Since the state announced the centralized procurement of artificial joints in September last year, Guangdong Province issued a notice on the centralized procurement and use of artificial joints organized by the state on March 18, and said that the centralized procurement of artificial joints will land in Guangdong on April 15; At the same time, Hainan Province also recently issued a notice specifying that the national organization of artificial joint centralized mining will be implemented in Hainan on March 25.
After the announcement of the centralized purchase news, the Hong Kong stock market reacted rapidly, and orthopaedic consumables stocks fell collectively.
As of the closing on March 21, Weigao Hong Kong shares closed at HK $9.90 per share, down 1.00%; Aikang medical Hong Kong shares closed at HK $4.43 per share, down 2.69%, and Chunli medical Hong Kong shares closed at HK $9.75 per share, up 3.17%.
price drop of 80%
On March 18, according to the information on the official website of Guangdong Medical Security Bureau, a total of 330 medical institutions in Guangdong participated in the centralized collection of artificial joints, including public hospitals and private hospitals. The scope of purchased products is: artificial hip joint and artificial knee joint. In the first year, the province purchased 36400 sets, and the annual cost saving is expected to be 750 million yuan.
It is reported that the polyethylene ceramic products are divided into three groups, i.e. strong and weak polyethylene ceramic products, and each group is divided into group A and group B according to the supply capacity of medical institutions. Some insiders believe that different from the previous single product in the centralized collection of coronary stents, the centralized collection of artificial joints increases grouping, and pays more attention to product differences, clinical demand and supply capacity.
According to the current information released by Hainan Province, a total of 35 medical institutions in Hainan Province participated in the centralized procurement of artificial joints, and the scope of purchased products is artificial hip joint and artificial knee joint. The average price of the selected hip joint decreased from 35000 yuan to about 7000 yuan, and the selected knee joint decreased from 32000 yuan to about 5000 yuan, with an average price reduction of 82%. Hainan Province purchased 3356 sets in the first year, which is expected to save 70 million yuan in procurement funds.
On September 14, 2021, the second national procurement variety of high-value medical consumables – artificial joint was opened in Tianjin. The average price of hip joint was reduced from 35000 yuan to 7000 yuan, and the average price of knee joint was reduced from 32000 yuan to 5000 yuan, with an average price reduction of 82%.
According to the results of several centralized procurement of artificial joints in various provinces, the price decline is basically about 80%. In this regard, Zhongtai Securities Co.Ltd(600918) believes that the results of joint centralized mining are on the ground, the decline is slightly better than expected, squeezing out more “water” from dealers, and domestic brands are expected to continue to expand market share by virtue of cost-effective advantages.
artificial joint market may change
Data show that about 50% of Chinese people over the age of 50 suffer from osteoarthritis, and about 80% of people over the age of 75 suffer from osteoarthritis. According to the data of Weiyi orthopedics, the number of joint replacements in China in 2018 was 588100, including 396500 hip replacements and 191600 knee replacements (domestic accounting for 53.91%) and 191600 respectively (domestic market share is less than 30%).
However, at present, the price of domestic artificial joints ranges from several thousand yuan to more than ten thousand yuan, among which the price of ceramic hip joints (especially powder ceramics) is higher.
It is understood that artificial joint replacement is one of the effective means to treat femoral head necrosis, joint injury, osteoarthritis and other diseases caused by trauma, sports injury, degeneration and aging. It can greatly restore the joint activity function of patients and significantly improve the quality of life. Due to the complex technical classification and combination of orthopedic consumables, it is difficult to compete directly. It has been a difficulty in centralized procurement for a long time. The price is obviously high, and the burden of patients is heavy.
With the continuous expansion of market demand, there is no doubt that it has caused great pressure on the medical insurance fund. Therefore, it is imperative for artificial joints to be included in centralized mining.
However, in terms of China’s current artificial joint market, Chinese enterprises only occupy three components of the national market, and the localization level of the artificial joint market is low. It is reported that the foreign-funded enterprises are mainly Gemini bangmei, Stryker, Johnson & Johnson and Smith & nephew, accounting for 74%, while the enterprises with the largest sales of artificial joints in China are listed companies such as Shandong Weigao Orthopaedic Device Co.Ltd(688161) , Aikang medical and Chunli medical.
According to the data, in the 2020 annual report of Chunli medical, its medical device revenue accounted for 99.99%, of which 96.8% came from joint prosthesis; Aikang medical also has a high proportion of medical devices. 80% of its income comes from hip and knee, accounting for 55.1% and 24.9% respectively Shandong Weigao Orthopaedic Device Co.Ltd(688161) is no exception. Spinal products and joint drugs account for 67.09%, 44.8% and 22.29% respectively.
It should be noted that at present, Chunli medical and Shandong Weigao Orthopaedic Device Co.Ltd(688161) have been listed in A-Shares successively, forming a “a + H” layout. In addition to the above three enterprises, Shanghai Sanyou Medical Co.Ltd(688085) , Double Medical Technology Inc(002901) , Shanghai Kinetic Medical Co.Ltd(300326) , etc. are not willing to fall behind.
According to the data of instrument home, the localization rate of artificial joint is about 35.3%. Among them, the localization rate of hip joint is about 53.9%, while that of knee joint is less than 30%. At present, with the implementation of centralized procurement of artificial joints, China’s top enterprises are expected to realize “price for quantity”, continuously expand market share and improve enterprise competitiveness.
China’s leading competition pressure increases
After a round of centralized procurement reshuffle last year, domestic orthopaedic consumables enterprises have successively announced the performance express of 2021.
Among them, Shandong Weigao Orthopaedic Device Co.Ltd(688161) achieved a total operating revenue of 2.153 billion yuan, an increase of 18.06% year-on-year; The net profit was 704 million yuan, a year-on-year increase of 26.02%; Chunli medical achieved a total operating income of 1.081 billion yuan, a year-on-year increase of 15.29%; The net profit was 313 million yuan, a year-on-year increase of 10.44% Shanghai Sanyou Medical Co.Ltd(688085) achieved a revenue of 593 million yuan, an increase of 51.97% over the same period last year; The net profit was 186 million yuan, a year-on-year increase of 57.2%.
Almost all of the reasons for its performance growth are the resumption of the upward trend of the number of operations under the control of the epidemic, the strengthening of the development of sales channels, and the active response to the volume procurement policy.
Although they are all orthopedic consumables enterprises, their main businesses are still different. Among them, Shandong Weigao Orthopaedic Device Co.Ltd(688161) mainly covers three orthopedic businesses: spine, trauma and joint; Chunli medical focuses on joint prosthesis Shanghai Sanyou Medical Co.Ltd(688085) mainly engaged in spine implants and trauma implants.
However, Chunli medical suffered a head-on blow last year when the knee joint of the national artificial joint collection fell the standard. In the national collection of artificial joints in Tianjin on September 14, 2021, Chunli medical knee products quoted the highest price in the audience, and 4 entered and 3 lost the bid unexpectedly. Although the three products of hip joint won the bid, the falling bid of knee joint still had a significant impact on it and caused its share price to fall continuously.
At present, its share price has fallen from HK $34.95/share in June 2021 to HK $7.63/share in March this year, a decrease of 78.16%.
The current situation of other enterprises is not good. As the absolute main force of Shanghai Sanyou Medical Co.Ltd(688085) , spine occupies a considerable share of its revenue, but it also admitted in the 2021 interim report that the company has a single product structure and is actively improving. In the future, if the market demand for spinal implant consumables is greatly reduced, and the company is unable to complete the research and development of new products or realize the market development of trauma products, it will have an adverse impact on the company’s business performance.
As we all know, the purpose of centralized purchase is to squeeze out the water in the sales link, and the products within the scope of centralized purchase will bid farewell to the era of high gross profit margin.
According to the data, in 2020, the proportion of sales expenses of orthopaedic listed companies in operating revenue varies, with the highest being 47.6% and the lowest being 23.74%. The gross profit margin of orthopaedic listed companies can reach 90% at the highest and more than 60% at the lowest.
Although in recent years, the market scale of orthopaedic implant medical devices in China has shown an increasing trend year by year. In 2020, its market scale will reach 35.3 billion yuan, which is expected to continue to grow in the next few years. It is expected that the market scale of orthopaedic implant medical devices will reach 40.4 billion yuan in 2021.
However, at present, with the normalization of centralized procurement, enterprises may also usher in a new round of challenges.
