Population dividend determines the future of many industries and is an important cornerstone of economic growth for every country.

In order to stimulate childbirth, the country announced the "three-child policy" in May 2021, and through medical, education reform and policies such as increasing fertility subsidies and maternity leave, etc., strive to reduce the cost of raising children. These policies have already played an extremely important role in solving the problem of "unwillingness to have children". Recently, the country has also begun to focus on solving the problem of "infertility".

Assisted reproductive technology, as an effective means of solving this problem, has restricted its growth due to its high cost. Nowadays, four consecutive provinces have begun to include assisted reproduction in the scope of medical insurance reimbursement.

Since June of last year, Beijing has taken the lead in including 16 assisted reproductive projects in medical insurance. Under the promotion of the National Medical Insurance Bureau, Guangxi, Inner Mongolia, Gansu and other places have also followed suit, including some assisted reproductive projects in medical insurance, including egg retrieval, embryo culture, embryo transfer, sperm selection, pre-implantation genetic diagnosis (PGT-M), pre-implantation genetic diagnosis of chromosomal diseases (PGT-SR), cell cryopreservation, etc. The reimbursement ratio of these projects is as high as 50%-70% overall, and some projects can even be reimbursed twice.

In order to actively respond to the population situation, for two consecutive years, a member of the CPPCC proposed to "lift the restrictions on single women freezing their eggs". Jiao Jie, a member of the National Committee of the CPPCC, suggested that women's reproductive ability should be guaranteed and restrictions on egg freezing for single women should be moderately and orderly lifted. She believed that in response to the decline in fertility caused by social factors, pilot policies related to women's age-related fertility preservation and allowing single women to freeze eggs should be liberalized.

As the frozen egg reproduction process also requires the use of assisted reproductive technology, with more provinces including assisted reproductive projects in the scope of medical insurance and the release of policies on egg freezing for single women, the market demand will be further released, and industry chain-related companies will directly benefit, such as Beacon Medical, which focuses on PGT technology for assisted reproduction embryo pre-implantation genetic testing. The company has upstream products such as PGT-A, PGT-M, PGT-SR testing reagents, intelligent liquid nitrogen storage equipment, embryo culture boxes, growth media, and other assisted reproductive products.

With PGT technology as the core, we are building an innovative platform for the entire assisted reproductive industry chain, achieving strong growth against the market trend.

PGT technology is the core of the third-generation test-tube baby technology. BCON Medical started with PGT (assisted reproductive embryo pre-implantation genetic testing) and its PGT-A test kit took the lead in obtaining approval for the third-generation test-tube baby gene detection reagent kit, laying the market's first-mover advantage. PGT-M and PGT-SR are expected to obtain registration certificates in 2024 and 2025, respectively.

In addition to the genetic laboratory mainly engaged in PGT products, the company has also laid out male laboratory, embryo laboratory, cryopreservation laboratory, and software laboratory, providing users with a one-stop solution.

On the eve of the incentive policy for assisted reproduction, the company recently released impressive financial reports. The full-year revenue in 2023 was 208 million yuan, achieving nearly 50% growth, with a gross profit of 90 million yuan, a year-on-year increase of 53.5%.

The company's core business of PGT reagents had outstanding performance, with revenue of 115 million yuan for the whole year, a year-on-year increase of 30%, and its share and retention in the head center market ranked first. In addition, the cryopreservation business also showed a strong growth momentum, with revenue of 9.74 million yuan and a year-on-year growth rate of up to 80%.

In an environment of unfavorable financing and market conditions, the company has achieved efficient integration and stable growth against the market trend, which is not easy.

Cutting costs while increasing efficiency and launching a strong offensive.

In the past two years, the pharmaceutical industry, including innovative drugs, innovative medical devices, CDMO, CRO, life sciences, IVD, and vaccines, has experienced severe challenges of policy adjustment, market fluctuations, and financing environment. During this period, the industry's capital expenditures have also reached a low point.

Reducing costs while increasing efficiency and stable operations have become the focus of industry development.

Beacon Medical is no exception, and even in adjusting its own strategy, the company's measures are more precise and far-reaching.

In addition to common industry measures such as reducing personnel costs by reducing staff and reducing R&D projects to reduce R&D expenses, the company's sales model has changed from direct sales to comprehensive agency sales.

In 2023, the company reduced its direct sales and marketing staff from 94 people in 2022 to 73 people. At the same time, the company has signed more than 40 national agents, and the adjustment of the sales model will further significantly reduce the sales expense ratio in the future.

At the end of 2022, the company still had nearly 1.332 billion yuan of liquid funds in its account, almost no short-term debt pressure on the bank side, and is a version of the medical industry that can "live well as long as you want", but the company has not given up. Seeking growth thinking.

In May 2023, the company spent $40 million (about RMB 260 million) to acquire Genea Biomedx (BMX for short). Genea Group is one of the world's top assisted reproductive medical groups, covering assisted reproductive clinical medicine, assisted reproductive technology, medical equipment and consumables. BMX was a subsidiary of Genea Group's device sector.

Through the acquisition of BMX, which has 30 years of clinical history, Becon Medical quickly cut into the track of assisted reproductive culture medium, becoming a comprehensive platform enterprise in the upstream of the assisted reproductive industry chain.

Currently, BMX has developed the third generation full line of assisted reproductive culture medium Gems series. From clinical results, GEMES culture medium far exceeds other competitors. It is expected to achieve the full localization of culture medium in 2025 and land it in local production.

The acquisition of BMX not only helps the company achieve product diversification, but also brings significant opportunities for resource sharing and global layout to the company.

The company will jointly establish a research and development team with BMX, and carry out joint research and development; in the future, through BMX's international channels, Becon domestic products (self-developed PGT, andrology, frozen products) can be brought overseas, bringing income growth while also lifting valuations through the logic of assisted reproductive out to sea; On the other hand, the company will bring BMX into China, and also play a role in resource sharing and synergy, thereby enhancing overall market share and profitability.

Chinese manufacturing has been constantly going global in recent years, and its global influence is also constantly increasing. Domestic medical device leader Mindray Medical has proposed to increase the proportion of overseas business to 70%, and to enter the top 20 global medical device companies.

In terms of scale, the size of the medical device market in China is more than 400 billion yuan, while the global medical device market is approximately more than 400 billion US dollars. Going overseas is the only way for the development of medical devices.

It is reported that Becon Medical has established distribution channels in 18 countries. The company's core PGT business and its expansion in Europe, North America, the Middle East and Southeast Asia have also made progress. It is worth mentioning that PGT product sales in the United States and other overseas regions do not require additional licenses, which provides convenience for Becon Medical's market expansion.

In July last year, the company signed a strategic cooperation agreement with Genea Group. The company will provide a series of critical instrument equipment and consumables, such as testing reagent kits, high-throughput gene sequencers, and semen test analysis products, covering the entire fertility cycle, to medical institutions under Genea Group. It is reported that the company has set up a laboratory in Australia, which will help enhance Becon's service capabilities and brand influence in the local market, and further promote the implementation of its globalization strategy.

Becon Medical's global layout and substantive progress fully demonstrate the feasibility and forward-looking nature of its overseas strategy.

Creating a domestic assisted reproductive mega-platform, the Chinese version of Vitrolife's ambition.

However, the company's ambitions go far beyond this. From its strategic layout, one can vaguely see the prototype of a self-controlled "infertile full lifecycle domestic equipment mega-platform".

From the company's existing products and pipeline layout, the company has formed five laboratory scenes and full-chain capabilities, corresponding to the expected 1.7 billion PGT testing market, 3.6 billion culture medium/consumable market, 2.7 billion frozen andrology market. The company is constantly expanding its strategic expansion towards the global assisted reproductive full-chain equipment service platform and the Vitrolife, a 20-billion-market-value company.

Conclusion

Finally, from the perspective of valuation, Becon Medical's market value is less than RMB 1 billion, while its cash and cash equivalents as of the end of 2023 was RMB 940 million, fully showcasing the current irrational sell-off in the Hong Kong stock market. With the improvement of liquidity brought by the U.S. interest rate cuts, the market is expected to make adjustments to the value of Becon Medical, in order to more reasonably reflect its true financial situation and future development potential.

Looking to the future, under the favorable policy support of the assisted reproductive industry, if Becon Medical can steadfastly promote its grand strategy, and with the realization of various milestones and the continuous realization of performance, the company will usher in a comprehensive reshaping of its value.