Tag Archives: Production

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

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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.

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Signify Premium Insight: Made In India – Population and Policy

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.

Recently, Indian modality manufacturer Trivitron Healthcare announced that it will launch an Indian-made CT system and MRI system in FY2022-23.

The move adds to a growing trend for medical imaging vendors, both domestic and international, to increasingly focus on producing products in the country. GE HealthCare, Siemens Healthineers and Philips are among the vendors typifying this trend, with each of them having recently expanded manufacturing and other operations in the country.

The Signify View

India has represented a considerable sales opportunity for health tech vendors for a long time. An enormous and growing population, with a burgeoning middle class, whose members increasingly have the means to spend more money on healthcare, as well as a recently offered public health insurance fund, means the country has featured heavily in the growth plans of many vendors for some time. There are, however, several essential considerations that need to be factored in to maximise this opportunity.

Among the most significant is a policy which grants domestic firms preferential market access, which stipulates that one third of tenders should be awarded to a local company, provided it meets certain requirements. As a result, vendors which do not conduct any manufacturing processes in India could be at a distinct disadvantage compared to those that do, causing them to miss out on lucrative deals as healthcare spending in the country increases. This could impact different vendors in different ways, with some choosing to establish facilities outright in the country, while others, such as GE HealthCare, have chosen to form joint ventures with domestic players, in GE HealthCare’s case, Wipro, to gain local expertise and resource.

Enabling Access

Beyond determining which vendors will be able to secure tenders, the regulations around market access are also likely to influence the complexion of the market. Foreign companies, for instance, will still be able to win 50% of tenders valued at over five million rupees, on the condition that they are able to offer the lowest bid. They are then able to win the remaining balance of the tender, provided no local supplier can match the lowest bid. Such conditions elevate the importance of price in tenders, a move which will hinder those whose manufacturing facilities are in areas with higher costs, or who face higher costs for logistics, for instance, while making devices more affordable for the country’s providers.

Increased affordability can have a dramatic impact on the adoption of high-end imaging technology. Trivitron compatriot Innvolution, for example, has focused on increasing the affordability of catheterisation laboratory systems. This has paid dividends for the vendor, which has seen sales of its cath lab solutions increase from 179 units in 2019, to 550 units in 2022. A dramatic growth curve that could be replicated by a vendor offering more affordable CT and MRI systems.

Focusing on affordability also marks a sensible strategy for India. When the providers in many other countries have looked to expand their install base, they have frequently turned to Chinese vendors. This has been particularly true for more price-sensitive modalities such as X-ray and ultrasound, although increasingly, with the likes of United Imaging, more advanced modalities such as CT and MRI are also widely available from Chinese suppliers. This presents a number of barriers. The two nations have a broadly amicable economic relationship despite turbulent border relations. However, India, like many other countries, is also concerned by an overreliance on Chinese-made products, lest it become overly beholden to the country.

More pragmatically, as the healthcare spend increases within India, and healthcare provision is extended to hundreds of millions of people, the economic opportunity is sizable. A reliance on products from China, or indeed, any other nation, sees capital leaving the country rather than being reinvested into India, providing employment, supporting domestic technological innovation and being returned in the form of taxes. Furthermore, a stipulation for a greater proportion of tenders to be fulfilled by Indian companies, also means that foreign vendors are being forced to invest in the country. Spending money on infrastructure, creating jobs and bolstering other smaller local vendors offering business services.

The benefits can also extend to product specifics. In India, some software vendors tailor products to meet the needs of Indian clinicians. The same could be true of hardware, with Indian manufacturers able to make products that are particularly suited to the Indian hospitals which will buy them. This is a strategy adopted by other vendors in other parts of the world. One of the reasons Canon Medical and Shimadzu do so well in their domestic market of Japan, for instance, is their willingness to tailor solutions to their local customer base.

Vendor Value

While such a ‘made in India’ strategy promised (but, depending on how the strategy is appraised, hasn’t necessarily delivered) clear benefits to the country, it has for the most part also proved attractive to vendors.

Often one of the highest costs a company faces is its wage bill. While there are numerous countries around the world that can offer cheap labour, non can offer vendors this cheap labour alongside such an enormous domestic market. According to The World Bank, India’s population is around 1.38 billion. China, the only country with a higher population, has around 1.41 billion citizens. So, although domestic potential is similar, wages are much cheaper in India than China, a well-established manufacturing hub. What’s more, India is set to overtake China as the world’s most populous country, as soon as 2023, according to the UN.

Focusing on manufacturing sites in India will allow vendors to better compete with domestic companies on price, while facilitating better sales networks and closer relationships to the rapidly growing Indian customer base. These centres will also allow a vendor to produce systems at scale, enabling them to enjoy the economies of scale when selling to other countries where price is the central concern.

A further benefit, which is arguably increasing in importance, is that the focus on Indian manufacturing centres will allow imaging vendors to diminish their reliance on production and sales in China. Given current obstacles in Western relations with China, such as disputes around Taiwan, bilateral sanctions and fears of security risks, this will offer reassurance to Western vendors.

United 2.0?

Despite these advantages, there are still risks for international imaging vendors. Trivitron, spurred on by made-in-India policies and propelled further by the upcoming launches of its MRI and CT systems, could, along with compatriot vendors like Allengers and Innvolution, for example, grow into major international vendors, or, at least, grow to be painful thorns in the side of GE HealthCare, Philips and Siemens Healthineers. They could hope to follow in the footsteps of some rapidly growing Chinese vendors, including United Imaging. Founded in 2011, the vendor made its ambitions clear from the outset by tempting countless engineers and technicians away from its better-established international competition. Such a move enabled it to grow rapidly, with the vendor now bringing in around $1bn in revenue annually, and challenging more established competitors in several markets.

Trivitron could aspire to a similar growth trajectory. The company and its domestic peers would naturally look to grow, with global scale essential over the longer term to be able to compete with larger rivals, both on price, but also on its ability to innovate, offer new products and secure new deals. If Trivitron, for example, rather than long-established Western vendors is better able to capitalise on the vast opportunity its domestic market presents better than its rivals, it or its peers could grow into medical imaging heavyweights.

Aside from these competitors, there are also other risks, with, for example, occasional volatility of the rupee, poor transport infrastructure in parts of the country, the relative prevalence of corruption in India, and even corporate espionage and IP theft. However, these are challenges that must be faced.

India is among the clearest opportunities for imaging vendors, both international and domestic, to grow. These companies need to focus on growing their Indian footprints and increasing production in the country to best capitalise on the country’s rising tide. Against this backdrop, Trivitron’s new launches are essential, allowing the vendor to, for the time being at least, grow alongside its much larger rivals.

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