The performance of the leading player ResMed fully reflects this point. In fiscal year 2024, ResMed's equipment revenue alone reached US$2.444 billion. As another example of the "razor + blade" model, the revenue brought by home ventilators is not limited to equipment. In fiscal year 2024, in addition to equipment, ResMed's consumables revenue reached US$1.657 billion, a year-on-year increase of 14%, which is much higher than the equipment; and ResMed also opened up the space for the SAAS business model, with revenue reaching US$584 million, a year-on-year increase of 17%.

Under the three-wheel drive model of equipment, consumables, and software, ResMed's total revenue in fiscal year 2024 reached US$4.685 billion and its net profit reached US$1.021 billion. In the huge medical equipment industry, such a scale is not considered the top, but it must not be ignored in the subdivided field. The outstanding performance of the leader naturally attracted the layout and aspirations of many domestic players. Yuyue Medical, Yihe Jiaye and other companies have entered the field of home ventilators. In their vision, the logic of the rise of domestic equipment is clear: China's market demand continues to be released, domestic substitution stories are staged, and going overseas further opens up new space...

Indeed, domestic home ventilator players are facing huge opportunities. However, based on reality, for some domestic companies, the future they envision may only be a beautiful vision. At present, the scale of my country's home ventilator market is still in the development stage, with a low penetration rate. With the increase in the number of patients with chronic respiratory diseases, the optimization of sales channels and the enhancement of residents' health management awareness, the penetration rate is expected to further increase, and the business potential is huge-Yuyue Medical Semi-annual Report. In Yuyue Medical's vision, the outbreak of the domestic home ventilator market, in addition to relying on its own efforts, seems to lack only the east wind of "enhanced residents' health management awareness".

Indeed, this is one of the key elements. The core scenario of home ventilators is chronic respiratory diseases, mainly OSA (obstructive sleep apnea syndrome) and COPD (chronic obstructive pulmonary disease). The symptoms of OSA, which we call "snoring", can cause patients to have a poor mental state in the long term, and even more serious coronary heart disease, etc.; COPD is a common chronic respiratory disease that damages the patient's lungs and leads to progressive lung function decline. Symptoms include persistent coughing and dyspnea, which may not only impair the ability to carry out daily activities, but also cause anxiety, depression and sleep disorders.

Whether it is OSA or COPD, it is not fatal in the early stage, and people may think it is just a minor problem and not serious. Therefore, the penetration rate of related treatments can only be improved if residents' health awareness is improved. However, the improvement of health awareness will bring incremental growth to home ventilators to a certain extent, but it will also reduce demand. One of the most core factors that induce OSA and COPD is obesity. Therefore, as patients with these two diseases improve their health awareness, they are bound to strengthen their weight loss.

A survey in the United States shows that the current young generation who pay more and more attention to health has a growing health trend, which will lead to a decline in global obesity in the long run. A 2018 study by the International Food Information Council reported that 80% of millennials consider health benefits when choosing food, compared with 64% of baby boomers. The emergence of GLP-1 has accelerated this process. Because, in terms of weight loss, GLP-1's effectiveness has been recognized and has become popular around the world.

In fact, GLP-1 is also expected to treat OSA. In April of this year, top-line data from Eli Lilly's Phase III SURMOUNT-OSA trial showed that after 12 months of GLP-1 alone and combined with positive airway pressure (PAP) in OSA patients, the overall results of both groups were positive: the PAP plus GLP-1 group showed a 62.8% reduction in apnea-hypopnea index (AHI), while the AHI was reduced by 55.0% when GLP-1 was used alone.

Although the combination effect was better, the result still successfully triggered investor fears, so much so that ResMed's stock price fell 6% on the day the results were announced. The core reason is that the widespread use of GLP-1 may reduce the demand for home ventilators. Everything is still to be verified by clinical trials and time. However, when new technologies enter the market, the situation of home ventilators has obviously become more delicate.

Of course, no matter what, the logic of increasing the penetration rate of domestic home ventilators is irrefutable. The domestic OSA diagnosis rate is less than 1%, and it is difficult for patients to associate the typical symptoms of OSA (such as daytime sleepiness and fatigue) with sleep respiratory diseases, which leads to low public awareness of OSA, not to mention the diagnosis rate of the disease. According to statistics from the China Sleep Research Society, the diagnosis and treatment rate of OSA in China is less than 1%, far lower than the 20% diagnosis rate in the United States.

The same is true for COPD. Due to the lack of awareness and attention of patients to COPD, the domestic diagnosis rate is less than 26.8%. In contrast, the diagnosis rate in the United States is 68.3% and the control rate is 20.2%. At present, the domestic COPD diagnosis and treatment indicators are far lower than those in the United States during the same period, resulting in a death toll far exceeding lung cancer, and a heavy social burden. Considering the huge gap, the penetration rate is a high probability event. However, the potential of the domestic market may still be debatable.

Because the increase in the market penetration of domestic home ventilators is not only affected by the level of health awareness of residents, but also depends on the key issue of who will pay the bill. Looking at the global market, about 60% of the revenue of home ventilators comes from the United States, 40% comes from other parts of the world, and Asian countries account for a relatively small proportion. The core reason behind this ratio gap is that home ventilators are covered by medical insurance in markets including the United States and some European markets.

Taking the United States as an example, Medicare bears 80% of the cost, and patients pay 20% (equipment + consumables). Medicare will continue to pay for 13 months of equipment rental. After 13 consecutive months of use, the ownership of the equipment belongs to the patient. France, Italy, Spain and other countries reimburse according to medical service expenses, with a ratio of 100%; Turkey reimburses according to product regulations. At present, the domestic market is mainly self-funded, so the entire payment group range will inevitably be relatively narrower than the overseas market covered by medical insurance. Therefore, even if the penetration rate increases, under the logic of limited payment ability, the market size may also be Schrodinger's. In addition to the domestic market, going overseas is also one of the core logics of home ventilators. Under the catalysis of the epidemic, domestic ventilators have ushered in a good opportunity to go overseas, accelerating the process of building overseas brands.

As mentioned above, about 60% of the revenue of home ventilators comes from the United States. Under this premise, how domestic equipment can capture the core market is particularly critical. However, it does not seem easy for domestic companies to enter the US market and obtain the support of medical insurance. The US medical insurance market has the same price for equipment under the same HCPCS code, and when patients purchase ventilators, DME advances funds to suppliers. After meeting the medical insurance reimbursement conditions, medical insurance will pay the payment to DME. For DME, two factors should be considered: medical insurance recovery cost and purchase price.

The purchase price is not difficult to understand. Under the above payment model, the purchase price is lower and the corresponding profit of DME will be higher. The medical insurance recovery cost refers to whether it can successfully receive reimbursement from medical insurance. Medical insurance will only reimburse if certain conditions are met. The above conditions refer to the requirement that CMS (Centers for Medicare and Medicaid Services) requires patients to meet compliance requirements within the first 3 months of treatment. Compliance is defined as using the device for at least 4 hours per night on 70% of the nights for 30 consecutive days. In other words, products with better compliance are more likely to be reimbursed and have greater value.

Correspondingly, domestic products do have advantages in terms of purchase price. As shown in the figure below, the price given by Jardine Matheson's US agent to DME is about 10% lower than that of Myris. However, from the perspective of medical insurance recovery costs, overseas giants have greater advantages. For example, Resmain has increased its compliance to about 87% through continuous product iteration and Internet strategies.

In the past, when only ventilator equipment was used, compliance was only 50-60%, and the gap was obvious. Obviously, for domestic companies, going overseas not only requires better product performance, but also requires efforts to improve compliance. In the face of the first-mover competitive advantage of overseas giants, in addition to price advantages, domestic companies also need to do better in overseas product research and development, operations, market insights and other aspects.

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