2021 results in line with our expectations
　　Venus Medtech announced its 2021 results: Revenue grew 50.6% YoY to Rmb416mn, and attributable net loss rose by Rmb192mn to Rmb374mn, mainly due to rising R&D and selling expenses and intangible asset impairment loss. The firm’s 2021 results are in line with our expectations.
　　Trends to watch
　　Industry lead in TAVR implants. In 2021, Venus Medtech’s transcatheter aortic valve replacement (TAVR) products were applied in 3,600 procedures, with implants up by over 60% YoY, making it No.1 in China’s TAVR market. Moreover, the firm completed over 900 TAVR implants in 1Q22. We estimate the second-generation TAVR product, which is retrievable, constituted 35% of implants in 2021 and the proportion will likely grow further to 50-60% in 2022. The firm revealed that the unit price of the firm’s TAVR product remained largely flat with 2020 at more than Rmb120,000. We expect total TAVR implants to decelerate compared to market expectations in 2022 given COVID-19 resurgence. In 2022, Venus Medtech’s management expects its products to cover up to 400 hospitals and complete 5,000-5,500 commercial implants. We are upbeat on the long-term growth of the firm’s TAVR products as more firms such as Medtronic enter the market to educate consumers, and as operator awareness of TAVR gradually builds up.
　　Expanded its presence in heart valve market and explored new fields.1) Self-expanding TAVR Power X and Leaflex (a valve repair product) were under Functional Independence Measure (FIM) assessment in China; the firm also carried out FIM for Vitae (balloon-expandable TAVR) at end-2021 in Argentina and was about to start FIM for its surgical valve product. 2) The firm has completed 13 mitral valve implants and 11 tricuspid valve implants overseas, and plans to start clinical trials in China in 2022. Moreover, mitral valve repair products from Valgen Holding, in which the firm holds a stake, has completed patient enrollment in the confirmatory phase of clinical trial in 2021. 3) The firm has submitted registration review in both China and Europe for VenusP-Valve, a transcatheter pulmonary valve product, which will likely start commercialization in 2022. 4) The firm expanded its presence into the fields of hypertrophic cardiomyopathy (HCM, Liwen RF) and resistant hypertension (ultrasound ablation) through acquisition and collaboration.In addition, the firm’s transcatheter pulmonary valve product, Cerebral　Embolic Protection (CEP) device, mitral valve and tricuspid valve products, and balloon-expandable TAVR product are undergoing clinical trials overseas, and for some of them, the firm has submitted registration application. Further, in March 2022, the firm established a global heart- valve innovation center in Israel. We expect the firm’s overseas revenue to continue to grow.
　　Continued to ramp up R&D investment and improve management　and operational efficiency. In 2021, Venus Medtech invested Rmb260mn (up 54.5%) in R&D, completed two equity acquisition projects for DiNovA Medtech and Cardiovalve, and advanced the clinical progress of multiple products. The firm’s G&A expense ratio fell from 37.7% in 2020 to 30.9%. We expect the firm’s G&A and selling expense ratios to continue to decline steadily.
　　Financials and valuation
　　Considering that the firm’s investment in R&D continued to increase, we raise our 2022 and 2023 net loss forecasts by Rmb0.28bn and Rmb0.22bn to Rmb0.38bn and Rmb0.26bn. We cut our DCF-based TP by 40% to HK$23.76, offering 59% upside.
　　Risks
　　Disappointing progress in R&D; lower-than-expected unit price; deteriorating competitive landscape.