Minimally Invasive Brain Science (02172): Short-term performance growth depends on collection, long-term internationalization capabilities

In recent years, a number of minimally invasive companies have entered the capital market. However, judging from the results of the first half of the year, the Minimally Invasive Group, which was listed on the Hong Kong stock market, generally had a good growth rate, but everything else was in a state of loss. Only Minimally Invasive Brain Science (02172) made a profit.

It is worth mentioning that minimally invasive brain science began to reverse losses last year, and performance has been growing at a high rate since last year's interim report, so is this high growth sustainable?

The localization rate is still low, and performance growth is guaranteed under collection

When it comes to collection, most of the pressure on the pharmaceutical industry in recent years is due to collection factors. However, the field of neurointervention benefits from collection.

According to the Zhitong Finance App, neurointerventional therapy mainly refers to the treatment of neurovascular diseases through vascular interventional therapy, which is a new type of treatment that is different from medicine and traditional surgical treatment.

Neurovascular diseases include vascular stenosis, thrombosis, blockage, or rupture of arteries. Among them, stroke is the most common fatal neurovascular disease. Neurovascular diseases can be mainly divided into three types of diseases: hemorrhagic stroke (occurs when an artery bleeds or ruptures), acute ischemic stroke (blood vessels that supply blood to the brain are blocked), and cerebral atherosclerotic stenosis (fat deposits in blood vessels cause arteries to narrow and limit blood flow to the brain. The increase in size, deformation, or loss of plaques may cause acute ischemic stroke).

Due to the large population base and increasing aging, the incidence of neurovascular diseases in China is high. In particular, stroke is the main cause of death, and the demand for related treatment is urgent and strong. According to Device House, China had the highest number of stroke patients in the world in 2019. The total number of patients reached 14.8 million, including 11.9 million ischemic stroke patients and 2.9 million hemorrhagic stroke patients. The number of new patients that year exceeded 3 million. Furthermore, intracranial artery stenosis, atrial fibrillation, and intracranial aneurysms may all progress to stroke. The number of patients involved is huge, reaching 125 million in 2019.

Neural intervention is a minimally invasive procedure to unblock and repair cerebrovascular pathways. Traditional treatment methods have disadvantages such as a high recurrence rate, high trauma, and strict time requirements, so interventional neural surgery is becoming increasingly popular. According to critical consulting forecasts, the number of interventional neural surgeries in China is expected to increase from 161,000 surgeries in 2020 to 741 thousand in 2026, with a CAGR of 28.9%.

The increase in surgery volume is driving the rapid expansion of the industry. According to Sullivan data, China's neurological intervention market grew from 2.6 billion yuan (unit, same below) in 2015 to 4.9 billion yuan in 2019, with a compound growth rate of 17.3%. It is expected to grow to 37.1 billion yuan in 2030, and a compound growth rate of 20.2% in 2019-2030.

In addition, the number of domestic stroke treatment centers has increased dramatically, further promoting the rapid development of the industry.

In August 2021, the Health and Health Commission issued the “Guidelines for the Prevention and Treatment of Stroke in China”, which emphasizes that stroke has become the number one cause of death for Chinese citizens. It has the characteristics of high incidence rate, high disability rate, high mortality rate and high recurrence rate, so there is no time to delay the prevention, diagnosis and treatment of stroke. Since 2012, the country has successively issued a number of policies to promote the construction of stroke centers and enhance overall stroke treatment capabilities. According to minimally invasive brain science prospectus, more than 1,000 stroke treatment centers have been established in China by the end of 2021. According to the consultation data, with the acceleration of relevant policy support and construction, the number will increase to 3,000 by 2026. According to statistics from stroke centers of the National Health Commission, as of mid-August 2024, more than 2030 stroke centers have been built nationwide, including more than 630 stroke centers in tertiary hospitals and about 1,400 stroke centers in second-level hospitals.

Moreover, new technology has been introduced, clinical data has been continuously improved, and the rapid rise of neurointerventional device companies has accelerated the development of the neurointerventional device market.

According to the Zhitong Finance App, before 2000, it was mainly physicians who took the lead in exploring the clinical benefits of neurologic technology. After 2000, medical device companies took the lead, combining the development of neurointerventional technology with clinical needs and launched many revolutionary breakthrough devices. At the same time, it developed rapidly based on radiology and advanced image guidance technology (DSA), and gradually applied to the treatment of various cerebrovascular diseases. In recent years, with the continuous development of technology and the continuous improvement of clinical data, the neurological intervention industry has ushered in a period of rapid growth.

Compared with foreign countries, the domestic neurointerventional industry developed relatively late. Beginning in 2015, domestic neurointerventional device companies entered an intensive product development and technical reserve period. With the continuous iterative development of related technologies, continuous improvement of clinical data, further expansion of indications and procedures, and the number of marketed products is increasing. According to incomplete statistics from Arterial Network, in 2021, more than 25 neurointerventional products were approved for marketing in China, while by 2022, there were more than 120 models.

Along with the increase in approvals for domestic neurological intervention products, the domestic market penetration rate is also increasing day by day. According to Sullivan's data, before 2022, China's neurological intervention market showed a high concentration, foreign monopoly, and a competitive pattern where domestic products were launched one after another. Foreign capital was mainly dominated by foreign companies such as Medtronic, Johnson & Johnson Healthcare, and Stryker. Foreign investment in the neurological intervention market occupied more than 80% of the market, and Medtronic alone occupied more than 60% of the market, with imports of pathway, hemorrhagic, and ischemic products accounting for more than 70%, 90%, and 90%, respectively.

Driven by the collection policy, the penetration rate of the domestic medical device market has increased rapidly. Take spring rings as an example. In 2020-2022, when the collection policy mainly covers single products such as spring rings, judging from the reported share of 21 provinces in Jilin, the localization rate has already exceeded 25%. Compared with less than 15% before collection, the brand strength and product strength of domestic spring rings have gradually been clinically recognized.

In terms of the overall competitive landscape, due to the complex structure of neurointerventional cerebrovascular interventions, difficult operation, and high technical device requirements, overseas medical device giants such as Medtronic, Stryck, and Microvention were deployed early and occupied the vast majority of the market share, while domestic enterprises were relatively late in the layout. In recent years, capital attention has only increased, and more companies have begun to enter the racetrack, so the implementation of the collection policy has accelerated the 0-1 process for domestic neurological intervention device companies. Furthermore, since the market penetration rate of domestic enterprises is still low, the implementation of the collection policy will accelerate the increase in the penetration rate of domestic medical device companies.

If the market share of domestic neurointerventional device companies is basically the same as that of importers, then there is still considerable room for growth in domestic neurointerventional devices, and the growth in performance is also quite certain. Therefore, in a situation where domestic neurointerventional device companies do not have a high market share, it can be said that the issuance of procurement policies is beneficial, and performance is also expected to increase rapidly.

Performance has increased significantly under harvesting, and internationalization has become the main highlight of the post-harvesting cycle

In the field of neurointerventional medical devices in China, Minimally Invasive Brain Science can be said to be a leading company in the industry. Its products cover all aspects of hemorrhagic stroke, atherosclerotic stenosis, and acute ischemic stroke. According to Frost & Sullivan statistics, based on 2023 sales revenue, minimally invasive brain science has risen to fourth place in the market share of neurointerventional medical devices in China, and has maintained the number one position in domestic market share in recent years.

Judging from the product layout, the layout of minimally invasive brain science products is comprehensive and complete. Since the first product was approved and launched domestically in 2004, as of the first half of 2024, the company had a total of 21 products approved and commercialized in China, and 14 products under development at different stages of development; of these, 4 products were approved by the State Drug Administration to be included in the green channel, ranking first among Chinese neurointerventional medical device companies.

A total of 5 minimally invasive brain science products were successfully approved for launch in the first half of the year, including NeuroGuard neurovascular balloon catheters, Neurohawk® embolization stents 2nd generation, Safecer™ embolization protectors, PathFinder™ carotid balloon dilation catheters, and Tubridge Plus® dense mesh stents.

With the approval of new products and implementation of the collection policy, Minimally Invasive Brain Science achieved revenue of 408 million yuan in the first half of the year, an increase of 36.4% over the previous year; net profit of 144 million yuan, an increase of 124.1% over the previous year.

Due to the collection of spring ring products and price drops, the gross margin of minimally invasive brain science in the first half of the year was 72.3%, down 5.5 percentage points from the previous year. However, the company's sales expenses rate also dropped significantly, from 16.6% at the end of 2023 to 13.74% in the first half of the year.

Furthermore, under the collection policy, the company's grass-roots market layout has accelerated, and the pace of commercialization has accelerated markedly. APOLLO Hebei's “3+N” collection won the bid. It is the only domestically produced intracranial stent to help the rapid release of products. H1 has entered nearly 120 new markets, covering 2,300 hospitals. 2024H1 Neurohawk® embolization stents have been added to more than 150 hospitals, covering a total of about 440 hospitals.

In terms of commercialization capabilities, the minimally invasive brain science treatment plan promotion team has a total of 94 senior personnel. In order to meet different types of treatment needs, three professional marketing teams have been strategically created, namely: Blood Stroke Solution Team, Atherosclerotic Stenosis Solution Team, and Acute Ischemic Stroke Solution Team, which is conducive to providing highly customized and professional and accurate treatment support to the market.

In addition, Minimally Invasive Neuroscience has established cooperative relationships with more than 330 dealers and second-level dealers, and sales channels cover 31 provinces, municipalities and autonomous regions across the country. As of the first half of 2024, the sales channel for minimally invasive brain science has been expanded to about 300 new hospitals, covering a total of about 3,300 hospitals across the country, including more than 1,800 tertiary hospitals and all the top 100 hospitals in China's National Stroke Center, supporting a total of 190,000 interventional neurological surgeries.

In the short term, the performance growth of domestic neurointerventional device companies mainly depends on policy implementation. With policy promotion, performance growth is guaranteed. However, from a long-term perspective, when the market penetration rate of domestic enterprises reaches a certain stage, they still need to rely on internationalization to support growth.

Minimally invasive brain science also has a long history in terms of internationalization. According to information, a total of 8 minimally invasive brain science products have successfully opened up the international market. The company's products have been commercialized in 21 overseas countries, including South Korea, the United States, and Brazil, covering 9 of the top 10 countries in the world for neurointerventional procedures. Among them, sales in the US switched from distribution to direct sales in the first quarter.

It is worth mentioning that in the first half of the year, Minimally Invasive Brain Science's overseas revenue was 28.12 million yuan, an increase of 87% over the previous year. Product sales revenue in APAC, EMEA, LATAM and EMEA regions increased by 123%, 14%, 120%, and 85% respectively.

Although the share of revenue from internationalization is still small, it is expected that the share of international revenue will continue to increase as the international market expands. In the later cycle of collection, internationalization will also become the focus of domestic neurointerventional device companies. Therefore, in addition to focusing on collection policies, internationalization is also the key to verifying the growth of minimally invasive brain science in the later stages.