A-Strong Medical Reports 37.6% Revenue Growth Driven by 3D-Printed Orthopedic Implants

VCBeat (WeChat ID: vcbeat) has learned that AK Medical Holdings Limited (“AK Medical”) released its first annual report since listing on March 20, 2018. As a company with multiple CFDA-certified medical 3D-printed products, its development has attracted significant attention.

According to the annual report, AK Medical achieved revenue of approximately RMB 373 million, a year-on-year increase of 37.6%, with gross profit of approximately RMB 264 million, up 40.8% year on year. The profit attributable to equity shareholders of the company for the year was approximately RMB 105 million, representing a year-on-year increase of 36.3%; earnings per share were RMB 0.14, and a final dividend of 3.5 HK cents per share is proposed.

Notably, the annual report highlights that growth was primarily driven by strong sales performance of joint replacement implants, including 3D-printed products. Revenue from 3D-printed products reached RMB 33.4 million during the year, representing a year-on-year increase of 175.7% and accounting for 10.5% of the company’s total revenue.This growth was primarily driven by the fact that this 3D-printed product is the only 3D-printed orthopedic device with marketing authorization in China. Upon its launch, it received strong market recognition, leading to a rapid increase in sales volume.

As of the year ended December 31, 2017, AK Medical Holdings had a total of three 3D-printed products approved by the China Food and Drug Administration (CFDA), namely 3D-printed acetabular cups and augmentation blocks, 3D-printed interbody spinal fusion cages, and 3D-printed artificial vertebral bodies.AK Medical remains the only orthopedic company in China with CFDA-approved 3D-printed metal implants.

In 2017, AK Medical’s 3D-printed products generated sales revenue of RMB 33.4 million, with hip joint products accounting for RMB 28.5 million. Meanwhile, 3D printing technology also enabled AK Medical to enter the spinal field; in 2017, the company’s spinal products achieved sales revenue of RMB 4.9 million.

Compared with 2016, the sales revenue of AK Medical’s 3D-printed products increased by 175.7%. This rapid growth is primarily attributable to AK Medical being the only company in the market capable of providing 3D-printed orthopedic implant products, while the structural advantages of 3D-printed products are gradually gaining recognition among orthopedic surgeons.

In addition to its products, AK Medical also provides customers with personalized 3D accurate construction technology (“3DACT”) solutions. This personalized solution was developed by AK Medical and launched in July 2014, helping surgeons simulate and plan implantation surgeries to achieve the desired surgical outcomes.

As of December 31, 2017, the platform had covered 546 hospitals and assisted physicians in designing 2,616 surgical plans, representing an increase of 1,700 compared to 2016. Among the 546 hospitals covered by the platform, 368 were tertiary hospitals, an increase of 310 from 2016. Therefore, the platform played a significant role in helping AK Medical enter the high-end market, particularly Class A tertiary hospitals in first- and second-tier cities.

Regarding R&D investment and government subsidies, Aikang Medical stated that the company has consistently prioritized R&D as its core strategy, which has been one of the key drivers behind its sustained compound annual growth rate of over 30% in recent years. The company plans to maintain R&D investment at 15% in the future, a level of spending that will further strengthen its growth momentum. Of course, future investments will be determined based on project progress.

Regarding government subsidies, the government has maintained close scientific research cooperation with AK Medical, including projects under the Ministry of Science and Technology and provincial-level initiatives. This has enabled AK Medical to secure certain funding support. However, due to the unpredictable nature of the application process and the fact that such subsidies constitute non-operating income, the Company cannot guarantee the extent to which this revenue will grow in the future.

Regarding the 30.5% increase in cost of sales attributable to 3D products, AK Medical stated that, on one hand, the therapeutic efficacy of medical devices is ultimately validated through postoperative outcomes and survival rates. As the adoption of the Company’s 3D products continues to expand and their clinical effectiveness gains greater acceptance among customers, the scale of this business segment is expected to sustain its growth.

On the other hand, as 3DACT interactive platforms are widely adopted in hospitals, they will drive sales of 3D products, ultimately achieving cost reduction through economies of scale.

In 2017, the company’s gross profit margin increased significantly compared with 2016, reaching a gross profit of approximately RMB 264 million. According to AK Medical, this was primarily attributable to the continuous launch of new products offering high cost-effectiveness and quality comparable to imported alternatives. These new products carry relatively higher gross profit margins, and their growing contribution to sales drove the overall improvement in the company’s gross profit margin.

In 2018, with the continued strong performance of its 3D products, the company’s overall gross profit margin is expected to maintain robust growth. Meanwhile, Aikang Medical has also noted that national tendering processes are exerting downward pressure on prices for related products. Overall, the company believes that its gross profit margin will remain “stable with an upward trend” in the future.

At the 2017 earnings conference, Chairman Li Zhijiang stated that this was Aikang Medical’s first financial report since its IPO, highlighting remarkable achievements and numerous industry-first milestones in China. It is expected that more 3D-printed products will be launched in 2018.

According to Han Yu, Board Secretary of AK Medical, the company’s 3D-printed product portfolio has basically taken shape. This portfolio has successfully driven sales of conventional products, achieving above-average growth, and the company is highly confident in maintaining its leading position in the hip joint market. The sales model remains primarily distributor-based; however, the company has established a dedicated business division, which is expected to further promote the long-term health and sustainability of its sales model.