From September 24th to October 10th, the stock prices of several medical equipment companies have been on the rise. Mindray Medical (300760.SZ) and United Imaging (688271.SH), two leading companies, have both seen their stock prices increase by 34% over the course of eight trading days, with Mindray Medical's market value once approaching 400 billion yuan.

In contrast to the bustling capital market, the industry's operational atmosphere seems somewhat bleak.

A senior executive of a medical robotics company directly described the industry's current situation as "depressed," hoping for an improvement by the end of the year. Many practitioners in the medical equipment industry share similar feelings, with sales personnel from multinational companies feeling it the most.

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Since 2024, procurement data from medical institutions and the performance of listed companies have shown that the medical equipment industry has entered a trough. Several securities firms previously estimated that, driven by policies such as medical equipment renewal, the industry is expected to recover in the fourth quarter of this year.

"I hope there will be an improvement in the fourth quarter, but the current situation is still unclear," a middle manager at a leading medical imaging equipment company told the Economic Observer on October 10th. On the sales front, companies are more concerned about the medical anti-corruption actions of relevant departments. Compared to equipment renewal policies, anti-corruption has a more direct impact on hospitals' procurement intentions.

The trough has lasted for more than half a year.

According to statistics from SDIC Securities, in the first half of 2024, the scale of medical equipment bidding was about 55 billion yuan, a year-on-year decline of about 35%. Among them, medical ultrasound declined by about 20% year-on-year, medical imaging declined by about 45% year-on-year, and the field of life information declined by 50%-60% year-on-year.

The contraction of the bidding scale is directly reflected in the financial statements of listed companies. Mindray Medical's domestic equipment business revenue in the first half of the year declined by 12% year-on-year. United Imaging's total revenue in the first half of the year was 5.333 billion yuan, a year-on-year increase of 1.18%, the smallest increase in the past five years. If the significantly increased international market is excluded, its domestic market revenue was 4.4 billion yuan, a year-on-year decline of 3.5%.

In the second half of the year, the trend did not improve. The bidding data for July and August that have been announced show that the total bidding amount for medical equipment was 9.5 billion yuan and 9.7 billion yuan, respectively, with an annual decline of 29% in August.

A middle manager in the marketing department of a multinational company introduced that under the depressed market conditions, several leading foreign medical equipment companies are laying off employees. "There have been several rounds of layoffs from last year to now, and the situation is very severe, which has never happened before." He said that although the salaries of the remaining staff have not been reduced, most people cannot complete the task volume and have not received bonuses for several months.For the decline in domestic equipment-related business, Mindray Medical's explanation is that it is mainly affected by two major factors: the rectification of the domestic medical industry and the equipment renewal policy. This year, medical equipment procurement activities have been delayed due to a general wait-and-see attitude.

The rectification of the medical industry refers to the anti-corruption efforts in healthcare. At the end of July 2023, a video conference on the concentrated rectification of corruption issues in the national pharmaceutical field was held, pushing the anti-corruption storm into the entire field and chain of the pharmaceutical industry. A linear accelerator with a reported price of 35.2 million yuan, where the hospital president received a kickback of more than 16 million yuan, topped the hot search lists on multiple online platforms, bringing the relatively secretive field of medical devices into the public eye.

A medical device distributor told the Economic Observer at the time that due to the impact of medical anti-corruption, all procurement projects under negotiation had been suspended. Projects that had already been posted online would not be delayed, but those that had not yet been posted were suspended. Hospitals no longer purchased equipment that was not essential.

In the first half of 2024, medical anti-corruption continued. In May, the "Key Points for Correcting Unhealthy Practices in the Field of Medicine and Health in 2024," jointly issued by the National Health Commission and 14 other departments, focused on the management of "key minorities" and key personnel in medical institutions such as "famous hospitals" and "famous doctors," and punished those who personally or through relatives and friends, used business operations to "rely on medicine for sustenance," and accepted kickbacks from suppliers. In the first half of the year, more than 160 "key minorities" in the national medical field were investigated, including several department-level officials.

In addition to medical anti-corruption, the equipment renewal policy supported by long-term national bonds has also led some medical institutions to delay purchases.

At the end of May, the "Notice on the Implementation Plan for Promoting Equipment Renewal in the Medical and Health Field," issued by the National Development and Reform Commission, the National Health Commission, and other departments, required that by 2027, the scale of equipment investment in the medical and health field should increase by more than 25% compared to 2023, and the ownership of major medical equipment per million people should basically reach the average level of upper-middle-income countries.

The aforementioned document mentioned that it encourages top hospitals such as national medical centers to moderately pre-configure a batch of major medical and scientific research equipment. At the same time, it supports township health centers with a large service population and strong basic medical service capabilities to configure CT, color ultrasound, and ventilator equipment. The sources of funds for equipment renewal projects include ultra-long-term national bonds, local fiscal funds, and special local government bonds.

On July 25, the National Development and Reform Commission and the Ministry of Finance issued the "Several Measures to Strengthen Support for Large-Scale Equipment Renewal and Consumer Goods Exchange for the Old," proposing that the National Development and Reform Commission lead the arrangement of about 148 billion yuan in ultra-long-term special national bonds for large-scale equipment renewal special funds. Southwest Securities estimates that the scale of medical-related projects is estimated to be between 30 billion and 40 billion yuan.

In late August, the National Development and Reform Commission had approved the first batch of medical equipment renewal projects. In mid-September, Mindray Medical stated that once the ultra-long-term national bond funds are in place, hospitals will gradually start the bidding process, but the final performance confirmation will depend on the execution pace of these projects.

It is understood that the implementation of medical equipment renewal projects supported by long-term national bonds requires multiple steps, including hospital application, provincial government approval, National Development and Reform Commission approval, hospital bidding, and contract signing.Will there be a rebound in the fourth quarter?

The person in charge of a third-tier hospital in the eastern region introduced that the application has been submitted, but it has not been approved yet. From the perspective of stimulating demand, he believes that long-term national debt projects are a good thing for hospitals that have their own demand. However, due to the different proportions of out-of-pocket expenses in various regions, it is expected that the stimulating effect will be different. "It is estimated that the willingness in the western region will be greater, and the eastern region will be more rational, after all, the proportion of self-payment is high."

According to the policy, for local medical and health field equipment renewal projects, the arrangement standard of national debt funds is, in principle, to support according to the proportion of not more than 40%, 60%, 80%, and 80% of the total investment of the project in the eastern, central, western, and northeastern regions, respectively. That is, local governments and medical institutions in the eastern region need to raise no less than 60% of the expenses on their own.

The person in charge of a community medical and health institution in the eastern region also said that it mainly starts from its own needs and will not configure in advance. "Not many applications were made this year, and those that should be configured were all configured in the previous years." He introduced that its institution has already configured equipment such as gastrointestinal endoscopy and mobile CT, and these devices only existed in county-level and above hospitals in the past.

The research report of Guoxin Securities shows that from the rhythm of bidding and the impact on the performance of listed companies, it is expected that the bidding demand for the first batch of medical equipment renewal projects is expected to be implemented from the third quarter of 2024, and the improvement of the performance of listed companies is expected to start from the fourth quarter of 2024 and continue throughout 2025.

The above-mentioned medical robot enterprise executive said that equipment renewal projects will definitely drive industry demand, but the impact on specific enterprises is different. Taking laparoscopic surgical robots as an example, a large number of Da Vinci laparoscopic surgical robots on the market have been used for seven or eight years, just at the window of renewal, while the products of domestic enterprises such as Micro-Innovation Robots (02252.HK) have just been launched not long ago and do not involve renewal. "High-end equipment such as surgical robots also involves the issue of configuration certificates. Hospitals that did not have configuration certificates originally, the equipment renewal policy is also difficult to stimulate their demand."

In the view of the middle-level manager of the above-mentioned medical imaging equipment leading enterprise, compared with equipment renewal projects, the industry is still most concerned about anti-corruption issues at present. Recently, he learned that a large province in the south is still vigorously arresting medical corruption officials, leading to many hospitals being very cautious in equipment procurement projects. "Perhaps it is necessary to clean up the house before inviting guests."

In addition to this province, Zhejiang, Shanghai, and other provinces and cities are also continuously rectifying the medical industry.

In September, the Zhejiang Provincial Audit Office issued the "Notice on Special Audit Investigation of Public Hospitals and the Production, Distribution, and Use of Drugs and Medical Devices". It plans to conduct a special audit investigation on public hospitals and the production, distribution, and use of drugs and medical devices, and will trace back to the relevant years or extend the audit to related units when necessary.

On October 9, Shanghai announced the "Key Points of Shanghai's Work in 2024 to Correct Unhealthy Practices in the Field of Medicine and Medical Services". Based on the work key points of the National Health Commission and other 14 departments, Shanghai added the content of carrying out large hospital inspection work and implementing the "Shanghai Municipal Medical Institution Staff Clean Employment Nine Guidelines Implementation Details".On October 10th, Deng Yong, the head of the Beijing Great Health Law and Business Team, stated to the Economic Observer that he anticipates the intensity of anti-corruption efforts in the medical field will not wane in the second half of 2024 but will continue to maintain a high-pressure stance. This is to further purify the medical industry's ecosystem and safeguard the health rights and interests of the people.

His judgment is based on three reasons: First, the policy orientation continues to be strengthened. The Central Commission for Discipline Inspection has repeatedly issued documents emphasizing the importance of anti-corruption in the pharmaceutical sector, clearly identifying the pharmaceutical field as one of the key areas prone to corruption due to concentrated power, dense capital, and abundant resources. Additionally, departments such as the National Health Commission have issued the "Key Points for Correcting Unhealthy Practices in the Field of Pharmaceutical Procurement and Sales and Medical Services in 2024," which provides specific arrangements and deployments for anti-corruption work in the medical field, promoting the in-depth development of medical anti-corruption efforts in the second half of the year. Second, the regulatory intensity is continuously increasing. For example, the comprehensive and in-depth medical insurance spot checks will effectively combat corruption in the medical field and safeguard the security of medical insurance funds. Third, corruption issues in the medical field are complex and covert. Issues such as inflated pricing of drugs and medical devices, interest transfers in the procurement process, and doctors accepting kickbacks have not been completely eradicated.