Face value

Look, no wrinkles

Like a lot of young women, 19 year-old Xiaochen (a pseudonym) wanted a new look before heading back to college. After seeing an ad from a beauty clinic, the Chongqing-native opted for a filler injection. The lure: a price of just Rmb980 (about $150), down from the original Rmb19,560.

Without questioning the credentials of the person performing the procedure, Xiaochen was injected in the nose with hyaluronic acid – commonly known as dermal filler – to make her nose look straighter.

But after the procedure last month, she found that she was losing vision from one eye. She was rushed to the hospital and it was discovered that the injected matter had reached areas connected to the eye’s blood vessels, leading to the blockage. The doctor explained that the damage was irreversible and she would never see from that eye again, reported Tencent’s news portal.

Despite this cautionary tale, dermal fillers are hugely popular in China. One prediction from a medical think tank is that by 2030, demand for cosmetic treatments like Botox and dermal fillers could reach Rmb500 billion, making China the world’s largest ‘aesthetic medicine’ market.

It is against this backdrop that two local drug firms – Haohai Biological Technology and Bloomage BioTechnology – are proceeding with their applications to go public on Shanghai’s new STAR Market (for more on this bourse, see WiC461).

The two biotech companies, both already listed in Hong Kong, produce and distribute hyaluronic acid (HA), which is typically injected into the skin to fill out wrinkles and add volume to facial tissue (like lips and cheeks).

In its prospectus, Bloomage says it plans to raise up to Rmb3.2 billion on STAR, which would give it a market capitalisation of Rmb30 billion. Haohai is looking to raise Rmb1.5 billion in its share offering.

The number of businesses carrying out HA treatments in China have expanded rapidly. Usually injections take an hour or two to complete, with no wound or cut, and a rapid recovery time for the patient. Sales of HA cosmetics procedures reached Rmb3.7 billion in 2018, growing at annual rates of 17% over the previous five years, Southern Metropolis Daily has calculated.

“The beauty of HA is that it is just a small procedure. A patient comes in for an injection during lunch break and she immediately sees the effect and looks more beautiful. That’s why it is so popular and demand has been so strong,” an industry insider told 36kr.

Manufacturers of dermal fillers make a good margin too. Bloomage, which derives the majority of its revenue from HA, reported gross margins of over 70% in the last four years. Similarly, between 2016 and 2018, Haohai’s revenues doubled from Rmb861 million to Rmb1.6 billion (HA contributes about a fifth of its total sales). The gross profit margin for its HA products was as high as 93%.

Small wonder that industry observers have called HA “the new Kweichow Moutai”, comparing it with the high-margin baijiu that has become a stock market darling.

One reason that margins are attractive is that production of HA is tightly regulated. At the moment, only 14 manufacturers are allowed to produce and distribute the drug in China. As demand grows, qualified manufacturers have gained financially. But it’s not only manufacturers that make hefty margins: cosmetic specialists do too. According to the two biotech firms’ prospectuses, the average price of Bloomage’s HA (which it sells under the Runzhi brand name) is just Rmb267 per millilitre. But a clinic that offers it as a filler might charge as much as Rmb3,800 for each syringe used (most filler syringes contain 1 ml of product).

The domestic HA producers compete mainly at the lower end of the market. At the higher end are foreign brands: an imported syringe of Juvéderm, a HA filler from US pharmaceutical company Allergan, runs as high as Rmb12,000 in China.

“The price of imported products is relatively high compared with domestic products. One reason is because of import tax. For instance, Juvéderm costs about Rmb800 if you have work done in a clinic in South Korea. On the other hand, the quality is indeed superior: the results look better and last longer. It is also unlikely for the patient to have any reaction to the drug,” an industry expert told 36kr.

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