Interpretation of New Stocks in the US Market | With Profitability Issues to Resolve, What Will BETTERS MED Use to Impress Investors?

Recently, Betters (Suzhou) Medical Co., Ltd.'s substantial holding company Baird Medical Investment Holdings Limited (referred to as "Betters Medical") officially went public on the NASDAQ in the United States through a SPAC (Special Purpose Acquisition Company) merger with ExcelFin Acquisition (XFIN).

Previously, Betters Medical's (BDMD.US) path to listing was quite tortuous. The company had planned to undergo a hearing with the Hong Kong Stock Exchange in September 2022, but due to regulatory policies and the continued downturn in the Hong Kong biotech market, the company later announced the postponement of its Hong Kong IPO.

In June 2023, the company reached a final merger agreement with the SPAC ExcelFin Acquisition Corp. ("ExcelFin"), intending to operate as Baird Medical Investment Holdings Limited after the transaction is completed. According to the merger agreement, the equity value before the merger was set at USD 300 million, and the implied estimated enterprise value of the company post-merger is approximately USD 370 million, with Betters shareholders converting 100% of their existing Betters shares into common stock of Baird Medical.

Compared to traditional IPOs, the time required for a SPAC listing is shorter, and NASDAQ has relatively high investment enthusiasm and valuation levels for biotech companies, providing a more flexible listing option for biopharmaceutical enterprises. However, from the market trend, Betters Medical's stock price has been on a downward trajectory since its listing, dropping 62% since October, clearly not favored by market investors.

Declining Product Sales Weigh on Performance

Public information shows that Betters Medical's history dates back to June 2012, as a leading developer and provider of microwave ablation medical devices for minimally invasive tumor treatment in China. The company's proprietary microwave ablation medical devices are used to treat benign and malignant tumors (including thyroid nodules, liver cancer, lung cancer, and breast masses).

Microwave ablation is a technique that destroys cells and tissues through microwave energy and heat, applicable to diseases such as thyroid nodules, breast nodules, liver cancer, and lung cancer, characterized by high safety, good efficacy, and the ability to enhance the activity of various immune cells in the human body.

According to Zhitong Finance APP, the company's revenue in 2023 was USD 31.5 million, a year-on-year decline of 10.35%, with a net profit of USD 27.23 million, a year-on-year decline of 2.86%; for 2024, revenue is expected to be approximately USD 42.2 million, with adjusted EBITDA of about USD 20.1 million.

The company disclosed that changes in sales prices led to a revenue decrease of approximately $1.1 million, while changes in product sales volume resulted in a revenue decrease of about $4 million.

The prospectus shows that BETTERS MED has a total of 8 products, of which 3 have received market approval: microwave ablation therapy devices and microwave ablation needles for the treatment of liver cancer and thyroid nodules, as well as long microwave ablation needles and fine microwave ablation needles.

At the end of November 2023, BETTERS MED's subsidiary, BETTERS (Suzhou) Medical Co., Ltd., officially launched its microwave ablation system and disposable product line of microwave ablation needles in the U.S. market as Class II regulated devices.

In terms of revenue structure, until the first five months of 2022, the company's revenue in the microwave ablation needle sector was 54.52 billion yuan, accounting for a significant 85.5% of total revenue, indicating a clear reliance on the microwave ablation needle business.

In 2023, the company's cost of revenue decreased by approximately $2.8 million year-on-year, and gross profit also fell from $28 million in the 2022 fiscal year to $27.2 million in the 2023 fiscal year, a decrease of $800,000. The company stated that to better meet customer demands, it added two production lines to the original microwave ablation (MWA) needle configuration, resulting in increased costs. The company noted that the cost structure in 2023 is closer to the actual core business operating conditions compared to the previous year.

Regarding sales and marketing expenses, the company's strategy has gradually shifted from direct sales to selling through distributors, leading to a reduction in the internal sales and marketing department staff from 79 to 32. Sales and marketing expenses in 2023 also decreased by $1 million to $2.5 million. In the 2022 and 2023 fiscal years, the company's sales expenses accounted for 10.2% and 8.1% of total revenue, respectively. The company expects that the U.S. sales business will steadily advance in 2024, which may lead to an increase in sales expenses.

In the 2023 fiscal year, the company's R&D expenses were $4.3 million, an increase of $400,000 compared to $3.9 million in the 2022 fiscal year, accounting for 13.6% and 11.0% of total revenue in the 2023 and 2022 fiscal years, respectively. The increase in R&D expenses was mainly due to rising costs for FDA certification, CE Marking, endoscopic ultrasound systems, and the development of AI ablation systems and equipment.

The prospectus indicates that according to Frost & Sullivan data, based on the sales revenue and sales volume of microwave ablation needles in 2022, BETTERS MED ranked first among suppliers of microwave ablation medical devices for treating thyroid nodules and breast masses in China; based on sales revenue in 2022, the company is the third-largest supplier of microwave ablation medical devices in China.

The Incidence of Cancer in Our Country Shows a Continuous Growth Trend

Public data shows that ablation technology is a commonly used method for treating tumors, which can destroy cancer cells through high temperature, low temperature, or chemical substances. Common ablation techniques include radiofrequency ablation, laser ablation, high-intensity focused ultrasound ablation, microwave ablation, and cryoablation.

For tumor diagnosis, it is first necessary to determine the location and size of the tumor through imaging examinations and obtain pathological tissue samples for further diagnosis and classification. Although both microwave ablation and radiofrequency ablation utilize thermal effects to kill cancer cells, there are certain differences in principles, indications, advantages and disadvantages, and safety From the perspective of indications, microwave ablation is suitable for the treatment of tumors in solid organs such as the liver, kidneys, and lungs, especially for larger tumors or multiple tumors; while radiofrequency ablation is suitable for the treatment of malignant tumors such as liver cancer, kidney cancer, and lung cancer, particularly for smaller tumors or solitary tumors.

According to the "2022-2027 China Tumor Radiotherapy Industry Market Outlook and Future Development Trend Report" released by the China Business Industry Research Institute, with the increasing popularity of minimally invasive surgery, the promotion of microwave ablation therapy in different hospitals, and the expansion of indications for microwave ablation therapy, the Chinese microwave ablation market is experiencing rapid growth. In 2023, the market size of microwave ablation in China reached 3.87 billion yuan, a year-on-year increase of 29.87%; analysts from the China Business Industry Research Institute predict that the market size will reach 5.07 billion yuan in 2024.

In the first half of this year, the National Cancer Center published the burden of malignant tumors in China for 2022 based on the latest data from the national tumor registry and follow-up monitoring in the world-renowned journal "JNCC," and updated the trends in cancer incidence and mortality in China from 2000 to 2018. The data shows that in 2022, the number of new cancer cases in China was 4.82 million, an increase of nearly 530,000 compared to 2015, equivalent to an increase of over 12%; the number of new cancer deaths was approximately 2.57 million, with lung cancer remaining the most prevalent cancer in China, ranking first in both incidence and mortality rates.

The data indicates that among the new cases, the top five types of cancer are lung cancer, colorectal cancer, thyroid cancer, liver cancer, and stomach cancer, accounting for 57.42% of new cancer cases. For individuals aged 0-74, the cumulative probability of developing cancer in the Chinese population is 21.42%, meaning that 1 in every 5 people will develop cancer in their lifetime.

The data also shows that due to the market environment and a series of favorable policies, the enthusiasm for listing in the U.S. has significantly rebounded this year. From January to October 2024, a total of 50 Chinese concept stocks successfully listed on the U.S. stock market through IPOs, raising approximately $2.42 billion, and two other Chinese concept stocks successfully listed through SPACs in October.

With the financing environment becoming more relaxed, it is expected to drive a valuation recovery for Chinese concept stocks as a whole. From a fundamental perspective, BETTERS MED does not have significant advantages in revenue scale and market share, and its financial report data has performed poorly, putting continuous pressure on the company's stock price. To restore market investor confidence, BETTERS MED will face many challenges in the future