Neusoft Medical, Developer of China's First Domestic CT Scanner, Submits Sci-Tech Innovation Board IPO Prospectus

On June 30, Neusoft Medical Systems Co., Ltd. (“Neusoft Medical”) submitted its prospectus for an initial public offering (IPO) on the STAR Market to the Shanghai Stock Exchange. The prospectus indicates that the funds raised will be primarily used for the research and development (R&D) of core products and technical components; the R&D of next-generation ultra-high-end CT scanners and their core components; investment in R&D projects for high-field MRI scanners and their core components; investment in R&D projects for next-generation high-performance ultrasound products and components; as well as the development of marketing networks, brand building, and training systems.

Prior to its IPO application, the 22-year-old established medical device manufacturer has undergone multiple equity changes. However, its majority shareholder, Neusoft Corporation, still holds at least 58.75% of the shares in Neusoft Medical Systems through direct and indirect holdings. The second-largest shareholder, Weizhi Global, holds 26.52%, with Hony Capital and a Canadian pension fund as its underlying investors. Additionally, in 2019, Baidu’s Investment and M&A Division made a strategic investment of RMB 22.52 million in Neusoft Medical Systems Co., Ltd. To date, however, Baidu has not made any further investments in the medical device sector.

Neusoft Medical’s Specific Financing Events (Data Source: Qichacha)

Current Shareholding Structure of Neusoft Medical

For many years, Neusoft Medical has been deeply engaged in the research and development of high-end medical equipment. It has now developed a series of products spanning multiple tiers, including CT, MRI, DSA, GXR, US, PET/CT, and MDaaS. Its extensive market share is a testament to the company’s robust strength.

As the shadow of the pandemic gradually dissipates and a new wave of infrastructure development surges, Neusoft may lead Chinese-made large-scale medical equipment into a new era.

To review the development history of Neusoft, we must trace it back to the 1990s. At that time, during a period of advancement in medical standards, China began to frequently import high-end medical equipment. However, these devices were not only expensive but also often second-hand. It was not until 1997, when the first domestically developed CT scanner emerged, that a turning point was brought to the domestic market.

Neusoft, the leader of this transformation, leveraged its strengths in computer technology to mitigate weaknesses by innovatively replacing array processors with PCs. This approach not only achieved a technological breakthrough in the core systems of domestically produced CT scanners but also pioneered a new revolution in international CT technology.

Subsequently, foreign CT manufacturers also began to follow suit, replacing expensive array processors with cost-effective PCs. In 1994, the dream of “developing China’s own CT” finally became a reality. In 1997, China’s first CT scanner received certification from the State Drug Administration. In 1998, Neusoft Medical Systems Co., Ltd. was officially established and launched the Neusoft CT-C2000 to the market, taking the first step toward the industrialization of domestically produced CT scanners in China.

The Four Stages of Neusoft Medical's Development

Over the past 22 years, Neusoft Medical has emerged as one of the leading global providers of medical imaging equipment. Today, Neusoft Medical has established a comprehensive portfolio of nine product lines, comprising eight hardware lines—Computed Tomography (CT), Magnetic Resonance Imaging (MRI), Digital Subtraction Angiography (DSA), Digital X-ray (XR), Nuclear Medicine Imaging (PET/CT), Radiotherapy (RT), Ultrasound (US), and In Vitro Diagnostics Laboratory Automation (IVD)—along with its strategic MDaaS product line.

In 2019, several key new products launched by Neusoft Medical have been commercially available, including the 256-slice wide-bore spectral CT—NeuViz Glory, the rail-free ceiling-mounted seven-axis intelligent angiography system—NeuAngio 30C, and the MDaaS strategic product line.

NeuViz Glory CT, with its ultra-fast rotation speed of 0.259s, temporal resolution of 25ms, and advanced algorithms enabling 8cm, 1-beat imaging, easily addresses medical imaging challenges such as high heart rates and arrhythmias. It features modular applications for triple-rule-out chest pain and stroke, facilitating efficient diagnosis by physicians. Additionally, its 60kV low-dose imaging is particularly suitable for infant examinations and low-dose health screenings.

The integration of artificial intelligence has significantly enhanced physicians' efficiency. The comprehensive AI imaging system enables this CT scanner to read patients' cardiac information within milliseconds and subsequently generate personalized, standardized scanning protocols.

NeuAngio 30C Hanwu DSA: A trackless, seven-axis intelligent angiography system featuring an intelligent human-machine interaction interface, an AI-powered low-dose imaging platform, a high-heat-capacity X-ray tube, and a third-generation digital flat-panel detector. It meets interventional physicians’ needs for performing various prolonged and complex interventional procedures, with its intelligent noise-reduction, low-dose platform reducing radiation dose by 60%.

Furthermore, Neusoft Medical has developed MDaaS (Medical Devices & Data as a Service), a strategic product line characterized by the “internet-based sharing economy.” Leveraging medical devices and data, along with technologies such as the internet, big data, and artificial intelligence, MDaaS is designed to help healthcare institutions enhance their diagnostic and treatment capabilities and achieve operational excellence.

The continuous iteration of these products has gradually gained market recognition. According to 2019 data, Neusoft Medical held a 10.4% share of the domestic CT market, ranking second only to GPS. Meanwhile, the installed base of Neusoft Medical’s 1.5T MRI systems also ranked second among domestic brands.

Data Source: Frost & Sullivan

Previously, we could only catch a glimpse of Neusoft Medical’s operational performance through Neusoft Group’s annual reports. However, as the spin-off listing plan for Neusoft Medical has been placed on the agenda, specific details of its business operations have now come fully to light.

As evident from the financial statements, Neusoft Medical’s sales revenue surged by 33.31% in 2018 but subsequently stagnated. Despite minimal changes in revenue, the company’s net profit plummeted from RMB 169.7458 million in 2018 to RMB 88.2775 million in 2019, a decline of 48.00%. During the same period, its net profit excluding non-recurring items also dropped from RMB 82.7657 million to RMB 35.1286 million, representing a decrease of 57.55%.

A comparison of Neusoft Medical’s expenditures in 2018 and 2019 reveals that R&D investments for the two years were RMB 400.591 million and RMB 408.4132 million, respectively. Therefore, the decline in profit was attributable to increases in administrative expenses and period costs, among other items. The prospectus further pointed out that the decrease in the company’s gross profit margin, driven by changes in the structure of its main business revenue, was also a major factor contributing to the aforementioned changes in these indicators.

However, based on the 2019 annual report data of Neusoft Corporation, although its significant investments in smart cities resulted in an overall net loss, its high-end medical equipment and healthcare informatization businesses continued to generate positive cash flow. This still demonstrates, to a certain extent, the dominance of Neusoft’s healthcare segment in this field.

Examining the revenue from core operations, with the advancement of cutting-edge technologies such as artificial intelligence and big data, Neusoft Medical’s MDaas software solutions have achieved multi-fold business growth compared to 2017. Its service model has gradually shifted from one-time payments to an annual subscription model, a transition that has, to some extent, weakened Neusoft Medical’s current cash flow. On the other hand, as the equipment purchasing boom of 2018 and 2019 subsided, Neusoft Medical’s equipment sales revenue declined rather than increased, suggesting that the peak of the medical device sales market may be imminent.

It is worth noting that Neusoft Medical’s revenue from equipment services and training also nearly doubled, indicating that the company has captured a larger share of third-party service revenues related to hospital imaging equipment. This represents another significant step in the digital transformation of medical device companies.

In summary, Neusoft Medical continues to maintain profitability by relying on its imaging equipment sales business, which accounts for more than 65% of its revenue, leveraging its long-accumulated technological and R&D advantages. Meanwhile, although Neusoft Medical’s profits show a downward trend, the benefits brought about in the later stages of digital transformation will gradually improve its financial statements. However, during this process, Neusoft Medical must sustain its current industrial advantages while continuing to innovate, in order to effectively cope with increasingly fierce competition from GPS (GE Healthcare, Philips, and Siemens Healthineers) as well as other domestic medical device manufacturers.

Impacted by the pandemic, Neusoft Medical’s 2020 financial statements may have continued to decline compared to 2019. However, for Neusoft Medical, the long-term value it has built has already established high barriers, leaving domestic competitors far behind.

Neusoft Medical’s product portfolio is primarily divided into four segments: digital diagnostic and therapeutic equipment, in vitro diagnostic (IVD) equipment and reagents, MDaaS solutions, and equipment services and training. Furthermore, Neusoft Medical has adopted a layered design for the various modules within each segment to address diverse needs across different scenarios. Finally, through modular combinations, Neusoft Medical has further deepened its product offerings.

In the high-end market segment, Neusoft focuses on equipment sales services and scientific research collaborations. As of March 31, 2020, Neusoft had cumulatively sold over 1,000 medical devices to tertiary hospitals, and engaged in scientific research partnerships with top-tier domestic hospitals such as Peking Union Medical College Hospital and the First Affiliated Hospital of China Medical University. With the launch of high-end products like 256-slice and 512-slice CT scanners and DSA systems, along with the expansion of its MDaaS business, the company will have opportunities to establish closer collaborations with more premium hospitals.

In the realm of primary healthcare, Neusoft Medical has designed a diverse portfolio of products that closely align with customer needs. Driven by national policies aimed at strengthening grassroots medical services, Neusoft Medical has achieved cumulative sales of over 14,000 units to secondary and lower-tier medical institutions as well as private hospitals. Furthermore, by developing solutions aligned with the broader health strategy—such as imaging cloud platforms, enhancement of medical imaging capabilities, and emergency and critical care systems—Neusoft Medical further assists healthcare institutions in upgrading their equipment configurations. This enables functionalities including remote imaging, remote consultations, remote teaching, and two-way patient referrals, thereby facilitating the decentralization of high-quality medical resources and advancing the implementation of tiered diagnosis and treatment.

As one of the few medical enterprises in China that promotes domestic substitution while exporting Chinese brands overseas, Neusoft Medical has established subsidiaries in nine countries, including the United States, Germany, the United Arab Emirates, Russia, Brazil, Peru, Kenya, Thailand, and South Korea, set up a representative office in Vietnam, and maintained cooperative relationships with more than 30 overseas distributors. Currently, the company’s main products have been sold to over 80 countries participating in the Belt and Road Initiative, breaking the monopoly held by large multinational corporations in certain overseas markets.

To enhance its understanding of the needs of international clients at varying levels of development and to penetrate overseas markets more deeply, Neusoft Medical has continuously advanced its localization strategy for overseas operations. The company has established localized marketing and service teams in key countries and regions, including the United States, Germany, Peru, and the Middle East, with a local hiring rate for overseas staff exceeding 60%.

The technological advancement of medical artificial intelligence has not only sparked a wave of entrepreneurship among computer scientists but also attracted the attention of numerous medical device giants, including Neusoft Medical.

Amid this wave, Neusoft Medical’s first batch of computer-aided detection (CAD) software products developed in China have obtained CFDA registration, FDA clearance, or CE certification. Among them, the breast CAD system fills a gap in domestically produced counterparts, while the urology CAD system is the first Chinese product of its kind to receive FDA clearance.

In the MDaaS business segment, Neusoft Medical has engaged in collaborative innovation with numerous domestic and international partners, establishing relevant technical platforms and developing related products and services, including imaging cloud operational services, intelligent imaging solutions, and specialized disease management solutions, thereby building competitive advantages in both products and technology.

The research and development of MDaaS-related technologies and the implementation of associated businesses have fostered more diversified business models, enhancing the added value and competitiveness of the company’s existing products. The cloud-based migration of imaging data services has augmented the company’s revenue model by adding recurring service income to product sales revenue; intelligent imaging and specialty disease solutions have expanded the company’s client base and service scope; and equipment platform operation services for healthcare institutions have introduced a new collaborative healthcare model for the company.

As of December 31, 2019, Neusoft Medical had 915 R&D personnel, accounting for 34% of its total workforce.

Meanwhile, Neusoft Medical and its subsidiaries have cumulatively filed 1,373 patent applications and hold 625 granted patents. Among these, 1,243 are invention patent applications, with 510 granted invention patents. In China, the company has filed 1,153 patent applications and holds 488 granted patents; in the United States, it has filed 168 patent applications and holds 104 granted patents. Additionally, the company owns 144 computer software copyrights and 55 registered trademarks. As the implementing entity for the National Engineering Technology Research Center for Digital Medical Imaging Equipment, the company has undertaken 37 national and provincial key scientific and technological R&D projects since its establishment. Its products or projects have received a total of 14 national- and ministerial/provincial-level science and technology awards, including the Second Prize of the National Science and Technology Progress Award issued by the State Council.

This advantage is built upon Neusoft Medical’s long-term investments and represents its most fundamental and core strength.

From an operational data perspective, Neusoft Medical’s robust qualifications could even enable it to meet the listing requirements of the Shanghai and Shenzhen Main Boards. Therefore, for this company, its debut on the STAR Market may be merely a matter of time.

Beyond its core strengths, Neusoft Medical swiftly donated high-end CT equipment and software worth RMB 27 million during the pandemic and rapidly developed the “Leishen” cabin CT within seven days. These actions further demonstrate the social responsibility of this medical device giant.

Currently in a critical phase of digital transformation, and further hindered by the pandemic—a natural disaster—Neusoft Medical may not be able to sustain its recent momentum of continuous growth. However, in the long run, as systemic risks gradually recede and digital transformation begins to yield returns, Neusoft Medical is well-positioned to secure a competitive advantage in the new market landscape.

Neusoft Medical told VCBeat in an interview that it aims to transform from a provider of imaging equipment into a comprehensive solutions provider for clinical diagnosis and treatment, built upon its imaging devices. By seizing the wave of constructing new public health defense systems under the “New Infrastructure” initiative and keeping pace with the exploration and application of artificial intelligence, big data, and the Internet of Things (IoT), Neusoft Medical may not be far from achieving its goal.