Earnings Call: H1 2019

Aug 30, 2019

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Our chairperson today is Cui Cui. Cui Cui, please begin your call and I will be standing by for the Q&A. Thank you. Thank you. Thanks for joining MicroPort H1 2019 Result Conference Call. This is Cui Cui from Citi Healthcare. It is our great honor to invite senior management team of MicroPort, Mr. Martin Sun, CFO, Dr. Qiyi Luo, Chief Technology Officer, Mr. Jonathan Chen, Chief International Business Officer, and Miss Leanne Li, Board Secretary and Vice President. Now I pass to Mr. Jonathan Chen to give us a brief introduction of H1 results. Thank you. Thank you, Cui Cui. During the next hour, Martin and I will provide comments on the interim results for our fiscal year 2019, which ended June 30. After our prepared remarks, we will be happy to take your questions. First, unless I say otherwise, reference to our 2019 interim results increasing or decreasing our comparison to corresponding period of year 2018 and all year-over-year revenue growth ranges are given on a constant currency basis, which adjust for impact of foreign currency translation. The growth range details before constant currency adjustments are available in our interim result announcement, which was published earlier today. The highlight of our 2019 interim results are as follows. The company further expanded its business and the key business segments and our core products continued to achieve robust growth. Revenue of the company reached $393 million, up 33.9% year-on-year, among which the financial results of the acquired CRM business were fully consolidated into group's financial statements from January to June 2019, with an increase of four-month revenue compared to 2018. As a result, revenue of our CRM business grew substantially by 162.5% year-on-year, with very strong growth from our domestic pacemaker business. Meanwhile, revenue of our cardiovascular business increased by 27.8% year-on-year, and sales of our Firehawk stents increased by 58.7%. Revenue of endovascular and neurovascular business recorded 41.6% and 57.9% revenue growth respectively. For our orthopedics business, due to short-term fluctuations of our international non-China orthopedics business, revenue of the whole segment decreased by 4.8% compared with the same period from previous year. But the revenue for our China orthopedics business increased by 53.3%, amongst which revenue from imported knees increased by 45%. Our gross profit increased by 28.4%, with gross profit margin reaching 71.7% up by 0.9 percentage points, mainly attributable to better product mix. In addition, during the reporting period, the group completed the transfer of shares of EP business, resulting in a one-time gain of approximately $56 million. As a result, our profit attributable to equity shareholders of the company was $65.5 million, up by 175.5%. One additional item to highlight is that for our endovascular business called Shanghai MicroPort Endovascular MedTech Company, was officially listed on the Sci-Tech Innovation Board of the Shanghai Stock Exchange on July 22, 2019. It has been the first company spun off from a Hong Kong-listed company and successfully listed on the Sci-Tech Innovation Board and was also one of the first batch companies to land on this board. Now I will briefly review some of the R&D achievements in the first half of 2019. The company had made great achievements in R&D and clinical affairs, which laid the foundation for the company's sustainable development. In the first half of 2019, we have had seven products that gained NMPA approval, with many of the products receiving clearance in overseas markets. In our cardiovascular device business, our Firehawk Nova coronary recanalization target-eluting stent with improvements in the delivery system obtained NMPA approval, which diversified the existing product portfolio for our cardiovascular business. In our overseas market, the group obtained 14 initial registration approvals in six countries or regions outside of China, amongst which the new generation Firehawk Liberty coronary DES, and the Firefighter NC PTCA balloon catheter received CE mark. Currently, the group has four stent products and four balloon products that are being sold in the international markets. For our orthopedic business R&D in our China market, the domestically made Aspiration and SoSuperior medial stability, total knee replacement systems both obtained NMPA approval in January of 2019 and have completed first implantation. Also obtaining NMPA approval were the hip implant components for the wedge-shaped femoral stem and metal femoral head. In March of 2019, the group self-developed Arbores kyphoplastic balloon catheter gained NMPA approval. The domestically made hip product is expected to gain NMPA approval before the end of this year, 2019. The introduction of the above-mentioned domestically made knee and hip products will mark a milestone in the process of our domestic production capabilities and enrich the product line and thus build competitive strength for our China orthopedic business. In the international market, the Evolution Stemmed CS Femur, a significant component of the Evolution revision knee system, has obtained approval and was launched in North America. The new generation of Evolution NitrX medial pivot knee and our knee tensioner instrument system gained FDA approval and was launched in the U.S. Other products that have received clearance include the Prime acetabular system and the SlowCon total knee instruments system in Japan. The BIOLOX delta OPTION system in Europe. Those products further expanded the product portfolio for MPO's global orthopedic business. For our endovascular business, Minos, which is our AAA stent delivery system, obtained NMPA approval in March of 2019. Minos is currently the only domestic-produced product and independent IP rights that reduce the outer diameter of the delivery sheath to 14 French. In our heart valve business, our VitaFlow transcatheter aortic system obtained NMPA approval and production license in July of 2019, becoming the group's sixth product to successfully obtain NMPA approval after entering the Green Path, fast track designation. On August 28th of this year, VitaFlow completed its first implantation since NMPA approval and followed by another three implantations on the same day. For our neurovascular business, we recently received NMPA approval for our fast track microcatheter system. Lastly, for our surgical robot business, the group's self-developed 3D electronic laparoscopic system was granted Green Path channel status, becoming the group's 16th product for MicroPort to achieve this fast track status designation. During the reporting period, we also made significant progress in clinical trials. In March at the CIT conference, the group released the three-year follow-up results of FUTURE-I, which is the research study for our Firesorb bioresorbable target-eluting scaffold for the treatment of coronary artery disease. It showed that the target lesion failure rate, also known as TLF rate, and stent thrombosis rate were both 0%. It proved that the Firesorb stent based on the PLLA materials with thinner wall, is one of the most viable, safe, and effective solutions for patients with single de novo coronary artery lesions as compared with first-generation biodegradable stents. In May at the EuroPCR conference in 2019, the company released our two-year data from our TARGET All Comers trial. The data was simultaneously published online by the Journal of the American College of Cardiology, a well-known international medical journal. It further proved that the Firehawk stent with our innovative target eluting technology, can achieve the same clinical efficacy as the internationally recognized stent with most efficient clinical statistics and increase the potential safety of our stent. In terms of the incident rates of our advanced stent thrombosis and target lesion vascular rates, the 24-month follow-up clinical results of the Firehawk stent were better than those of the control group. After giving a big picture of the R&D progress, I will give more details on the progress of each business during the first half of 2019, starting with our cardiovascular business. The revenue for our cardiovascular business maintained rapid growth and increased by 27.8% year-over-year, mainly driven by the core products of Firehawk and Firebird II. During the reporting period, the revenue for Firehawk grew by 58.7% and sales volume grew by 84.4% year-on-year. Revenue and sales volume for Firebird II, which has been on the market for over 10 years, grew by 8% and 16.1% respectively. Revenue for our Firehawk as a percentage of total DES sales increased from 32% in 2018 to 42% in 2019, while the sales volume increased from 23% to 33%. Revenue for our balloon products maintained robust growth at 66.4% year-over-year. During the reporting period, while maintaining existing market share, the group also actively expanded into new markets. As of June 30, 2019, the group's DES covered more than 1,700 hospitals nationwide. The number of hospitals covered by Firebird II reached 1,708 and realized a 16% year-on-year increase, while those covered by Firehawk reached 783 hospitals and realized a year-on-year increase of 44%. The balloon products cover more than 500 hospitals, representing an increase of 13% compared with the same period last year. The group has also made achievements in penetrating the county-level market. During the reporting period, the group newly penetrated into 52 county-level hospitals in 17 provinces in China. For our international market, in the first half of 2019, revenue from the international drug stent business increased by 65.3% year-on-year. Firehawk newly gained approval in three countries or regions and are now being sold in 28 countries globally. Besides, based on the TARGET AC clinical trial results, the Firehawk stent was approved to be included in the French Medical Insurance Reimbursement list. The first implant surgery was completed in July in France, and this was further promoted by the Firehawk stent in the French coronary stent market, a leading market in Europe. For our CRM business, in the first half of 2019, recorded revenue of $106.6 million. The group actively adjusted our market strategy, investing in R&D for long-term development, and promoted domestically manufactured pacemakers in China, and whose sales growth really exceeded our expectations. In the first half of 2019, the revenue from the international non-China CRM device business was $103.1 million. The group continued to invest in R&D and diversified its product portfolio to enhance its overall strength. In respect to new products, the world's smallest 1.5 Tesla and 3 Tesla magnetic resonance conditional pacemakers, called the OTO, the ENO, and TEO Series, were officially launched in Europe and rapidly gained hospital usage. The new SmartTouch tablet program controller for implantable IPG devices was also launched in Europe. The group also had several lead pacemakers and Bluetooth function and other products that are under development, which are expected to improve the existing product portfolio in the coming years. In our Japan market, the group sales team has shifted from the original distributor model to building a direct sales network and laying the foundation for sustainable development for the Japan CRM market. For our CRM China business, which was previously our joint venture called MicroPort Sorin CRM, the company continued to launch various branding campaigns and expanded academic promotion, which led to an increased recognition of the domestic brand and accelerated the process of our domestic manufacturing production. During the reporting period, the revenue for CRM China business recorded revenue of $3.5 million and achieved robust growth, and sales volume grew by 245%. As of June 30, 2019, the pacemaker products covered 264 hospitals, representing an increase of 89% compared to last year. The Beflex Active Pacing Lead, which was attained approval in 2018, also commenced clinical applications throughout China. In the future, we will propel the effective integration of these internal resources to introduce more cutting-edge technologies from our overseas business to the China CRM market. In our orthopedic business, the first half of 2019, the orthopedic grew to promote its unique product concept, sales force, and gradually upgraded its products. With our two domestically made knee products gaining approval, the group further added its presence in the China market and made substantial progress in the process of the domestic production. However, due to the short-term impact of our international non-China orthopedics business, during the reporting period, our global orthopedic business achieved sales of $113 million, a decrease of approximately 4.8% over the same period last year. For our international non-China orthopedic business, the revenue decrease was 8.9% year-over-year, mainly attributable to the influence of the loss of a major U.S. distributor in 2018, coupled with some pricing pressure in some of our international markets. Regionally, the revenue from the U.S. business decreased by 11.5%, while revenue from Japan achieved an increase of 3.9%, maintaining an upward momentum. During the reporting period, the company actively explored potential markets in North America and were able to find four new distributors, which is expected to bring substantial growth to surgery cases for the second half of 2019 and beyond. We believe we will see the U.S. core business return to growth in the second half of 2019. In addition, the group expanded academic promotion, strengthened the training of our physicians, upgraded our existing products, and launched a new generation of Evolution NitrX Medial-Pivot knee. The group's Medial-Pivot knee now stands at over 20 years of clinical demonstrated success with over 600,000 cases of implantation globally. The NitrX knee builds upon the same medial pivot philosophy but features a titanium nitride coating, which is applicable for patients with allergies to certain metallic ions. Besides the launch of our Evolution Stemmed CS Femur, a significant component of the revision system, this will also help to expand the sales of the Evolution knee. For our China orthopedics business, we recorded revenue growth of 53.3%, mainly due to the joint business rapid sales growth of 55.8%, amongst which the sales of the imported knees and hips grew by 45% and 78%, respectively, far exceeding market average. In the first half, the company's joint products newly entered over 150 hospitals and now are available in almost 400 hospitals nationwide. During the reporting period, the domestically made Aspiration and SoSuperior medial-stabilized total knee replacement system obtained NMPA approval. Besides, the domestically made hip product is expected to gain NMPA approval before the end of this year, which will further enrich our product line for our China orthopedics business. The diversified product portfolio with both domestic and import products, the overall competitiveness of the China orthopedics business will be enhanced. During the reporting period, the spine and trauma business recorded a significant increase in revenue and gross profit margin, mainly through expansion of our sales platforms, clinical promotion, and various marketing activities and successful new product launches. The orthopedic instrument business aimed also to reduce the cost of the developing tools by increasing our commercial scale. During the reporting period, the bulk production of the domestic ICE Evolution knee instruments have initially completed for supply to the China market and will enter the U.S. market before year-end. For our endovascular business, recorded a rapid year-on-year growth of 41.6%, far exceeding the market average growth. This was mainly driven by the sales growth of all the major product lines for endovascular. Revenue for our TAA products grew by 48.1%, and in particular, the Castor single branch thoracic aortic stent has been applied by over 230 hospitals in China. To date, Castor has been implanted in more than 1,000 cases and has continuously driven the growth of the endovascular device segment. Our Hercules low-profile thoracic system also was well accepted in the market and increased the competitiveness of our TAA products. Revenue of our AAA products grew by 34.5%. Our Minos AAA system obtained NMPA approval and will bring an extra catalyst to this segment in the second half of the year. With the high-quality innovative products and well-established sales team, the group now covers 36 hospitals during the first half of 2019. For our other business segments, the group also had great performance in regards to sales and R&D. Our neurovascular business achieved robust growth of 57.9%. Specifically, our Apollo intracranial stent system and our Tubridge vascular reconstruction device launched last year and achieved strong revenue growth. As the first flow-diverting stent approved in China, Tubridge newly entered into 90 hospitals and contributed 33.7% of the segment revenue, up from 3.3% for the same period in 2018. For our heart valve business, our VitaFlow TAVI system obtained NMPA approval in July. VitaFlow has released two-year follow-up results, which show solid competitive strength of VitaFlow compared to other TAVI devices. Our VitaFlow II has entered the Green Path and kicked off the clinical trial in China with enrolling 66 patients. In our international market, VitaFlow II has enrolled 11 patients in the pre-marketing clinical research project called VITAL, which is a clinical trial in Europe. For our surgical robot business, our research progress are progressing steadily. The laparoscopical surgical instrument control system has initiated the type testing process for NMPA approval. The group's self-developed 3D electronic laparoscopic was granted Green Path. Since there is no domestic 3D laparoscopic product currently in China, the grant of the Green Path will assist in popularizing this cutting-edge technology and boost the development of the connected industries. For our EP business, we would like to remind investors that during the reporting period, the company completed its transfer of the shares of Shanghai MicroPort EP MedTech Company, and the equity interest held by the company in MicroPort EP dropped from 81.9% on December 31, 2018, to 45.1%. The financial report of MicroPort EP is no longer consolidated into the company's results. That is all for the operating performance in the first half. I will now turn it over to Martin to provide you with further financial details for 2019 interim results. Okay. Thanks, Jonathan, and hello, everyone. Now I am going to spend the next few minutes taking you through our interim financial performance, as well as the update our guidance for the full year. For the revenue, during the first half year, MicroPort generated total revenue of USD 392.6 million, achieving a growth rate of 33.9% at constant currency rate basis. Excluding our CRM consolidation, the revenue of our base business increased by 12.3%, mainly driven by our strong cardiovascular business growth, which is at 27.8%, offsetting by the decline of global orthopedics business declined by 4%. As Jonathan mentioned earlier, all of our major business segment in China, including endo and neuro, achieve more than 30% growth. Our gross profit increased by 28.4% during the first half year, with the gross margin at 71.7%, up by 90 basis points from the 70.8% last year. This was driven by favorable sales mix, especially from the continued strong DES growth with better margins. Our total operating expenses relatively to revenue ratio went up 670 basis points to 63.5% for the first half year. This is mainly driven by the consolidation of our CRM business. For the CRM business, they had a much higher operating expenses to revenue ratio. For the first half of the year, the ratio is 78.7%, including the sales marketing, 44.4%, R&D 23.4%, and G&A 10.9%. That compared to the last year, that ratio also grew very fast. It is driven by the two factors. The first one is our continued increased R&D spending for the product portfolio improvement, especially on the MRI compatible leads for Tachy products developed. The second factor is our new investment to build our own Japan commercial foundation for the sake of business model change from the exclusive distribution to go direct. With the additional headcount hired in penetration for transition in September in Japan market, we believe this transition and the business foundation in Japan will drive our future strong growth. The other operating expenses of non-CRM segments, it is still keep a quite stable percentage. That is, for the first half year, that percentage is 58%, is only just increased by 170 basis points, mostly due to increased R&D spending on several major projects in China. For example, is heart valves and surgical robotics. For the other major P&L account, I would like to share the two other major P&L items movement that contribute to our increased net profits. The first one is gain on disposal of shares of EP business. During the reporting period, we completed transaction for a capital increase of EP business and the share transfer of EP to the other investors. The MicroPort EP had a capital injection of RMB 200 million, and the MicroPort group received a total cash consideration of RMB 223.9 million for share transfer. That transaction was accounted for as a disposal of EP business with a gain of US$63.1 million recognizing our P&L for the first half year. At the same time, we also recognized additional income tax of 7.3 million, which attributed to the significant increase of income tax in the first half year reporting. Therefore, the net impact of that transaction for the first half year was a net gain of 55.8 million. Upon the completion of EP disposal, the group's equity interest in the MicroPort EP decreased from 81.9% to the 45.1%. The other major P&L account is the other net income, which increased by 4.3 million compared to the last year same period. It is mainly driven by our increased government grant by 8 million, which is primarily linked towards the substantial R&D input of the group. The bottom line was 2019, the interim results closed at a net profit of 60.8 million, up 151.4% year-on-year. Profits attribute to the shareholders of 65.5 million, up to 175.5% year-on-year. EPS also increased by 153% to US$4.15 cents. For the balance sheet wise, we see what we maintained a healthy, strong balance sheet for the first half year. Our cash flow was continue, we see the spin-off of the EP business brought cash received of RMB 222.9 million. In addition, as Jonathan mentioned earlier, our Endovastec business IPO and listed on the Sci-Tech Innovation Board of Shanghai Stock Exchange in July 2019. MicroPort endo business issued a total of 18 million A shares, and they received total cash proceeds of RMB 832 million. This will also help enhance our capital structure significantly and improve our cash liquidity. Now I will turn to our guidance and update based on our first half year financial performance and our best estimation for the second half year. We would like to give you some change of 2019 guidance. The first one is revenue. We would like to change our previous guidance of overall sales growth at 20%, now to 21%. That means that we will lift up 1% and total consolidate revenue and close guidance. This mainly attributed to the continued robust growth of the cardiovascular business. I will highlight some key segments here. The first one, of course, the cardiovascular. We expected this cardiovascular business for the whole year growth will change from the original growth rate 20%-22% to above 25%. This would still be driven by the strong momentum of Firehawk and the Firebird 2 in China market as well as the international market. For the domestic sales, we do not anticipate the GPO rollout in Jiangsu Province will bring down our DES revenue. We expect that volume will definitely increase more than our original budget, especially for the Firehawk, by winning the mandatory group tender. Despite a significant retail price cut, our ex-factory price were not expected to decline so much. In the international market, sales growth will still benefit from the entrance into new emerging economic countries, and we also expect to strengthen our position in the EU market with leverage from our CRM European sales force in countries like French and Italian. The Firehawk's fancy inclusion in French Medical Insurance Reimbursement list will also help further promote penetration in French market, which is a leading market in European. Our guidance for the orthopedics business is expected to change from the original 5% growth down to 2%-3% growth range. With regard to the international orthopedics, non-China orthopedics business, for the full year guidance, we anticipate a marginal decrease by 1%-3% compared to previous guidance are flat. However, that change in forecast is driven by the first half-year decline of 8.9% year-on-year, but we believe this revenue will start to pick up in second half year. The key drivers of second half year pick up will be a new account subscribed in the North American market. For our China Orthopedics business, we expect to maintain the robust momentum and grow at approximately 45%. Regarding the revenue of the CRM business, we keep no change to our previous guidance compared to the eight months of 2018, our guidance remain with an increase of 40% in 2019. The remaining key segments will continue to grow high double digits. We still keep above 30% growth rate for annual sales. The second session is the gross margin. We anticipated a full-year gross margin to be flat, maybe approximately 71%. This would be as a result of the combined effect of following the four factors. The first one, CRM margins at above 60% normal standard level, reflecting a significant increase over 2018 at 54%. The Orthopedics decrease about less than 1% due to a price erosion, unfavorable mix, and volume. Other segments dropping about 2%. This is due to manufacturing capacity expansion with lower utilizations. For the OpEx expenses, including R&D, distribution, and administrative expenses compared to our previous guidance, total expenses as percentage of revenue will be better off by 100 basis points to 62%-68% of the revenue. For the second half year, our other income, P&L account, still we expect we will receive a compensation of at least $12 million from LivaNova as an adjustment on the working capital for the acquired CRM business. This will have a potential favorable impact on our both P&L and cash flow. That's all for the update to our full year guidance. Thank you for listening, and I will now hand over to Citi colleagues. Thank you, Martin, and thank you, Jonathan. Before we move on to the Q&A session, I will ask a few questions on behalf of investors. Firstly, congratulations on the Endovastec successful listing on the Sci-Tech Innovation Board. May I ask the management team to share with us the future strategy of the Endo segment and how to leverage on the new financing platform? My second question is on TAVI. It's good to know that we have already finished the first patient procedure. Could you please comment on our sales target and also the competitive landscape of TAVI? My last question is on Firehawk. After listed on French Medical Insurance Reimbursement list, would you help us understand the future growth driver and also the market potential in EU market? Thank you so much. Okay, Citi, I think I will take the TAVI question first, and then Martin will do the Endo, and Jonathan will do the French growth. For TAVI, yes, we get our first case two days ago. Actually, as a matter of fact, we had five cases all done so far, which is very good. We just needed to make more because everything we need to do the ramping up, we need to take a step by step to make all the product quality, safety, and to promoting use by qualified physicians. We all know in the U.S. and Europe, this is already very mature market for TAVI as of last year already in total 130 TAVI cases being performed worldwide. But China is only have 2,000 for the year of 2018, so we have a long way to grow. But we have enough patients, we have very enthusiasm doctors wanted to do this. I think the bottleneck in China now is with the hospital as well as fully trained physicians. Right now, I would think only less than 10 center can do it independently for this procedure. Although they have almost 100 hospital being performed TAVI, but they need to have proctors. Most hospitals still need to do this with a good proctor, either from some top center in China or some international centers. For us, for the industry, our biggest task in next few years to really train more physicians and more hospital can do it independently. Only by this bottleneck being broke through, the case will grow tremendously. That is I think the situation in China. We know the market is huge and big, but we still needed to step by step. Do a lot of trainings to get all in that stage, to that level of the procedures. Does that answer your question? Yes. Thank you, Doctor. Thank you. Let me try to answer your second question about endovascular business. As we mentioned this, after the endovascular business spin-off and successfully IPO listed in the Shanghai Stock Exchange, they received over $120 million the proceeds. As they also publish the strategy to the Chinese investors, they are very consistent. First one is keeping a leading position in the endo and the market of China, because they have a quite strong pipeline for the TAA and the AAA product portfolio, and also several new products is on the approval process. The second one is they will use proceeds to invest their R&D for the peripheral product pipeline. In the future, we will see the endo business will build two robust segments, an endo and the peripheral product pipeline. The third one is they are still actively looking for the expansion of their business from the China market to the overseas market. That is their strategy. That's all. Thank you, Martin. Your last question about the Firehawk in France, I will answer. We are leveraging our European CRM sales team to help us commercialize Firehawk in France. It just so happens that France is the strongest sales force that we have for our CRM business. In fact, the good news is in our international business, the first half spend growth was 60 something percent, and that did not include a good portion of our French contribution because our French reimbursement was only received in May of this year, May of 2019. We do believe we have some more upside there to grow our Firehawk business for France and other European countries. Thank you, Jonathan. Operator, please open up the lines for Q&A's. Thank you. Thank you. Ladies and gentlemen, we will now open for questions. If you'd like to register for a question, please press star one on your telephone. Thank you. Once again, ladies and gentlemen, please star one key for questions. Our first question comes from Michael Wong with CSOP in Hong Kong. Please go ahead. Hello? Hi, Michael. Hello, Michael. Hello. Hello. I just have a very similar question on your M&A plan. What is your M&A plan in maybe next 3-5 years? Hi, Michael. This is Martin Sun, CFO of the group. I have to answer that question in short. So far, for the next 2 or 3 years, we do not have a big M&A acquisition plan or target on the radar. As you know, last year, we just completed a material acquisition for the CRM business. We will focus on this transition and keeping that business turn around within the next 2 or 3 years. Okay. Understood. Sorry? Hello? Yeah, we can hear. Okay. How is your pacemaker? I just want to know the sales volume of your pacemaker in the first half 2019. Michael, your question is for pacemaker in China or our whole pacemaker global business? Both, I think. China and the global. Okay. First one is our pacemaker business in China. We grow very fastest, and for the case wells, for the 9 months. During the 9 months we launched that pacemaker, we have 900 cases, and the revenue achieved to $3.5 million. The growth rate is about 270%. This is very strong growth, thanks to this pacemaker domestic manufacturing approval. For our global CRM business, we revenue for the first half year record over $103.1 million. That growth is 153%, and that's also included this. That excluded our China pacemaker business. Okay, understood. Okay. All the information. Thank you. Thank you, Michael. Thank you once again, ladies and gentlemen. If you would like to register for questioning, please press star one on your telephone. Thank you. Once again, ladies and gentlemen, that is star one key for questions. Our next question comes from Shannon Lin with Macquarie in Taiwan. Please go ahead. Hello. Shannon, please begin your call. Thank you. Hi, thank you for taking my questions. My first one is on the domestically made joints. How much do they contribute to sales in the first half, and what is your expectation for the second half next year and in 2021? My second one is on the Firesorb. When do we expect the grant approval in China? Excuse me, for the first question, you mean the domestic- Yeah. Domestically made joint, because we just got two knees approved in China, domestically made. Okay. There is no disclosure in our earnings, but I just give you some, it is, how to say, RMB 15 million we expected. That is the estimation. So that is for the first half, right? For 2019, this year. For the full years. Yes. Then, do you have guidance for 2020 and 2021? No. Okay. Well, until March next year, we are happy to give you that guidance. Okay, I see. I will share that in another information for your reference. When we look at the Chinese joints market and the high growth and look at the domestic players' growth their all average growth is over 40%-50%. Considering our just launch our made-in-China knee products this year. Next year, we expect that is definitely higher than this industry growth, which is much higher than 50%. I see. I cannot give you the exact guidance. for the next year made-in-China joints. Mm-hmm. Yep. Thanks. For the Firesorb, I think we are still in the randomized trial stage. We believe if the regulation do not change it too much, remember that in China, this regulation is changed quite a bit every year. For example, last year, they said is needed 2 years data. Now they talk about they need 3 years of following up data. Lepu was lucky, so they just get that approved. Yeah. Mm-hmm. Now they change the regulation. If they need the three years, we look at the end of 2023 to 2024. It depends on if this will change again. That is about the timeline, because now all of a sudden, we have to increase one year by following up time. Mm-hmm. I see. It will be like 2023 to 2024 for the three-year clinical data needed now. Yes. We think about that time to get approved. Okay. I see. Thank you very much. All right. Thank you once again, ladies and gentlemen. That is now one key for questions. Our next question comes from Doris Chen with Chen Yu Capital in Hong Kong. Please go ahead. Hey, hello. My question is about, there is a possibility that the national rollout of the centralized procurement on the high-value consumables. Wondering what's your view on it. Can you share with us more details on the Jiangsu tender? Thanks. Hi. This is the Board of Secretary, Leanne. I am going to answer your question regarding the centralized procurement in Jiangsu Province and its impact. Firstly, just a quick review of this policy in Jiangsu Province. On July 24, Jiangsu Province Healthcare Security Bureau issued the announcement on the centralized procurement of the medical consumables by the alliance of 55 public hospitals in Jiangsu, which involves stent products and dual-chamber pacemakers and bundling 70% of the total procurement quantity by the 55 hospitals during the previous year. On July 31, price negotiations were completed, and our Firebird II and Firehawk stents and domestic pacemaker were selected. On August 16, nine manufacturers signed purchase agreements with the alliance of 55 public hospitals, which specified the quantity and the price. The procurement will be executed starting from October. This is a quick review of this process going on so far. An impact on the company, just in Martin's section, he already gave the estimation of the second half of the year, and during that session, he mentioned the impact. Basically, this centralized procurement will bring down the retail price, but our ex-factory price will decline less compared to the retail price while we expected a substantial growth in the sales volume. The specific impact on the company still depends on the execution results, so that we will have a clear picture at the end of this year. Above all, we expect to increase our market share in Jiangsu Province. In general, we believe that the centralized procurement this time is a pilot program by Jiangsu Province, by Jiangsu Provincial Healthcare Security Bureau, under the guidance of the National Healthcare Security Administration. Such program may be followed by other provinces in China or extended nationwide, but it will depend on the execution results in Jiangsu Province. Okay, very clear. Thank you so much. Thank you. Thank you once again, ladies and gentlemen. If you would like to register for the question, please press star one on your telephone. Thank you. Once again, ladies and gentlemen, that is star one key for questions. If there are no more questions, let us welcome Miss Leanne Li to give us a closing speech. Thank you, Leanne. Jonathan? Hi, this is Jonathan. Thank you everyone for participating in the first half 2019 MicroPort earnings results call. We look forward to visiting with our investors in the coming weeks in Hong Kong and New York, and thank you for your participation and wish everyone a good day. Thank you. Thank you. Thank you. Thank you for participation. This concludes the conference.