neurohawk Retrieval Stent Generation 2, Safecer Embolic Protection Device, and PathFinder Carotid Balloon Dilatation Catheter, Tubridge Plus Mesh Stent, all of which were approved by the National Medical Products Administration. With the approval of new products and the implementation of centralized procurement policy, MICROPORT NEURO achieved operating income of 408 million RMB in the first half of the year, a year-on-year increase of 36.4%; net profit was 144 million RMB, an increase of 124.1%. Furthermore, MICROPORT NEURO has expanded its domestic market share by enhancing hospital penetration and product accessibility. In the first half of 2024, the company opened sales channels with around 300 new hospitals, covering a total of approximately 3300 hospitals nationwide, including over 1800 tertiary hospitals and the top 100 National Stroke Centers in China. In the international market, by transforming sales models, overseas surgical training, and academic exchanges, MICROPORT NEURO has continued to increase its product recognition overseas, driving direct profit growth. In Ireland and the UK, the company's direct sales model has achieved significant results, leading to revenue growth. In the US, since the first quarter of 2024, MICROPORT NEURO has gradually transitioned from a distribution model to a direct sales model, significantly improving operational efficiency and profitability while aligning with local market marketing practices. As a result, in the first half of last year, MICROPORT NEURO achieved total overseas revenue of 28.06 million RMB, an 87% increase compared to the same period last year. The company has achieved high-speed growth in multiple overseas markets, especially in the Asia-Pacific region and North American market, with sales revenue increasing by approximately 119% and 118% respectively year-on-year. Although overseas growth is rapid, the total amount is small, and the overall high growth of performance is mainly attributed to the domestic market, which is largely driven by centralized procurement. For most pharmaceutical companies, centralized procurement is often seen as negative. However, for domestic neurointerventional enterprises with low market share, the promotion of centralized procurement accelerates localization and forms a positive impact. It is understood that neurointerventional therapy mainly refers to the treatment of neurovascular diseases through vascular intervention therapy, which is a new type of therapy different from drugs and traditional surgery. Neurovascular diseases mainly refer to diseases where a certain area of the brain is temporarily or permanently affected by bleeding or restricted blood flow, including vascular stenosis, thrombosis, obstruction, or rupture, with stroke being the most common fatal neurovascular disease. According to a report, in 2019, China had the highest number of stroke patients in the world, with a total of 14.8 million patients, including 11.9 million ischemic stroke patients and 2.9 million hemorrhagic stroke patients. Additionally, diseases such as intracranial arterial stenosis, atrial fibrillation, and intracranial aneurysms may progress to stroke, with the number of related patients reaching 125 million in 2019. With the aging population in China, the number of neurovascular disease patients is expected to continue to increase, leading to a persistent demand for treatment. Compared to developed countries, the domestic neurointerventional market in China started relatively late, and there is still a large room for improvement in treatment penetration. While hemorrhagic diseases have higher penetration rates due to sufficient treatment evidence, there is still significant room for improvement compared to the US. The penetration rates for acute ischemic stroke and intracranial artery atherosclerosis were only 2.7% and 1.0% respectively in 2020, indicating a low level of penetration. According to the MICROPORT NEURO prospectus, the Chinese neurointerventional market size was approximately 6.8 billion RMB in 2021. When divided by disease type, hemorrhagic stroke accounted for 43 billion RMB, intracranial artery atherosclerosis for 8 billion RMB, and acute ischemic stroke for 17 billion RMB. When divided by product type, embolic coils and intracranial stents are the most common.In 2020, the market share of Medtronic, Stryker, MicroVention, and Johnson & Johnson totaled 87%, with MICROPORT NEURO accounting for 4%, ranking first in domestic market share. There is still a gap between domestic and foreign companies in terms of product line layout. However, with the continuous launch of domestic products, improvement in technology and product strength, coupled with the promotion of centralized procurement, the market share of domestic enterprises has significantly increased. For example, as of the end of 2023, a total of 27 provinces (including Xinjiang Production and Construction Corps) in China have planned to carry out volume procurement of coil embolization. One is provincial-level procurement, mainly in Hebei, Jiangsu, Fujian, Beijing, Anhui, Guangdong; the other is inter-provincial alliance procurement, mainly led by Jilin in August 2022, covering Jilin, Shaanxi, Shandong, Hunan, Hubei, and 21 other provinces. In early 2024, Tianjin led the Beijing-Tianjin-Hebei 3+N joint procurement, covering areas such as Shanghai, Zhejiang, Sichuan, Yunnan, and Tianjin that had not been procured. After centralized procurement, the prices of coil embolization are concentrated in the range of 3000-8000 yuan. By the end of 2021, Hebei took the lead in reducing the average procurement price from 12,000 yuan to around 6400 yuan, followed by Jiangsu, which saw a 54% reduction in the average price of neuro-specific coil embolization, with a maximum reduction of 69%. The price of clinically mainstream products dropped to around 3500 yuan. With the calculation of using 3-5 neuro-specific coil embolizations in each surgery, patient medical consumable costs have been reduced from 30,000-50,000 yuan to 10,000-20,000 yuan, significantly reducing the burden on patients. At the end of 2022, the Jilin 21 Province Alliance jointly carried out inter-provincial alliance procurement for the first time. 20 products from 11 companies were selected, including Kehui, MICROPORT NEURO, Jiaqi Biosciences, Stryker, Johnson & Johnson, Beijing Microport, etc., with an average price reduction of 64.1%, with the highest price reduction of 80.07%. The average price dropped from 13,000 yuan to around 4000 yuan, with the highest selected price at 6128 yuan and the lowest at 3277 yuan, marking the end of the era where coil embolization in procured provinces cost over 10,000 yuan. After centralized procurement, looking at the volume share of coil embolization in the 21 provinces in Jilin, the rate of domestication has exceeded 25%, compared to under 15% before centralized procurement. Driven by centralized procurement, several domestic neurointerventional device companies have achieved significant growth in the first half of 2024. From 2020 to the present, high-value consumables have undergone four rounds of national procurement, showing three major development trends: a trend towards easing price declines, optimization of regulatory design, and continuous increase in the rate of domestication. On May 14, 2024, the National Healthcare Security Administration issued a notice on strengthening regional coordination and improving the quality and expansion of centralized drug procurement in 2024, indicating that centralized procurement of high-value medical consumables should focus on varieties with high prices, representative significance, and strong public reaction, and that provincial alliance procurement with the necessary conditions would be raised to nationwide alliance procurement. The National Healthcare Security Administration in 2024 will focus on guiding the national joint procurement of seven categories of high-value medical consumables: including two types of IVD reagents (biochemical in vitro diagnostic reagents, tumor markers, etc.) and five types of high-value consumables (ultrasonic scalpel, breast rotating cutting needle, vascular tissue closure clip, coronary cutting balloon, vascular intervention consumables). In 2024, the National Healthcare Security Administration guided many provinces to lead the work of alliance procurement, accelerating the procurement of high-value consumables. The industry will enter a fully centralized procurement era more quickly, and neurointerventional device companies will benefit from this acceleration. However, after entering the centralized procurement period, the competitive landscape will become more stable, and the market share of leading companies will gradually increase, reshaping the market competition pattern of the "Four Little Dragons" in the domestic neurointerventional field. Furthermore, in the post-centralized procurement period, besides launching innovative products, the ability to go overseas will directly affect the growth ceiling of the companies. Looking at domestic neurointerventional device companies, most of them have already laid out their overseas presence. Currently, the proportion of overseas income is relatively low, but with the expansion of overseas markets, overseas income will become the second growth curve for each neurointerventional device company. For MICROPORT NEURO, as of mid-2024, the company has successfully launched 8 products overseas, commercialized in 21 countries, covering 9 of the world's top 10 neurointerventional markets, including the United States, Europe, South Korea, Brazil, and others. In addition to establishing overseas subsidiaries in the United States, the United Kingdom, the Netherlands, and Brazil, MICROPORT NEURO has set up regional sales headquarters in Europe, the Middle East, Russia, Africa (EMEA region), North America, Latin America, and the Asia-Pacific region, and continuously strengthens market and product coverage through the overseas channels of the Minimally Invasive Group. In the earlier stage of overseas sales, coil embolization was the main focus, and key products such as intracranial stent, thrombectomy stent, and APOLLO stent began to be promoted in the Latin American region. In summary, MICROPORT NEURO has achieved good results in going overseas, but the high growth in performance is based on a low base. Whether it can sustain high growth in the future still needs to be tested by time. In addition, for domestic neurointerventional device companies, in the short term, the intensity of centralized procurement policies is still a determining factor. The acceleration of centralized procurement will be favorable for these companies, and their performance is expected to see high growth; in the medium to long term, after domestic centralized procurement, when the market competition landscape is relatively stable, whether companies' performance can further increase rapidly, going overseas will be crucial.