Can Yuwell Medical Break Through the Mid-to-Low-End Medical Device Bottleneck as Pandemic Tailwinds Fade and Revenue Growth Slows?

Recently, yuwell announced its 2021 Annual Report and First Quarter 2022 Report.

According to the 2021 annual report, Yuwell achieved a revenue of RMB 6.894 billion in 2021, representing a year-on-year increase of 2.51% from RMB 6.725 billion in 2020, while its net profit was RMB 1.482 billion, a year-on-year decrease of 15.73%. According to Yuwell’s first-quarter report for 2022, the company’s revenue in the first quarter was RMB 1.821 billion, a year-on-year increase of 9.6%, and its net profit was RMB 460 million, also up by 9.6% year on year.

As a well-established medical device enterprise, Yuwell has developed into the leader in China's mid-to-low-end medical device sector, achieving breakthrough progress driven by the pandemic. In early 2020, when the outbreak erupted, global supply and demand for anti-epidemic materials such as ventilators and face masks were imbalanced. Sales of Yuwell’s products, including ventilators, oxygen concentrators, and thermometers, surged significantly. Notably, the company gained special access to overseas markets, resulting in a substantial increase in export volume.

During the pandemic response, Yuwell continuously increased production capacity and advanced overseas audits across all its core business divisions. The company supplied over 15 million units of testing, monitoring, therapeutic, and emergency care products, as well as more than 10,000 tons of infection control and disinfection products, to over 90 countries and regions worldwide.

Previously, Yuwell primarily exported basic diagnostic devices such as blood pressure monitors and stethoscopes for rehabilitative care in hospitals and homes. In contrast, higher-priced products with greater gross profit margins, such as ventilators and oxygen concentrators, raised Yuwell’s overall sales gross margin to 57.17% in 2020.

Now that the feverish demand for ventilators and oxygen concentrators has gradually subsided, Yuwell’s rapidly growing revenue has begun to stabilize. In 2021, Yuwell saw revenue growth without a corresponding increase in profits. As the pandemic-driven tailwinds fade, can Yuwell seize the opportunity to further expand its overseas markets? What adjustments have been made to its business portfolio, which is primarily centered on mid- to low-end home medical devices, and how will the company break through its development bottlenecks?

Since its establishment in 1998, Yuwell has occupied a leading position in China’s mid-to-low-end medical device sector. Particularly in the home medical device market, its products such as electronic blood pressure monitors, forehead thermometers, and electric wheelchairs rank among the top domestically. Currently, the company offers more than 600 product categories with nearly 10,000 specifications.

As China’s population ages and public health awareness rises, the market for home-use medical devices is expanding. According to analysis and statistics from the China Business Industry Research Institute, the market size of home-use medical devices in China reached RMB 136.3 billion in 2020. Home-use medical devices can be categorized into monitoring products (e.g., blood glucose meters), therapeutic products (e.g., nebulizers), and rehabilitation products (e.g., oxygen concentrators). Unlike clinical medical devices, these products have lower barriers to entry in research and development, with most having relatively low average prices. The market features numerous participants and low concentration.

Small and fragmented enterprises are gradually saturating the low-to-mid-end home medical device market. As a market leader, yuwell is seeking new growth curves by developing high-margin, high-value-added mid-to-high-end medical devices.

In 2021, yuwell unveiled its new strategic positioning.Building on its continued development of cornerstone businesses such as blood pressure monitoring, temperature monitoring, traditional Chinese medicine (TCM) equipment, and surgical instruments, the company focuses primarily on three core sectors: respiratory care and oxygen generation, blood glucose monitoring and point-of-care testing (POCT), and infection control and disinfection. These three segments are characterized by high gross margins, strong growth potential, and substantial market opportunities. Additionally, the company is incubating high-potential businesses in emergency care, ophthalmology, and intelligent rehabilitation.

In recent years, the company has continuously expanded its R&D team, increased R&D investment, and enriched its product portfolio. In terms of R&D expenditure, on the basis of a year-on-year increase of over 70% in 2020, Yuwell’s R&D expenses still rose by 6.02% in 2021, while the number of R&D personnel increased by 25%.

Currently, Yuwell has several major brands under its portfolio, including “Yuwell,” “Jie Furou,” “Hwato,” “JZ,” “An’er Dian,” “PRIMEDIC,” and “66 Vision.” With the exception of “Yuwell,” all other sub-brands were acquired by Yuwell.

Brands under yuwell Source: Public information

Yuwell has simultaneously driven organic growth and external acquisitions to continuously refine its industrial layout. In the field of diabetes care, Yuwell acquired Zhejiang Kailite in 2021, entering the continuous glucose monitoring (CGM) sector. In ophthalmology, following the acquisitions of Liuliu Vision and Jiangsu Shizhun, Yuwell acquired Jiangsu Lerun Contact Lens Co., Ltd. in May 2022. The company’s business scope includes glasses and accessories, auxiliary materials, contact lens care solutions, and cleaning solutions.

In recent years, as China’s population aging intensifies, the incidence of ophthalmic diseases and the demand for diagnosis and treatment have risen year by year, driving growth in the related medical device market. Yuwell has continued to increase its investment in the ophthalmology sector, and high-margin products such as contact lenses are expected to further expand revenue through Yuwell’s robust online sales channels.

The COVID-19 pandemic has accelerated Yuwell's strategic transformation.

Since the outbreak of the pandemic in 2020, Yuwell has seen a substantial surge in shipments of its respiratory products such as non-invasive ventilators, temperature screening devices like infrared forehead thermometers, and infection control products including disinfectants. Notably, within the first two months of 2020 alone, the production volume of anti-pandemic products such as disinfectants and forehead thermometers matched the total output of the previous decade. According to Yuwell’s 2020 annual report, the company supplied more than 6 million units of medical equipment and over 7,000 metric tons of infection control and disinfection products across China.

However, the revenue and net profit growth driven by the pandemic is abnormal and cannot be sustained in the long term. Therefore, seizing the pandemic dividends, building brand equity, and penetrating domestic and international markets are the development directions for yuwell. Chen Jian, Board Secretary of yuwell, mentioned in an interview that the company has shipped large volumes of products under its own “yuwell” brand to developed countries such as those in Europe and America, competing on equal footing with international peers. This has provided a favorable opportunity for the company to enter the healthcare markets of developed nations.

In April 2020, Yuwell’s ventilators received Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA). In 2021, the company underwent an unannounced CE audit by the European Union, during which its oxygen concentrators, oxygen regulating valves, and other products passed the review with zero defects across raw material procurement, production processes, process control, and quality management. To date, multiple Yuwell products, including blood pressure monitors, oxygen concentrators, and blood glucose meters, have obtained FDA and CE certifications.

Under the new normal of pandemic control, Yuwell’s core businesses have returned to a healthy trajectory, with main products such as oxygen concentrators, electronic blood pressure monitors, blood glucose meters, and test strips all maintaining robust growth. In 2021, Yuwell saw revenue growth but a decline in profit. From 2019 to 2021, Yuwell’s gross sales margins were 42.21%, 57.17%, and 48.29%, respectively. This was primarily due to a year-on-year decrease in sales volume of its high-margin product, ventilators, although the compound annual growth rate compared to 2019 still exceeded 50%.

Looking at each business segment specifically,Yuwell’s respiratory therapy solutions segment maintained a rapid growth rate, accounting for 38.04% of total revenue and serving as the company’s primary revenue source.. With oxygen concentrators as the core of its business, annual sales exceeded 1 million units in 2021, driving a year-on-year revenue growth of nearly 80%. Sales of nebulizer products also saw significant growth compared to the same period last year, with a year-on-year increase exceeding 113%.

Diabetes Care Solutions Is Yuwell's Fastest-Growing Business Segment, with a year-on-year increase of over 70% in 2021. This is also the business segment with the highest gross profit margin under Yuwell, which reached 65.48% in 2021.

In the home-use electronic testing and in vitro diagnostics business,Yuwell's flagship electronic blood pressure monitors posted a year-on-year growth rate exceeding 35%, mirroring the same >35% YoY growth recorded for this product line in 2020.. As a cornerstone product of the company's core business, it has been in a phase of rapid growth. Due to decreased demand during the pandemic, sales of infrared thermometers and disinfection and infection control series products declined significantly compared to 2020.

In the rehabilitation and clinical devices segment, Yuwell's wheelchair products achieved a year-on-year growth rate of over 38%, while the sales revenue of acupuncture-related products increased by nearly 15% year on year.

In 2021, the revenue of yuwell's foreign trade product segment was 0.As one of Yuwell’s four major business segments, foreign trade products accounted for nearly 10% of the company’s total revenue in 2019. However, due to high costs associated with channel development and other expenses, this segment required substantial investment and yielded relatively low gross margins. According to the 2020 annual report, the gross margin for foreign trade products was only 3%. In the second half of 2020, Yuwell divested its indirect subsidiary, Shanghai Lianzhong Medical, which was primarily engaged in international trade, thereby reducing the impact of the foreign trade segment on the revenue of its core business.

In addition to its core medical device business, Yuwell has begun expanding into the financial sector with plans to boost investment returns. In late December 2021, Yuwell injected nearly RMB 1.1 billion into Chongqing Ant Consumer Finance Co., Ltd. In August 2020, the company proposed to jointly establish Chongqing Ant Consumer Finance with Ant Group and several other parties, with a total capital contribution of RMB 8 billion. The company was officially established in June 2021, with its main business scope including issuing personal consumer loans, accepting deposits from domestic subsidiaries and domestic shareholders, and borrowing from domestic financial institutions.

From a regional perspective, the cost of Yuwell’s domestic sales rose by over 31%, causing its gross margin to decline despite an revenue increase of more than 8%. In contrast, while overseas revenue dropped by over 13%, costs decreased significantly by more than 22%, leading to an overall growth in gross margin. This outcome is attributable to Yuwell’s efforts during the pandemic, when it not only fulfilled a large volume of overseas orders but also established and expanded its international sales channels, laying the foundation for business operations in the post-pandemic era.

In 2020, Yuwell had a channel, terminal, and online team of over 700 people, one global customer service center, and eight regional service centers. The company operated brand flagship stores on all major e-commerce platforms. By 2021, the company’s channel, terminal, online, and export teams had grown to more than 1,000 employees, with multiple regional service centers, further strengthening its direct-operated capabilities.In 2021, yuwell established a new export sales team, strengthened the construction of localized overseas teams, and expanded its international sales channels.

In terms of sales channels, Yuwell adopts a hybrid model combining direct sales and distribution, with e-commerce serving as its core sales channel. Pharmaceutical e-commerce has emerged as a new blue ocean in the "Internet Plus" era, and the shift of health product sales to online platforms has become a major trend accelerated by the pandemic. Yuwell’s core business focuses on home-use products, which aligns well with the characteristics of e-commerce platforms. A closer look at Yuwell’s selling expenses reveals that e-commerce platform fees constitute the largest expenditure, while the company’s performance on online platforms has demonstrated rapid year-on-year growth.

During the 2021 “618” e-commerce festival, Yuwell achieved total online sales exceeding RMB 250 million, with sales on both Tmall and JD.com surpassing RMB 100 million each, ranking first in the home medical device industry. Ten of its products, including oxygen concentrators, ventilators, blood pressure monitors, nebulizers, pulse oximeters, and blood glucose meters, ranked first in sales volume either across all online platforms or on specific platforms.

Blood glucose monitoring and POCT are one of Yuwell’s three core business segments. Previously, the company’s products in the diabetes management sector primarily consisted of blood glucose meters and test strips, both of which have maintained annual growth rates exceeding 20% in recent years. Through a combination of in-house R&D and acquisitions, Yuwell is aggressively expanding its footprint in this business area.

In late August 2021, Yuwell completed the acquisition of Zhejiang Kailite Medical at a significant premium, thereby acquiring its continuous glucose monitoring (CGM) technology. Following the acquisition, Yuwell has been committed to fostering strategic synergy between its blood glucose monitoring (BGM) and CGM businesses, as well as developing and deploying patient management mobile applications, with the aim of creating a closed-loop solution for diabetes management.

According to data released by the International Diabetes Federation, the number of diagnosed diabetes patients in China reached 116 million in 2019 and is projected to reach 200 million by 2030. As diabetes progresses to its moderate and advanced stages, it may lead to complications such as heart disease and stroke. Diabetes is a lifelong, irreversible condition; therefore, long-term, continuous monitoring is essential to promote blood glucose management among patients and reduce the incidence of complications.

In May 2021, the Anaitang continuous glucose monitor, jointly developed by Kailite and Yuwell, was launched., which monitors glucose concentration in subcutaneous interstitial fluid in real time via a glucose sensor, generates blood glucose data at regular intervals, enables 24-hour continuous monitoring of human blood glucose levels, and provides real-time feedback on glycemic status. This product addresses the drawbacks of traditional CGM devices, such as long measurement intervals, frequent blood sampling, and inaccurate blood glucose data collection.

The launch of this product drove a year-on-year revenue growth of over 70% in yuwell’s “Diabetes Care Solutions” segment in 2021. In terms of average selling price, the Anaitang blood glucose meter was officially launched at over RMB 700, with a usage cycle of one week. This price point is relatively high compared to the overall market average, which may hinder its subsequent promotion.

Meanwhile, Yuwell is building a patient management platform to bundle its products for sales. In March 2022, Yuwell launched China’s first innovative nighttime glucose management platform—the Diabetes and Obstructive Sleep Apnea Patient Management System (DOMS). Supported by three core Yuwell products—an innovative wearable PSG device, continuous glucose monitoring (CGM), and continuous positive airway pressure (CPAP) therapy—the platform integrates sleep monitoring, dynamic glucose monitoring, and ventilator treatment functionalities.

In China, over 100 million people suffer from OSA (Obstructive Sleep Apnea). The prevalence of diabetes among OSA patients exceeds 40%, while the prevalence of OSA among diabetic patients is greater than 23%. Conducting simultaneous respiratory sleep monitoring and dynamic glucose monitoring for diabetes, along with coordinated management of patient data, can provide patients with systematic disease management solutions. Furthermore, collaborative sales across product lines facilitate the promotion of yuwell’s products and enhance brand equity.

AED (Automated External Defibrillator) emergency products are also a key sector in which yuwell has made significant strategic investments.

In 2020, yuwell’s AED business achieved a year-on-year growth of 20%, and in 2021, the AED business grew by over 30% year on year, indicating that the company’s earlier investments in market education and clinical promotion began to yield returns.

Driven by the rising mortality rate among cardiac arrest patients, China is vigorously promoting the widespread adoption and application of automated external defibrillators (AEDs). According to estimates from the "Report on Cardiovascular Diseases and Health in China 2019," there are 544,000 cases of sudden cardiac death (SCD) annually in China, with cardiac arrest being the leading cause of SCD. AEDs can effectively deliver electrical defibrillation to patients, helping to restore heart rhythm and improve survival rates.

Currently, the number of AED products approved in China is increasing. In addition to imported brands such as Philips and ZOLL Medical, products from Mindray, Yuwell, and JiuXin Medical have also received successive approvals. However, the installed base of AEDs in China remains insufficient, showing a significant gap compared with developed countries, and market cultivation is still in its early stages.

The widespread adoption of AEDs is inextricably linked to the public’s awareness and proficiency in emergency first aid. To build its brand image and expand market share, yuwell has made significant efforts in market education for AEDs. The company has invested substantial human and material resources to popularize first aid knowledge and has collaborated with professional emergency organizations to provide AED and CPR training. Most entities that undergo such training develop an awareness of the importance of installing AEDs, thereby naturally opting to deploy yuwell’s AED products.

Yuwell has deployed a batch of automated external defibrillator (AED) units in various public spaces across China, including railway stations, subway stations, airports, schools, tourist attractions, and shopping malls, and these devices have been utilized in marathon events at all levels nationwide. Meanwhile, the company has conducted nearly 100 training sessions on first aid and AED usage for enterprises, institutions, and communities, directly benefiting tens of thousands of individuals, and has provided American Heart Association (AHA)-certified training to over 1,000 participants. In 2021, Yuwell jointly established a Cardiopulmonary Resuscitation (CPR) First Aid Training Base with the Chinese Medical Rescue Association and officially launched certification courses accredited by the association.

Due to the unique nature of AED products, companies must engage in long-term management after sales to ensure that the devices remain operational; consequently, significant resources must be devoted to after-sales service and maintenance.In April this year, the AED products under Yuwell’s Primedic brand obtained domestic registration certificates. Combined with earlier market cultivation efforts, this approval will further accelerate the commercial deployment of the company’s AED products.

In recent years, the market has been rife with controversy over Yuwell being “large but not specialized.” The company faces low barriers in the home medical device sector, relying primarily on its distribution channels for competitive advantage, while its positioning in the clinical medical device segment remains unclear and lacks flagship products.

Yuwell is taking concrete steps to address its weaknesses. In terms of industrial layout, Yuwell has further focused on three core sectors: respiratory care and oxygen generation, blood glucose monitoring and POCT (point-of-care testing), and infection control and sterilization. Core products such as oxygen concentrators and electronic blood pressure monitors have seen steady growth, while potential products like CGM (continuous glucose monitoring) and AEDs (automated external defibrillators) have begun to generate revenue. In marketing channels, the company has strengthened its direct online sales capabilities and established a leading position on e-commerce platforms. Regarding internationalization, Yuwell has leveraged the momentum of the pandemic to aggressively expand into overseas markets, build distribution channels, and diversify its revenue sources.

Whether the company can break through the development barrier of being “large but not specialized” remains to be seen as its product lines further “bear fruit.”

References:

“Ventilator Makers Pocket Nearly 400 Million Yuan in Three Months: Foreign Buyers Must Pay in Full Upfront, Manufacturers Admit It’s a Fleeting Frenzy” — Caijing Tianxia

“Finance Circle Talks to Chen Jian, Board Secretary of Yuwell: Structural Changes in Demand Market Bring Two Long-Term Logics” — Finance Circle

“Yuwell’s Succession Change Signals a Reshuffling of the Home Medical Device Market” – Health界