As a market with large capacity, rapid growth, and low penetration rate, domestic heart valves were once sought after by the market, and the TAVR (Transcatheter Aortic Valve Replacement) circuit was also the absolute darling of the capital market until 2021.

However, due to external environmental influences such as macroeconomic factors and fluctuations in the 18A sector of Hong Kong stocks, and the market lacked an anchored center on the pricing of the TAVR circuit, no consensus was reached on its value, which eventually led to the market value of the Hong Kong stock TAVR Three Musketeers evaporating by more than 80% between 2021 and 2022.

Although TAVR's stock price rebounded at the end of 2022, taking advantage of rising valuations in the pharmaceutical sector of Hong Kong stocks, the stock rebound did not continue until 2023. Take Pegasus Medical-B (09996) as an example. After reaching a phased high of HK$14.32 in early February 2023, its stock price fluctuated and fell, and the downward trend did not stop until 2024.

The Zhitong Finance App observed that on January 24 this year, Peijia Healthcare's stock price fell to a minimum of HK$4.5, a new low since the company went public. Starting at a high of HK$14.32, the biggest drop in Pegasus Healthcare's stock price in the past year reached 68.58%, and in less than a month from the beginning of the year to date, its stock price has dropped by more than 30%.

Can the break-even point be reached before the cash runs out?

In the current environment where investment in the pharmaceutical sector of Hong Kong stocks tends to be conservative, the weight of corporate cash flow conditions in valuation evaluations continues to increase.

In recent years, on the TAVR circuit, even if the amount of new technology is verified by the company's revenue, if it is difficult to feed back into the company's hematopoietic capacity, it will greatly reduce the company's valuation growth. This is also an important reason why Peijia Healthcare's valuation is difficult to go any further after 2023.

According to the 2023H1 financial report previously disclosed by Peijia Healthcare, the company's current revenue reached 225 million yuan, an increase of 89.3% over the previous year. According to the announcement, it was able to achieve a significant increase in revenue, thanks to the combined revenue growth of its TAVR segment and the neurointerventional segment.

But in reality, behind the increase in product revenue is the company's greater sales investment. According to the profit statement data disclosed by it, Peijia Healthcare's sales expenses increased 85.71% year-on-year to 172 million yuan in the first half of 2023. In addition, in order to maintain its product technology advantages, Peijia Medical invested almost the same amount of R&D expenses, an increase of 105.32% over the current period to 171 million yuan over the same period.

It is easy to see that both sales expenses and R&D expenses were much higher than the company's revenue growth rate in the current period. This ultimately led to Peijia Healthcare's loss in the first half of 2023 further increasing to 212 million yuan compared to the same period last year, an increase of 130.55% over the same period last year.

It is worth mentioning that Peijia Healthcare still has 1.16 billion yuan in net cash for the current period. At the current rate of net loss, the current capital is only enough for Peijia to maintain for less than 3 years, and it is approaching the cash red line.

Pei Jia's situation probably also reflects the situation at the TAVR circuit from the side. The growth logic of the domestic TAVR circuit has always been: as a type of medical device product in line with the trend of population aging, the demand for interventional heart valves will only increase unabated as the population ages. However, in reality, behind the sharp drop in domestic TAVR companies' stock prices since 2021, the TAVR replacement SAVR logic was “falsified” at the time, and TAVR's sales volume was far from reaching the growth rate previously anticipated by the market.

Although Peijia alone is concerned, the progress of admissions and implants in its interventional valve treatment business has been steadily increasing. As of June 30, 2023, its core products covered 410 hospitals in about 2 years after the evidence was obtained. During the reporting period, the company installed nearly 1,250 TAVR product terminals.

However, behind Peijia's increased marketing and market expansion, the overall performance of the domestic TAVR circuit still falls short of expectations. Statistics show that since the first batch of two local products was approved for launch in 2017, the current annual implantation volume of domestic TAVR is still below 20,000 units. There were 8,689 commercial implants in 2022, an increase of only 18.7% over 7,319 cases in 2021. Although 13,572 cases of TAVR surgery have been performed in China as of November 30, 2023, an increase of 73% over the same period last year, this growth rate is still lower than the previous market forecast of doubling every year.

It is worth mentioning that unlike many high-end medical device products, domestic production is leading in the domestic TAVR market, and imported brands did not enter China until June 2020, when Edwards Scientific's third-generation TAVR product Sapien 3 valve system was approved for listing. In other words, at the TAVR circuit, domestic manufacturers and multinational equipment companies are on the same track.

However, it is still difficult for domestic brands to open up the domestic market situation, and the expensive price factor cannot be ignored. The US and Germany have high TAVR penetration rates, and one of the core elements is health insurance reimbursement. However, TAVR is not yet covered by national health insurance in our country, and the cost is quite high. The average price of TAVR valves is over 200,000 yuan. In addition to the cost of surgery, patients need to bear the overall cost of about 300,000 yuan. This has undoubtedly increased the cost of market education, and is also one of the reasons why Peijia Healthcare is not yet profitable.

Would TAVR going out to sea be a good medicine?

Judging from industry data, China's TAVR market was about 390 million yuan in 2019, and is expected to reach 5.06 billion yuan by 2025, with a compound annual growth rate of 53.1%. Furthermore, the number of patients eligible for TAVR surgery in China was about 767,000 in 2019, which is expected to increase to 943,000 by 2025. Among them, the penetration rate of TAVR surgery in China was only 0.24% in 2019, and the global penetration rate during the same period was about 14.98%.

Although the above data shows that the domestic TAVR market has promising prospects, from another perspective, it also shows that education costs in overseas markets are lower, and domestic companies are expected to break out of the market with excellent technology.

On the other hand, compared to the domestic medical device market facing many fee control policies, a stable price system is also a major advantage for overseas markets. Taking TAVR as an example, the unit price of Edward's Sapien series is relatively stable in the US market. Since its launch in 2011, the unit price has basically been maintained at US$32,500, while the global average price is generally between US$25,000 and US$30,000.

Precisely for the above reasons, many domestic TAVR track companies have begun to go overseas. For example, Xintong's VitaFlow series has been approved for listing in Thailand, Argentina, and Colombia, and was approved in Indonesia and Russia in the second half of last year. Currently, VitaFlow and Alwide have entered 5 overseas markets, and second-generation TAVR is about to be certified in the European market; in addition, Qiming has now set up two R&D centers in the US and Israel. Its self-developed innovative product VenusP (TPVR) is the main commercial variety overseas. The main markets cover France, Germany, and PROTEUS research is covered by US health insurance.

In contrast, Peijia Healthcare did not perform well when it came to overseas markets. According to the 2023 Interim Report, its overseas development plan is to conduct overseas clinical trials only on the two products currently under development, MonarQ and GeminiOne, and the progress of going overseas is significantly slower than that of peers. Perhaps domestic “internal circulation” is still Peijia Healthcare's main strategy right now.

However, in terms of domestic payment guarantees, only a few cities currently include TAVR in residents' health insurance, and the proportion of patients paying out of pocket is still high. Faced with such a market environment, Peijia Healthcare may still require significant costs for market education and promotion. Whether the company can reach a break-even point while maintaining cash safety is still unknown.