Flagship of China’s ‘Godfather of Cardiovascular Surgery’ Slices Towards IPO

The maker of cardiovascular interventional medical devices has been approved for a listing on the Hong Kong Stock Exchange

Key Takeaways:

• OrbusNeich Medical has been approved for a Hong Kong IPO, and plans to use listing proceeds to boost its stable of more than 40 products approved over two decades
• The medical device maker gets more than 80% of its revenue overseas, shielding it from low prices demanded by China’s centralized procurement system for medical devices

By Emily Chan

It helped to pioneer cardiovascular interventional devices in China, and was a model for medical technology collaboration between Hong Kong and the Chinese mainland. Now, 22-year-old Chinese medical device maker OrbusNeich Medical Group Holdings Ltd. wants to move to another new frontier with plans for a Hong Kong IPO.

The company’s bread-and-butter is balloons, coronary stents and other cardiovascular interventional devices used in percutaneous coronary intervention (PCI) and percutaneous transluminal angioplasty (PTA). With sales to over 70 countries and regions worldwide, OrbusNeich Medical is one of the few in its class from China that can compete with global giants like Abbott Laboratories (ABT.US), Boston Scientific (BSX.US) and Medtronic Inc. (MDT.US) in the lucrative PCI/PTA balloon markets in Europe, the U.S and Japan.

Mainly used in interventional procedures for cardiovascular and cerebrovascular infarction, PCI/PTA balloons, along with coronary stents, are high-consumption medical devices. OrbusNeich sold 866,000 PCI balloons worldwide last year, ranking second in Japan’s PCI balloon market with 20% share, according to its IPO prospectus. It also ranks in the top six in Europe, the U.S. and China.

The company first filed to list in Hong Kong in September last year, then made another attempt in April, but failed both times. It’s hoping the third time is the charm with its latest filing on Nov. 24, which includes results from the first half of this year.

The company finally passed its IPO hearing on Sunday, according to the Hong Kong Stock Exchange’s website, and has said proceeds from the listing will be used to commercialize products under development, expand existing production capacity and enhance its R&D capabilities.

OrbusNeich Medical was founded by Teddy Chien, sometimes known as China’s “Godfather of Cardiovascular Surgery.” Chien was the first to introduce pacemakers and cardiac catheters to the Chinese mainland and Hong Kong in the 1970s and distributed pacemakers and cardiac catheters until 1996. He founded OrbusNeich Medical four years later in 2000, sensing an opportunity as PCI therapies gained popularity in Asia and China.

Though based in Hong Kong, the company set up its R&D, product development and manufacturing bases in the neighboring city of Shenzhen in 2001 to combine strengths of two cities, including lower costs and better access to talent just across the border. It obtained its first regulatory approval for balloon catheters from Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) in September that year.

Unsteady profits

By 2005, the company had acquired an R&D center in the U.S. state of Florida and a manufacturing site in the Netherlands from Orbus Medical Technologies, a developer and producer of coronary stents, using the facilities to expand in those markets. After taking the reins from his father in 2016, current Chairman and CEO David Chien has been increasing the company’s commitment to the U.S., as well as diversifying its product portfolio and expanding its geographic reach.

According to its preliminary prospectus, OrbusNeich Medical has more than 40 products approved by drug authorities worldwide, including Japan’s PMDA, the U.S. Food and Drug Administration (FDA) and the National Medical Products Administration (NMPA) of China. Its products include catheters, guide wires, balloon dilatation catheters and innovative coated stents for coronary and peripheral vascular interventional procedures, with around another 40 products under development.

Its revenue has generally grown over the last three and a half years, though it dropped slightly by 8.2% to $88.47 million in 2020 when the number of PCI procedures decreased at the start of the Covid-19 pandemic. But the figure rebounded the following year, rising 31.6% to $116 million in 2021. In rose again by 20% to $68.85 million in the first half of 2022, with coronary interventional medical devices accounting for more than 80% of the total each year.

But OrbusNeich Medical’s profit has been less steady. Its net profit rose by a slight 1.6% to $7.07 million in 2020, but then the company posted a loss of $4.44 million last year despite its revenue gains. It attributed the loss to a tripling of its financing costs to $5.61 million during the period, and also a fair value loss of $14.4 million on its convertible redeemable preferred shares. Excluding some of those items, it reported an adjusted profit of $21.35 million last year on a non-IFRS basis, more than double the previous year.

Global distribution network

Within its global footprint, OrbusNeich Medical has direct global sales networks in its more established markets like Japan, while it uses third-party distributors in its newer U.S. operation, and a hybrid of the two in Europe and Asia. The company’s global reach was reflected in the first half of this year, with 24% of its revenue coming from Europe, the Middle East and Africa, while the Asia Pacific, China and U.S. regions each accounted for anywhere from 10.2% to 24.9%. Contributions from the U.S. and China were on the rise, as the former approved new products and the latter’s market grows rapidly.

In China, for example, OrbusNeich Medical authorized exclusive distribution rights to a company that was 50% owned by a cousin of David Chien before 2021. But as China has promoted a centralized procurement system for medical consumables in recent years, prices of products in the system have dropped significantly, as manufacturers are forced to give big discounts for bulk sales. Reacting to that, OrbusNeich changed to a bigger emphasis on direct sales in January last year and established a direct sales team in China. Since then it has participated in centralized procurement bidding, and won seven bids, selling its products to 23 provincial hospitals.

Despite the significant drop in prices as its devices entered the program, the company’s other savings and growth for products not in the program have propped up its China revenue, which grew from 8.6% of its total in 2019 to 14.7% last year and further to 19.3% in the first half of this year.

With over 80% of revenue coming from overseas, it seems reasonable to compare OrbusNeich Medical to global peers like Medtronic and Boston Scientific, which have price-to-earnings (P/E) ratios of 14.5 times and 22.5 times, respectively. Using that pair’s average of 18.5 times as a reference and OrbusNeich’s first-half profit extrapolated to the whole year would value the company at about HK$2.3 billion ($295 million). As a local leader in its class, it might do even better if the recent rally for depressed Hong Kong stocks continues.

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