1H22 results in line with our forecast
　　Peijia Medical announced its 1H22 results: Revenue increased 130% YoY to Rmb119mn, and attributable net loss narrowed YoY to Rmb91.99mn. Its revenue and net loss are in line with our expectations.
　　Trends to watch
　　Sales of TAVR growing rapidly. In 1H22, the firm’s revenue from transcatheter aortic valve replacement (TAVR) business soared 455% YoY to Rmb52.1mn. We estimate the firm implanted 470-480 units of TAVR products in 1H22, and the firm expected the total implantation volume to be 619 units over January-July, with monthly implantation volume picking up steadily. As of end-July, the firm’s TAVR products were being used in 209 hospitals, up 114 from end-2021. The new hospital clients contributed most of the additional implantation volume, and the firm’s focus on penetration into hospitals continues to drive growth of the TAVR market as a whole. Management of Peijia Medical maintains its guidance that full-year market share of TAVR should be 12-15%. In May, Shanghai Medical Insurance Bureau incorporated TAVR consumables into its medical insurance plan, with a reimbursement rate at 75-80%. In July, Beijing Municipal Medical Insurance Bureau announced the China Healthcare Security Diagnosis-Related Group (CHS-DRG) external payment method for new drugs and technologies. The new payment method allows new drugs and technologies to bypass the DRG and avoid price cuts. Amid policy tailwinds for technological innovation, we expect the sales volume of innovative domestic medical devices such as TAVR products to grow rapidly.
　　Neurological intervention business growing steadily. Revenue from this segment grew 58% YoY to Rmb66.7mn in 1H22, due to strong sales of intermediate guide catheters and balloon dilatation catheters. In July, the firm won bids during the volume-based centralized procurement of spring coils in Jiangsu and Fujian provinces. Considering that Jilin and multiple provinces have started centralized procurement, we expect products from Chinese firms (including Peijia Medical) to penetrate hospitals rapidly while product prices drop mildly. In our opinion, import substitution will likely occur first in the spring coil segment. In 1H22, the firm’s stent retriever, aspiration catheter, transfemoral balloon catherter, and balloon guide catheter were approved for marketing. In addition, Peijia is developing its ischemia products quickly and the management expects to commercialize those products soon.
　　Multiple products in pipeline. The firm’s third-generation TAVR product TaurusNXT, which features nonglutaraldehyde cross-linked dry-tissue, has entered multicenter clinical trials. First Treatment Patient (FIM) for TaurusWave, a new treatment technology for heart valve calcification, is progressing as expected. License-in of TaurusTrio technology from JenaValve is proceeding smoothly, and the firm plans to register the product in China in 2023. In addition, HighLife (a product in mitral valve replacement) is in the stage of research and clinical trials; TaurusApex (fourth-generation TAVR system featuring polymer leaflets) is being tested on lab animals. GeminiOne (treats mitral valve and tricuspid valve diseases) is currently in the pre-clinical evaluation stage. MonarQ (transcatheter tricuspid valve treatment) will enter the stage of first-in-man (FIM) trials, and Sutra (hybrid transcatheter mitral valve coaptation augmentation treatment) is being tested on lab animals and the firm’s R&D in this segment is on track. We think the firm’s diverse products make it a leader for treatment of valvular heart disease in China.
　　Financials and valuation
　　We maintain our 2022 and 2023 earnings forecasts. We maintain OUTPERFORM. Given adjustments in valuation in the H-share medical device sector, we cut our DCF-based target price 17% to HK$9.55, implying 49% upside.
　　Risks
　　Failure in R&D; intensifying competition; disappointing commercialization of new products; price cuts during centralized procurement.