Source: Hong Kong Stock Investment Research Institute

Multiple uncertainties have accumulated in the current internal and external environment, and the market is facing a situation where sediment has concentrated. Comparatively speaking, AI tracks still radiate hope from time to time, and are equipped with certain safety pads. Based on humans' relentless pursuit of health, AI+ healthcare has spawned endless possibilities. Combined with the accelerated aging of the population, the field of early detection of chronic diseases is receiving more and more attention, and the pioneers on the racetrack are bound to rise to prominence at an accelerated pace.

Recently, the author visited Eagle Eye Technology (2251.HK), the global leader in retinal imaging AI, and visited Eagle Eye Technology's production base in Otto Technology Second Industrial Park in the Changsha High-tech Development Zone, and discussed and exchanged views with Eagle Eye Technology management. I also visited the three social welfare, hospitals, and optometry centers covered by Eagle Eye Technology products, and had a practical understanding of the commercialization of its products. The research period coincided with the rare heavy snowfall in Changsha, and the fragrance of plum blossoms came from the bitter cold.

I. The basic situation of Eagle Hitomi Technology

Airdoc (Airdoc) was founded in September 2015 and is committed to providing comprehensive and multi-faceted artificial intelligence solutions for early screening and management of chronic diseases, prevention and control of myopia. It is a global leader and pioneer in the field of artificial intelligence in retinal imaging, a national-level specialized and innovative “little giant” enterprise, and the “first medical AI stock” of the Hong Kong stock market.

Eagle Hitomi Technology has a rich pipeline of software+hardware products. The core product is AirDoc-aifundus (1.0), which is a SaMD (Software as a Medical Device), or medical device software. The software was the first of its kind to obtain a Class III medical device certificate from the State Drug Administration in August 2020, and has begun to be used in medical institutions to assist doctors in diagnosing diabetic retinopathy. The AirDoc-aifundus (2.0) product has added three new indications (hypertensive retinopathy, retinal vein occlusion, and age-related macular degeneration). It is expected to be approved for marketing this year, and the number of hospital departments is expected to increase.

Another software product of Eagle Hitomi Technology is the Health Risk Assessment Solution (HRS), which does not require certification. It is in the early detection category and is mainly used in some large health scenarios outside hospitals. Hardware products include self-developed hardware devices (different types of fundus cameras) and treatment products (myopia phototherapy devices, visual training stations, telephoto cameras, etc.). According to information, currently all of Eagle Eye Technology's under-eye cameras are ToB products. The company has long been considering developing a C-end fundus camera (smaller and cheaper), and it is expected that new products will gradually be released in the future.

Taketomi Technology's myopia phototherapy device (vision device) has been approved as a Class II medical device registration certificate. It can treat pseudomyopia, prevent true myopia, and adjuvant treatment for curvature myopia and mixed myopia. It is currently in the early stages of commercialization.

The Changsha production site surveyed this time is Eagle Hitomi Technology's second manufacturing site (the first factory is in Beijing). It is operated by professional production personnel. It has six production lines that manufacture three types of equipment, with an annual productivity of about 100,000 fundus cameras.

The author experienced C-end products such as visual training stations and telephoto cameras in the experience room, and the acceptance was very high. The visual training station can provide users with targeted visual training programs through visual function tests and learning disability screening, including a wide variety of training types and highly interesting training formats. The telephoto camera is a product developed by Eagle Hitomi Technology to address the pain point where users face the screen for a long time during the pandemic, and it is also attractive enough for specific groups of people. There is still plenty of room for expansion in the commercialization scenarios of these two products.

In terms of performance, in the first half of 2023, Eagle Eye Technology recorded revenue of about 82.5 million yuan, an increase of 121% year on year; gross profit was about 51.36 million yuan, up 133% year on year; losses narrowed significantly to about 41.02 million yuan, with a loss of 99.68 million yuan in the same period of 2022. According to the commercialization scenario, the company's revenue is divided into three major segments: Eagle Hitomi Healthcare (hospitals, primary medical institutions, physical examination centers), and Eagle Hitomi Health (optometry center). In the first half of 2023, the revenue of the three sectors was about 298.45 million, 21.693 million, and 309.64 million yuan, respectively, with year-on-year growth rates of about 137%, 26%, and 307% respectively.

II. Q&A Summary

1. How does the company choose the direction of product development? Is the next generation going to be a better desktop?

We are still guided by user needs. Our product requirements are all obtained from users through our own actual research, and are also thoroughly thought out.

In the future, the development direction of our products is not simply to produce hardware. In fact, for customers, our product is an integrated product combining hardware+software (algorithm) +optics. The ultimate goal is to solve the specific needs of this scenario. We are currently experimenting with at least 3-5 new product forms internally, but it will take some time to present them to the public.

2. There are devices with similar appearance on the market, such as biometrics, slit lamps, etc. What are the differences between the company's eye screening products? And how do you reduce the cost of camera products?

First, like a slit lamp, looks at the anterior section of the eye, obtains optical slices of living transparent tissue, and observes some damage to the outer eye. Our fundus camera actually doesn't work the same way. It sees the retina through the pupil and observes some lesions in the back of the eye.

As for product prices, cheapness is one direction, and hospitals also have their own charging principles. The core of the problem is that as a technology company that combines hardware and software, we ultimately look at overall solutions and services.

As for the C-side, we've actually considered this direction as well. For us, if C-end products are to reach a better price range, they need to communicate and cooperate with some fixed channels. From a purely user perspective, let's not talk about medical-grade products. In the case of consumer-grade products, hardware products in the field of eye and myopia detection are to be truly acceptable to users, the price of 500 to 1,000 yuan would probably be more appropriate. We hope to be the first to make this type of C-side product in China.

3. If the C-end products mentioned above are actually launched in the future, can I buy them directly from JD, or do they have to go through designated channels?

First, if it's a medical device product, JD can actually buy it, but some of the more strict medical devices are still displayed more through these channels. Our ultimate goal is to want users to be able to buy it on all the channels they see.

In fact, for the two current fundus camera devices, the scope of our application already includes “home use”, although its size, including price, is currently not that suitable for home use. But we believe these issues will soon be resolved.

4. Why did you choose to locate the production base in Changsha?

On the one hand, for us, there is relatively good policy support here. Also, in June 2022, our CEO brought a team to Changsha to explore the working model of this primary health service center, so Changsha is our second base. Afterwards, we have partners such as Air and Sannuo, who have provided us with a lot of support. In terms of cost, this side is also close to Guangzhou and Shenzhen. Comprehensive policy support, support for the surrounding pharmaceutical industry, and cost advantages, so the overall consideration was in Changsha at the time.

5. How to explore scenarios and potential requirements based on existing ones? How to improve the average price of testing?

In 2022, we will cover about 3,000 outlets. It is expected that in 2023, there will be a relatively large increase in the number of outlets, and the coverage capacity will be greatly improved. On this basis, after every test, users are reminded to review every half year, or even every three months when the situation is serious. This will help us increase user engagement and improve and optimize the product.

In terms of price, we have already obtained three types of certificates for one disease. We may continue to obtain certification for multiple diseases in the future, so the unit price can reasonably be superimposed upward. Ecologically, certification of more diseases will increase the overall testing business volume. After accumulating a sufficient number of tests, corresponding health management plans can be provided in a targeted manner for positive people, guide the use of corresponding drugs and medical devices, and provide some hospital diagnosis and treatment plans to achieve a closed loop from entry to detection to diagnosis to treatment, and help us serve more users.

6. What is the company's debt situation?

The balance ratio of the company is extremely low, and there is plenty of cash on hand. Currently, the company is strengthening lean management and cost control to achieve a single quarter break-even in Q4 2024 and turn losses into profits in 2025.

7. What are the main driving points for the company in the future?

For mature products, increase expansion efforts and increase profits.

For new product development, we develop a new TOC product line.

Technically, work on new technologies and models under the CEO's leadership; give full play to the advantages of cooperation with Microsoft to strengthen AIGC's capabilities.

3. Visit the three major scenes of social welfare, hospitals, and optometry centers

1. Meixi Lake Community Health - Adolescent Ophthalmology

Eagle Eye products (software+hardware) have arrived at the Meixi Lake Community Health Service Center in Changsha. The center has a number of machines for eye surface and fundus examinations. It mainly focuses on testing young people for myopia, and is also concerned about diseases under the eyes, such as macula. The chief physician of Social Health examines myopic patients using a series of devices, including Eagle Eye products. A set of tests costs about 200 yuan.

Doctor's feedback: Compared with traditional fundus cameras, which simply rely on the doctor's experience, using Eagle Eye products can suggest risk points and assist in diagnosis. In the social welfare scenario, basic investigation work is generally carried out for myopia and eye conditions in young people. For serious ophthalmological diseases, social health doctors will recommend going to a higher level hospital for further examination when they find this condition.

2. Xiangya Second Hospital - Department of Endocrinology

The inpatient department of internal medicine places a fundus camera. The doctor can perform a fundus examination for patients with simple operation. In principle, all diabetics use Hawkeye products and register their information. For Sugar Network patients, doctors recommend a normal review once a year; if there are any lesions, they should be reviewed for 3 to 6 months. The hospital's endocrinology clinic also has an eye camera with Hawkeye's eye camera. Later, it is planned to add a few more outpatient clinics, so that more patients can be received at that time.

Since Hunan has not yet completed the relevant pricing guidelines, it currently charges a photography fee of 20 yuan, and there is no charge for the reporting fee. If the pricing mechanism is implemented, the price can be raised later. The cooperation model between Takahitomi and the hospital is that the hospital purchases a hardware+software package, which can meet the usage for about three years, and then repurchase at the end of the term.

Doctor's feedback: In terms of operation, compared to traditional fundus cameras, Eagle Eye products can actively capture and take pictures, automatically upload results reports, and improve doctors' efficiency. Most patients can avoid mydriasis. It is relatively safe, and the results are also very good and clear. In terms of diagnosis, risky and problematic areas are marked. The doctor has been using the Eagle Eye device for over a year. Basically, there are no major problems. The accuracy rate is also very high, and the degree of approval and stickiness is very high.

3. Formosa glasses

The store is equipped with a series of ophthalmic examination equipment, including Eagle Eye products (fundus cameras, slit lamps, biometers, etc.), which are used for myopia measurements, eye surface, and fundus tests. The Fundus Camera hardware is a Taiwanese brand and is equipped with Eagle Eye software. The 168 yuan package includes all of the above tests. A Happy Eye Vision Device (old model, 6,800 yuan) was also placed in the store. The store's store grade is above average in Changsha.

Optometrist feedback: For optometry centers, Eagle Eye's products can enrich testing categories, provide more information support for customers to purchase glasses and related products, and help stores improve store efficiency. Although they are willing to promote orthopedic devices and the treatment is actually quite effective, some patients still have doubts and need more marketing. Relatively speaking, some customers with severe myopia will be more willing to try visual health treatments.

IV. Research summary

1. Eagle Eye Technology is pragmatic in product development and is good at grasping market pain points for development. Currently, it is worth focusing on the application for Class III certification for its AirDoc-aifundus (2.0) product and the application for Class III certification for health equipment products.

2. There are real commercialization scenarios for Eagle Eye Technology products. Its AI eye examination is a good alternative and upgrade to existing technology, and hospitals, social welfare, and optometry centers all have real demand points. In particular, it received high praise from doctors in the medical scene, laying the foundation for large-scale hospitalization in the future.

3. In the current capital market environment, Eagle Hitomi Technology focuses on improving its own profitability. At this stage, achieving break-even is the main development goal. In order to achieve this goal, the company mainly strives to accelerate commercialization of mature products, moderately reduce R&D expenses, lean production, and control costs, hoping to achieve break-even by 2025.

4. Eagle Hitomi Technology is rapidly expanding its C-side product line. At least 3-5 new product forms are being developed internally. The medium- to long-term C-side products are expected to create new growth points.

5. In terms of long-term development, Eagle Hitomi Technology is also considering building a retinal imaging ecosystem. It hopes to structure a closed loop from entry to detection to diagnosis to treatment. There is still plenty of room for it to participate in the AI+ medical value chain.