Lepu Medical's revenue and profit decline: Can innovative devices and consumer healthcare drive performance growth?

21st Century Business Herald reporter Wu Yinggang intern Sun Hangxing reported from Beijing Recently, Lepu Medical released its 2023 performance report, with annual revenue of 7.98 billion yuan, a year-on-year decrease of 24.78%, and a net profit of 1.258 billion yuan, a year-on-year decrease of 42.91%.

Lepu Medical is a total solution provider for the whole life cycle in the field of cardiovascular diseases, and its main business is divided into three major sectors: medical devices, drugs, medical services and health management.

In 2023, the revenue of Lepu Medical's medical device segment will be 3.674 billion yuan, a year-on-year decrease of 37.50%, the revenue of the pharmaceutical segment will be 3.044 billion yuan, a year-on-year decrease of 11.47%, and the revenue of the medical service and health management segment will be 1.262 billion yuan, a year-on-year decrease of 2.37%, excluding emergency-related revenue, the revenue of this segment will increase by 6.53% year-on-year.

The relevant person in charge of Lepu Medical said in the performance briefing that 2023 will be difficult for Lepu and the industry, the company's drugs are facing pressure to renew the standard, and the compliance action has had a certain impact on the medical device industry.

"2023 is a year of internal adjustment for Lepu, and if various factors are excluded, the net operating profit in 2023 should be about 1.5 billion yuan. The company's management is not satisfied with this performance, but it is acceptable and we have done our best. But compared with the industry as a whole, it is also gratifying now. The above-mentioned person in charge noted.

Triple pressure

The market changes in the in vitro diagnostic business may be one of the important reasons for the decline in the performance of Lepu Medical.

Among the three major businesses of Lepu Medical, the medical device business accounted for the highest proportion of revenue, accounting for about 46% of the total revenue in 2023, of which the coronary artery implant interventional business, structural heart disease business and surgical anesthesia business increased by 2.9%, 29.08% and 9.37% respectively, but the operating income of the in vitro diagnostic business decreased by 77.79% year-on-year. After excluding the in vitro diagnostics business, the revenue of the medical device segment increased by 6.7% year-on-year.

According to the annual report, Lepu Medical's in vitro diagnostic products include instruments, equipment and reagent consumables, covering various subdivisions and important technology platforms such as biochemistry, immunology (chemiluminescence), molecule, blood and coagulation, and POCT.

After the end of the new crown pandemic, the decline in sales of emergency rapid test kits and PCR products may be an important reason for the decline in revenue of Lepu Medical's in vitro diagnostic business. According to the analysis of the research report of Galaxy Securities, the company's apparent performance in 2023 and 2024Q1 has declined significantly due to the high base caused by the sales of emergency rapid test kits and PCR instruments and equipment in the same period. For example, in 2021, Lepu Medical's annual revenue will be about 10.66 billion yuan, a year-on-year increase of 32.61%, of which the medical device segment will achieve revenue of about 6.17 billion yuan, a year-on-year increase of 81.43%.

From 2019 to 2022, from the perspective of Lepu Medical's in vitro diagnostic business revenue, in 2019, Lepu Medical fully integrated its in vitro diagnostic business and achieved a revenue of about 400 million yuan, a year-on-year increase of 23.82%, and in 2020, when the epidemic appeared, Lepu Diagnostics, a subsidiary of Lepu Medical, began to become an in vitro diagnostic business platform, achieving revenue of 1.01 billion yuan that year, a year-on-year increase of 152.5%.

In 2021, Lepu Diagnostics sold new crown antigen, antibody, neutralizing antibody detection and other products worldwide, and the new crown antigen detection products won the bid in many provinces, municipalities and autonomous regions in China, achieving revenue of 3.76 billion yuan in that year, a year-on-year increase of 272.3%, and in 2022, Lepu Diagnostics' operating income decreased by 22.10% year-on-year, about 2.93 billion yuan, and in 2023, it will be about 650 million yuan according to a decrease of 77.79%.

It is worth paying attention to whether the impact of the decline in the emergency product business will continue until 2024? Lepu Medical said in the announcement that the impact of emergency products has been fully cleared. According to the analysis of Guosheng Securities research report, Lepu Medical's revenue increased by 11.70% month-on-month in 2024Q1, and it is speculated that the sales impact of emergency products has been basically cleared, and growth is expected in 2024.

In addition to the in vitro diagnostic business, domestic medical anti-corruption also affects the industry.

The relevant person in charge of Lepu Medical pointed out in the performance briefing that the compliance action did have a certain impact on the medical device industry. According to some analysis, with the continuous tightening of anti-corruption in the pharmaceutical field, it is expected that relevant academic conferences and marketing behaviors will be inhibited, so there is a risk of uncertainty to the promotion of the company's new products.

An industry veteran once told the 21st Century Business Herald reporter that the hospital's consumables procurement is linked to the number of surgeries, and the impact on the number of surgeries is mainly in the use of some complex surgeries and products outside the centralized procurement.

Another industry insider recently analyzed to the 21st Century Business Herald reporter that in the promotion of new products, due to the nationwide anti-corruption action in mid-2023, the introduction and use of new products in hospitals will be more rigorous, which will have a certain impact on the promotion of in-hospital products of medical enterprises.

In addition to the above factors, volume procurement may also be the pressure that Lepu Medical is facing.

From the perspective of the medical device sector, at the end of 2020, the national centralized procurement of cardiac stents dropped from an average price of 13,000 yuan to a median price of about 700 yuan, with an average decrease of 94.6%, of which Lepu Medical's winning product was a cobalt-based alloy rapamycin-eluting stent system, with a winning bid price of 645 yuan/piece. All kinds of manual/electric stapler products in Lepu Medical's surgical anesthesia products have also been purchased by provincial alliances.

From the perspective of the pharmaceutical sector, in January 2024, Lepu Medical plans to win the bid for the centralized procurement of amoxicillin and other drugs by Guangdong Alliance through the consistency evaluation of generic drug quality and efficacy. Recently, the national procurement of insulin has completed the continuous procurement, the winning rate is 92%, and the winning price has been reduced by 3.8 percentage points on the basis of the first round of centralized procurement price reduction, Lepu Medical issued an announcement that its product insulin glargine injection intends to win the bid for this centralized procurement, with a price of 63.88 yuan.

Whether it is drugs or devices, centralized procurement has been carried out for many years, so has Lepu Medical now stepped out of the influence of centralized procurement?

Lepu Medical told the 21st Century Business Herald reporter that centralized procurement has become a normalized policy of the domestic medical system, the company is divided into inclusive products and innovative products for product types, inclusive products are mainly within the scope of centralized procurement, the company will actively participate in all kinds of centralized procurement, to achieve the price of inclusive products for volume, expand the scope of sales, and maintain the steady growth of this type of business. In addition, the company's innovative products are mainly in the market introduction period, there are few competitors, and some products are used at their own expense, so the possibility of being included in the scope of centralized procurement is also low.

Seek growth

Although the performance in 2023 is not ideal, Lepu Medical has given an annual target of 2 billion to 2.25 billion yuan in net profit in 2024, and in Lepu Medical's view, new medical device products may become an important growth point in 2024.

At the performance briefing, Lepu Medical pointed out that its core business is cardiovascular implant intervention, mainly coronary implant intervention and structural heart disease, with an overall revenue of nearly 2 billion yuan in 2023 and a target of 2.8 billion yuan in 2024.

Lepu Medical told the 21st Century Business Herald reporter that the company's increase is mainly in the new products of medical devices, including disposable coronary intravascular shock wave catheters, AEDs, and degradable patent foramen ovale (PFO) occluders, which have been approved for marketing and will achieve revenue growth in 2024.

It is understood that on January 10, 2024, Lepu Medical announced that its self-developed disposable coronary intravascular shock wave catheter was officially approved by the State Food and Drug Administration and obtained the registration certificate of Class III medical devices.

According to the Chinese Expert Consensus on the Diagnosis and Treatment of Coronary Artery Calcification Lesions, epidemiological data show that coronary artery calcification increases with age, with an incidence of about 50% in people aged 40~49 and about 80% in people aged 60~69. The presence of calcified coronary artery lesions, especially severe intimal calcified lesions and calcified nodules, significantly increases the difficulty and risk of percutaneous coronary intervention (PCI).

Coronary intravascular lithotripsy (IVL) is a new technology innovated and developed in the field of vascular therapy in recent years, which provides a new option for the treatment of coronary artery calcified lesions.

In addition, in September 2023, Lepu Medical announced that the biodegradable patent foramen ovale occluder independently developed by its company was approved for patients aged 18 to 60 who have had a stroke of unknown cause.

Lepu Medical pointed out that in the degradable occluder product series, the revenue of the degradable PFO occluder is currently growing the fastest, and the number of surgeries is also the fastest among all occluder surgeries - 1,000 cases in three months. The price of the degradable VSD occluder was relatively high, and the price of the degradable PFO occluder was 70,000 yuan, which is more appropriate, and the degradable occluder may be close to this price in the future.

Lepu Medical told the 21st Century Business Herald reporter that the company's disposable use of coronary intravascular shock wave catheter and degradable PFO occluder is expected to bring significant incremental contribution to performance, and plans to achieve sales revenue of 150 million to 200 million yuan for coronary intravascular shock wave catheters and 300 million yuan for degradable occluder products.

In terms of R&D and innovation, Lepu Medical also said in the performance briefing that the current R&D of medical devices has entered a stable period, and the innovative product matrix of cardiovascular implant intervention can basically meet the needs of the next five years.

However, Lepu Medical also further pointed out that drug research and development at this stage is Lepu's shortcoming, and in 2024, drug innovation and research and development will be included in the scope of key work, specifically involving GLP-1/GCG/GIP drug candidate MWN101 injection for obesity indications, obesity indications, oral three-target GLP1/GCG/GIP fatty acid chain modification candidate MWN109, botulinum toxin, long-acting insulin, low-concentration atropine eye drops, semaglutide, etc.

In addition, it is worth noting that Lepu Medical is also deploying consumer medical products.

According to the annual report, Lepu Medical has strategically laid out medical attribute products in the self-funded market, mainly involving ophthalmology, dentistry and dermatology. Among them, the first product of ophthalmology has been approved in April 2023, and the product layout in the consumer field is being further improved, and the sodium hyaluronate solution for injection in dermatology is expected to be approved for marketing within the year.

Lepu Medical pointed out to the 21st Century Business Herald reporter that the company hopes to increase the revenue contribution of products outside medical insurance and reduce the impact of policies on the company's performance, so it has laid out the consumer medical sector. At present, the company's ophthalmic and dermatological products are progressing smoothly, the ophthalmology department has achieved the listing of self-developed orthokeratology gold, and has achieved good results in 2023, and the dermatology department currently has 6 products in the clinical stage, and it is expected that the water light booster will be approved for marketing in 2024.

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