● About beauty medical devices

Until the first half of 2023, the beauty and medical device sector recorded a rally in the stock market, and from the third quarter of 2023, the sector overall adjusted. The most decisive reason was the decline in stock prices due to demand concerns in the U.S. in-mode. In-mode’s stock price fell by -50% from September to October. In-mode missed the consensus by about 10% in the third quarter of 2023, and in the fourth quarter, it recorded reverse growth compared to the previous year. The reason was that the growth rate of equipment purchase prices slowed, with the lease interest rate rising to 15% as the high-interest rate continued. The stock price trend of in-mode was accompanied by the stock prices of domestic beauty and medical device companies. There were concerns that global demand for beauty treatments would slow down amid macro concerns. In-mode is not the main consumer goods business, but a company that pays high approval through equipment. There is a distinction between domestic beauty and medical device companies because they are business models that supply cost-effective equipment and then pay high approval through consumables.

In addition, in the domestic market, there were concerns about the growth of consumables and the ITC lawsuit due to the deepening economic economy. Comparing the rate of return of beauty medical devices since September 2023, it can be seen that there was a differentiation by category. There was a great concern about the slowdown in the growth rate of companies with large market capitalization, and the stock price trend of companies that are accelerating their expansion into overseas markets was good. Representatively, Biol showed the best performance during this period, recording a +38% increase in its stock price.

The beauty medical device sector is now seeing a sector-wide stock rebound after its share price accompanying In Mode, and we expect the stock-specific differentiation trend to continue.

[The growth trend of the beauty market and the distinction between beauty devices]

Despite the slowdown in global consumption, the trend of beauty-related consumption is not decreasing. Consumption of beauty concepts simply to become pretty has increased in the meantime, but in terms of aging, consumption in a high sense is now becoming a trend. The WHO, known as aging, recognized aging as a disease and registered the disease code, but the FDA has not yet classified it as a disease and considers it a natural phenomenon, so the demand for medical devices and drugs that prevent aging and prevent aging is expected to continue to increase until treatments that return it to its previous form. According to the global anti-aging market trends and forecasts, the market size of the 700 million dollar market in 20023 will grow to 2.5 billion dollars by 2031, driving the growth of global beauty devices.

The structure of our skin is made up of the epidermis, the dermis, and the subcutaneous fat layer. The epidermis plays a role of preventing bacteria from sinking and blocking the water from escaping. The dermis regulates heat loss through the contraction and expansion of blood vessels, and numerous nerves and lymphatic circulation systems such as sweat glands and sebaceous glands exist. The dermis is composed of collagen, elastin, and substrates, and collagen accounts for 85-90% of the dermis, and elastin accounts for 2-3% of the dermis. Collagen plays a role in supporting the organs of the human body, and elastin plays an important role in skin elasticity. The progression of aging causes the skin to become thinner and lose its elasticity, and the cause of aging is the decrease of collagen and elastin. The skin does not evolve to be advantageous in absorbing certain substances, so in order to absorb ingredients such as cosmetics, it should not be simply applied, but drugs should be delivered through microneedles or chemical/physical principles.

There are medical devices that use various energies called energy based devices (EBD) to deliver energy to a desired lesion, and typically there are laser, HIFU, and RF equipment. Laser equipment is a procedure specialized in pigments, spots, and hair removal, and HIFU is a type of ultrasonic wave that focuses on a single point and applies heat to the tissue. In this process, collagen is produced, which helps skin regenerate as the tissue contracts, the skin is pulled, and the internal healing process progresses, resulting in improvement of elasticity and wrinkles. In Korea, there is a typical example of Clasis’s Shlink equipment. RF is a principle that generates heat by vibrating water molecules in the body, which transfers energy to the dermis or subcutaneous fat layer. Skin elasticity effects can be seen through tissue contraction, collagen synthesis, elastin regeneration, etc., and in Korea, there are typical examples of such equipment as OneTech’s Oligio, Viol’s SILFirm X, and JCIS Medical’s Potenza equipment. HIFU equipment is advantageous for thick and fatty skin, and RF equipment is advantageous for thin and aging skin.

[The growth strategy of domestic beauty and medical device companies]

The growth strategies of domestic beauty and medical device companies can be summarized into three categories: 1) expanding new products 2) entering overseas markets 3) increasing the proportion of consumables. Domestic beauty and medical devices have penetrated the global market through mid- to low-priced equipment. Since the procedure of beauty and medical devices is performed every 3-6 months on average, it is sensitive to the price of a single procedure. Domestic beauty and medical devices are increasing M/S in the global market by competitiveness in cost-effective procedures with about 50% of the procedure price compared to the original equipment.

According to the growth strategy of Clasys, Korea’s leading beauty and medical device company, it has grown by selling its flagship product, Shrink equipment, to hospitals and then re-purchasing cartridges for a certain number of procedures to sell consumables. It is a structure in which the proportion of consumables sales increases over a certain period of time after the device is sold, and the company-wide margin increases due to operating leverage through high margins of consumables.

Looking at the general growth of domestic companies, after the release of domestic products, the Southeast Asian/South American market entered the market by securing reference through aggressive equipment distribution, or after the release of domestic products, the market entered the U.S./Europe/China market, or after the launch of domestic products, it preemptively launched in the U.S./Europe and succeeded and expanded to China/South America. Eventually, the key will be the U.S./China market.

The U.S. has a very large market with 7.4 million cosmetic plastic surgery procedures as of 2022. Although in-mode’s performance has slowed, demand for procedures is still solid. In the U.S., most beauty treatments are carried out at Medical Spa called Medspa, centering on nursing personnel who can provide medical beauty treatments such as ARPN (practical nurses) and RN (authorized registered nurses). As of 2022, about 9,000 Medspa are in operation in the U.S., and about 1700 are newly opened every year, and considering that there are a total of 1,700 dermatologists in Korea, you can feel the growth rate of Medspa. Medspa’s average sales per store grew +28 percent from $1.98 million in 2022 to $2.54 million in 2023, and the amount of spending per patient is also steadily increasing.

Currently, significant sales activities in the U.S. include Jasis Medical (Portenza/Denserty), Biol (Silfirm X), and Irida (Secret RF), while Clasis will enter the preclinical phase of Shrink and Ball Newmer during the first half of the year.

[Regarding the ITC lawsuit]

Since March 2023, ITC lawsuits have been filed over U.S. patents between domestic beauty and medical device companies, and they are currently in the final stages. The U.S. company, Serendia, represented by the founder of BioL, infringed on six patents on Microneedle RF-related equipment and parts owned by Serendia for 11 domestic and foreign companies, and requested that they be banned from selling in the U.S. and suspended.

In March 2024, Irida made a public announcement about the conclusion of an agreement. License and settlement payments for patents are paid in a lump sum, eliminating restrictions on U.S. sales after payment. Other 10 companies may also see agreement agreements in turn. Viol will share 90% and Serendia 10% of the settlement and license income, with some companies receiving license income as a lump sum and some as royalties linked to sales. Usually, the settlement amount is set as non-operating profit, but since license income generated based on patents, which are intangible assets, is set as operating profit, Viol’s operating profit ratio is expected to improve further. Other companies that have agreed to the conclusion of the IT lawsuit are also expected to see a positive trend in the beauty and medical devices sector as the risk of discontinuing sales to the U.S. is also resolved. Since Viol is expected to benefit the most, and its originality in technology has been recognized, Sylferm X’s global market operation is expected to be advantageous along with the growth of the U.S. market.

[Share price forecast of the beauty medical device sector and comparison by domestic beauty medical device companies]

In order for the beauty and medical device sector to rebound, in-mode’s stock price should be able to rebound or resolve concerns about slowing consumable sales due to strengthening domestic competition, and it will be necessary to check overseas expansion and growth in overseas markets. As inflation concerns reignite recently, the 10-year U.S. interest rate exceeded 4.5% the previous day due to a delay in the timing of rate cuts and a reduction in the number of annual rate cuts. In-mode’s stock price has continued to weaken in response to the recent rise in interest rates, and it is positive that in-mode’s stock price has risen despite the surge in U.S. interest rates the previous day. Now, it can be said that the impact of macro is easing.
When a new product is released, consumables will be supplied free of charge for four to six months, and after the free consumables are exhausted, sales of paid consumables will begin to occur. OneTek predicts that the Olayo X will be released at the end of October 2023 and will contribute to full-fledged sales growth by switching to paid consumables sales in the second quarter of this year after the exhaustion period of free consumables.

On March 15, BioNTech’s Silferm X obtained approval for China’s NMPA, reviving the trend of the domestic beauty and medical device sector. The key will eventually be growth in the U.S. and Brazil, the top global beauty treatment countries, and growth in China, which has huge potential in the future. In particular, China has been introducing RF beauty devices since April this year