Earnings Call: H2 2017

Mar 28, 2018

Ladies and gentlemen, thank you for standing by, and welcome to the MicroPort annual results conference call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, 28th of March, 2018. I would now like to hand the conference over to our speaker today, Ms. Jessica Li. Please go ahead, ma'am. Thank you. Good morning and good evening, everyone. I'm Jessica Li, China healthcare analyst at Bank of America Merrill Lynch. Thanks for your participation in MicroPort's earnings conference call to discuss its full year 2017 results. Conflict disclosures relating to the individual companies or securities discussed on this call today can be found on the call invitation. There will be a replay of today's call, details of which are also included in the call invitation. With me today are Martin Sun, CFO, Qiyi Luo, CTO, Jonathan Chen, Chief Intercontinental Business Development Officer, and Liam Li, Board Secretary. I'd like to turn the call over to Jonathan first for operational highlights, and then turn to Martin for financial information. After which, we will start the Q&A session. Jonathan? Thank you, Jessica. Thank you very much. Welcome again, everyone, to the MicroPort 2017 annual results conference call. During the next hour, Martin and I will provide some comments on the results of our fiscal year 2017, and after our prepared remarks, we will be happy to take your questions. Just some formal language here. Unless we say otherwise, reference to our 2017 annual results increasing or decreasing are in comparison to the year of 2016, and all year-over-year growth ranges are given in constant currency basis, which adjusts for the impact of foreign currency translation. The growth range details before constant currency adjustments are available in our annual results announcement, which was published earlier today. Part one, I will review the year 2017 was tremendously successful for our core business. The key highlights of our achievements are as follows. Successfully, we grew 2017 revenue to $440.2 million, representing a growth rate of 14.7%. The key segments and core products maintained very robust growth. We had strong growth of 21.5% from our core cardiovascular business, which was led by 59.8% growth from Firehawk sales. Notably, Firehawk grew 61.1% in domestic China business and 53.3% from our overseas business. 2017 was a tremendous year for our international orthopedics business, which grew at 6.2% on the top line. This is the highest revenue growth rate of our hip and knee lines that experienced in this past decade. The business achieved breakeven in Q4 of 2017, which is an important milestone for the orthopedic business. On our China orthopedic business, we also maintained a very high growth rate of 28.3%. We also experienced robust growth from our other business segments, such as 33% growth from our endovascular business, 55% top-line growth from our neurovascular business, and 39% top-line growth from our EP business. For the year 2017, MicroPort achieved net profit attributable to equity of shareholders of $18.8 million USD, and this represents a growth rate of 33.1%. While the performance of our core business remained solid in 2017, the performance was offset, however, by a foreign exchange loss of approximately $11 million in 2017 due to the weakening U.S. dollar against other currencies, especially the RMB. Loss attributable to equity shareholders from investment in Lombard Medical of $6.8 million. Part two, from a long-term perspective, MicroPort will continue to drive its growth from constant technology innovations. The company will keep increasing its critical product offerings to enhance our industry leadership. To date, we have achieved substantial advancements of key pipeline products in registration or clinical development. We've received 52 registration approvals from 12 countries. Especially in China, we have 10 products which we've gained CFDA approval and six products which were granted CFDA Green Path. As a company, MicroPort has a total of 12 products that have achieved CFDA Green Path status, and this ranks top amongst all medical device companies in China. For our cardiovascular business in 2017, for our pipeline, Firehawk gained regulatory approval in four countries including Mexico, South Korea, which further expands the availability of our flagship DES technology in key South American and Asia markets. In January 2018, Firehawk gained regulatory approval in Taiwan, making it the first drug-eluting stent of mainland China to gain regulatory approval in Taiwan. We are pleased to announce also the promising Firehawk clinical data from our European trial. We achieved a stent strut coverage rate of 99.9% at three months. From our China clinical data, Firehawk achieved a definite probable stent thrombosis rate of 0% at five years. This is a very impressive achievement. Further clinical evidence that Firehawk is among the best-in-class drug-eluting stents in the world. We expect the results of the primary endpoint of our European all-comer study called TARGET AC to be released later this year at EuroPCR. Target MR, which is another clinical study, which is held in Malaysia, and Target SAFE, which has launched a clinical study in China, will further demonstrate the safety and efficacy of Firehawk. In July of 2017, our high-performance Firefighter PTCA balloon catheter also gained CFDA approval, further strengthening our interventional cardiology portfolio. We continue to develop our bioabsorbable scaffold called Firesorb, which successfully enrolled the first patient in August 2017 for its pivotal clinical study called FUTURE II. The one-year follow-up results in FUTURE I clinical trial demonstrated the safety and efficacy of Firesorb. We expect to get Firesorb approval by CFDA in 2020. For our orthopedic business, our products include the Evolution Revision, or Revision Tibial System, and Procotyl Acetabular Cup System. Both of these products gained U.S. FDA approval in 2017. In February of 2017, a third party carried out a study to evaluate the long-term clinical and radiographic outcomes of our Medial Pivot Knee system, and the results demonstrate that there were excellent clinical outcomes for both satisfaction at 95% and survivorship at 98.8% at 17 years. This was one of the longest clinical data sets for knee products in the industry with this type of high survivorship rate clinical data. In our China orthopedic business, our domestic knee and hip products are expected to gain CFDA approval in 2018 and 2019, respectively. For our endovascular business, our products are a unique product called Castor, which is a branched aortic stent delivery system. Reewarm, a PTX drug-coated balloon, both gained CFDA approval in 2017. Minos, which is an ultra-low-profile AAA stent graft system, is the first and only device to have ultra-low-profile system with a 14 French outer diameter. Our Talos thoracic stent graft system, as well as our Altura endograft system, which is a product of Lombard, was all granted CFDA Green Path approval status. For our MicroPort EP business, we achieved multiple milestones on the clinical and registration process in 2017. In our FireMagic 3D ablation catheter, our OptimAblate irrigation pump, our PathBuilder transseptal guiding introducer needle, and our RhythmWatch single-lead ECG recorder, all successfully gained CFDA approval. Specifically, RhythmWatch is the first product approved according to the newly implemented registration policy by the CFDA, which shortened the approval time by about 80%. In addition, FlashPoint renal artery RF ablation catheter and the ConTex force sensing RF ablation catheter gained CFDA Green Path approval in 2017. In the global market, multiple products gained regulatory approval in South Korea and Thailand for our EP portfolio. In our neurovascular business, our portfolio also experienced solid R&D progress. In January of 2017, Apollo was approved in large sizes by the CFDA, which will address unmet clinical needs for large-sized intracranial stents and further strengthens our leadership position in the neurointerventional market. Our Tubridge vascular reconstruction device is indicated for the treatment of intracranial large and giant aneurysms, and this gained CFDA approval in March of 2018. Meanwhile, our vertebral artery rapamycin drug-eluting stent was granted the CFDA Green Path, and this device is the first drug-eluting stent in the world indicated for the treatment of vertebral arterial stenosis. For our MicroPort Sorin CRM China JV, also achieved some accomplishments from a regulatory perspective. We have gained CFDA approval for our Rega family of implantable pacemakers, which was approved in September of 2017. The Rega pacemaker family are the smallest pacemakers available in the market with the longest battery life, which makes them the first domestically made world-class pacemakers technology. In March of 2018, we completed the first implant of our domestically made pacemaker. Our self-developed BonaFire pacing leads completed clinical follow-up in China. An in-house developed pacing system analyzer, or PSA, also completed its pre-clinical trial in China. In our structural heart business, our VitaFlow TAVI device has completed one-year clinical follow-up and is expected to gain CFDA approval in the second half of this year. We are continuing to innovate. We have developed our second generation of VitaFlow, which has been upgraded with a recapturable function and other features, including direct access, omnidirectional navigation, and reinforced compatibility, which will all help to reduce vascular complications in TAVI procedures. Lastly, we have also made significant progress with our surgical robot project. In 2017, we achieved some key breakthrough technologies for the surgical robot, which we can share with investors at a later date. Moving to part 3, in terms of describing our M&A activity for the year. In 2017, we announced an important financing and acquisition, which attracted some great attention, not only for the strategic transactions that will allow MicroPort to optimize our capital structure, but also to support the ongoing development of various business subsidiaries. Importantly, it will allow us to expand our geographic reach and our product portfolio, and it's consistent with our vision to build one of the world's leading medical device companies. In 2017, our endovascular division brought in China Renaissance and CICC as strategic partners, achieving a valuation of RMB 1.85 billion. Our MicroPort CardioFlow brought in China Renaissance, CICC, and Huatai Securities as strategic partnerships with a premium valuation of RMB 2.1 billion. Important to note, this is our first project realized of a financing of a clinical stage subsidiary. This transaction will allow CardioFlow to aggressively commercialize VitaFlow in China upon receiving CFDA approval later this year, and will provide capital to pursue other strategic investments within structural heart. MicroPort EP was quoted on the NEEQ on August 15, 2017. This is expected to provide a good platform for EP's financing and to reflect the fair value of our EP business. With respect to all three of these subsidiaries, which I just described, MicroPort will keep majority control ownership positions for each of these three subsidiaries after the financing. For endo, MicroPort will own approximately 62%, for CardioFlow, approximately 68%, and for EP, approximately 82%. Lastly, to round out our M&A activity, in November 2017, we entered into a binding letter of intent with LivaNova, under which MicroPort will acquire LivaNova CRM business franchise for $190 million in cash. This is the largest acquisition MicroPort has executed since our transformational acquisition of Wright Medical's OrthoRecon business in 2014. To finance this acquisition, MicroPort and Yunfeng Fund announced in February 2018 that we entered into a contribution and shareholders agreement, upon which the funding of both parties, MicroPort will own 75% of the CRM business, while Yunfeng will own up to 25%. Upon the completion of the acquisition, MicroPort will become the most advanced domestic company in China with CRM knowhow in the global CRM market, which is estimated to be approximately $10 billion per year. Meanwhile, the acquisition will provide additional critical mass in European markets and the opportunity for MicroPort to leverage CRM's European distribution channels with other portfolio products such as EP and our drug-eluting stent franchise. The transaction has received all works council's approval that's required by selected European countries, and we're currently under review by the Hong Kong Stock Exchange as a major transaction. We expect to publish a transaction circular and hold an EGM pending completion of this Hong Kong Stock Exchange review process. Next, I'm going to discuss the performance of our different business segments. First, I will discuss about our orthopedic business. With the continued focus on corporate branding promoted around the concept of full function faster, we promoted brand popularity on the fiercely competitive global market in 2017. On the operational side, we continued to execute well strategically while maintaining tight focus on cost and operating expense management. To build on that, we adjusted our product and geographical sale mix. These achievements significantly drove our revenue and narrowed our operating losses. 2017 was a record year for our international orthopedics business, which is ex-China. We closed the year with the highest revenue growth in our hips and knee lines that the business has experienced in over a decade. in 2017, we grew sales to $211 million, with a year-over-year growth rate of 6.2%. Our net loss significantly narrowed from a loss of $19.4 million in 2016 to a loss of $8.7 million in 2017. We are also right on schedule with our turnaround plan in Q4 of 2017 by achieving breakeven. With our unremitting efforts to promote brand awareness and to enrich our product portfolio, our international orthopedics grew materially above market growth rate. From a geographic standpoint, the company achieved 10.5% year-over-year growth in the U.S. market, three to four times the estimated country market growth rate, and 9.3% year-over-year growth in Japan, resulting in even higher factor to the local trend in the country where we had been experiencing a decline over the past couple of years. We also delivered a strong performance across our direct European subsidiaries with a year-over-year growth rate of 5%. At the same time, we benefited from a strategy to expand our market share to countries with high gross margin, and we were able to improve our gross margin from 61.8% to 65.1%, which is a remarkable accomplishment considering the material pricing pressure environment in the global orthopedic market. With these solid foundations we laid down and sustainable growth momentum, we are confident that our international orthopedics business and their ability to deliver another strong business performance in 2018. Recovering from an internal adjustment in the first half of 2017, our China orthopedic business entered upward channel with its revenue recorded of 28.3% year-over-year growth during the reporting period. Which is, in terms of a knee product, contribute about 78% year-over-year growth, especially our second generation Evolution product, which achieved strong growth at about 136% in revenue. This is attributable to the unique design and the premium stability of the Evolution product. Thanks to the increased presence of Evolution with a premium gross profit margin in our sales mix, the gross margin of our China orthopedics business has been greatly improved. In 2017, we developed 87 new hospitals for our hip and knee products in China. Meanwhile, we consciously improved the quality of hospital coverage, where we significantly increased the average surgical cases in each hospital covered. As this approach greatly enhanced the turn rate of our instruments and lowered our operational costs. Our spine and trauma business focused on rebranding with our increased emphasis on developing spine products. Our global supply center, GSC, was responsible for purchasing, supplying, and logistics of surgical instruments and consumable materials for our joint, spine, and trauma businesses. We continued to lower the cost of orthopedic business and contribute to optimization of operational expense. Aiming to be the provider of premium surgical instruments, our orthopedic instruments business developed multiple products with the emphasis for surgical instruments developed for Evolution. Our premium surgical instruments for joint surgeries will not only improve our service quality but also promote cost savings and profitability. Next, I will turn my focus to describing the results of our cardiovascular business. In 2017, we successfully explored new markets while branding our leading position in China. During the reporting period, our cardiovascular device business achieved rapid growth of 21.5%, which further demonstrated our leading position in the cardiovascular device market in China. Our DES revenue experienced 20% year-over-year growth in domestic China. With Firehawk, we grew 61%. With Firebird2, we grew 9% revenue. Revenue of Firehawk and DES increased from 21% in 2016 to 28% in 2017. Our balloon business grew over 50% for the second consecutive year. As at the end of 2017, our DES covers approximately 1,455 hospitals in every province in China, excluding Hong Kong and Macau, and represented a growth rate of 13.8% over the previous year. At the hospital customer base, Firebird2 penetrated approximately 1,380 hospitals, and this represented a 10% year-over-year growth. Firehawk penetrated 524 hospitals, which represented a 58.3% year-over-year growth. Established in early 2017, our domestic business development department successfully penetrated 133 county-level hospitals, which represent an increase of 58% compared to 2016. In addition, the overseas revenue growth of Firehawk has increased substantially by 53% compared to 2016. In 2017, we increased sales in India, which is an important strategic market in Asia Pacific. We intentionally launched multiple campaigns and reconstructed our local business operations, which led to a rapid growth rate of 509% for the Indian market. In 2017, the endovascular business achieved rapid growth rate of 33% in revenue. This growth was primarily driven by outstanding product performance, which strengthens our market competitiveness in the field of endovascular AAA repair. Our Hercules low-profile TAA graft experienced 42% growth year-over-year, and the growth rate of our Hercules branched AAA graft systems grew at 31% year-over-year. Our unique Castor branched aortic graft system was first implanted in September of 2017. At the end of the year, Castor is available for sale for nearly 50 key hospitals nationwide. Our effort in cultivating the top market also paid dividends in terms of business revenue. During the reporting period, we penetrated nearly 98 hospitals, of which over 50 hospitals are county-level or second tier. We are also making great progress in the international front in our endovascular business with our Hercules series products receiving approvals in seven countries, including Brazil. During the reporting period for the neurovascular business, we achieved rapid growth rate of 54.7%. Specifically, the Apollo intracranial system has been proven safe and effective in over 13 years clinical use, and we have maintained steady growth rate of 36% year-over-year. The growth was driven by the great performance of Apollo and our dominant market share, and the increase of the number of thrombectomy procedures in China. We have the one and only graft system for brain aneurysm in Willis, which achieved growth rate of 52%, and this is attributed to the uniqueness and great performance of the Willis product. In 2017, the Apollo covered 771 hospitals in China with 130 newly entered hospitals. Willis covered 342 hospitals with 79 newly entered hospitals in 2017. As the only domestic provider of comprehensive 3D solutions, our EP business made constant efforts to provide premium medical treatment for patients with AFib around the world. In 2017, our EP business grew 39%, of which domestic sales grew 36% and international sales grew 65%. The rapid growth of this is attributed to our superior quality of in-house developed technologies and our ongoing endeavor to expand the market globally. In 2017, our EP products are available in 281 EP centers in China, and this represents 31% year-over-year growth. In overseas markets, our products are available in nine countries, with five new countries added in 2017. I will now turn it over to our CFO, Martin Sun, to provide you with further financial details for 2017. Okay, thanks, Jonathan, and hello, everyone. This is Martin. I am going to spend the next few minutes taking you through our financial performance in 2017, as well as the guidance for 2018. 2017, just to quickly highlight again what Jonathan has introduced earlier. In 2017, MicroPort generated total revenue of $444 million, achieving growth rate of 14.7% at a constant currency base. All of these major segments and core products maintain strong growth. This is in line with the top-line guidance we provided previously, and we are very pleased that we delivered on our commitment again. Solid progress was made in the year in the cost of sales, with the overall consolidated gross margin increasing from 69.7% in 2016 to 71.7% in 2017. This 200 basis points increase in margin reflects our improved sales mix, especially with our higher DES sales, and more importantly, we have continued to making load into deliver manufacturing efficiency. We can see the gross margin of the international orthopedics business increased 500 basis points from 60% in 2016 to 65% in 2017. This was achieved through sound execution of continued cost improvement initiatives and a favorable geographic mix from higher U.S. and Japan sales. Further down the P&L, we will see that the total operating expenses relative to the revenue went down 300 basis points to 60% of revenue in 2017, especially our SG&A expenses, which includes the distribution cost, administrative expenses went down 300 basis points from 49% in 2016 to 46% in 2017. This was achieved by our continued focus on areas such as reducing third-party spending, optimize the various functions and process, and improving sales and marketing effectiveness. R&D spending keep flat at 13% of revenue in 2017. If taking into account of the capitalization portion, our total R&D input to revenue accounted for 17% of revenue in 2017. Also, it is flat year-over-year. As a result of the three drivers mentioned above, the revenue growth and gross margin improvement and leverage of operating expenses, our profit from normal operating level actually more than doubled from 2016. The favorable results from the core business, however, were offset by the adverse impact from a number of non-operating items during this year, which mainly is our FX loss and also fair value loss of the Lombard investment. For the foreign exchanges loss, that loss amount is about $11 million compared to 2016, we have the FX gain. That is one of the adverse impact items. It is mainly due to a weakening US dollars in 2017, where CNY against the US dollars depreciated 6% from 6.9 to 6.5. The second item we define is the Lombard investment loss of in total is $9.8 million compared to 2016 is just zero. The substantial fair value loss provision was made on basis of the poor stock price performance and also enlarged the operating loss of Lombard in 2017. The bottom line-wise, the year of 2017 closed at a net profit of $17 million, 12.5% growth as compared to 2016. The profits attribute to the shareholder increased from $14.1 million to $18.8 million in 2017, around 33% year-on-year growth. As a result, EPS also increased by about 32% from 0.99 Hong Kong dollars to 1.31 Hong Kong dollars in 2017. Our board remains committed to a progress dividend policy and have proposed a dividend of Hong Kong dollars 2.5 cents per share based on a payout ratio of 25% of current year distributable profits. Other than P&L, we have also been successful in building a much healthy balance sheet. The introduction of new strategic investors into the endovascular business and the CardioFlow business helped us bring a net cash inflow of USD 54 million and USD 32 million during 2017. Our cash flow also improved significantly. That net operating cash flow generate amount to over USD 102 million, which was offset by a capital expenditures of about $76 million. As a result, we can see the free cash flow double from a net inflow of $13 million in 2016 to $26 million in 2017. Now, I'd like to turn to our financial guidance for 2018. Please be noted that the guidance today I gave you not included the newly acquired CRM business, for which the transaction is yet to be closed. First, starting with the top line. As you know, in 2017, our overall revenue grew 14.7%. We anticipated that revenue for 2018 will continue to maintain this overall double-digit growth that range around from 13%-15%. Just to highlight some key segments here. First, the cardiovascular business is expected to maintain its high growth rate at over 18% in 2018. This will still be driven by our Firehawk, the third generation drug-eluting stents. We expect the growth rate will achieve over 57% domestically. We will see the Firehawk continue to expand rapidly into new provinces and hospitals at premium prices domestically in China. In the international market, sales growth will mainly benefit from entrance into new emerging countries, such as India, Mexico, Korea. Meanwhile, we also expect to strengthen our position in the EU market. For Firebird2, our second generation drug-eluting stents is expected to be stable year-on-year, generating sustained gross profit and operating cash flow for the company. The orthopedic segment is also expected to grow at 9% in 2018 versus 7.3% in 2017. Within this, China Orthopedics is expected to grow 21% through rapid market penetration. The acquired international orthopedics business is expected to continue on the right trend and grow further around 5%-6% in 2018. From geographic point, the overall growth will be led by strength in the U.S. and Japan market. Our regulatory efforts across the board, including renewals and new submissions, will allow us to materially increase our future OrthoRecon sales forecast in key markets such as India, Brazil, and Russia. The remaining key segments will keep high double-digit growth. Endovascular, about 30%; electrophysiology business, about 32%; and neurovascular also over 25%. With regard to the gross margin, in 2017, we already went up by 200 basis points to 72% at consolidate level. Our guidance for 2018 is that it will continue increase further by 300 basis points. It will achieve about 75% gross margin at consolidate level. There are two main drivers for this gross margin increase. The first one is lowering the manufacturing cost. This will continue to be our focus in 2018, especially the margin of the OrthoRecon business will increase further from 65% to 67%. The second is favorable sales mix from the growing weight of non-orthopedic sales, especially we mentioned before, the Firehawk in total revenue, which is of a significantly higher margins. Overall, we feel comfortable in this increase in the gross margin in 2018. On the expenses side, the total operating expenses as percentage of sales is expected to around a bit increase 1% or 2%, which keep it about 60% of total revenue. To break it down is first, SG&A expenses were going down by about 100 basis points from 46% in 2017 to 45% as a revenue. However, this will be offset by increased R&D inputs by 200 basis points from 13% in 2017 to 15% of revenue in 2018. The financial cost will also go up by 100 basis points from 3% in 2017 to 4% in 2018. This is mainly due to some new borrowing bank loan for CRM business acquisition. Those are our guidance for 2018's P&L. On the non-operating side, as it has caused some fluctuation to our 2017 bottom line, I will add this guidance this year for more explanation. We would give a heads up for the potential headwinds we anticipate for 2018. First, still the foreign exchange loss. Because we study the first quarter of 2018, we still see there's the U.S. dollars continue weaken against the Chinese yuan. So we will see in 2018, we will continue to suffer a couple million foreign exchange loss. The second is the Lombard Medical fair value loss. Right now, we have about over 3 million the investment in the Lombard Medical. That also could be some loss for 2018. To sum up, a key message to take away today is our ambitious top-line expansion plans to gain 2018 and the challenges to control cost in our core business. In addition, as we have built a much healthy balance sheet with the abundant cash proceeds from introducing the strategic investment into our endovascular and CardioFlow business, as well as a series of debts repayment done in 2017, our capital structure is becoming optimized. We feel we are placed in a strong position to deliver better financial return for investment in 2018. That's all I wanted to share with you all related to financials. Thank you for your listening, and now I will turn to Jessica Li for Q&A session. Thank you very much. Jessica? Hello. Well, thank you, Jonathan and Martin, so much for such a detailed discussion of the company's business operations and also financial results, and truly appreciate the detailed guidance, and that's going to be very helpful. Before we begin the Q&A session, I will probably take the opportunity to ask first couple questions. First of all, congratulations on a very solid 2017. You certainly delivered what you set to do. Given, I think, the guidance has been also fairly comprehensive, but I have one small question on the guidance regarding the R&D spending ratio. Can you explain to us why the ratio will actually go up? Because you've been on a downward trend for a couple of years, now you're guiding to an upward trend. Why is that? Also going forward, what should we think as a more sustainable R&D ratio? That- Okay. Yeah, go ahead. Yeah. Jessica, thank you for that question. For R&D spending, let me give you more information about that spending in 2018. Yes, our R&D spending will increase 200 basis points in 2018. Those increases in accordance with the timeline of our R&D projects, mainly attribute to a segment of our cardiovascular segment. We have several projects. One is the Firehawk IDE, probably two, yeah. The second is the clinical and some regulatory investment for further several CardioFlow projects. Another project is we have a TAVI project, we call it structural heart disease segment. We have also, in 2018, we have probably about invested further over $5 million for that area. The third part is our China orthopedics. Because the Made in China project is critical to us. In 2018 and 2019, we will aim to get the CFDA approval for our knees and hips. So for that area, we will continue spending some on sort of develop cost for those Made in China project, hips and knees. Also we have two very good R&D project for endovascular, as Jonathan Chen mentioned before this. One is the Castor, the other is Minos. That is the ultra-low-profile AAA. We were spending some more on that two projects. Again, we have a couple very promising R&D projects in 2018. Some is already on the clinical trials, some is just entering to the. Just started the clinical trials. That is why we have a more R&D spending in 2018. Back to your question. Back to your question. Overall, we will think our R&D spending against the revenue basis, I think the percentage wise will still keep around the 14%-15%. That is the range, minus plus. They still will below to 20%. The 20% is the highest. I still remember this three or four years ago. But right now as our top line accelerate growth, we will feel comfortable every year we will keep it about 15% minus plus. That is great. Very helpful. Operator, can we open the line for questions? Certainly, ma'am. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star followed by one on your telephone keypad and wait for your name to be announced. Once again, it is star one to ask a question. Ms. Li, we do not have any audio questions at the moment. Back to you. Yeah, that's fine. With regard to your core business strategy going forward, I think M&A has been a fairly important component to you, and you have been certainly quite acquisitive with the purpose to broaden your product offerings, beef up your global presence, and upgrade your technology. I'm wondering whether you'd be able to share with us more thoughts about your M&A plans going forward. Yeah, Jessica, thank you for that question. This is Jonathan Chen. Yes, with the acquisition of the CRM business, that is the second very significant transaction acquisition that MicroPort has executed in the last four years. The Wright Medical OrthoRecon transaction being the first. With those opportunities, we consistently evaluate to expand our business strategically. With the size of these acquisitions, it always takes some time for us to digest after we execute. I would say that we probably will not be in a situation where we'll be announcing a significant acquisition anytime soon. We're still working very diligently to close the CRM acquisition, which we hope to do before the second half of this year or before the end of the first half of this year. So, we possibly will evaluate, but you can see that the themes remain the same. We will always look to seek to globalize the business. We will always look to seek to bring in high-end technology, and we always look to seek to integrate those technologies into our home China market and to grow them and leverage our distribution capabilities in high-growth areas in China. Those are consistent themes that we will always evaluate for future acquisition opportunities. Is it possible for you to maybe look into a new category other than the one that you have, or more likely you would enrich your current categories? Yeah, I think if you think about MicroPort's business, we have basically cardiovascular and orthopedics. Those are the two major market segments that all of our businesses operate in. Certainly within certain segments in either orthopedics or cardiovascular, there may be other targets or opportunities to add to our current franchise. We look to fill those opportunities. We typically don't comment on anything forward-looking, but rest assured that we constantly are evaluating opportunities. Very good. Can we go back to the 2018 guidance, just for a quick update? So, Martin, you mentioned that in your guidance, you don't have the impact from the CRM acquisition. When would you be able to give us an updated guidance with that component? Yeah. Jessica, yes, thank you for that question. It's a good question. First, we will publish our shareholder circular probably very soon. Then after that, we will have our AGM and the shareholder meeting, probably 14 days after our shareholder circular publish. Then after the shareholders meeting approval, upon that day, we will probably hold some investor call. Then on that call, probably I will give the guidance. So probably maybe a couple of weeks later. Okay, great. Thank you. Operator? You are welcome. Yeah. Yeah Can you see whether there will be any questions on the line? Sure, ma'am. Once again, ladies and gentlemen, it is star one to ask a question. Ms. Li, we do not have a question at the moment. Back to you. Sure. Since we have Luosong on the call, can we spend a couple of minutes on TAVI since we're fairly close to the launch? Luosong, can you give us a brief overview of the market opportunity for TAVI and the competitive landscape in China, and what kind of pricing are we looking at for our product versus the global peers? Thank you. Sure. Thank you. We all know the global market is very big now so far, it is over $2.5 billion. For China right now, the only product is from Qiming Medical, approved almost a year ago. Right now, that is a very early time to get the heart team grow up in our different hospital or center. We needed to get more and more physicians can do this procedure. I think that is a number one priority to get this market to grow, to get more patient can have this kind of implant. For MicroPort, we expect to get our product approved by the end of this year. Of course, we still have to go through the tender, get into the hospital. But with Hangzhou Qiming being a first company to doing the, for example, the reimbursement code, they have to first get this treatment and this product in the hospital's reimbursement code before you could get into hospital. So they spend a lot of times to do those kind of regulation things, local hospital, province. That take a lot of time with their resource since they are pretty much a small company, so will take them some time. But by the time we get our approved, they have done a lot of front work because once you get the reimbursement code, everybody will use the same code. So for us, we do not have to redo that kind of work they are doing right now. So we will be much faster. Also, we have a lot of distribution network as well as some new structures through all those hospitals. I believe we will have a much faster pace for us to grab market share, to get a physician trained, and to get more people can do this procedure. So I think together with other competitors, we have to make this market big first because China is still at the infant stage in terms of having, if you compare with the U.S. and the Europe. I think we are about 3-5 years behind them. So that is a lot of work for us because no MNCs in China yet. I would believe the first MNC will be about 2 years behind us. So that is why the first, it is not like the years been done a lot of training education by the MNCs. But for probably, I think domestic company going to do this work, which is quite different from previous product, which was done by the MNC. We do a lot of those kind of work. The good thing, the physician is really eager to do this procedure. They also have enough patients, and the pricing is very good because Hangzhou Qiming is making the price around RMB 240,000 to RMB 260,000 under user price. That is very high price. Of course, if this price, how long it can hold? I think we have to reassess this kind of condition by the end of the year when we get our approved. Right now, we are just following all those information. We have not really made our strategy what we want to do. We want to closely monitor. By the end of this year, we will come up with our strategy how we are going to do it. Certainly, we can use our, how we say, our clinical networks, big muscle to help this, for us to quickly get into market, get into hospital as well as to help physician faster for their training and education so we can get this market grow much faster. As far as I know, they probably sold about 300 devices so far. 300 devices? Yeah. They probably sold about 300. Okay. Almost one year when they get the approved. Right. That's great. Thank you so much. I think actually we're. Go ahead? I think we are at the one-hour mark. Now I will turn over to the management and see whether you have any closing remarks. Thanks, Jessica. To all of the investors and analysts that have dialed in on today's call, thank you for your participation. This will conclude our 2017 earnings call. We look forward to meeting with investors in the coming weeks and months. Also, as Martin Sun suggested earlier, we will look forward to presenting our CRM financial guidance as well when the transaction circular is published. Thank you very much, and have a good day and good evening to you, everyone. Thank you. Thank you. Thank you. Bye-bye. Bye. Bye-bye. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may disconnect your phone lines now.