Weigao Orthopaedics Reports Q3 Financial Results: Net Profit Rises 29% to RMB 496 Million in First Nine Months

Today, WEGO ORTHO, a subsidiary of WEGO, released its unaudited third-quarter financial report.

The report shows that in the first three quarters of this year, WEGO ORTHO recorded a total operating revenue of RMB 1.57 billion (+24.47%) and a net profit of RMB 496 million (+29%). In the third quarter, operating revenue increased by 10.56%, with net profit attributable to shareholders of the listed company reaching RMB 125 million, a year-on-year increase of 8.47%.

On June 30 this year, WEGO ORTHO was listed on the STAR Market, having consistently maintained its leading position in the orthopedic consumables segment in China. On the first day of trading, the opening price was 119 yuan, and the closing price was 106.05 yuan, representing a 192.79% increase over the offering price. As of press time today, its total market capitalization stood at 25.996 billion yuan.

Earlier (on September 14), the first round of centralized procurement for artificial hip and knee joints was launched. The average price of tentatively selected hip joints dropped from 35,000 RMB to around 7,000 RMB, while the average price of knee joints fell from 32,000 RMB to approximately 5,000 RMB, representing an average price reduction of 82%.

Among them, all four WEGO ORTHO products won the bids and were placed in Group A, with a total declared volume of 27,483 units.

Following the announcement of the proposed winning bidder list, orthopedic consumables manufacturers led by WEGO ORTHO, along with Sanyou, Aikang, and Dabo, saw their stock prices rise for several consecutive days, with market sentiment remaining consistently positive.

2020 Revenue Performance of Orthopedic Consumables Companies in China, Screenshot from; WEGO ORTHO Prospectus

Prior to the launch of centralized procurement, foreign enterprises such as Johnson & Johnson, Stryker, Medtronic, and Zimmer Biomet had long accounted for over 60% of the market share in China. Weigao ranked behind the aforementioned four companies with a 4.61% market share, making it the leading domestic manufacturer. Winning the bid will clearly facilitate Weigao in further expanding its market share.

As previously reported by the media, in the traditional distribution model for orthopedic artificial joints, orthopedic companies often procure third-party services to handle channel development and customer maintenance, while providing end customers with ancillary professional services such as preoperative consultation, logistics assistance, intraoperative support, cleaning and sterilization, and postoperative follow-up, in order to maximally meet the surgical requirements of physicians.

This expense is not insignificant. According to the prospectus of WEGO ORTHO, in 2020, its commercial service fees accounted for 68.73% of its selling expenses, totaling RMB 434 million.

In this round of centralized procurement, winning bid prices did not fall below cost. The prices for accompanying services were also included in the bidding scope and saw a substantial reduction, with a minimum of 50 RMB per unit. Following the procurement, accompanying service prices will be maintained within the range of 100 to 200 RMB.

Whether the accompanying services can be guaranteed following the price reduction remains uncertain.

Furthermore, although domestically produced devices entering the market at lower prices can provide treatment opportunities for price-sensitive patients, foreign enterprises also actively participated in this centralized procurement by proactively lowering their prices.

In the ceramic-on-polyethylene hip joint implant category, for example, Stryker quoted 5,119 yuan, representing a 72% price reduction and ranking first in its group.

Moreover, in clinical practice, many physicians tend to prefer foreign products. An orthopedic surgeon at a Grade III, Class A hospital in Beijing stated during a media interview that a particular foreign brand incorporates considerations for surgeons' technical challenges into its design, helping them mitigate potential complications, which is why it has become one of the products he uses most frequently in recent years.

Further data indicates that following the volume-based procurement, the revenue of private medical institutions utilizing non-winning products has surged, and doctors in public medical institutions are also contemplating leaving the public healthcare system.

Undeniably, the introduction of these policies is grounded in multiple perspectives, including healthcare insurance, patient interests, and market dynamics, and has indeed yielded certain benefits for domestic enterprises. However, the ultimate outcome remains open. Whether domestic substitution can be successfully realized will still require companies in this sector to seize the opportunity and refocus on technological advancement.