Mindray Addresses Key Investor Concerns in Latest IR Brief

Shenzhen Mindray Bio-Medical Electronics Co., Ltd released its latest investor relations summary on September 17, addressing pressing questions from stakeholders. The company’s earnings call featured Chairman Li Xiting, Director and General Manager Wu Hao, CFO Zhao Yun, Board Secretary Li Wenwei, and Independent Director Liang Huming.

Q: What caused the slower-than-expected growth in North America for H1 2024?

A: Mindray’s North American revenue saw a compound annual growth rate of 16% from 2020 to 2023, significantly outpacing the industry’s typical low single-digit growth. The company now operates in nearly 90% of U.S. Integrated Delivery Networks (IDNs) and has achieved top-three market share for key products such as patient monitors, anesthesia machines, and point-of-care ultrasound devices.

In the first half of this year, Mindray secured an exclusive three-year contract to supply anesthesia machines to the 10th largest IDN in the U.S., exemplifying its ongoing high-end market penetration. The company has been proactively adjusting its strategy since the onset of U.S.-China trade tensions in 2018. Even after the imposition of 25% tariffs, Mindray’s U.S. market expansion continued unabated.

By consistently expanding its high-end customer base and revenue share, the U.S. business has maintained steady growth with improving profitability over recent years.

Looking ahead, Mindray’s strategic view of the U.S. market remains unchanged. While the U.S. will continue to be the world’s largest medical device market and a crucial hub for academic and scientific research—vital for Mindray’s product development and brand building—it’s not expected to be the primary driver of rapid growth.

Currently, Mindray has developed about 30 product subcategories but sells only three in the U.S. The North American market accounted for just 6% of the company’s first-half revenue. While the U.S. market is projected to maintain steady long-term growth, its pace will likely lag behind the company’s overall growth rate. Consequently, the U.S. revenue share is expected to gradually decrease in the foreseeable future.

Q: Does the company have clear performance targets for the future? Can you provide an update on hospital bidding progress for the second half of the year? How do you view the national subsidies for equipment upgrades?

A: Mindray anticipates continued steady growth in the second half of the year, with international markets outpacing domestic performance. Specifically:

• Domestic equipment sales, which accounted for about 27% of total revenue in H2 2022, will largely depend on the scale and pace of equipment upgrades.
• The ultra-long-term special national bonds supporting equipment upgrades are being issued as planned, and local government special bond issuances are showing signs of acceleration, providing support for medical equipment procurement.
• Domestic consumables, primarily IVD reagents, represented approximately 32% of total revenue in H2 2022. Growth in this segment will mainly be driven by testing volume from domestic medical visits.
• Crucially, overseas revenue accounted for about 41% of total revenue in H2 2022. Based on ongoing localization efforts and breakthroughs with high-end clients, rapid growth is expected to continue in international markets for the foreseeable future, particularly in developing countries and Europe.

While short-term performance has been affected by external factors, these challenges are industry-wide. Mindray has actively responded to these changes, actually increasing its market share. Given the current situation, the company remains confident in achieving its goal of breaking into the global top 20 medical device companies by 2025 at the latest, in line with its established plans.

Regarding national subsidies for equipment upgrades, the company views these positively as they provide financial support for hospitals to invest in new medical equipment, potentially boosting demand for Mindray’s products.

Q: What are the company’s latest developments in AI healthcare?

A: Mindray views AI as a crucial solution to the scarcity of experienced healthcare professionals, which is a more significant barrier to quality healthcare than the lack of diagnostic and treatment tools. The company has been integrating AI functionalities into medical devices, combining big data and intelligent algorithms.

Key developments include:

1. AI-Enabled Products: Since 2015, Mindray has launched several flagship products with intelligent assistance features, including the N-series patient monitors, R-series ultrasound systems, and automated blood cell analyzers. These AI capabilities have been pivotal to the products’ market success and clinical acceptance.
2. Collaboration with Tencent: Mindray partnered with Tencent to develop AI algorithms for blood cell analyzers. This collaboration resulted in the first AI product in China’s in vitro diagnostics industry to enter the special review procedure for Class III innovative medical devices. The AI-powered analyzer can reduce average slide review time from 25-30 minutes to just 30 seconds, addressing the low slide review rates in clinical laboratories.
3. Clinical Validation: A multi-center study led by Huashan Hospital (affiliated with Fudan University) and involving 11 top-tier hospitals across China was published in January 2024 in the SCI journal Clinica Chimica Acta. The study systematically evaluated Mindray’s MC-series fully automated blood cell morphology analyzer (AI slide reviewer), validating its accuracy and reliability for blood cell analysis and peripheral blood morphology examination.
4. Market Success: Since its launch in 2023, the AI slide reviewer has been installed in over 400 hospitals globally, with sales surpassing the cumulative ten-year sales of competitors.
5. Critical Care Large Language Model: At the 2024 Tencent Global Digital Ecosystem Conference, Mindray unveiled a large language model for critical care, developed in collaboration with Tencent. This model offers intelligent applications for medical record writing, personalized patient condition inquiries, and critical care knowledge retrieval. It aims to significantly improve efficiency in handling clinical data and reduce time spent on documentation, allowing healthcare professionals to focus more on patient care.

The critical care large language model is currently being tested and implemented in top hospitals in China, potentially catalyzing further digital and intelligent development in the healthcare industry.