Tag Archives: China

Signify Premium Insight: United Imaging: Self-Awareness and Strategic Dilemmas

Chinese Imaging giant Shenzhen United Imaging recently released its first annual report since the vendor listed publicly in August 2022.

The figures appeared positive, with the vendor achieving a year-on-year revenue growth of more than 27%, at RMB 9.24bn (US$ 1.32bn), while net income rose almost 17% to RMB 1.66bn (US$237m).

This growth comes as United Imaging endeavours to expand into new markets, offering both new products, but also increasing its focus on international markets; an ambition reflected in the fact that the operating income the vendor derived from international markets increased by 110% compared to a year earlier, against an increase in operating income of less than 20% for its domestic business.

Does, however, the vendor’s performance and strategic priorities suggest the vendor is finally ready to go toe-to-toe with its international competitors?

Signify Premium Insight: Hisense Hoping for Good Reception

The consumerisation of healthcare and the technology upon which it relies is one of the most talked about trends in medical imaging. It is, after all, targeting an enormous potential market. There have been some small successes, in handheld ultrasound, for example. Some vendors’ ambitions of patients investing in their own medical imaging system in order to monitor their own health conditions, as they would a blood pressure monitor, remain a distant ambition. However, there are instances, such as that spearheaded by Pulsenmore, which see patients, under the supervision of professionals, conduct scans on themselves at home, a step, if not a leap in the general direction.

It has been rarer for companies to hold ambitions to move in the opposite direction. One Chinese vendor, however, is attempting such a transition.

Signify Premium Insight: GE’s Delicate Dance at the Chinese Communist Party

GE HealthCare has recently announced that it is planning to form a new joint venture with the China National Medical Device Corporation. The Chinese National Medical Device Corporation is part of Sinopharm, China’s state-owned healthcare corporation, which has enjoyed a partnership with GE for more than 30 years.

The new agreement, which is in addition to a ongoing joint venture relationship, will be focused on medical imaging, and will seek to develop, manufacture and commercialise imaging equipment in a bid to meet growing demand in the country. According to a filing by the American firm, the initial focus of the joint venture will be non-premium CT systems and general ultrasound solutions aimed at primary care and rural health markets however, this scope could grow as the venture develops.

Signify Premium Insight: Neusoft Medical to Float on United Imaging’s Rising Tide

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Chinese medical imaging modality vendor Neusoft Medical has revealed its continuing ambitions to list publicly, and has announced that, for the fourth time, it plans to launch an IPO.

The vendor, which has three times failed to float, once in Shanghai and twice in Hong Kong, hopes that this time will be different. The move is being sponsored by investment banks CICC and Goldman Sachs, with the vendor hoping the fundraising will enable it to continue growing, both domestically and abroad.

The Signify View

With three previous attempts at listing publicly made already, Neusoft Medical has made it clear that raising funds through a public offering is central to its growth ambitions. Becoming a leading medical imaging vendor is, after all, an expensive business. This could be particularly true for Neusoft Medical given its modality portfolio.

At the heart of Neusoft Medical’s growth to date is its range of CT systems. Of the vendor’s total revenues, which for the first six months of 2022 accounted for RMB1.5b (~$210m), 56 percent were derived from sales of CT systems. This is far ahead of any other business line, with equipment service and training, GXR (General X-ray) and MDaaS (Medical Device as a Service), the next largest segments, accounting for 14.5%, 8.9% and 6.2% respectively.

Such a reliance on CT system sales would have been a significant asset during the peaks of the coronavirus pandemic. This is especially true given the vendor’s dependence on its domestic market. In 2021, the company derived more than 83 percent of its revenues from China. China was the first country to  feel the impacts of Covid 19. CT was used as the primary diagnostic imaging modality in the country, so those vendors that were able to quickly deliver CT systems to Chinese hospitals were able to capitalise on the rapid increase in demand. This is reflected in Neusoft Medical’s results, with CT system revenues almost doubling from around $114m in 2019 to almost $221m in 2021.

This recent Covid-catalysed rally is one of the reasons why Neusoft Medical is eager to list publicly as soon as possible. The demand in the country quickly accelerated the vendor’s growth, provided a flattering portrait to show potential investors. The reality may however be somewhat more sedate. The exceptionally high growth in China in recent years will mean that many providers’ CT system needs have recently been met, potentially tempering the opportunities for the vendor in coming years.

Certain Strengths

Despite this, there are some reasons to be optimistic. Neusoft Medical will benefit from government policy which promotes Chinese medical imaging vendors potentially giving it an advantage in some situations over international competitors such as GE HealthCare, Philips and Siemens Healthineers.

There are also other opportunities for Neusoft Medical to secure growth. Its cloud-based MDaaS (Medical Data and Devices as a Service) for instance differentiates the product from its domestic competitors, giving providers a reason to choose a system from Neusoft Medical, rather than one of the many other CT system vendors in China. The offering also helps to secure sticky recurring revenues, that are less susceptible to fluctuations in markets, and changes in demand.

Moreover, by offering some cloud capability, Neusoft Medical can hope to open up new markets. Away from major urban centres in China, as well as in other emerging markets that Neusoft Medical may look to target, there is often a shortage of radiographers and radiologists, which renders the procurement of additional CT capacity unnecessary, given that providers will be unable to utilise it. If cloud and AI tools reduce the requirement for expertise at these sites, and allow doctors to collaborate with experts remotely, then Neusoft Medical may be able to sell additional systems to providers that would otherwise have been unable to utilise them due to a lack of resource.

These opportunities could become more significant with the added capital afforded by listing publicly. The vendor’s research and development spending is relatively low, for example, and could benefit from the added capital. The vendor spent 14.4% of its revenue on research and development in the first six months of 2021. As a percentage this is in line with some of its competitors, but in absolute terms it is a small figure. At $10.4m it is dwarfed by that of United Imaging, which in the first six months of 2021 spent $60.7m on R&D, let alone that of major international competitors such as GE HealthCare, Philips and Siemens Healthineers, which spend many times that amount each year.

Finding a Niche

Investing in research and development makes sense for the vendor. While it is unlikely to challenge the top-end of the CT imaging market, by investing in technologies such as cloud and AI it can still hope to differentiate itself from other competitors and establish itself as a competitive vendor offering some advanced capability in an affordable package. While this is unlikely to worry top vendors in established markets, Neusoft Medical could still carve out a niche for itself in second and third tier hospitals in China, as well as in some emerging markets across the world.

This latter ambition will, however, remain a challenge. Providers in emerging markets, as with providers in developed markets, tend to prefer products from large, reliable international brands with good support networks and post-sale service. This is true even if it means forgoing some extraneous features. Such preference does, however, also highlight another area where Neusoft Medical may choose to invest the money from its IPO: its sales and support operations.

Currently the Chinese vendor relies heavily on distribution partnerships. While this is an efficient way to be able to offer products across a wide range of markets, a vendor is not always able to guarantee the neutrality and knowledgeability of the distributor, nor the ability and dependability of its after-sales support and service. Further, by sharing sales revenues with a distributor, Neusoft Medical will have to accept lower margins. This might be worth the trade-off if it allows Neusoft Medical to facilitate sales further across the world, and potentially compete in more volatile markets in which it would be unwise to overly invest, but in most cases, over the longer term, it will become a hindrance. Sales made through distributors have also been a source of accusations of bribery and improper conduct, allegations which, whether true or not, could impact Neusoft Medical’s reputation by association.

Opportunity Knocks

This will become particularly acute as Neusoft Medical strives, as it must, to scale. To continue to grow, the vendor must establish itself as an alternative to the many other vendors offering increasingly affordable CT systems. To do this it needs to scale to be able to continue to invest in the product to differentiate itself, and to be able to leverage the economies of scale to be able to improve its returns. Improving margins will be of particular importance given that a sizeable proportion of its profits weren’t a result of product sales or service contracts, but were in fact derived from other sources, such as government grants and foreign exchange gains. In 2021, for example, of the vendor’s $48m net profit before tax, $40.5m is a result of ‘other income’.

Such strategic focuses and such spending priorities could, over time help Neusoft Medical continue to establish itself as an attractive vendor in the Chinese and some other emerging markets, which offers reasonable technical prowess at affordable prices. What is ultimately having a more direct impact on Neusoft Medical’s prospects, however, is something the vendor has no control over.

Earlier this year United Imaging, China’s biggest domestic medical imaging vendor, listed publicly on Shanghai’s STAR index. While that vendor has a different focus to Neusoft Medical and aspires to target medical imaging’s most technically advanced segment and secure sales in developed markets, it bears some similarities to Neusoft Medical. Significantly, its listing, which netted more than $1.6bn for the vendor, was oversubscribed more than 3,500 times. This means that Neusoft Medical will benefit from the excitement that United Imaging’s listing will have raised and capitalise on the strong prospects for the Chinese medical imaging market that the public company touts. Moreover, it will also offer an opportunity for those investors that were unable to put their money into United Imaging to bet on a similar alternative, which competes in many of the same markets, and will benefit from similar market conditions as United Imaging.

Given this rising tide, despite the severity of some of the challenges facing Neusoft Medical, it could still capitalise. As demonstrated by its repeated attempts to go public, listing does appear to be the only way forward for the Chinese vendor, and now, when the conditions are in its favour, represents the firm’s best opportunity yet to realise its ambition.

About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here

Signify Premium Insight: United Imaging Gives the Public what it Wants

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here.

As 2021 drew to a close, Chinese medical imaging vendor, United Imaging, made clear its intention to list on Shanghai’s technology – STAR index in 2022. This ambition was last week realised, when the vendor made its debut on the bourse.

Demand for shares in the company was high, with the firm’s IPO massively oversubscribed, and an increase in share price of as much as 75% when the company made its debut on the index. The offering will net the vendor more than $1.6bn, with the firm stating it will use the cash to fund research and development, production and marketing.

The Signify View

Even before United Imaging announced it was going to list publicly at the end of last year, the move seemed like the natural progression. The vendor has grown incredibly quickly since being founded in 2011, and now brings in around $1bn in revenue annually. To continue to grow, raising capital was necessary as it bids to compete with the largest international imaging vendors.

To do this, the vendor will have several priorities for its newly-raised funds, chief among them is product development. In the first instance, this means investing in the development of products that will allow it to better compete with GE HealthCare, Philips and Siemens Healthineers. United Imaging has been more successful compared to its domestic peers, thanks, in part, to its focus on high-end imaging rather than just cost competitiveness as is more typical of its domestic peers. To continue its arc of success this should remain a priority.

United Imaging therefore will likely invest in products to compete with other vendors’ most premium products, such as photon counting CT. CT is, by far, United Imaging’s biggest product line, accounting for around half of all revenue. As the next generational evolution of that modality, offering a flagship photon counting CT system and, over time, enriching its lineup with photon counting detectors, enables United Imaging to continue to compete on a comparable footing. In a similar vein, other paths being trod by other vendors such as helium-free MRI, and high-Tesla MRI represent necessary product development directions if United hopes to truly be thought of a competitor to other international vendors.

Portfolio Planning

In addition to continuing the development of product categories in which United Imaging is strong, the vendor will also need to address the gaps in its portfolio. As hospitals are increasingly looking to enter broader multi-modality imaging deals, they are turning to vendors which can address the majority of their imaging requirements and offer holistic solutions. United Imaging will therefore need to address the gaps in its line-up with modalities like angiography, mammography and ultrasound, for example, which currently represent significant omissions. Developing products in these modalities and addressing these gaps in its portfolio could therefore represent an opportunity beyond sales of those modalities themselves.

Another aspect of product development, which, pragmatically at least, is arguably more important than the portfolio offered by the vendor, is integrated production. For their advanced imaging lines, the likes of GE, Philips and Siemens, make almost all components themselves. This gives them more granular control over product, enables them to react to adversity in supply chains and external shocks and helps them to control costs and quality more tightly. United Imaging on the other hand still relies on external suppliers for many core components. The vendor therefore is likely to invest some of the fruits of its listing into bringing production of those components in-house. This is particularly true for components that are produced outside of China, with trade barriers and geopolitical tensions making dependency on international supply chains risky.

Turning Away from China

Beyond the products themselves, United Imaging also needs to invest in sales and service infrastructure internationally. United Imaging’s revenues have, so far, come almost entirely from its home market. The vendor would do well, however, to prioritise international growth. Chinese policies which focus on centralised purchasing are likely to depress the average selling prices of modalities in the country, given United Imaging’s strong dependence on these Chinese market, even a relatively small decrease in selling price could have a significant impact on profitability.

Furthermore, scale is crucial for success of the vendor. Even though United Imaging spends a relatively high proportion of its revenue on research and development, its actual spend is far outstripped compared to its much larger rivals. The only way it will be able to reduce this deficit and compete at the upper echelons of medical imaging is by selling significantly more medical imaging systems. It is unrealistic for such an increase in sales to come from its domestic market, particularly given the fact that many Chinese providers purchased additional CT systems and brought forward purchasing plans during the Covid 19 pandemic. Such hospitals, which have recently acquired new CT equipment are unlikely to make additional purchases in the near future, until the installed base is ready for replacement. There will be some growth as the state continues to invest in expansion of healthcare in China, but this offers nowhere near the opportunity afforded by international markets.

International Coordination

The specifics of this international expansion do, however, present some challenges. United Imaging aspires to compete at the premium end of medical imaging with the likes of GE HealthCare, Philips and Siemens Healthineers. However, to truly compete with these vendors, United Imaging must make inroads in mature markets such as the US and Western Europe. These markets are particularly difficult for United Imaging to displace incumbents. In these markets, providers are primarily concerned with image quality, and the quality of service they receive, with promises of minimal downtime for example, a significant benefit to hospitals. Doctors in these markets will also impede United Imaging’s progress, with many professionals lacking the motivation or availability to learn how to use a different vendor’s equipment, particularly if there is no significant benefit in terms of performance. Strong brand loyalty by the end user market in such developed nations further restricts penetration possibility and market access for new vendors.

This reluctance to adopt United Imaging’s solutions in mature markets could force the vendor to direct its efforts towards developing markets, including countries in Africa, and members of the Commonwealth of Independent States, including Russia. However, though these markets offer a better opportunity for United Imaging to realise sales, the markets themselves hold far less potential than other mature markets. As such, even though United Imaging will find the markets fruitful, they won’t be able to offer the vendor the scale it needs to truly compete with its established international rivals.

What’s more in these lower-value markets, where cost competitiveness is more significant, United Imaging could also start to lose out to other vendors, which don’t have the same lofty aspirations and instead are focused solely on producing affordable systems. Other Chinese vendors and Indian vendors such as Triviton, for example, could squeeze United Imaging in some markets by offering even more affordable advanced imaging systems.

Shares for the Future?

Despite these challenges, United Imaging’s achievements must be acknowledged. The speed at which the Chinese vendor has grown, and the range of advanced imaging products it now offers is impressive. It has also effectively capitalised on external trends. It has benefited significantly from Chinese state support, its government’s ‘buy local’ procurement policies and increased healthcare spending. The vendor has also benefitted from Covid 19, with revenues for its CT product line, a key modality used in Covid care, increasing by more than 150% between 2019 and 2020 largely as a result of increased covid spending. It has then rode this wave to its IPO, also benefitting from investors’ willingness to put money into healthcare firms, which are seen as something of a safe haven.

Even with these advantages and United Imaging’s execution, the road ahead is still difficult. $1.6bn is a lot of money, but it will only go so far. Even with this cash, United will struggle to match its international rivals’ development, which will make it hard to compete with them in developed markets, which will make scaling at the rate needed to maintain development difficult. In the meantime, it can target emerging markets, but the longer it is seen as a cost-focused vendor servicing less technically-demanding markets, the harder it will be to make the leap to the top tier markets, and the less chance it will have of competing with the established market leaders.

These constraints mean that United Imaging will likely have to settle for less prodigious growth over the coming years. Developing additional products and bringing component production in-house will offer significant benefits, but these will only truly be realised over time. More fundamentally, United Imaging also needs to home in on its targets. Can it really stand shoulder to shoulder with GE HealthCare, Philips and Siemens Healthineers? Or should it look to strike out and ace its own, unique approach. These are issues which, even given the money raised, listing publicly can’t solve.

About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here