Earnings Call: H2 2018

Mar 27, 2019

Morning, good afternoon, and good evening, ladies and gentlemen. Welcome to the conference call. Our chairperson today is Ms. Corinne Jiang. Corinne, please begin your call, and I will send it back for the Q&A. Thank you. Hi. Good morning and good evening, ladies and gentlemen. Thanks for dialing in MicroPort 2018 Result Call, hosted by Macquarie. I'm Corinne Jiang, Macquarie's Head of the Asia Small and Mid-Cap Research team. Today, it's our honor to have the management team of MicroPort to join the call. We have the CFO, Mr. Martin Sun, Chief Technology Officer, Dr. Luo Qiyi, Chief International Business Officer, Mr. Jonathan Chen, and Board Secretary, Ms. Leanne Li. Now, let me turn the call over to Jonathan. Jonathan, please. Thank you, Corinne. This is Jonathan. During the next hour, Martin, Qiyi, and I will provide comments on the results of our fiscal year 2018. After our prepared remarks, we will be happy to take your questions. Just some beginning comments, unless we say otherwise, reference to 2018 annual results increasing or decreasing are in comparison to the year of 2018, and all year-over-year growth rates are given on a constant currency basis, which are adjusted for impact of foreign currency translation. The growth range details before constant currency adjustments are available in our annual result announcements, which have been posted on our website. I will begin by giving a corporate overview of our fiscal year 2018 results. In 2018, we celebrated the 20th anniversary of MicroPort. Over the past 20 years, MicroPort has not only solidly maintained our leading position in China, but we also have expanded our reach into more cutting-edge technologies for treating age and chronic diseases such as endovascular, orthopedics, TAVI, and CRM. Today, one of our products is used in a patient every 12 seconds. We have hospital coverage of over 8,000 hospitals worldwide, and among the over 100 products that have been granted NMPA Green Path in China, there are 15 products that are produced by MicroPort. We own a consistent pipeline with over 100 ongoing R&D projects. We have a global workforce of approximately 5,000 employees, and with the solid execution of MicroPort's strategy of globalization and diversification, in 2018, MicroPort's revenue achieved rapid growth of 48.6%. Keeping in mind the contribution of $150 million revenue from our acquired international non-China CRM business, the revenue of our other business segments in 2018 maintained strong organic growth of 14.7% year-over-year. The robust growth is underpinned by great performance of our key market segments. Our orthopedics business achieved growth at 3.8% year-over-year, maintaining a stable growth trend. Our domestic cardiovascular business realized a solid growth rate of 23.4% year-over-year, among which Firehawk grew 48.5% and Firebird2 grew 11.7%, which further fortifies our number one market share position in China's DES market. Attributed to our increasingly comprehensive product portfolio with innovative technology and premium quality, as well as our mature sales channel, our other business segments also achieved fast growth, such as endovascular grew 39.6%, our neurovascular grew 36.5%, and our electrophysiology business grew 34.5% year-over-year. Compared to the same period of 2017, our gross profit increased by 47.6% during the reporting period. We achieved net profit attributable to shareholders of $23.9 million, which represented growth of 27% year-over-year. Second, our R&D achievements. Our R&D and clinical affairs also realized great achievements in 2018. In 2018, we have eight products granted approval in 18 countries, among which we have 10 products gained NMPA approval. For our orthopedic business, in 2018, we gained NMPA approval for instrument case for advanced total knee replacement and EVOLUTION instrument kit case. Furthermore, our domestic made femoral stem and Aspiration Medial Stability Total Knee Replacement System also gained NMPA approval in 2018 and early 2019, respectively, is making meaningful progress in replacing our imported product portfolio. In addition, several products also gained approval and were launched in the U.S., including our EVOLUTION TPK system, our EVOLUTION stem tibia instrumentation, and the optimized 12-tab PRIME acetabular cup system. For our cardiovascular business in 2018, Firehawk also developed various new limited sizes. We developed a lubricious guide wire and also a percutaneous balloon catheter gained NMPA approval. For our CRM business, our MicroPort Sorin joint venture, CompassAnalyzer PSA, Beflex active pacing lead, and XFINE Leads gained NMPA approval. Moreover, our PLATINIUM 4LV SonR CRT-D cardiac resynchronization device and the associated SonRtip leads gained PMDA approval, which is the Japanese notified body and was launched in Japan. In addition, SmartTouch, the new tablet programmer for implantable cardiac devices, and the world's smallest 1.5T and 3 Tesla MRI conditional pacemakers were launched in Europe in 2018 and early 2019, respectively. For our EP business, in 2018, the Columbus® 3D EP Navigation System and the EasyFinder™ 3D steerable curve mapping catheter gained NMPA approval. In our neurovascular business, our Tubridge vascular reconstruction device gained NMPA approval within the year 2018. It is the first flow-diverting stent that has obtained NMPA approval in China, and also it is designed for the treatment of large and giant cerebral aneurysm. In 2018, a total of three products were granted NMPA Green Path. These three products were the vertebral artery rapamycin target-eluting stent system, Fontus, which is our single-branch stent graft system, and VitaFlow II, which is our second-generation. Till today, there are 15 products from MicroPort that have been granted by the NMPA Green Path. This ranks as number one amongst all medical device companies. This year, we expect more products to gain NMPA approval, including a domestically made knee product, a Firehawk Nova stent, the Firehawk Liberty stent, and the Firefighter NC balloon catheter, VitaFlow II, and Minos AAA stent. These transseptal guiding introducer needles and the Firehawk Nova stent and the Firehawk Liberty stent will also be launched in the international market. During the reporting period, we also made several clinical achievements. The most important and impressive is our TARGET All Comers one-year clinical follow-up result, announced at EuroPCR in May of 2018, in which Firehawk achieved all primary endpoints. Of note, this is the first randomized control study conducted in Europe in which a China-based manufacturer has been shown to be clinically equivalent to what's considered best-in-class drug-eluting stent from Western medical device companies. In September of 2018, the clinical results of this TARGET study had been published in The Lancet, a world-leading medical journal. This is the first time that the clinical data from a China-manufactured drug-eluting stent has been published in The Lancet since its first publication nearly over 200 years ago. This also showed that Firehawk's market-leading position in interventional cardiology device industry in the world. Our BRS, Firesorb, released the two-year results of its first-in-man clinical trial called FUTURE-I, with its all-cause mortality rate at 0% and thrombosis rate at 0%, which preliminary proved the safety and effectiveness of Firesorb. Our TAVI product, called VitaFlow, announced its one-year clinical result in March. The occurrence of all-cause mortality is as low as 2.7%, and no patient experienced major stroke, moderate, or severe paravalvular leakage. Compared to similar products in the industry, VitaFlow has very competitive clinical profile. VitaFlow II system successfully completed the first patient enrollment in pre-marketing clinical research project called VITAL in Europe. The VITAL trial is the group's first pre-marketing clinical trial in Europe. After briefing the big picture, I will now give more details on the progress of each business segment in the first half of 2018, beginning with the orthopedic business. We had well execution of our branding strategy and further expanding our global market coverage and the accelerated development of our domestically made high-end orthopedic products. During the reporting period, our orthopedic business, which includes international and China, achieved revenue of $236 million, representing growth of 3.8% year-over-year. Our international, this is non-China orthopedic business, grew at 2% year-over-year, which is in line with the market growth rate, but relatively slower than last year because changes in our senior sales personnel in the U.S. and Italy and the loss of one major distributor in the U.S. By region, our North America business grew 2.7%. Our Japan business maintained rapid growth, up by 7.9%, and our European subsidiaries achieved revenue growth of 1.3%. This performance was the result of new product lines and increased sales coverage and continued focus on branding. However, due to lower than expected revenue growth and gross margins, and coupled with fluctuations in the U.S. dollar exchange rate, which negatively impacted our international distributor business, the operating profit of the orthopedics business turned positive during the reporting period, and the losses continued to narrow. However, we failed to reach the break-even net profit target for the international orthopedic segment. For our China orthopedic business, we achieved stable growth with our revenue growing at 32.8% year-over-year. Specifically, our revenue of our joint products grew 31.6% year-over-year, which is attributable to the robust growth of our knee system, which was up by 70% year-over-year. We have made achievements in further penetrating and marketing, and our joint surgery has shown rapid growth throughout the year, surpassing the industry average. The implant volume exceeded 10,000 cases, making MicroPort the fifth company in China that have completed over 10,000 implant cases. During the year, we newly entered more than 400 new hospitals, and the coverage rate of hospitals increased steadily. We have covered 50% of the top 20 hospitals in China, and our joint products were continuously recognized by major hospitals. In December 2018, our domestically made femoral stem gained NMPA approval. In January 2019, our Aspiration Medial Stability Total Knee Replacement System also gained NMPA approval. It's making meaningful progress in replacing our importer product portfolio. Our instrument business achieved significant breakthroughs. Our self-developed instrument kit for advanced total knee system was launched, which reduced the cost by more than 55%. The kit will also significantly improve the instrument turns efficiency. Nevertheless, over half of the tools in this kit can be used in the operation for our Evolution knee system, which will contribute to the development and mass production of domestic instrument kits for Evolution Total Knee System. By 2018, our exclusive medial-pivot knee system is the only system on the market with a clinically proven 20-year history and has been on the market for over 20 years. Till today, we have completed more than 600,000 cases of implantation of this device. The clinical results demonstrate excellent clinical outcomes for both satisfaction, at 95%, and survivorship, at 98.8% at 17 years. This is one of the longest clinical data sets for knee products with this higher survivorship rate. We'd also like to highlight to our investors of announcing earlier today that our President of MPO, Mr. Aurelio Sahagun, will depart the company to pursue other interests effective as of April 1, 2019. Mr. Sahagun's departure marks the end of a three-and-a-half-year tenure as President during an important chapter of MPO's turnaround. During this interim period, the MPO business will be led by MPSC's COO, Ms. Glendy Wang, who we remind everyone has an over 20-year track record and experience in orthopedic joints. Ms. Wang started the China orthopedic business for Smith & Nephew, growing that business to an over $300 million revenue business. Ms. Wang and our InterContinental Orthopedics executive committee will oversee the business during this interim period while an executive search is conducted for the President MPO position. We thank Aurelio for his contributions and wish him and his family the best. Moving on to our cardiovascular devices business. During 2018, our cardiovascular business grew 22% year-over-year. The solid growth is driven by great sales performance of Firehawk and Firebird2. During the reporting period, domestic revenue of Firehawk grew 48.5% year-over-year. Sales volume grew 54% year-over-year. While the revenue sales volume of Firebird2, which has been on the market for 10 years, grew 11.7% and 21%, respectively. Revenue of Firehawk as a percentage in total DES sales increased from 32% in 2017 to 37% in 2018, while sales volume increased from 24% to 26%. The revenue from our balloon products maintained robust growth at 60.1% year-over-year. As at December 31, 2018, our DES systems cover more than 1,700 hospitals in China. Firehawk covers 676 hospitals, and Firebird2 covers 1,601 hospitals. We also gained significant progress in expanding hospital coverage in counties with 203 new county-level hospitals penetrated in 2018. We are also making great progress in the international business. Firehawk sales have covered 24 countries/regions, adding six more countries in 2018, including Hong Kong, Taiwan, Bulgaria, Panama, and Peru. Firehawk received approval in Taiwan, Myanmar, and Serbia for the very first time. In terms of clinical research, as I mentioned, Firehawk's TARGET All Comers results was published in The Lancet, a prestigious medical journal. Besides that, we continue to advance the robust clinical program supporting the Firehawk stent and the initiation of TARGET DAPT study, which targeted to assess the effectiveness and safety on shortening DAPT for PCI patients with Firehawk implantation. The enrollment of TARGET DAPT is expected to complete by the first half of 2020. Now I will move on to describe our MicroPort CRM business. We closed the acquisition of the CRM business from LivaNova on April 30, 2018. This acquisition established us as the fifth-largest CRM business in the world, providing a high-end product and technology portfolio for high-end CRM products to be introduced into China. During the reporting period, which only includes eight months of the reporting year, the CRM business, international business contributed $153 million in revenue. We expect that the CRM business under MicroPort ownership will have to invest and continue to invest in R&D. In 2018, several new products had been launched, including XFINE Lead and SmartTouch, the new tablet programmer for the implantable cardiac devices. PLATINIUM 4LV SonR CRT-D cardiac resynchronization device, and the associated SonRtip Lead were launched in Japan. Moreover, the world's smallest 1.5 Tesla and 3 Tesla MRI conditional pacemakers were launched in early 2019. We expect that our CRM business will further enhance its competitiveness in the coming years. We also remind investors that in August 2018, we announced that our Japan distributor and MicroPort CRM will end their distribution agreement effective as of September 1, 2019. This will allow MicroPort CRM business to pursue a direct business model in the highly profitable Japan market, and we will look forward to updating investors in the first half of 2019 about our progress there. For our CRM China business, which was previously our joint venture with MicroPort Sorin CRM, in 2018, it benefited from the launch of the domestic pacemaker with world-class quality and domestic price. Rapid growth of implantation volume as well as continuously expanding coverage of hospitals. The revenue of our CRM business grew rapidly by 146%. Since the first implantation of the first batch of Rega family pacemakers in March, as at the end of 2018, our Rega family pacemakers were implanted in more than 130 hospitals in 11 provinces. In terms of our R&D progress, our CompassAnalyzer PSA, and our Beflex active pacing lead gain NMPA approval within the reporting period. In the foreseeable future, we will speed up the optimization of internal resources, leverage the advanced technology from our international CRM business to speed up the realization of our goal to make made in China plus innovated in China a reality. For our endovascular business, compared to 2017, the endo business recorded strong revenue growth of 39.6%, significantly exceeding the market average growth rate of 13%-15%. It was driven by rapid growth in the revenue of our original products and the successful release and marketing of our new product called Castor. During the reporting period, revenue of our TAA products grew 44.1%, among which Castor delivered exceptional sales performance and has been promoted and applied in almost 150 hospitals nationwide. This brought new catalysts to those segments. Our AAA products grew 28.9% year-over-year. During the year, the company continued to execute the sales strategy of penetrating tier 2, tier 3, and tier 4 hospitals, and newly covered 103 new hospital accounts. Leveraging our R&D capability, Fontus, which is the single branch stent graft system, was granted NMPA Green Path. Until today, five products under this segment have been granted NMPA Green Path, which shows our advantage in innovation capability and will provide more catalysts for the long-term development of this business. Moving on to our neurovascular device business. During the reporting period, our neuro business achieved robust growth of 36.5%. Specifically, APOLLO™ intracranial stent system maintained steady revenue growth. Revenue of our WILLIS® brain aneurysm declined slightly. A new product, Tubridge, started to contribute to the revenue since the second quarter of 2018. Tubridge is the first domestic intracranial flow-diverting stent with NMPA approval. It is designed for the treatment of large and giant cerebral aneurysm. Moreover, the vertebral artery rapamycin target-eluting stent system was granted NMPA Green Path and is the world's first drug-eluting stent indicated for the treatment of vertebral artery stenosis. In 2018, APOLLO™ covered 771 hospitals with 130 newly entered accounts, and WILLIS® covered 342 hospitals with 79 newly entered accounts. Tubridge accounted for 72 newly entered hospitals. Last but not least, our EP business. During the reporting period, our EP business recorded robust growth of 34.5%, mainly attributable to the high quality and the promotion of our 3D surgery throughout the country. In 2018, Columbus® 3D EP Navigation System 2.0, an EasyFinder™ 3D steerable curve mapping catheter gained NMPA approval. This builds a blanket of domestically made EP medical devices. In June 2018, the report health economic evaluation of domestic and imported devices to treat in the treatment of atrial fibrillation, with focus on Columbus® 3D mapping navigation system with its matching catheter was published. Columbus is the first domestically developed 3D EP navigation system that features real-time electromagnetic device tracking with cardiac motion compensation. It is the only domestically made 3D EP navigation system with the CE certificate, which has won high recognition from domestic experts for its outstanding performance. To meet the requirements of our EP's business development and the long-term strategic development plan, the quotation for MicroPort EP on the NEEQ has been terminated as of November 30, 2018. That's all for the summary of the operating performance in 2018. I will now turn it over to our CFO, Mr. Martin Sun, to provide you with further financial details for 2018. Okay. Thanks, Jonathan, and good evening and good morning, everyone. Now I will take you through our 2018 financial performance, as well as the guidance for 2019. Before we start the financial review, I would like to quickly highlight again the two changes to our group consolidation scope brought by the completion of CRM acquisition on April 30, 2018. The acquired international CRM business began to be consolidated since April 30, 2018. Therefore, our consolidated results have included the results of the business for the eight months of May to December. Revenue for these eight months amounted to $152.7 million, and net loss is $17.7 million. The second point is the China CRM business. Previously, this is the Sorin joint venture in China. This joint venture became our wholly owned subsidiary and also began to be consolidated since April 30, 2018. Prior to the acquisition, the group used to recognize only 51% share of its loss in the account of share of losses of joint venture. But by April 30, 2018, the investment balance had been fully written down through equity pick of the cumulative losses. However, as a result of this acquisition, the group needs to consolidate the full loss of the China CRM business since April 30, 2018. The revenue from the China CRM business for the reporting period amounted to $5.7 million, and net loss is $6.5 million. In addition to the above two changes in our consolidation scope, I just wanted to also give more information about impact of acquisition of CRM. That acquisition also included a transaction cost about $6.6 million and additional finance cost, $3.5 million. And one of the gain from deemed the disposal of the China JV, $4.1 million. All in all, the total impact of the CRM business to our consolidated results of 2018 was about total revenue was $158.4 million, and the total loss and the cost of $30.2 million. Now I will go over the 2018 financial review and provide guidance for 2019. I will begin to the consolidated revenue of 2018. As Jonathan mentioned, in 2018, MicroPort generated total revenue of $669.5 million, achieving growth rate of 50.7% and 48.6% at a constant currency basis. Excluding the impact of the CRM acquisition, the revenue of non-CRM revenue increased by 14%. This is in line with our previous guidance, giving 10%-15% to the investors. And I am pleased that we delivered our commitment again. As Jonathan introduced early, all of other segments and core products maintained strong growth. Secondly, let's talk about gross margin. Our overall group consolidated gross margin in 2018 dropped by 150 basis points from 71.7% last year to 70.2% in 2018. This was also driven by the dilutive impact of the CRM business, with a gross margin lower than the average of the group. The gross margin of CRM business for the reporting period was 54%, which was lower than the average of other non-CRM business. Excluding the adverse impact of inventory step-up amortization, the adjusted gross margin of CRM business was about 60%. On the other hand, the non-CRM segment combined, we call the base business, have made a continued improvement with overall gross margin increased from 72% in 2017 to 75.2% in 2018. The increase in margin reflects our continuing improved sales mix, especially with higher DES sales, and more importantly, we have continued to increase our manufacturing efficiency. Let's move on the operating expenses. The total operating expenses in 2018, including the R&D, distribution costs, and the administration expenses, relatively to revenue, went up 300 basis points to 62% of total revenue in 2018. This is mainly due to the CRM business. To break it down as the CRM business, which the OPEX to revenue ratio is 17%, it was much higher than the average of other business segments, therefore, driving up the overall consolidated ratio. For our base business, which was relatively flat at 60% of revenue. In short, increase in the R&D spending offset the reduction in the distribution cost and the administration cost. Our baseline base business R&D expenses account for 14% of the revenue in 2018, slightly above the 13% in 2017. This was more linked to the phasing of major R&D projects, which have been progressing very well according to the schedule. The base business distribution costs and administrative expenses combined went down 50 basis points to 45.8% in 2018, demonstrating our continued focus on the operating efficiency. Our bottom line, as Jonathan Chen mentioned before, the profits attributable to shareholder was $23.9 million, up 27% year-over-year. If excluding the CRM acquisition impact, the adjusted and net profit attributed to the equity shareholders was more than $47 million, up 150% year-over-year. Our EPS also increased by 24% to HK$1.63. In addition to that, we are very pleased to announce that our board proposed that the dividends was 2.9 Hong Kong cents per share based on the dividend payout ratio of 25%, which is consistent with 2017. Also, for cash flow, the net operating cash flow in 2018 remains above $19 million. This healthy cash flow will position us very well for the further development of the business. In summary, the above overview of our 2018 financial results for the whole group, including the CRM business. We are very pleased with the fact that during the year, we have overcome the potentially significant adverse impact of the CRM acquisition to our P&L and cash flow, and that all the financial indicators have shown steady improvements. Now I will turn to the 2019 guidance. First one is revenue. For 2019, we anticipate an overall revenue growth approximately by 20%, mainly attributed to the continued robust growth of cardiovascular business and the extra four months of CRM revenue contribution. I will highlight some key segments here. First one, the cardiovascular business is expected to maintain its high growth rate at 20%-22%. It's very similar to the 2018's growth rate. Again, this would still be driven by the strong momentum of Firehawk and Firebird2 in the China market. In our international markets, the sales growth of DES will be about 30% in 2019, mainly benefit from the entrance into new emerging economies. We also expect to strengthen our position in the EU market with the support from the positive feedback received through our post-market clinical trial TARGET All Comers. Also, we will definitely leverage our sales channel of CRM business we acquired in 2018. The orthopedics segment is expected to grow at 5% in 2019. Within this, the first one, China Orthopedics is expected to maintain the robust momentum and grow by 50%. This will be driven by two factors. First one, the existing import OrthoRecon business, which is expected to continue high double digits growth through rapid market penetration. Second, the new launch of the made-in-China OrthoRecon knees product line. With regard to the acquired international OrthoRecon business, we anticipated a short-term adverse effect from the recent leadership change. Therefore, its revenue will remain at a low single-digit growth, maybe approximately 1%. On a positive note, however, the strong growth in the Japan market, we highlight growth of 8%. This growth will help offset the slowdown in growth of the U.S. market. The revenue of the CRM business compared to eight months of 2018 is expected to increase by 35%-40% in 2019. The international CRM business is expected to increase 35%-40% versus eight months revenue in 2018. If we compare apple to apple with the full year, it will be a bit decline by 8%-10%. It will be mainly due to our Japan transition from distribution model to direct model and an incomplete product portfolio, which specifically is the MRI compatible high-voltage product line. The China CRM business is expected to increase by 50%-60% versus eight months of 2018. If we compare apple to apple with the full year of 2018, this China CRM business will be an increase of approximately by over 25%, driven by the newly launched made-in-China products Rega family pacemakers. The remaining key segments will keep high double-digit growth. Endovascular, neurovascular are both expected to grow over 30%. Let's move the gross margin. We anticipated the overall gross margin in 2019 will grow by 200 basis points to 72%. This will be as a result of the combined effect of three factors. The first one is the base business gross margin will see an increase in 1.4%, benefiting from the continued improvement in production efficiency and the favorable sales mix. Second factor is the CRM business will see its gross margin return to the normal level above 60% from the 54% reported in 2018. However, the third factor is the above upside will be offset by the greater dilutive impact of the lower CRM margin to the overall group margin, giving the extra four months of CRM sales in 2019. Let's move to the operating expenses. The total operating expenses as of the percentage of revenue ratio is expected to grow up 5%-7% points from 62% of 2018. The increase will be driven by the two factors. The first is the extra four months of higher-than-average expenses of CRM business. The second is the individual business development needs. Still break down to the CRM and non-CRM business, which will give you a more clear picture. For our CRM business, total OPEX relative to revenue is expected to grow up to 85% from 70% in 2018, is significantly higher than the group average. By nature of expenses, the distribution cost of CRM business will be around 46%, R&D will be 27%, and the administrative cost is 12% relative to the revenue. The 2019 increase is mainly on the distribution cost and R&D expenses in order to improve the sales channel, especially the business model change in the Japan market, mentioned before, and accelerated R&D progress for enhanced product competitiveness. With regard to the China CRM, as the business is still in the early development stage, focus on the localization R&D, continued R&D input will be required. For our base business, the total OpEx relative to the revenue is expected to increase by 200 basis points to 62%. By nature of the expenses, the distribution cost will be about 30%, R&D is 16%, and administrative cost is 16% too relative to the revenue. The increase is mainly on the R&D expenses, you will see, which is still driven by the progress of the key R&D projects, primarily cardiovascular, TAVI, and our MicroPort medical robotics. Last but not least, I will draw your attention for two major post-event of 2018 calendar years. The first one, that is the CardioFlow financing, which we already published the announcement. Our subsidiary, MicroPort CardioFlow, recently completed the Series C financing and the restructuring, through which we have brought in a new strategic investor, a CICC investor, with a US$50 million cash funding for 12% of equity interest based on pre-money valuation of US$350 million. The post-money valuation will be $400 million. The deal will help us further optimize our capital structure of the business and bring enhanced resource to facilitate the R&D, manufacturing, and marketing of CardioFlow products which increase the competitiveness. The second one is, we call the EP business post-event. As our MicroPort EP business requires significant cash financing to meet the needs of its business development and the long-term strategic plan, we are very pleased to have introduced a new strategic investor called Huajie Capital for cash consideration of RMB total 423 million to the business. According to the capital increase and the share purchase agreement, the group's equity interest in the MicroPort electrophysiology business decreased from 81.93% to 45.1%. This would also change in valuation involved in deals. Thank you for listening, and I will now hand over to Caroline. Oh, Corrin. Sorry. Hi. Thanks for the presentation. Thanks, Martin, thanks, Jonathan. Operator, now, should we open to Q&A? Sure. Thank you. Ladies and gentlemen, we will now open for questions. If you would like to register for a question, please press star 1 on your telephone. Thank you. While we are waiting for the questions, maybe allow me to ask two questions. The first question is that, for the Ortho business, for the overseas orthopedic business, now that 2018, we did not meet the target to reach breakeven, what is our new target now and what we plan to do to achieve the overseas orthopedic business breakeven? For the domestic orthopedic business, we just got some approvals of the product, and we will get more later this year. Can you share with us the sales progression of the made-in-China product so far? Do we have a target of, let us say, in 3 years time, what kind of market share we think we can get for the made-in-China product domestically? That is the first question. Okay. This is Martin. Thank you for your question, Corrin. For our international orthopedics business, yes, we did not, how to say, achieve our target breakeven in 2018. As Jonathan also gave you the information for 2018, our operating profit level of international orthopedics did make positive compared to 2017 is about $4 million loss, but 2018 is $3.7 million positive. Yes, net loss is still about $2.4 million, not breakeven. For 2019, we still think that we continue will achieve the positive operating profit. Maybe highly likely we can achieve the breakeven in this year, 2019, including the Ortho Recon products we acquired. That means we included China's imported Ortho Recon products. For China orthopedics, 2019, we will launch the new made-in-China knees. We think so far, it just started to commercialize that product line. We think for the over next 3 years, our market share will achieve above 5%. Again, 2019, as I mentioned, gave the guidance that the whole China orthopedics expect to maintain the 50% growth, which also including this made-in-China products launch. Okay. Thank you for the answer of the first question. Before I ask the second questions, maybe let me check. Do we have questions waiting in the line? Yes, Corinne, there is a question on line. Okay. Let open to the investors first. Sure. The first question comes from Yang Huang with Merrill Lynch in Hong Kong. Thank you. Yeah. Thank you for taking my questions. Basically, I have two questions. I remember last time, management guided Hello? Operator? Mr. Huang, please go ahead. Yes. Yeah. Can you hear me? Yes. Oh, yeah. Sorry. Okay. I was on mute. Yes, so I have two questions. The first one is about Xiamen. Maybe there is some technical issue. So how about, operator, let's move to the next. What? Next question. Okay. Once again, ladies and gentlemen, to register for question, please press star 1 on your telephone. Thank you. Okay. Now I can ask my second question. It's about the CRM business. For the overseas business, I want to check the integration of the CRM business so far, because it's now almost one year. Have we started to see some synergy? Also, for the domestic CRM business, congratulations on the strong sales growth just mentioned in the presentation. I want to ask similarly, do we have a domestic market share target in that 2, 3 years' time frame? Thank you. Hi, Corinne. This is Jonathan. I will take your first question about the overseas business, and Martin will take the second part of your question. It is almost one year for us since we closed the transaction, and we have begun the integration process, and it has gone very smoothly. We have fully integrated all of the employees, and keep in mind that this is a workforce that's nearly 1,000 employees, predominantly European-based in Paris and also in Saluggia, Italy. We do see a lot of synergies, firstly, on the R&D front. The R&D engineers are primarily in Clamart, and now we also have the opportunity to leverage with our Shanghai MicroPort Sorin joint venture R&D team. We also have seen a lot of cross-collaboration and a lot of acceleration in the timeline, especially for the China CRM products that are currently under registration. That R&D acceleration is going quite well. We also now see the opportunity to leverage on the distribution channel for the CRM sales force. I think we described for you that now since we have acquired such a strong commercial presence in countries like France and Italy and Spain, Portugal, we are able to and have already started to leverage this distribution sales network market access capability to help us sell more Firehawk stents in Europe. This is a great timing because we are coming off of a year where we have made the significant clinical data announcement in The Lancet, and that journal publication has certainly raised the profile of MicroPort in the international markets. Martin? Okay. Thank you, Jonathan. Our CRM China business, as Jonathan mentioned before, in 2018, we did great achievements. The revenue of that business grew rapidly by over 145%. The 2019, I also gave the guidance for the growth is about 50%-60%. However, if we talk about the break-even or when is the- Market share. Yeah. The market share right now is less than 2% or 3%, but in a few years, we definitely believe this will above 10%. Yeah. Yeah. However, for the financials, we do not see in the next two or three years. Our target is breakeven. Our first priority is we will bring more product lines, such as the high voltage product line, like defibrillators, into the China market. That is our target. Okay, great. Thank you. Operator, do you have other questions for the team? Yes. The question is from Mr. Yang Huang with Merrill Lynch. Please go ahead, sir. Yeah. Can you hear me? Yes. Yeah. Yeah. Sorry about a few minutes ago. I have two quick questions. The first one is about orthopedics. As we know, you have some management change in overseas markets, including the U.S. and Europe. Do you have any updates or any plan how you are going to change the management there and also change some sales agents in the E.U. and the U.S. since the last event? Yeah, Yang, this is Jonathan. I will respond to that. Yes, as I mentioned, we did announce that our President of our MPO business, Mr. Aurelio Sahagun, will be departing. We are currently in the interim, we will rely on our COO, Ms. Glendy Wang, who has over 20 year orthopedics experience, and also our executives on our IOC committee. In this interim, we feel that this transition period is very manageable with this IOC committee, meets regularly with the management team of MPO, and this is a very seamless transition and very intimately familiar with the business. We will initiate an executive search for a replacement to fill in, and we will look to do that as soon as possible, but probably will be second half event. As far as the distributors in the U.S., you will recall in 2018, we brought on board a new executive, a new sales leader to lead the U.S. commercial effort. Jim Dulaney has brought on board a very strong U.S. sales leadership team, and we've already begun to identify new distributors to fill and to bring in new business. We anticipate that momentum will continue for us for this year in 2019. Okay. Thank you. Great. My second question is about some overall policy in China, potential policy change in China. As we know, China now has started to implement a so-called four plus seven government bulk drug purchase program. Some people also are thinking in the future, this bulk purchase program could be extended to the device space. What's the view of the company management, and if that happens, what's our kind of strategy for that? Okay. This is Liane, Board of the Secretary, so I can respond to your question regarding the four plus seven centralized drug procurement in China. A little background. On November 15, 2018, Shanghai Medical Procurement Office released the document of four plus seven centralized drug procurement in cities, and carry out pilot projects for centralized drug procurement in four provinces and seven provincial capital cities. The four plus seven policy mainly relies on consistency evaluation. The drug products that passes the consistency evaluation are regarded as same quality and can replace each other. However, in the field of the medical high-value consumables, there is currently no uniform coding system and subdivision standards. Thus, it is still challenging to implement this policy in the field of medical device. So far, the National Healthcare Security Administration has not issued any specific document on whether it will implement similar policy of four plus seven centralized procurement in the medical device field. Okay, thank you. Maybe just a quick follow-up. I think the government has some, not large-scale, has some pilot program for medical device or high-value consumables starting either in 2017 or 2018. We haven't heard much about that particular pilot program for the device. Do you have any update on that program, or is there any of your product in that program? Okay, I think you are talking about the central price negotiation by government, which started in September 2017. Yes, regarding that one, the company responded to the related government and completed the product information declarations required. In 2018, as everyone knows, the government institutions were adjusted, and new National Healthcare Security Administration was established. At present, the administration has obtained relevant information on this project and has carried out a series of research on high-value consumables. However, there is no clear indication on how to promote the centralized procurement for medical device for these four products and the price negotiation. Currently, it will not impact our sales in each segment. Okay, got it. Thank you. I will be back into the queue. Thank you. Thank you. Our next question comes from Jolie Zhou with China Orient in Hong Kong. Thank you. Hi, management. Thank you for taking my question. My question is related to the high-value consumables in China. For the cardiovascular products, we guided that the high growth of 20%-22%. Do you incorporate any price cuts assumption in this guidance? I am also interested in the Firehawk overseas sales. Can you break down how much did we sell to the overseas market? Thank you. Okay, thank you. This is Martin. To answer your first question, for the guidance in 2019, the 20%-22% growth definitely incorporate the 5% price cut for the Firebird2 as well as the Firehawk. We do not factor in any, like we discussed before, the four plus seven, the centralized government purchase price down the factor. Thank you. Jolie, this is Jonathan. Just to respond to your question around international overseas Firehawk sales. We do not break out specifically those international sales, but I can give you approximate percentage. It is approaching 10% of our overall cardiovascular segment, is what we sell internationally. Thank you. Thank you. One second, ladies and gentlemen, to register for questioning. Please press star one on your telephone. Thank you. I have one follow-up question is on the policies. We noticed that the policy accelerated the market consolidation and also the import replacement in 2018, like larger companies gain more market shares. I just wonder, do you see the momentum continuing so far in 2019? Do you think that kind of market consolidation will further accelerate in the coming years? This is Leanne. In regards of the policy, no matter if the central price negotiation or the four plus seven policies in the drug industry, all those policies, the direction of the healthcare reform is to squeeze the price bubbles in circulation. As this poses a fair challenge for each and every company in the industry, especially for the parties in the circulation domain, it is common view in this industry that product quality as well as the clinical results and the feedbacks will be essential factors to determine the value of the product and in turn, the pricing of the products. In the long run, we think that government policies aiming to set up a reasonable pricing mechanism, eliminating inefficient manufacturers, which is going to create bigger market opportunities and a healthier competition environment for large-scale industry leaders who are innovative and creative. Therefore, we do feel that those policies is favorable to MicroPort in the long run. Okay, thank you. Operator, do we have any other questions? Not at the moment, Corinne. One second, ladies and gentlemen, press star one key for questions. I think, yeah, just about maybe I have the final question, then maybe we can say about- Sure. About the new product, is that MicroPort competitor got the NMPA of a bioresorbable coronary stent, and they plan to launch the product this year. Just wonder what is the strategy of MicroPort on the bioresorbable coronary stent, and also, any marketing strategy to avoid, say, the competition of this product from your competitor? Thank you. Hi, this is Qi. Let me answer your this question. For the bioresorbable one, we still keep our program as we always been there, continue for clinical trial. Right now, we are still in the randomized trial for the bioresorb. The clinical trial was very slow because of the Abbott withdraw all those bioresorbable product from the market. So in the physician community, everybody is very, very precautions to use bioresorbable stent. That is why for everybody, include MicroPort's clinical trial, the progress is very slow because the enrollment is slow. Of course, right now he look to get approved. Everybody see that. If you look at just the strut thickness, we are about 40% thinner than Lepu's product. Even with that, physician is very, very precaution. Of course, in the clinical center, everybody is more cautious. Now they get approved, so they can basically go any hospital, any place to sell this product. We have to see how the market is reacting on this new product. But for us, we always keep our program running, and we have to continue our clinical trial and try to get all the clinical data, then try to get approved. So that is the first step, I think is for us or for any other competitors. We have to keep this program. In terms of on the real world, we like to see what is the reaction they get from the actual physicians. Also, we want to see what is the impact on the market if people started to hungry to use it. I just afraid of some negative result that damages this industry. We don't know yet. Now we have to keep our eyes open and monitor the condition on the market for this new product. We keep our program, keep going. Okay. Thank you. Should we wrap the call and any final comments or summary the management want to give to investors? This is Jonathan Chen. Thank you very much to everyone for attending our 2018 calendar year, fiscal year earnings call. We look forward to meeting with the investors and updating them on the progress next week in Hong Kong. We will be on the road show. Look forward to updating you our first half results later in August of 2019. Thank you very much. Good morning and good evening. Okay, thank you. Thank you, everyone. Bye-bye. Bye. Thank you for participation. This concludes the conference.