TRENDS & PERSPECTIVES
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Five-part Differentiation Hematology Analyzer by
Mindray Medical International Ltd. |
“IVD companies in China are joining the real economic world, instead of being shadowy, half-government owned, impermeable companies,” says Carl McEvoy, a principal at the market research firm McEvoy and Farmer (San Francisco). “These are companies that want to raise money and compete internationally. Mindray in particular is a fascinating example, and is really the first example of a Chinese IVD company that appears to be going multinational.”
In fact, Mindray Medical International Ltd. (Shenzhen, China) held an initial public offering of 20 million American Depository Shares on the New York Stock Exchange. By the end of the first day of trading, the shares closed at $17.55, up from the IPO price of $13.50 per share. By early December, the share price had risen to $26.17.
According to a company spokesperson, “Mindray held the IPO to expand our international market and enhance our brand name. We are going to use the proceeds from the IPO to develop our research and development capabilities, expand our sales network, and set up more branch offices in different regions worldwide.”
Investors’ interest in Mindray is not surprising considering the company’s strong growth. Mindray’s net revenues for the third quarter of 2006 were $45.7 million, a 21.6% increase from the same quarter last year. Net income for the third quarter of 2006 was $11.5 million, a 131% increase.
“This was a good quarter,” said Xu Hang, chairman and co-chief executive officer at Mindray. “Our overall performance reflects continued progress and momentum, particularly in all three of our business segments, particularly in our diagnostic laboratory instruments and ultrasound imaging systems segments. Our business segments delivered solid year-over-year revenue and earnings growth in a business environment that was more challenging than the first half of the year. Regulatory issues made this quarter particularly challenging from an operational perspective, due to the ongoing anti-corruption campaign targeted at the healthcare industry by the Chinese government as well as delays in the State Food and Drug Administration (SFDA) registration of our new products. Even so, year-over-year trends remained positive, which we believe is a testament to the continued success of our business model and growth initiatives.”
China Medical Technologies Inc. (Beijing) is another Chinese IVD company making some noise. The company developed two HIV diagnostic reagents using chemiluminescence immunoassay technology for both HIV initial screening and HIV definitive diagnosis. The company also held an offering of $150 million principal amount of Convertible Senior Subordinated Notes due 2011 to qualified institutional buyers.
In another development, BioMag Corp. (Orangevale, CA) conducted initial due diligence on Tianjin Automatic Science & Instrument Co. (Tianjin, China), which assembles and distributes lab equipment, and witnessed firsthand its diverse manufacturing capabilities.
“We’re interested in purchasing a minority interest in them because we’re going to be doing clinical trials in China,” says Clayton Hardman, president and chief executive officer at BioMag. “While I understand the difficulties with intellectual property in China, I’m taking the tactic that if I buy into them, I’ll become a partner. They can then assemble our products and distribute them to their clients. So it should be a win-win situation for us.”
Analysts believe that such trends are not surprising and will continue into the future. During the past few years, Chinese IVD companies have implemented more-sophisticated management and developed higher-quality products. For example, at least 15 Chinese companies now produce an automated three-part differential hematology analyzer; the same number is probably making automated chemistry instruments that are doing fewer than 400 tests per hour. A lot of these companies are also working on five-part differential devices and higher-throughput chemistry analyzers. Consequently, the IVD market in China from the bottom up is becoming more competitive with more homegrown products.
“The Chinese IVD companies are also exporting more,” says McEvoy. “Considering all of the things in the world that are made in China successfully, why would the IVD industry be immune to this trend? A company like Mindray is simply the first example of a firm really establishing modern management and financial discipline, and having a world view as opposed to a China-only view. The domestic Chinese IVD industry has been there for a long time, is growing up, and will become a major force in the rest of the world at some point.”
