The demographic dividend determines the future of many industries and is an important cornerstone of every country's economic growth.

In order to stimulate childbearing, the country announced the liberalization of the three-child policy in May 2021, and made efforts to reduce childcare costs through health care, education reforms, and policies and measures such as increasing maternity allowances and maternity leave. These policies have gone to the extreme in solving the problem of “not wanting to be born”. Recently, the country has also begun to focus on solving the problem of “not being able to be born”.

Assisted reproductive technology, as an effective means of solving this problem, has limited growth due to its high price. Today, four consecutive provinces have begun to include assisted reproduction in the scope of medical insurance reimbursement.

Since Beijing first included 16 assisted reproduction programs in health insurance in June of last year, under the impetus of the National Health Insurance Administration, Guangxi, Inner Mongolia, Gansu and other places have followed suit and included some assisted reproduction programs in medical insurance, including egg retrieval, embryo culture, embryo transfer, sperm selection, diagnosis of embryonic genetic diseases (PGT-M), pre-implantation embryonic genetic testing (PGT-SR) for chromosomal diseases, and cell freezing. The overall reimbursement rate for these projects is as high as 50%-70%, and some projects can even be reimbursed twice.

In order to respond positively to the demographic situation, CPPCC members proposed “liberalizing egg freezing restrictions for single women” for two consecutive years. National Committee of the Chinese People's Political Consultative Conference (CPPCC) member Qiao Jie's proposal proposes to guarantee female fertility and liberalize egg freezing restrictions in a moderate and orderly manner. She believes that in response to the decline in fertility desire due to social factors, fertility preservation policies related to women's age should be liberalized on a pilot basis and single women should be allowed to freeze eggs.

Since the fertility process after egg freezing also requires the use of assisted reproduction technology, in the future, as more provinces include assisted reproduction programs in the scope of medical insurance and the liberalization of egg freezing policies for single women, market demand will be further released, and companies related to the industry chain will directly benefit, such as Bekang Healthcare, which lays out pre-implantation genetic testing (PGT) technology for assisted reproduction. The company has upstream assisted reproduction products such as pre-implantation detection reagents (PGT-A, PGT-M, PGT-SR), intelligent liquid nitrogen storage instruments, embryo incubators, and culture media.

With PGT technology as the core, create an innovation platform for the entire assisted reproduction industry chain to reverse the market and achieve strong growth

PGT technology is the core of third-generation IVF technology. Bekang Medical started with PGT (pre-implantation genetic testing for assisted reproduction embryos). Its PGT-A kit won the “first approval” of the third-generation IVF genetic test kit, establishing a first-mover advantage in the market; PGT-M and PGT-SR are expected to obtain registration certificates in 2024 and 2025, respectively.

In addition to genetic laboratories focusing on PGT products, the company has also set up andrology laboratories, embryology laboratories, cryopreservation laboratories and software laboratories to provide users with one-stop solutions.

On the eve of the advent of assisted reproduction policy incentives, the company also recently released impressive financial reports. Revenue for the full year of 2023 was 208 million yuan, achieving nearly 50% growth and achieving gross profit of 90 million yuan, an increase of 53.5% over the previous year;

The company's core business, PGT reagents, performed particularly well, with annual revenue of 115 million, an increase of 30% over the previous year, and steadily ranked first in the market share and holdings in the leading central market. Furthermore, the frozen storage business also showed a strong growth trend, achieving revenue of 9.74 million, with a year-on-year growth rate of 80%.

In a situation where the financing environment and market environment are not ideal, it is not easy for the company to reverse the market and achieve efficient integration and steady growth.

Strike hard while reducing costs and increasing efficiency

Over the past two years, the pharmaceutical industry, including innovative drugs, innovative devices, CDMO, CRO, life sciences, IVD, and vaccines, has experienced serious challenges in policy adjustments, market fluctuations, and financing environments. During this period, the industry's capital expenditure also fell to a low point.

Reducing costs and increasing efficiency and steady management have become the focus of the industry's development.

Beacon Healthcare is no exception. Even in terms of adjusting its own strategy, the company's series of measures seem more detailed and far-reaching.

In addition to common cost reduction and efficiency measures in the industry, such as reducing personnel costs and reducing R&D expenses through downsizing, the company's sales model has changed from direct sales to full agent sales.

In 2023, the number of direct sales marketers of the company was reduced from 94 in 2022 to 73. At the same time, the company has signed more than 40 agents nationwide, and the adjustment of the sales model will further drastically reduce the sales expenses rate in the future.

At the end of 2022, the company still had nearly 1,332 billion dollars in working capital, and there was almost no short-term debt repayment pressure on the bank side. It is the pharmaceutical industry's version of “as long as you want, you can live well”, but the company has not given up on thinking about seeking growth.

In May 2023, the company spent 40 million US dollars (about 260 million yuan) to acquire Genea Biomedx (hereinafter referred to as “BMX”). Genea Group is one of the world's top assisted reproduction medical groups. Its business covers assisted reproduction clinical medicine, assisted reproduction technology, and medical equipment and consumables. BMX was once a subsidiary of the Genea Group's device division.

Through the acquisition of BMX, which has 30 years of clinical history, Bekang Medical quickly entered the assisted reproduction culture circuit and became a comprehensive platform enterprise upstream of the assisted reproduction industry chain.

At present, BMX has developed a third-generation full-line assisted reproduction medium GEMS series. Judging from clinical results, GEMES culture solution far exceeds other competitor products. It is expected that the culture medium will be fully localized and locally produced in 2025.

The acquisition of BMX not only helped the company diversify its products, but also brought significant opportunities for the company to share resources, collaborate, and globalize its layout.

In the future, the company will co-establish a R&D team with BMX for collaborative research and development; in the future, Bacon's domestic products (self-developed PGT, andrology, frozen products) will be brought overseas through BMX's international channels, bringing revenue growth, and can also be boosted in terms of valuation through the logic of assisted reproduction; on the other hand, bringing BMX to China will also play a role in resource sharing and synergy, thereby increasing overall market share and profitability.

Made in China has continued to go overseas in recent years, and its global influence is constantly increasing. Mindray Healthcare, a leading domestic medical device company, has also proposed the ambitious goal of increasing the share of overseas business to 70% and entering the top 20 medical device companies in the world.

In terms of volume, China's medical device market is over 400 billion yuan, while the global medical device market is about 400 billion US dollars. Going overseas is the only way to develop medical devices.

According to reports, Bekang Healthcare has established a dealer channel network in 18 countries, and the company's core PGT business and expansion in Europe, North America, the Middle East, and Southeast Asia have also made progress. It is worth mentioning that in the US and other regions overseas, sales of PGT products do not require additional licenses, which has facilitated Bacon Medical's market expansion.

In July of last year, the company signed a strategic cooperation agreement with Genea Group. The company will provide medical institutions under the Genea Group with a series of test kits covering the entire fertility cycle, high-throughput genetic sequencers, male semen testing and analysis products, and liquid nitrogen storage systems. According to reports, the company has set up a laboratory in Australia, which will help enhance Bekang Healthcare's service capabilities and brand influence in the local market and further promote the implementation of its globalization strategy.

The global layout and substantial progress of Bekang Healthcare fully prove the viability and forward-looking nature of its overseas strategy.

The ambition of the Chinese version of Vitrolife to build a major domestic assisted reproduction platform

However, the company's ambitions go far beyond that. From its strategic layout, it can be seen vaguely that an autonomous and controllable “domestic device platform for the entire life cycle of infertility” is beginning to take shape.

Judging from the company's current product and pipeline layout, the company has formed five major laboratory scenarios and the capabilities of the entire industry chain with PGT as the core, corresponding to the estimated 1.7 billion PGT testing market, 3.6 billion culture/consumables market, and the 2.7 billion frozen andrology market. The company continues to strategically expand with a global device service platform for the entire assisted reproduction industry chain and Vitrolife with a market value of 20 billion dollars as the target company.

epilogue

Finally, from a valuation perspective, the market value of Bekang Healthcare was less than 1 billion yuan, and by the end of 2023, the company's cash and equivalent was 940 million yuan, fully demonstrating that the current Hong Kong stock market had already declined irrationally. As the US interest rate cut cycle brought about improved liquidity, the market revised the value of Beckon Healthcare to more rationally reflect its actual financial situation and future development potential.

Looking forward to the future, with policy support from the assisted reproduction industry, if Bekang Healthcare can unswervingly advance its grand strategy, and as various milestones are achieved and performance continues to be realized, the company will usher in a comprehensive reshaping of value.