MEDIUS Holdings Co., Ltd. (hereinafter MEDIUS) is a trading company that sources medical devices and supplies (mainly equipment and consumables required for health examinations, surgery, and other medical procedures) from medical devices manufacturers and other parties, and sells these to hospitals and clinics. It was founded in 2009 as a pure holding company, but traces its roots back to Kyowa Medical Corporation, a trading company specializing in medical devices that was established in Shizuoka Prefecture in 1959. As of December 2021, the MEDIUS group mainly comprised the parent company and eight subsidiaries, many of which have been acquired through M&A.
In FY06/21, the company reported revenue of JPY246.8bn (+17.3% YoY; before the application of the Accounting Standard for Revenue Recognition), operating profit of JPY2.7bn (+141.5% YoY), and recurring profit of JPY3.2bn (+98.8% YoY). It operates in the Medical Device segment (97.7% of revenue in FY06/21, 92.1% of operating profit before adjustments) and the Welfare Device segment (2.3%, 7.9%).
In the Medical Device segment, MEDIUS generates the bulk of its revenue from the Kanto region (62% of segment revenue in FY06/21) and the Chubu region (34%). According to the company, it had revenue-based market shares of 11% in the Kanto region (top share) and 9% in the Chubu region in FY06/20. MEDIUS provides roughly 1,000,000 products sourced from more than 2,000 suppliers to over 12,000 medical institutions. It also supplies a variety of solution services to medical institutions, ranging from hospital logistics management systems to operating room management systems.
In FY06/21, the segment derived 35% of its revenue from advanced medical devices (such as diagnostic imaging equipment, endoscopes, artificial heart-lung machines, and surgical support robots), and 65.0% from medical devices and supplies. The company mainly sells medical devices for hyperacute and acute care in Japan, and concentrates on advanced medical devices for minimally invasive medical treatments. Examples include endoscopic surgery (which is performed while displaying a video feed from an endoscope inserted in the abdomen or chest of a patient) and endovascular treatment.
Revenue in the segment is a function of the number of customers (medical institutions) and revenue per medical institution. MEDIUS supplies products to more than12,000 medical institutions, and continues to grow its customer base by cultivating new customers and bringing in new customers through M&A. of industry peers. The revenue per medical institution varies based on fluctuations in the share of business it receives from—as well as the products it supplies to—individual customers. Segment revenue is also affected by market factors (such as demographic trends in the Kanto and Chubu regions, medical expenditures in Japan, and changes in the number of hospitals) and the number of patients requiring acute care. On the profit front, MEDIUS has maintained a GPM of around 10% from FY06/12 to FY06/21. It supplies a broad range of products from general-purpose, low-cost products such as syringes and infusion-related products to specialized, high-margin, surgery-related products. While margins vary by product category, the company’s overall GPM is steady.
In addition to wholesaling, medical devices trading companies offer various peripheral services and solutions to customers, such as contracted logistics and inventory management, operating room management systems, purchasing management, and medical supplies databases. At hospitals that sign up for such systems or services, MEDIUS stores products on customer premises, and charges the hospitals based on product usage. Such an arrangement offers numerous benefits to hospitals such as lower inventory risk and reduced ordering frequency, which alleviate workloads for hospital staff. The company does not disclose revenue for peripheral services. However, it says these services not only help to build trust with customers, but also expand the share of business it receives from individual hospitals.
According to statistics by the Ministry of Health, Labour and Welfare (MHLW), the Japanese medical devices market is worth roughly JPY4tn (based on shipments by manufacturing and sales companies). That figure rises further to about JPY4.4tn after adding in distribution margins (collected by vendors). Shared Research understands the medical devices wholesaling industry has high barriers to entry for various reasons. First, sector companies are subject to the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (PMD Act). Second, their sales representatives need to be well-versed in medical technologies to ensure smooth communication with medical institutions. And third, the process to acquire marketing approval for medical devices is lengthy, and it takes roughly three years to begin transacting with hospitals or other medical institutions. Shared Research thinks these factors make it difficult for newcomers to break into the industry.
Two listed companies that compete with MEDIUS and operate under a similar business model are Ship Healthcare Holdings, Inc. (TSE PRM: 3360) and Olba Healthcare Holdings, Inc. (TSE STD: 2689). Another unlisted competitor is Seiei Ailes Sante Holding, Ltd. The main difference between these companies and MEDIUS lies in their sales regions. They have roughly the same RPM as MEDIUS in their medical devices wholesaling operations. Ship Healthcare offers one-stop solutions ranging from consulting for corporate planning at medical institutions to sales, leasing, construction, and installation of medical devices and facilities. Its OPM is therefore relatively high. MEDIUS’ competitors pursue growth and differentiation by expanding revenue via M&A and specializing in fields such as cardiovascular equipment.
Over the medium to long term, MEDIUS also looks to expand its operations through M&A. It operates in an industry that is contracting due to a drop in the number of hospitals and reductions in reimbursement prices (the prices medical institutions can recover for medical devices and supplies) driven by government measures to cut medical expenditures. This, coupled with problems surrounding business succession, has spurred an increase in M&D activity by large companies in the industry. While sector-wide earnings have recently been buoyed by sales growth for testing kits and personal protective equipment (PPE) fueled by the COVID-19 pandemic, MEDIUS anticipates many of its peers will be forced to either shut down or sell their businesses once this special demand drops out of the picture. It has signaled interest in taking advantage of this environment to acquire companies with top two market shares in their respective sales areas.
As part of its medium- to long-term strategy, MEDIUS integrated four consolidated subsidiaries that supply medical devices in the cardiovascular field, into a new company in October 2021. The objective was to concentrate its management resources allocated to the field. By consolidating procurement functions, MEDIUS expects to reduce costs, generate synergies among the sales companies through the sharing of sales expertise, and ultimately expand its market share in the cardiovascular field. MEDIUS does not disclose revenue for the newly integrated company, but Shared Research understands the four subsidiaries that make up the new company generate combined revenue of roughly JPY30.0bn.
In FY06/21, revenue was JPY246.8bn (+17.3% YoY), operating profit JPY2.7bn (+141.5% YoY), recurring profit JPY3.2bn (+98.8% YoY), and net income attributable to owners of the parents JPY2.1bn (+117.1% YoY). Revenue from medical supplies fell in tandem with a drop in surgeries and health examinations due to the prolonged impact of the COVID-19 pandemic. Revenue from personal protective equipment (PPE) and infection prevention products (testing reagents) increased. Another factor that contributed to the revenue growth was the consolidation of a newly acquired subsidiary. Profit rose as growth in revenue offset an increase in SG&A expenses.
In FY06/22, MEDIUS forecasts revenue of JPY219.5bn (+5.7% YoY after adjusting for the adoption of the Accounting Standard for Revenue Recognition; same basis for other targets), operating profit of JPY1.9bn (-28.5% YoY), recurring profit of JPY2.4bn (-25.7% YoY), and net income attributable to owners of the parent of JPY1.6bn (-22.5% YoY). Its revenue outlook assumes a decline in non-urgent surgeries and health examinations and higher sales of testing reagents and PPE amid the pandemic. The company expects profit to decline due to cost increases driven by higher personnel and system-related expenses, and to initial costs accompanying the construction of a new distribution center.
In its FY06/21 results briefing materials, the company disclosed a new medium-term business plan (FY06/22–FY06/24) with quantitative targets, and a long-term vision. Its current medium-term plan anticipates revenue growth at a CAGR of 5.0% or more (excluding M&A; revenue CAGR over last five years was 11.0% after including M&A), recurring profit of JPY2.0bn or more (JPY3.2bn in FY06/21), and ROE of 8% or higher (15.6% in FY06/21). The company sees roughly 80% of the revenue growth (excluding M&A) coming from Kyowa Medical Corporation and Kuribara Medical Instruments Co., Ltd., a medical devices trading company acquired in 2010. It forecasts recurring revenue of JPY2.4bn in FY06/22, when it expects special demand related to the pandemic to dissipate, and looks for further profit growth in subsequent years fueled by increases in revenue and greater efficiency in distribution and administration.
Shared Research thinks MEDIUS has the following strengths: 1) relatively shielded from the impact of a shrinking population due to a high revenue share in the Kanto region, where the elderly population is projected to expand; 2) ability to combine sales solutions enhances vendor appeal, contributing to high levels of revenue and operational efficiency; and 3) well-defined criteria for M&A and a track record of achieving relatively high revenue growth through successful M&A deals.
We view its weaknesses as: 1) difficulties in providing added value through its operations (as rival Ship Healthcare Holdings does through its consulting business), 2) broad business scope keeps profitability and asset efficiency below those of medical devices trading companies that specialize in a particular medical field, and 3) efforts to systematically train personnel are lagging behind sector peers due the differences in personnel training policies among group companies.
|Gross profit margin||10.0%||10.4%||10.3%||10.4%||10.1%||10.2%||10.2%||10.2%||10.6%||10.2%|
|Operating profit margin||0.6%||1.0%||1.1%||0.5%||0.6%||0.6%||0.6%||0.4%||0.5%||1.1%||0.9%|
|Recurring profit margin||0.8%||1.3%||1.4%||0.7%||0.9%||0.9%||0.9%||0.7%||0.8%||1.3%||1.1%|
|% of revenue||0.5%||0.4%||0.7%||0.5%||0.4%||0.3%||0.2%||0.6%||0.7%||1.7%|
|% of revenue||0.5%||0.5%||0.4%||0.5%||0.5%||0.4%||0.4%||0.3%||0.3%||0.3%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||3,031||3,031||3,031||3,242||3,242||6,485||19,454||21,790||21,790||21,790|
|EPS (fully diluted)||-||-||-||-||-||-||-||-||43.6||94.2|
|Dividend per share||13.3||25.0||26.7||26.7||26.7||16.7||14.0||14.0||14.0||21.0||19.0|
|Book value per share||325.2||378.3||419.3||438.0||477.6||503.7||546.6||582.2||636.7||727.1|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||6,495||3,481||4,800||4,300||5,597||5,138||6,932||6,343||8,488||12,623|
|Total current assets||37,137||33,396||36,141||39,028||40,249||40,288||46,192||52,299||57,042||68,151|
|Tangible fixed assets||2,984||2,870||2,909||3,003||2,888||2,780||2,654||3,728||4,040||7,247|
|Investments and other assets||2,442||2,950||2,997||3,519||4,017||3,861||4,522||5,136||6,562||6,814|
|Total current liabilities||33,115||29,810||33,116||34,832||35,916||35,550||40,180||46,314||49,799||60,651|
|Total fixed liabilities||5,125||3,908||2,852||3,141||2,731||2,103||2,925||3,003||6,299||7,943|
|Total net assets||5,612||6,463||7,305||8,520||9,290||9,799||10,634||12,685||13,873||15,843|
|Total interest-bearing debt||8,163||5,608||5,184||6,182||5,913||3,691||6,207||5,350||9,305||11,596|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||3,890||576||3,045||-963||2,628||2,448||723||-1,085||1,169||6,849|
|Cash flows from investing activities||-500||-495||-440||-921||-568||-308||-1,127||1,702||138||-4,616|
|Cash flows from financing activities||557||-2,751||-872||1,336||-849||-2,599||2,199||-1,314||788||1,902|
|Sales to net income ratio||0.3%||0.7%||0.7%||0.3%||0.6%||0.5%||0.4%||-||0.5%||0.8%||0.7%|
|Total asset turnover||3.03||3.19||3.50||3.26||3.35||3.41||3.32||3.42||3.19||3.20|
|Financial leverage (equity multiplier)||8.10||6.61||6.19||5.77||5.51||5.18||5.57||5.30||5.67||5.99|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||% of Est.||FY Est.|
|Cost of revenue||49,371||94,437||143,785||188,115||40,068||87,175||139,097||182,562||46,507||96,256||148,696|
|Gross profit margin||10.1%||10.2%||10.3%||10.6%||12.4%||12.1%||12.2%||12.1%||12.6%||12.3%||12.5%|
|Operating profit margin||1.1%||0.7%||1.0%||0.5%||0.4%||1.2%||1.9%||1.3%||1.7%||1.5%||2.0%||0.9%|
|Recurring profit margin||1.3%||1.0%||1.2%||0.8%||0.6%||1.4%||2.1%||1.5%||1.9%||1.8%||2.2%||1.1%|
|Cost of revenue||49,371||45,066||49,349||44,330||40,068||47,107||51,923||43,464||46,507||49,749||52,440|
|Gross profit margin||10.1%||10.2%||10.6%||11.5%||12.4%||12.0%||12.4%||11.8%||12.6%||12.0%||12.9%|
|Operating profit margin||1.1%||0.4%||1.5%||-||0.4%||1.8%||3.0%||-||1.7%||1.3%||2.7%|
|Recurring profit margin||1.3%||0.6%||1.7%||-||0.6%||2.0%||3.3%||-||1.9%||1.6%||2.9%|
|% of total||97.7%||97.6%||97.6%||97.6%||97.3%||97.2%||97.4%||97.3%||97.5%||97.5%||97.6%|
|% of total||2.3%||2.4%||2.4%||2.4%||2.7%||2.8%||2.6%||2.7%||2.5%||2.5%||2.4%|
|Operating profit margin||1.1%||0.7%||1.0%||0.5%||0.4%||1.2%||1.9%||1.3%||1.7%||1.5%||2.0%|
|Operating profit margin||3.6%||3.4%||3.6%||3.3%||3.2%||3.7%||4.3%||4.0%||4.3%||4.4%||4.8%|
|Operating profit margin||7.8%||9.7%||10.1%||10.9%||12.1%||13.0%||12.8%||12.4%||10.0%||10.2%||10.0%|
|% of total||97.7%||97.4%||97.7%||97.6%||97.3%||97.2%||97.6%||97.2%||97.5%||97.5%||97.8%|
|% of total||2.3%||2.6%||2.3%||2.4%||2.7%||2.8%||2.4%||2.8%||2.5%||2.5%||2.2%|
|Operating profit margin||1.1%||0.4%||1.5%||-0.9%||0.4%||1.8%||3.0%||-0.6%||1.7%||1.3%||2.7%|
|Operating profit margin||3.6%||3.1%||4.1%||2.4%||3.2%||4.2%||5.4%||2.9%||4.3%||4.5%||5.4%|
|Operating profit margin||7.8%||11.6%||10.7%||13.4%||12.1%||13.7%||12.5%||11.3%||10.0%||10.4%||9.6%|
The company has adopted the Accounting Standard for Revenue Recognition from Q1 FY06/22. The YoY comparisons above are against FY06/21 results that have been retroactively adjusted to reflect the application of the new accounting standard.
MEDIUS has left its full-year FY06/22 forecast unchanged at the time of its cumulative Q3 earnings announcement in May 2022.
In cumulative Q3, revenue reached 77.4% of the full-year target (versus 76.3% in cumulative Q3 FY06/21 against full-year results), operating profit 174.8% (110.7%), recurring profit 155.7% (104.7%), and net income attributable to owners of the parent 159.0% (105.5%).
In the medical industry, COVID-19’s impact on the business environment is gradually waning thanks to the progress made by medical institutions in implementing measures against the spread of infections. Still, lingering effects of patients refraining from undergoing health examinations and postponing non-urgent surgeries remain, particularly in the Tokyo metropolitan area. The number of inpatients and outpatients at medical institutions continues to hover below pre-pandemic levels, and this has affected management conditions at medical institutions.
In cumulative Q3, revenue increased 7.2% YoY. Although COVID-19 cases resurged since January 2022, the number of surgeries did not suffer a significant decline due to progress in the rollout of infection prevention measures at medical institutions. Sales of consumables such as operating room related products increased YoY. In addition, sales of pandemic-related items including testing reagents and infection prevention products such as personal protective equipment (PPE) remained firm since Q2. Sales of equipment also contributed to results as the company managed to win projects aimed at preventing COVID-19 infections. As such, overall sales performance of the MEDIUS group was favorable. The business integration of Sano Co., Ltd., acquired in October 2021, contributed to revenue growth as well.
MEDIUS acquired all shares in Sano Co. Ltd., a medical devices vendor based in the Keiji region (Kyoto and Shiga Prefectures), and made the company a consolidated subsidiary on October 1, 2021. Sano has obtained distribution rights from several major medical devices manufacturers, and specializes in endoscopy products. MEDIUS says the two companies share the same medium-term focus on minimally invasive treatments, including endoscope-assisted procedures. It sees potential for synergies by sharing its expertise in sales of medical devices and management resources with Sano. In FY06/21, Sano had revenue of JPY3.1bn, operating profit of JPY93mn, and net income of JPY56mn. It contributed six months of results (October 2021–March 2022) to MEDIUS’ cumulative Q3 FY06/22 results.
In cumulative Q3, operating profit expanded 12.9% YoY. Gross profit was JPY21.2bn (+9.5% YoY) and GPM was 12.5% (+0.3pp YoY). SG&A expenses were JPY17.9bn (+8.9% YoY) and the SG&A ratio was 10.5% (+0.1pp YoY). The JPY1.5bn increase in SG&A expenses comprised JPY857mn in personnel expenses such as employee salaries, allowances, and bonuses, JPY398mn in other expenses, and JPY133mn in outsourcing expenses. Changes in non-operating income and expenses (which include purchasing discounts) were small, and recurring profit was up 10.5% YoY.
Purchasing discounts are amounts of interest subtracted from early payments of accounts payable. They are determined by the number of days the payments are made in advance of the set payment date. Purchasing discounts are not deducted from cost of revenue, but booked as non-operating income.
Revenue rose to JPY165.9bn (+7.5% YoY). With regard to consumables, sales of operating room related products were up, bouncing back from the lull caused by a pandemic-induced decline in surgeries, and sales of items associated with infection prevention remained strong. Orders for hospital supply, processing and distribution (SPD) systems and newly acquired customers drove YoY increases in revenue and gross profit. Equipment sales were brisk for projects aimed at preventing COVID-19 infections. Operating profit rose 18.3% YoY to JPY7.9bn and OPM was up 0.5pp YoY to 4.8%.
Supply, processing and distribution (SPD) system: A system used by medical institutions to outsource logistics management of medical supplies, thereby reducing their own inventories and alleviating in-hospital supply management work. SPD systems are operated by medical devices dealers or SPD service providers under contract with medical institutions. In the MEDIUS group, SPD services are provided by consolidated subsidiaries Kyowa Medical, Kuribara Medical Instruments, MITAS, Akita Medical Instruments, and MEDIUS Solution, as well as NHS Shizuoka (an affiliate not accounted for by the equity method).
Revenue fell 3.1% YoY to JPY4.1bn. Voluntary restraint in sales activities amid the pandemic led to lackluster performance in the welfare device rental business and sluggish sales of consumables to nursing homes. Operating profit decreased 24.4% YoY to JPY406mn and OPM was down 2.8pp YoY to 10.0%.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.|
|Cost of revenue||94,437||93,679||188,115||87,175||95,387||182,562||96,256|
|Gross profit margin||10.2%||11.0%||10.6%||12.1%||12.1%||12.1%||12.3%|
|Operating profit margin||0.7%||0.3%||0.5%||1.2%||1.4%||1.3%||1.5%||0.2%||0.9%|
|Recurring profit margin||1.0%||0.5%||0.8%||1.4%||1.6%||1.5%||1.8%||0.4%||1.1%|
The company has adopted the Accounting Standard for Revenue Recognition in Q1 FY06/22. The YoY comparisons are against FY06/21 results that have been retroactively adjusted to reflect the application of the new accounting standard.
The company left its full-year forecast unchanged at the time of its cumulative Q3 earnings announcement in May 2022. The following commentary is based on information as of January 2022.
In January 2022, MEDIUS revised up its FY06/22 forecast. The revised forecasts calls for revenue of JPY219.5bn (+5.7% YoY), operating profit of JPY1.9bn (-28.5% YoY), recurring profit of JPY2.4bn (-25.7% YoY), and net income attributable to owners of the parent of JPY1.6bn (-22.5% YoY). Compared with its previous forecast, the company raised its full-year outlook by JPY7.3bn for revenue, JPY1.0bn for operating profit, JPY1.1bn for recurring profit, and JPY730mn for net income attributable to owners of the parent.
As reasons for the upward revision, the company cited growth in demand for operating room related products driven by an uptick in surgeries at medical institutions in 1H FY06/22, and robust sales of testing reagents and infection prevention products such as personal protection equipment (PPE) due to the COVID-19 pandemic. From Q3 FY06/22, revenue trended below target on slow sales of consumables such as operating room related products amid a sharp rise in COVID-19 cases. However, sales were robust through 1H, and the company therefore still expects full-year revenue to exceed its initial forecast. It also thinks all profit items from the operating line down will exceed its initial forecast as it expects an increase in gross profit accompanying higher revenue to outweigh higher-than-budgeted SG&A expenses.
Demand for medical and nursing care is rising in Japan due to demographic aging, and the Japanese government is promoting the establishment of effective and efficient medical and nursing care through its vision for community care. As a result, medical devices providers are being called upon to provide comprehensive services that contribute to streamlined operation and efficient management of medical institutions. MEDIUS therefore believes that competition among industry players will heat up, accelerating industry realignment through M&A and business alliances.
MEDIUS expects revenue to be weighed down by a continued drop in non-urgent surgeries and health examinations amid the pandemic and by a decline in transient demand growth centered on equipment. However, it expects these negative factors to be offset by supply, processing and distribution (SPD) services and the acquisition of new customers, and therefore looks for a 2.1% YoY increase in full-year revenue. The company’s current medium-term plan calls for revenue growth at a CAGR of 5% or more (excluding M&A) from FY06/22 to FY06/24. Shared Research understands that the company’s FY06/22 forecast is consistent with its current medium-term plan, even though it factors in some impact from the pandemic.
The company expects operating profit and recurring profit to decline due to higher personnel costs accompanying regular hiring of staff at consolidated subsidiaries, costs to promote a telework environment, system-related expenses and sales office relocation expenses, and capital expenditures related to the construction of a new distribution center. Its current medium-term business plan targets recurring profit of JPY2.0bn or more. Although MEDIUS recorded recurring profit of JPY3.2bn in FY06/21, it realizes this level of profit reflected a temporary boost from special demand fueled by the pandemic. Shared Research understands the company therefore set the FY06/20 recurring profit target in its medium-term business plan at JPY1.6bn as a starting point.
MEDIUS recorded recurring profit of JPY1.9bn in 1H FY06/22, leaving its 2H forecast at JPY432mn (calculated by subtracting the 1H results from the full-year forecast). The company looks to generate the same levels of revenue in 1H and 2H, and the gap in the two aforementioned recurring profit figures is due to an anticipated rise in the following expenses.
Initial expenses for construction of new distribution center by Kuribara Medical Instruments
Preparation expenses associated with new SPD project orders
Kuribara Medical Instruments, a core consolidated subsidiary, is currently in the process of constructing its new Ota Distribution Center. Construction is expected to be completed in April 2022, and the total project is expected to cost JPY6.5bn. According to MEDIUS, the purpose of the new distribution center is to reduce personnel and outsourcing expenses. The company is investing in automation at the center to build a system that can cope with increases in product turnover without having to hire additional personnel. MEDIUS plans to record real estate acquisition taxes and relocation expenses in FY06/22, when the distribution center is scheduled to start operating. This is one of the reasons the company looks for a decline in full-year operating profit.
In its solution services, which is a focus area for the company, MEDIUS says it secured four new SPD projects mainly in the Tokyo metropolitan area in 1H FY06/22. The projects include services for large-volume hospitals, and reflect an increase in orders from previous years. The company explains new SPD projects rose because it received orders from hospitals affiliated with previous SPD customers. It attributes the large-volume SPD orders to its positive reputation as an established company with high revenue.
|Results vs. Initial Est.||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21||FY06/22|
|Revenue (Initial Est.)||136,000||142,500||155,660||157,700||166,000||173,900||195,000||205,000||228,260||212,200|
|Results vs. Initial Est.||-1.5%||2.4%||-6.1%||0.4%||-2.0%||-3.3%||1.4%||2.6%||8.1%||-|
|Operating profit (Initial Est.)||1,000||1,410||1,400||1,100||1,100||1,300||1,150||1,000||700||900|
|Operating profit (Results)||1,359||1,601||677||988||1,005||961||875||1,100||2,657|
|Results vs. Initial Est.||35.9%||13.5%||-51.6%||-10.2%||-8.7%||-26.1%||-23.9%||10.0%||279.5%||-|
|Recurring profit (Initial Est.)||1,300||1,750||1,800||1,550||1,600||1,785||1,680||1,460||1,160||1,300|
|Recurring profit (Results)||1,720||2,042||1,034||1,449||1,521||1,436||1,435||1,598||3,176|
|Results vs. Initial Est.||32.3%||16.7%||-42.6%||-6.5%||-4.9%||-19.6%||-14.6%||9.5%||173.8%||-|
|Net income (Initial Est.)||678||950||985||900||900||1,060||1,000||860||780||870|
|Net income (Results)||896||969||433||900||863||742||-70||951||2,065|
|Results vs. Initial Est.||32.2%||2.0%||-56.0%||0.0%||-4.1%||-30.0%||-||10.6%||164.7%||-|
MEDIUS initially expected revenue to increase and recurring profit to decline YoY in FY06/21. Its outlook for revenue growth was premised on full-year revenue contributions from Active Medical (newly consolidated in FY06/20) partially offsetting the impact of a drop in non-urgent surgeries and health examinations due to the COVID-19 pandemic, and of reductions in reimbursement prices. The company assumed recurring profit would be weighed down by increases in goodwill amortization stemming from the management integration of Active Medical, personnel expenses attributable to increased hiring, and capital expenditures. FY06/21 results finished above the company’s initial forecast due to pandemic-induced special demand for medical supplies such as infection prevention products (personal protection equipment [PPE]) and testing reagents, equipment orders in connection with pandemic-related subsidies, and large orders for radiological and other equipment. Recurring profit ultimately exceeded the initial forecast supported by revenue growth and curbs on travel and transportation expenses amid restrictions on sales activities and business trips.
In its FY06/21 results briefing materials, the company disclosed a new medium-term business plan (spanning from FY06/22 to FY06/24) with quantitative targets, alongside a long-term vision. The medium-term targets are outlined below. These do not reflect effects from the Accounting Standard for Revenue Recognition, which the company adopted from Q1 FY06/22.
Revenue: CAGR of 5% or more (excluding M&A; CAGR of 11.0% over the last five years after including M&A)
Recurring profit: JPY2.0bn or more (JPY3.2bn in FY06/21, forecast of JPY1.3bn in FY06/22)
ROE of 8% or more (15.6% in FY06/21)
The company aspires to become the undisputed leader of the medical devices sales industry.
As measures to “ensure sustainable development of the MEDIUS group over the long-term,” the company says it will make new acquisitions, promote environmental, social, and governance (ESG) initiatives, provide solutions-oriented services, enhance the efficiency of its distribution, systems, and administration, and consolidate group companies in specialty areas. Specifically, it plans to undertake the following initiatives.
MEDIUS has pursued an M&A-centric management strategy since the 1990s, before the listing of its predecessor Kyowa Medical Holdings. While still operating as an unlisted private company, Kyowa Medical Holdings thought going public and raising capital from the market to fund the significant capital expenditures that accompany acquisitions was preferable to taking out loans and repaying them with interest. MEDIUS stepped up M&A activity from the 1990s (for details, see Major acquisitions by predecessor Kyowa Medical and MEDIUS), and its largest acquisition target (in terms of revenue scale) was Kuribara Medical Instruments (acquired in 2010). Kuribara Medical Instruments is headquartered in Gunma Prefecture, and has captured a high market share in the Kanto region. In FY06/21, it reported revenue of JPY112.1bn and operating profit of JPY1.1bn.
As acquisition candidates, MEDIUS says it primarily targets companies that have captured top two market shares by revenue in various prefectures, and obtained distribution rights from medical devices manufacturers. It says it does not pursue “rescue-type” M&A deals aimed at turning around companies with financial difficulties. Expanding one’s sales region not only takes a long time but also requires substantial capital outlays in the form of capital expenditures to set up sales offices and distribution centers, and sales expenses for sales activities targeted at medical institutions. The company’s medium-term business plan therefore calls for expansion of its sales regions through M&A deals.
However, the pool of potential acquisition targets for the company continues to shrink due to a drop in the number of medical devices vendors and an increase in M&A activity by major industry players, including MEDIUS itself. At the same time, there has been an increase in the number of small and medium-sized dealers that are struggling with succession issues, and this has driven up the number of acquisitions of such listed and unlisted companies by large companies. MEDIUS says the sharp revenue and profit growth it enjoyed in FY06/21 was in part attributable to transient demand sparked by the pandemic. Once this temporary demand drops out of the picture, the company expects medical devices trading companies will once again face a challenging business environment as the Japanese government pushes measures to reduce medical expenditures. According to the company, this will drive further industry realignment centered on acquisitions of small and medium-sized dealers with revenue of JPY5.0bn or less—particularly, companies struggling with succession problems and companies with a limited number of product offerings or suppliers.
Guided by its philosophy of “contributing to community care,” MEDIUS actively undertakes ESG initiatives such as ensuring rapid, adequate, and stable supply of medical devices, offering high value-added services optimized for individual communities, and providing the latest information. As part of its ESG initiatives, the company operates the dedicated ASOURCE® NAVI site (https://www.medius.co.jp/asourcenavi/) to disseminate information on medical care. The site provides information for medical professionals, organized in various categories such as “medical devices and materials,” “infectious diseases,” “information on overseas medical care,” “technology,” and “nursing care.” While the ASOURCE® NAVI site was not meant to have a direct effect on the company’s revenue, MEDIUS says page views for its corporate website have increased since the rollout out the site.
The solutions services provided by MEDIUS to its customers (medical institutions) are outlined below. These do not contribute directly to the company’s revenue, but are intended to lock in medical institutions as customers and drive up the number of products used by such customers. While its rivals offer comparable services, MEDIUS aims to distinguish itself by combining services. It also says its competitors lack a product that corresponds to its surgery information sharing system (MORISS®), which was developed independently by the company.
meccul: System that helps optimize purchasing prices for medical supplies
SPD: Hospital logistics management system
STORE®: Simplified logistics management system
ASOURCE® DATABASE: Medical supplies database
MORISS®: Surgery information sharing system
SURGELANE®: Program that supports operating room management
meccul is a system that uses the built-in meccul analysis service to optimize purchasing prices for medical supplies procured by medical institutions. Based on data collected from some 2,000 hospitals, the meccul analysis service offers visibility on selection standards and purchasing price levels for similar products (i.e., different products that have the same effect), allowing medical institutions to select products that match their scale and functions. The service is offered by consolidated subsidiary MEDIUS Solution Co., Ltd., and can be integrated with SPD and ASOURCE® DATABASE.
SPD is a hospital logistics management system (for details, see the SPD section). In addition to traditional SPD functions such as reducing in-hospital inventory maintenance and alleviating the in-hospital logistics workload for physicians and nursing staff, MEDIUS offers a support service to optimize purchasing prices for medical supplies through integration with meccul. Medical institutions that have gathered various data through the company’s SPD service can feed that data into meccul analysis to select optimal products from multiple offerings that have the same effect, facilitating purchases of medical supplies at adequate prices. STORE® is a service that supports easy adoption of the SPD service.
ASOURCE® DATABASE is a medical supplies database developed independently by the company. It stands out by virtue of the comprehensiveness and rapid updates of the registered product information, which contribute to the reliability of the database. As of end-July 2020, the database contained information on roughly 1.6mn products, comprising about 1.5mn consumables and 142,000 equipment products (after including discontinued items). The product data includes the product name, manufacturer, lot or serial identifiers, international product trade code, Japanese article number (multiple numbers can be stored per product), historical list prices, historical reimbursement prices, and safety data for chemical substances. The company says the lot or serial identifiers, historical list prices, historical reimbursement prices, and safety data for chemical substances are proprietary data.
MORISS® and SURGELANE® are services that provide operational support for surgeries. MORISS® is a central management system for data on surgery-related medical supplies. Surgeries in the orthopedic and cardiovascular fields often require several hundred to over several thousand medical supplies to be prepared per procedure. MORISS® simplifies pre-surgery preparatory tasks and product inspections—traditionally performed manually by nursing staff—with the help of a handheld scanner. This contributes to accurate information management of medical supplies used while reducing workloads for nursing staff. SURGELANE® helps improve the efficiency of preliminary work such as the administration and preparation of medical supplies used in surgeries, and provides visibility on operating room conditions and income/expenditures. In addition to alleviating the workloads of nursing staff (like MORISS®), SURGELANE® supports analysis of surgery income/expenditures as part of hospital management.
According to the company, trading companies specializing in medical devices struggle to curtail personnel expenses (mainly for sales staff) and sales-related expenses as their sales approaches to medical institutions directly fuel revenue growth. MEDIUS says it plans to take advantage of economies of scale through M&A deals, and reduce system-related and logistics expenses, including by restructuring companies with overlapping areas of specialty.
In April 2021, MEDIUS released the “Notice of Group Reorganization (Transfers at Second-tier Subsidiaries, Establishment of New Subsidiary, Company Splits, and Subsidiary Mergers). The measures described in this notice aimed to reorganize several vendors in the group that handle medical devices and supplies in the cardiovascular area, which is a focus area for the company, and thus realize economies of scale and synergies among medical devices trading companies that operate in the same business field. The measures resulted in the consolidation of four companies with a focus on the cardiovascular field into the new company ALVAUS, Inc. (founded in October 2021).
The MEDIUS group previously included four trading companies that specialized in the cardiovascular field: Oz Co., Ltd.; (main sales area: Tokai region), eVUS Medical Co., Ltd. (Tokyo metropolitan area, northern Kanto region), D-SENSE Co., Ltd. (Hokuriku area), and Active Medical Co., Ltd. (Tokyo metropolitan area, Hokkaido). The purpose of the aforementioned reorganization was to consolidate management resources for the cardiovascular field through the management integration of the four companies. MEDIUS aims to build an organization that facilitates efficient business operation, create synergies through the mutual sharing of sales expertise among the companies, and expand its market share in the cardiovascular field.
MEDIUS is a trading company that sells medical devices and supplies procured from medical devices manufacturers, distributors, and other trading companies to hospitals and clinics across Japan. It generates a high percentage of its revenue from the Kanto region (mainly Tokyo, Saitama, Kanagawa, Gunma, and Ibaraki Prefectures) and the Chubu region (mainly Aichi, Shizuoka and Fukui Prefectures). In its Welfare Device segment, the company sells and leases nursing and welfare equipment to medical institutions and individual patients in Japan. MEDIUS traces its roots back to Kyowa Medical Corporation, a medical devices vendor that was founded in Shizuoka Prefecture in 1959. Ever since, it has increased its number of sales offices and expanded its sales regions, products, and services through M&A. Kyowa Medical was restructured into a holding company and rebranded Kyowa Medical Holdings Co., Ltd. in July 2009, and the company name was changed to MEDIUS Holdings Co., Ltd. in October 2010.
Kyowa Medical Corporation, the company’s predecessor, was established as a medical devices trading company in Shizuoka Prefecture in 1959. MEDIUS was set up as a pure holding company in 2009. As of December 2021, the MEDIUS group consisted of the parent company, eight subsidiaries (mainly acquisitions), one non-consolidated subsidiary accounted for by the equity method, one non-consolidated subsidiary, and four affiliated companies not accounted for by the equity method, for a total of 15 companies. In FY06/21, MEDIUS reported revenue of JPY246.8bn (+17.3% YoY), operating profit of JPY2.7bn (+141.5% YoY), and recurring profit of JPY3.2bn (+98.7% YoY). It operates in the Medical Device segment (FY06/21: 97.7% of revenue, 92.1% of operating profit before adjustments, OPM before adjustments of 3.3%) and Welfare Device segment (2.3%, 7.9%, 12.3%).
Medical devices trading companies generally establish close ties with local communities because they must obtain approval to sell advanced medical equipment in each prefecture they operate in, and because their success in selling to medical institutions hinges on their ability to cultivate long-term relationships of trust with medical practitioners. MEDIUS has high revenue shares in the Kanto region (FY06/21: 56.3% of total revenue) and the Tokai-Chubu regions (24.9%). This regional focus largely stems from the fact that (1) Kyowa Medical—the predecessor of MEDIUS—was established in Shizuoka Prefecture (Chubu region), and (2) Kuribara Medical Instruments (acquired by MEDIUS in 2010) has a strong sales presence in the Kanto region. The company has disclosed FY2019 revenue shares for its consolidated subsidiaries by important prefectures. The table below shows prefectures where the group had the highest revenue shares. The group has captured revenue shares of above 30% in Shizuoka Prefecture, Gunma Prefecture, and Fukui Prefecture. These correspond to the home markets of its various group companies, where the latter have cultivated relationships of trust with medical institutions (customers) over the long term.
|Akita||Akita Medical Instruments Co., Ltd.||2||12.0%|
|Ibaraki||Kuribara Medical Instruments Co., Ltd.||1||13.7%|
|Tochigi||Kuribara Medical Instruments Co., Ltd.||2||19.0%|
|Gunma||Kuribara Medical Instruments Co., Ltd.||1||45.2%|
|Saitama||Kuribara Medical Instruments Co., Ltd.||1||21.1%|
|Chiba||Kuribara Medical Instruments Co., Ltd.||6||4.3%|
|Tokyo||Kuribara Medical Instruments Co., Ltd.||3||5.5%|
|Kanagawa||Kyowa Medical Corporation||2||10.0%|
|Yamanashi||Kyowa Medical Corporation||4||10.0%|
|Shizuoka||Kyowa Medical Corporation||1||32.8%|
|Shizuoka||Oz Co., Ltd. (now ALVAUS, Inc.)||3||10.8%|
|Aichi||Kyowa Medical Corporation||2||6.4%|
|Fukui||D-SENSE Co., Ltd. (now ALVAUS, Inc.）||8||2.4%|
|Ishikawa||D-SENSE Co., Ltd. (now ALVAUS, Inc.）||8||1.6%|
|Kyoto||Sano Co., Ltd.||7||2.1%|
MEDIUS offers a wide array of medical devices ranging from medical instruments and equipment such as syringes, consumables (e.g., gloves), and office equipment, to advanced medical devices such as diagnostic imaging equipment, endoscopes, artificial heart-lung machines, and surgical support robots. The company says it provides over 300,000 products in its Medical Device segment.
Consumables: syringes, intravenous products, etc.
Health examination devices: electrocardiography devices, etc.
Hospital equipment: beds, wheelchairs, etc.
Surgical equipment, surgical tools, etc.
Artificial joints, plates, etc.
Artificial heart-lung machines
Extracorporeal membrane oxygenation (ECMO) equipment
Diagnostic imaging equipment
Various clinical examination equipment
|Medical devices and supplies||84,474||85,376||94,211||92,727||99,828||103,683||108,215||128,299||137,872||156,726|
|% of revenue||65.4%||65.6%||66.1%||65.0%||64.5%||65.3%||65.9%||66.5%||67.1%||65.0%|
|Advanced medical devices||44,609||44,711||48,251||49,895||54,907||55,060||55,953||64,600||67,517||84,436|
|% of revenue||34.6%||34.4%||33.9%||35.0%||35.5%||34.7%||34.1%||33.5%||32.9%||35.0%|
|% of revenue||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%|
|% of revenue||26.4%||30.3%||30.1%||32.2%||30.7%||31.4%||32.0%||30.7%||31.9%||25.2%|
|% of revenue||31.0%||29.2%||29.6%||30.0%||31.5%||31.8%||33.1%||31.4%||35.3%||39.7%|
|Diagnostic imaging equipment||10,047||8,272||10,084||8,298||9,092||9,085||7,960||11,788||9,365||13,433|
|% of revenue||22.5%||18.5%||20.9%||16.6%||16.6%||16.5%||14.2%||18.2%||13.9%||15.9%|
|Various clinical testing equipment||5,058||5,067||4,789||5,498||6,071||5,627||5,825||6,630||6,762||10,343|
|% of revenue||11.3%||11.3%||9.9%||11.0%||11.1%||10.2%||10.4%||10.3%||10.0%||12.2%|
|% of revenue||8.8%||10.7%||9.5%||10.1%||10.1%||10.1%||10.2%||9.3%||8.9%||7.0%|
|% of revenue||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%|
The core business of the MEDIUS group is sales of medical devices for domestic hyperacute and acute care. The company says it also plans to focus on minimally invasive treatments such as endoscopic surgery and endovascular treatments over the medium term. Compared with open surgeries, minimally invasive treatments that rely on endoscopes or other tools not only alleviate the burden on patients, but also improve the prognosis for patients. In addition, they shorten hospital stays and therefore reduce medical expenses. As the Ministry of Health, Labour and Welfare (MHLW) typically sets the medical fees for minimally invasive treatments at high levels, MEDIUS says its business areas are aligned with the prevailing trends in the medical devices industry.
Cardiovascular: In the medical devices field, cardiovascular equipment refers to equipment that substitutes the functions of the heart or lungs during induced cardiac arrest in heart surgery. Examples are artificial heart machines (which takes over the function of the heart and maintain a patient’s blood circulation outside of the body), artificial lung machines (which takes over the function of the lung and maintain a patient’s blood oxygenation), and extracorporeal membrane oxygenation (ECMO) equipment (which were used in the treatment of severe COVID-19 cases).
Minimally invasive treatments are medical procedures that require minimal incisions and therefore have a small impact on the body. They encompass examination and treatment procedures that can be performed with less damage to the patient’s body while reducing trauma to the treatment area. Examples are endoscopic examinations and surgery. Endoscopic surgeries provide several benefits over traditional abdominal open surgeries, such as less post-operative pain, faster recovery times, accelerated rehabilitation in society, and less scarring.
|By segment||Category||Hyperacute care||Acute care||Recovery period||Chronic period||Clinic||Nursing home||In-home GP||India|
|Medical Device||Advanced medical devices||◎||◎|
|Medical devices and supplies||◎||◎||◎||○||○||○||○|
|Welfare Device||Nursing care equipment||○||○||◎||◎||◎|
Specialty trading companies serve as an intermediary between sellers and buyers of specialty products. They earn trading margins by facilitating product distribution. Generally speaking, trading companies source products from manufacturers, and wholesale these to customers upon receiving orders. Specialty trading companies have typically built robust relationships with manufacturers and customers by offering specialized products for many years, and they employ sales representatives with in-depth knowledge about the products they supply. In addition, they may require government or other approvals to market their products. Specialty trading companies with high revenue commonly have in-house manufacturing, logistics, warehousing, and product development functions. In addition to providing product information, they also provide added-value to customers outside of the domain of product purchasing—for example, by shouldering a portion of customers’ inventory, or by developing in-hospital and out-of-hospital logistics systems.
Trading companies specializing in medical devices buy products from medical devices manufacturers and sell these to hospitals, clinics, and other customers. They also engage in various non-trading businesses that differ by company but may include contracted management of in-hospital logistics by maintaining distribution centers, development of systems such as operating room management systems, purchasing management, and the provision of databases for medical supplies. Trading companies specializing in medical devices differ from other specialty trading companies in the following areas.
Sales of medical devices are subject to industry-specific legislation (as are sales of pharmaceuticals), and require approval for each business location from a prefectural government.
Customers request peripheral services that go beyond sales of medical devices, such as the development of in-hospital systems.
Sales staff must have extensive product knowledge and expertise to ensure smooth communication with medical practitioners.
The company has engaged in M&A since the days it still operated as Kyowa Medical with the aim of increasing its revenue scale by expanding its sales area, product lineup, and services. Other major players in the company’s industry have similarly stepped up M&A activity. The reasons for this industry realignment have varied historically, but can be summarized as follows (for details, see the Market and value chain section).
From the 1970s, a transition from glass to single-use, plastic syringes gave trading companies that sold consumables the upper hand, and trading companies that struggled as a result of this change became acquisition targets.
A growing number of specialty trading companies that were founded around the same time as MEDIUS struggled to cultivate or find successors.
The business environment for medical devices trading companies has deteriorated due to (1) a drop in the number of hospitals attributable to government measures to reduce medical expenditures and separate hospital functions, and (2) declines in selling prices as the government continues to lower reimbursement fees.
MEDIUS says industrywide earnings have been buoyed by sales growth of testing kits and personal protective equipment (PPE) during the pandemic, but it anticipates a large number of its peers with small sales areas and market shares will be forced to either shut down or sell their businesses once this special demand drops out of the picture. It has signaled interest in taking advantage of this environment to acquire companies with top two market shares in their respective sales areas. At the same time, many small and medium-sized trading companies specializing in medical devices are currently unlisted, making it difficult to gauge their business conditions and assess their purchase values. MEDIUS believes this may slow down M&A momentum across the industry.
|Year||Subjected company||Current company name||Place||M&A||Purpose|
|1975||Seiko Medical Electric Co., Ltd||(merged with Kyowa Medical)||Shizuoka||Absorption merger||To strengthen sales in the x-ray and medical electronics sectors|
|1981||Oz Co., Ltd||ALVAUS, Inc.||Shizuoka||Capital participation||To strengthen expertise and sales in cardiology and ophthalmology|
|1986||Oz Co., Ltd||ALVAUS, Inc.||Oz Co., Ltd||Acquired 100% of shares||Oz Co., Ltd|
|1998||Hayashi K.K.||Hayashi K.K.||Aichi||Acquired 100% of shares||To strengthen sales in Aichi Prefecture|
|2000||Hayashi K.K.||(merged with Kyowa Medical)||Oz Co., Ltd||Absorption merger||Oz Co., Ltd|
|2010||K.S.P.D Co., Ltd||MEDIUS Solution Co., Ltd.||Gunma||Acquired 100% of shares||To strengthen SPD business|
|2010||Kuribara Medical Instruments Co., Ltd.||Kuribara Medical Instruments Co., Ltd.||Gunma||Acquired 100% of shares||To strengthen sales in North Kanto and the Tokyo metropolitan area|
|2012||Network Inc.||ALVAUS, Inc.||Tokyo||Acquired 100% of shares||To strengthen sales in the Tokyo metropolitan area|
|2013||Akita Medical Instruments Co., Ltd.||Akita Medical Instruments Co., Ltd.||Akita||Acquired 100% of shares||To strengthen sales in Akita Prefecture|
|2014||Giotto Co., Ltd||(All shares transferred in 2019)||Fukushima||Acquired 100% of shares||To strengthen sales in Fukushima Prefecture|
|2018||MITAS Inc.||MITAS Inc.||Fukui||Acquired 100% of shares||To strengthen sales in the Hokuriku area|
|2018||D-SENSE Co., Ltd.||ALVAUS, Inc.||Ishikawa||Acquired 100% of shares||To strengthen sales in the Hokuriku area|
|2020||Active Medical Co., Ltd.||ALVAUS, Inc.||Tokyo||Acquired 100% of shares||To expand the share of sales in the cardiovascular field in the Tokyo metropolitan area|
|2021||Sano Co. Ltd.||Sano Co. Ltd.||Kyoto||Acquired 100% of shares||To strengthen sales in the endoscope field in the Keiji region|
The principal consolidated subsidiaries of the MEDIUS group are Kuribara Medical Instruments Co., Ltd. (FY06/21: 45.4% of consolidated revenue, 41.0% of consolidated operating profit) and Kyowa Medical Corporation (34.4%, 35.1%). Both are wholly owned by MEDIUS.
|Company||Main business||Major sales areas||Share ownership ratio|
|Kuribara Medical Instruments Co., Ltd.||Medical Equipment Sales Business Nursing and Welfare Business||Gunma, Saitama, Ibaraki, Tochigi, Tokyo, etc.||100%|
|Kyowa Medical Corporation||Medical Equipment Sales Business Nursing and Welfare Business||Shizuoka, Aichi, Kanagawa, etc.||100%|
|MITAS Inc.||Medical Equipment Sales Business Nursing and Welfare Business||Fukui, Ishikawa, etc.||100%|
|Akita Medical Instruments Co., Ltd.||Medical Device||Akita, etc.||100%|
|Active Medical Co., Ltd.||Medical Device||Hokkaido, etc.||100%|
|MEDIUS Solution Co., Ltd.||Data and consulting services for medical institutions||-||100%|
|ALVAUS, Inc.||Medical equipment sales business specializing in the cardiovascular field||Tokyo, Chiba, Kanagawa, Gunma, Shizuoka, Aichi, Ishikawa, Fukui||100%|
|Sano Co. Ltd.||Medical Device||Kyoto and Shiga||100%|
Kuribara Medical Instruments is a trading company established by Motoi Kurihara in Gunma Prefecture in 1952. It sells medical devices, laboratory instruments, and nursing care equipment, and also provides related maintenance services. The company is currently headed by Masaru Kurihara, a member of the founding family, who was appointed president in September 2017. In FY06/21, the company reported revenue of JPY112.1bn (+8.9% YoY), recurring profit of JPY1.2bn (+23.9% YoY), and an RPM of 1.1% (+0.1pp YoY). In the same year, it employed 856 employees across 23 branches and sales offices. It mainly sells products in the Kanto region, which includes its home prefecture of Gunma. In 2021, the company had captured high markets shares by revenue in Gunma Prefecture (45.2%, top share), Saitama Prefecture (21.1%, top share), Ibaraki Prefecture (13.7%, top share), Tochigi Prefecture (19.0%, No. 2 share), and Tokyo (5.5%, No. 3 share).
In July 2010, MEDIUS acquired all shares in Kuribara Medical Instruments, and made the company a consolidated subsidiary. The purpose of the acquisition was to generate economies of scale by having two companies with high shares in the Kanto and Tokai regions in the group. Tokyo and the Tokyo metropolitan area, in particular, are home to a large number of medical institutions as a result of their large populations. These regions offer significant room for growth in market share. In 2019, MEDIUS generated combined revenue of JPY40.8bn from three areas in the Tokyo metropolitan area: Tokyo and Saitama Prefecture (where Kuribara Medical Instruments has the No. 3 and top market shares, respectively), and Kanagawa Prefecture (where Kyowa Medical has the No. 2 market share).
|Kuribara Medical Instruments Co., Ltd.||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21|
|％ of consolidated revenue||53.5%||53.7%||53.4%||52.9%||54.3%||53.9%||54.2%||48.9%||48.9%||45.4%|
|Cost of revenue||64,478||64,872|
|Gross profit margin||9.2%||9.8%|
|Operating profit margin||0.3%||0.7%||0.8%||0.3%||0.5%||0.7%||0.8%||0.7%||0.8%||1.0%|
|％ of consolidated revenue||28.5%||34.7%||40.7%||37.8%||43.3%||62.9%||73.6%||79.7%||76.6%||41.0%|
|Recurring profit margin||0.5%||0.7%||1.0%||0.4%||0.5%||0.8%||0.9%||0.9%||1.0%||1.1%|
Kyowa Medical was the predecessor of Kyowa Medical Holdings, the company that was later renamed MEDIUS Holdings. It was established by Sadamu Ikeya in Shizuoka Prefecture in July 1959 to sell medical devices. In FY06/21, Kyowa Medical had revenue of JPY84.8bn (+16.1% YoY), recurring profit of JPY1.0bn (+134.7% YoY), and RPM of 1.2% (+0.6pp YoY).
In FY06/21, the company mainly operated in Shizuoka Prefecture, Kanagawa Prefecture, and Aichi Prefecture, employing 585 employees across 12 branches, and four sales locations for nursing care equipment. Its main sales areas are Shizuoka Prefecture (its home turf) and Aichi Prefecture, where Hayashi K.K. (an acquired company) has a strong presence. In 2021, Kyowa Medical had captured high market shares by revenue in Shizuoka Prefecture (43.6%, total for Kyowa Medical and Oz Co., Ltd.; top share), Kanagawa Prefecture (10.0%, No. 2 share), Aichi Prefecture (6.4%, No. 2 share), and Yamanashi Prefecture (10.0%, No. 4 share).
Kyowa Medical made its first acquisition in 1975 with the aim of boosting its product lineup (particular, X-ray and medical electronic equipment). In 1981, it invested in Oz Co., Ltd. (now ALVAUS, Inc.) to expand its expertise and sales capabilities in the cardiovascular and ophthalmic fields. In 1998, it acquired all shares in Hayashi K.K. to move into Aichi Prefecture and strengthen its sales capabilities. To bolster its ability to raise capital and conduct further M&A, Kyowa Medical considered going public since 1994, and it eventually listed on the JASDAQ Securities Exchange in 2006.
|Kyowa Medical Corporation||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21|
|％ of consolidated revenue||42.5%||42.1%||39.4%||38.9%||37.3%||38.1%||37.7%||35.5%||34.7%||34.4%|
|Cost of revenue||50,607||50,461||51,486||50,844||52,692||55,578||56,884||63,146||65,832||76,833|
|Gross profit margin||10.4%||10.6%||10.6%||10.5%||10.7%||10.3%||10.2%||9.9%||9.9%||9.4%|
|Operating profit margin||0.8%||1.7%||1.8%||1.3%||1.2%||0.9%||0.8%||0.8%||0.5%||1.1%|
|％ of consolidated revenue||51.9%||70.3%||64.8%||111.8%||72.3%||57.8%||55.0%||64.3%||33.5%||35.1%|
|Recurring profit margin||1.0%||1.8%||1.9%||1.4%||1.3%||1.0%||0.9%||0.9%||0.6%||1.2%|
Other consolidated subsidiaries—in descending order by scale of revenue—include ALVAUS, Inc., MITAS Inc., Akita Medical Instruments Co., Ltd., and Active Medical Co., Ltd.
ALVAUS, Inc. was formed out of the merger of four consolidated subsidiaries (part of the businesses operated by Active Medical Co., Ltd.; Oz Co., Ltd.; eVUS Medical Co., Ltd.; and D-SENSE Co., Ltd.) in October 2021, with the aim of selling medical devices in the cardiovascular field (cardiac, cerebrovascular, arrhythmia, and interventional radiology [IVR] equipment).
Interventional radiology (IVR) refers to a range of treatment methods that rely on radiological image guidance. These methods use diagnostic imaging solutions (such as X-rays, computed tomography [CT], or ultrasound) to look inside a patient’s body and insert thin medical devices (such as catheters or needles) to treat medical conditions. IVR is a type of minimally invasive treatment. Compared with traditional abdominal, cranial, or other surgeries that require opening the body using a scalpel, IVR reduces the burden on patients’ bodies and contributes to shorter treatment periods and hospital stays.
MEDIUS acquired four consolidated subsidiaries that specialize in selling cardiovascular medical devices at different stages of its history. Each of these operate in a different sales area. To consolidate its management resources and optimize its operations in the cardiovascular field, the company announced a management integration of the four companies in April 2021. It says medical institutions are increasingly calling for improvements in business efficiency against the backdrop of falling sales prices for medical devices and supplies driven by revisions to medical fees. MEDIUS expects the merger to contribute to economies of scale, synergies, and market share expansion underpinned by enhanced sales capabilities. It does not disclose revenue for the newly integrated company, but Shared Research understands the four subsidiaries that make up the new company generate combined revenue of roughly JPY30.0bn.
|Company||Major sales areas||Year of acquisition|
|Oz Co., Ltd||Tokai region||1986|
|eVUS Medical Co., Ltd.||Tokyo metropolitan area and North Kanto region||2012|
|D-SENSE Co., Ltd.||Hokuriku region||2018|
|Active Medical Co., Ltd.||Tokyo metropolitan area and Hokkaido||2020|
Medical devices trading companies sell products sourced from medical devices manufacturers to medical institutions. In addition to wholesaling medical devices, they provide services ranging from product presentations and explanations to after-sales support (according to the Japan Association of Health Industry Distributors). The broad scope of these services (ranging from shipping to after-sales service) sets them apart from trading companies that operate in other industries.
When selling products to medical institutions, medical devices trading companies follow a chronological process that involves presenting and providing information on products, receiving orders and collecting payments, managing products in their own inventory, and shipping products to customers. To present and provide product information, the trading companies undertake initiatives such as holding seminars to introduce the latest products launched by medical devices manufacturers. When receiving orders from medical institutions, they engage in operations such as ordering and payment collection, providing financing, and negotiating prices. After finalizing the orders, they manage product quantities and conditions in their inventories, and ship and deliver the products.
When undertaking contracted logistics for medical facilities, medical devices trading companies store inventory on customer premises, and charge their customers for used product quantities. The management of the in-hospital inventory is delegated to the trading companies. After products have been delivered, the trading companies provide after-sales support by handling maintenance and dealing with complaints, technical problems, and product returns. They also provide product usage support (such as technical support and in-person explanations) to ensure physicians and medical staff use their products correctly.
The key differences between medical devices trading companies and trading companies operating in other industries are shown below. Shared Research believes that these factors create a barrier to entry for new entrants into the medical devices wholesaling industry.
Sales of medical devices are subject to industry-specific legislation, and in some cases require approval for each sales office from the Minister of Health, Labour and Welfare.
Medical devices trading companies must develop close communication with medical institutions through services ranging from shipping to after-sales support, as described above.
Sales representatives of medical devices trading companies must possess advanced professional knowledge and be capable of supporting adequate product usage as this forms the foundation for long-term transactions with medical institutions based on mutual understanding.
After factoring in the time required to obtain the necessary approvals, it takes roughly three years to begin transacting with hospitals or other medical institutions.
Medical institutions use supply,
processing, and distribution (SPD) systems to outsource the logistics management
of medical supplies (e.g., medical instruments, pharmaceuticals, reagents, and
equipment) in an effort to reduce their own inventories and alleviate
in-hospital product management work. Such systems are operated by medical
devices dealers or SPD service providers under contract with medical
institutions. MEDIUS keeps SPD inventories of medical supplies in distribution
centers located near its customers (shouldering inventory on behalf of its
customers), and it replenishes such inventories as they are drawn down.
The benefit of SPD contracts to the company is that they ensure stable supply of medical devices and supplies. Kuribara Medical Instruments is currently building a large new distribution center. According to the company, the new center will help the group to consolidate supply in Gunma Prefecture, where Kuribara Medical Instruments commands the leading market share (for details, see the Capital expenditures section).
SPD systems comprise in-hospital supplies management and out-of-hospital sourcing and logistics. Contracts for the former also involve purchasing, and managing the warehouses using warehouses owned by medical institutions. Contracts for the latter entail setting up warehouses near customers to handle inventory overflow if space at the warehouses of medical facilities runs out or if a large variety of products is needed. In recent years, demand for out-of-hospital sourcing and logistics has risen as expansions at medical institutions that provide hyperacute care are often geared toward increasing the number of operating rooms—and, by extension, the number of surgeries—rather than raising warehouse capacity. In the MEDIUS group, SPD services are provided by consolidated subsidiaries Kyowa Medical, Kuribara Medical Instruments, MITAS, Akita Medical Instruments, and MEDIUS Solution.
Revenue in the medical device segment is a function of the number of customers (medical institutions) and revenue per medical institution. MEDIUS supplies equipment to some 12,300 medical institutions, and it continues to expand its customer base by cultivating new customers in its existing sales regions and bringing in new customers through acquisitions of industry peers with top revenue market shares in their respective sales regions. The company has disclosed the revenue shares by major prefectures for its consolidated subsidiaries in FY2019.
Shared Research understands market factors (population trends mainly in the Kanto, Chubu, and Tokai regions, national medical expenditures, and trends in the number of hospitals; for more details, see the Market and value chain section) and the number of patients receiving acute care are indicators of sales volume for the company.
MEDIUS has maintained a GPM of around 10% from FY06/12 to FY06/21. It supplies a variety of products ranging from general-purpose, low-cost products (such as syringes and infusion-related products) to high-margin products used in specialized surgeries. Although gross profit varies by product category, overall GPM has remained steady. The processes that determine the prices of various medical devices and consumables under the Japanese health insurance system are shown below.
Under Japan’s universal health coverage program, hospitals can recover the cost of medical devices in accordance with three major reimbursement assessment categories. The first category comprises products assessed as “comprehensive” (A1 in the table below: products that are comprehensively covered by existing medical fee categories) and as “specifically comprehensive” (A2: products that are comprehensively covered by existing, specific medical fee categories). The usage of such products cannot be reimbursed separately. Examples of A1 products are syringes used for venous blood collection, tubes, and surgical sutures, which are relatively inexpensive and widely used in medical practice. These are categorized as “comprehensive” and are covered by existing technical fees. Typical examples of A2 products include ultrasonic testing equipment and intraocular lenses. These are categorized as “specifically comprehensive” and are covered by existing, specific technical fees.
The second category covers products that do not introduce new functions or technologies but can be reimbursed separately from technical fees (B1 to B3). Products whose costs exceed net technical fees substantially, or that have large market scales fall into this category. These products are referred to as “special treatment medical devices” (i.e., reimbursable medical devices). The third category includes “new-function products” that need a new function classification and have already been assessed for technical fees (C1), and “new-function/technology products” that need a new function classification but have not yet been assessed for technical fees (C2). Reimbursement prices for such products are determined through deliberation by an expert body on special treatment medical devices following the submission of a Request for Insurance Coverage by the manufacturer.
|Category||Assessment criteria||Examples of products and medical devices|
|Comprehensively assessed medical materials||A1 (Comprehensive)||Products comprehensively covered by one of the existing medical fee categories.||Surgical sutures, venous blood sampling|
|A2 (Specifically comprehensive)||Products comprehensively covered by existing, specific medical fee categories.||Ultrasound machines and examinations|
|A3 (Existing technology; change)||Technology that uses the product is covered under existing medical fee categories, but there are changes in points to be noted.|
|Designated insured medical materials||B1 (Existing functional classification)||Covered under existing functional classifications and separate from technical fee.||Coronary stents, pacemakers|
|B2 (Existing functional classification; change)||Covered under existing functional classifications and separate from technical fee.||With change in definition of functional classification|
|B3 (Improvement premium for conditional period)||For existing functional classifications; covered by time-limited improvement premium.|
|Requires application by manufacturer||C1 (New function)||Products that need a new function classification, and for which related technologies have already been assessed.||Artificial joints that have undergone special processing|
|C2 (New function and technology)||Products that need a new function classification, and for which related technologies have not yet been assessed.||Leadless pacemakers|
|R (Remanufactured products)||Remanufactured products covered under new functional classification.|
|F||Products not suitable for insurance coverage.|
The market for special treatment medical devices, which includes some 200,000 products, is valued at roughly JPY1tn. Special treatment medical devices have an official reimbursement price. Hospitals can charge patients and insurers separately from technical fees to recover the cost of such devices based on the official reimbursement price. A uniform reimbursement price is adopted for products that perform the same function, so reimbursement prices do not vary by manufacturer. Hospitals generally purchase such products through sales companies, and procurement prices are determined through negotiation by both parties. This means they can be set higher or lower than official reimbursement prices.
In the past, reimbursement prices for special treatment medical devices were set at the same level as procurement prices for medical institutions (based on procurement price claims). However, this approach provided little incentive for medical institutions to seek lower prices (reduce medical expenses), resulting in persistently high procurement prices. The Central Social Insurance Medical Council (CSIMC) examined a set of general rules to set pricing for medical materials in 1993, and introduced reimbursement prices for a portion of medical materials (seven items, including artificial joints) from 1994.
Manufacturers can often reduce selling prices over time through updated production processes and mass production. In these cases, manufacturers can aim to expand market shares by lowering shipping prices. This allows hospitals to buy products at procurement prices that are below reimbursement prices, resulting in a temporary reimbursement gain. At the same time, the MHLW enlists the help of medical devices vendors and other parties to survey procurement prices and ultimately reduce medical spending. Once it finds that procurement prices have declined below reimbursement prices, it lowers reimbursement prices through standard revisions that, in principle, occur once every two years. The price surveys by the MHLW also examine market prices in the US, UK, Germany, France, and Australia, and reimbursement prices are also lowered if they are found to exceed overseas prices by a wide margin (overseas price adjustment rule).
Medical devices resemble pharmaceuticals in the sense that prices for the latter are also reduced through drug price revisions. However, while the same pharmaceuticals are sold for a long time, medical devices have short update cycles. If manufacturers can objectively demonstrate that new models provide the following improvements relative to existing products (improvement of 1–20% must be confirmed), the reimbursement prices may be revised upward:
Provides high level of safety for healthcare professionals (e.g., reduction in workplace infections)
Allows for more environmentally friendly disposal after usage
Facilitates safer and more effective patient treatment (e.g., minimal degree of invasiveness, reduction in complications)
Expands applications to infants and children due to advances in size (smaller), weight (lighter), or design
Enables safe and easy procedures due to structural or other changes
Allows for safe and easy treatment for patients at home due to improvements in operability and other factors
Reimbursement prices are often determined in comparison to medical devices with similar functions. However, if there is no existing product category with similar functions, the price is calculated using the cost method, which also factors in a margin of nearly 10% (9.4% in FY2021) as a distribution margin (distribution expenses divided by price before tax). In other words, the reimbursement price system is designed in such a way as to ensure a certain gross margin for vendors.
Because MEDIUS operates as a trading company, it does not need to invest in major production infrastructure, but its capital expenditures rise in tandem with the construction of new sales offices and distribution centers. In FY06/21, the construction of the new Ota Distribution Center by Kuribara Medical Instruments (total investment of JPY6.5bn) pushed the company’s capital expenditures up to JPY4.2bn.
|Capital expenditures / Revenue||0.5%||0.4%||0.7%||0.5%||0.4%||0.3%||0.2%||0.6%||0.7%||1.7%|
|Depreciation / Revenue||0.5%||0.5%||0.4%||0.5%||0.5%||0.4%||0.4%||0.3%||0.3%||0.3%|
In the Welfare Device segment, the company sources nursing care and welfare devices (equipment and consumables) from domestic nursing and welfare equipment manufacturers, sales agents, or trading companies, sells or leases these to domestic medical institutions and to individual patients, and provides related maintenance. In FY06/21, the segment had revenue of JPY5.6bn (2.3% of total revenue, +12.5% YoY), operating profit of JPY692mn (+27.3% YoY), and OPM before adjustments of 12.3%. Within the MEDIUS group, the Welfare Device segment is operated by Kyowa Medical (benessere business), Kuribara Medical Instruments (healthcare business), and MITAS (lifecare business). Segment revenue has increased 4.6% over the last 10 years in tandem with continued growth in the rental market for nursing care equipment driven by an increase in the elderly and late-stage elderly population and corresponding higher demand for in-home care.
|% of total||98.4%||98.1%||98.4%||98.4%||98.4%||98.4%||98.5%||98.4%||98.4%||98.4%|
|% of total||1.6%||1.9%||1.6%||1.6%||1.6%||1.6%||1.5%||1.6%||1.6%||1.6%|
|% of total||97.2%||97.1%||97.6%||97.6%||97.7%||97.6%||97.6%||97.6%||97.6%||97.7%|
|% of total||2.8%||2.9%||2.4%||2.4%||2.3%||2.4%||2.4%||2.4%||2.4%||2.3%|
|External revenue - Purchase record||13,019||13,870||14,475||14,730||16,269||16,610||16,443||18,912||21,499||24,870|
|Purchase difference / External sales||85.6%||88.5%||90.6%||90.3%||91.3%||90.8%||89.8%||90.1%||90.8%||91.5%|
|% of total||14.4%||11.5%||9.4%||9.7%||8.7%||9.2%||10.2%||9.9%||9.2%||8.5%|
|Operating profit margin||0.6%||1.0%||1.1%||0.5%||0.6%||0.6%||0.6%||0.4%||0.5%||1.1%|
|Operating profit margin before adjustment||2.8%||3.3%||3.4%||3.0%||3.0%||2.9%||3.0%||3.1%||3.3%||3.3%|
|% of operating profit margin before adjustment||89.0%||90.9%||93.5%||92.0%||92.2%||91.2%||91.9%||91.7%||92.6%||92.1%|
|Operating profit margin before adjustment||11.8%||10.8%||9.7%||10.4%||10.8%||11.5%||11.0%||11.4%||10.9%||12.3%|
|% of operating profit margin before adjustment||11.0%||9.1%||6.5%||8.0%||7.8%||8.8%||8.1%||8.3%||7.4%||7.9%|
|Inter-segment transaction eliminations||-||-||-||-||12||13||12||13||20||24|
|Amortization of goodwill||-255||-255||-317||-337||-76||-76||-25||-123||-60||-194|
From FY06/12 to FY06/21, the company’s GPM trended between 10.0% (FY06/12) and 10.6% (FY06/20). In addition, SG&A expenses rose from JPY12.4bn (FY06/12) to JPY22.5bn (FY06/21) mainly due to an increase in personnel expenses accompanying M&A activity, while the SG&A ratio climbed from 9.1% (FY06/21) to 10.1% (FY06/20). Over the same period, GPM, the SG&A ratio, and OPM have fluctuated 0.6pp, 1.0pp, 0.7pp, respectively.
|Gross profit margin||10.0%||10.4%||10.3%||10.4%||10.1%||10.2%||10.2%||10.2%||10.6%||10.2%|
|Operating profit margin||0.6%||1.0%||1.1%||0.5%||0.6%||0.6%||0.6%||0.4%||0.5%||1.1%|
Product procurement costs make up the lion’s share of the company’s cost of revenue. The main factors that drive changes in such costs are fluctuations in prices at which products are purchased from manufacturers—which are influenced by revisions to reimbursement prices—and revenue (product) shares for equipment and advanced medical devices. As a special cost item related to product procurement, MEDIUS books purchasing discounts under non-operating income.
Purchasing discounts are amounts of interest subtracted from early payments of accounts payable. They are determined by the number of days the payments are made in advance of the set payment date. Purchasing discounts are not deducted from cost of revenue, but booked as non-operating income.
SG&A expenses comprise (in order of magnitude) personnel expenses (employee salaries, allowances, bonuses, legal welfare expenses, retirement benefit expenses, and provisions for bonuses; 5.7% of revenue in FY06/21), outsourcing expenses (0.8%), and rent (0.7%). According to MEDIUS, outsourcing expenses mainly include costs to operate distribution centers, as a result of which they are mostly fixed in nature.
Variable costs are transportation and training expenses recorded as “other expenses” under cost or revenue (purchasing costs) and SG&A expenses.
|% of revenue||5.8%||5.8%||5.7%||6.1%||5.9%||6.0%||5.9%||5.9%||6.2%||5.7%|
|Salaries and allowances||5,130||5,118||5,461||5,932||6,179||6,371||6,603||7,812||8,569||9,237|
|% of revenue||3.9%||3.8%||3.7%||4.1%||3.9%||3.9%||3.9%||4.0%||4.1%||3.7%|
|% of revenue||1.1%||1.1%||1.0%||1.0%||1.0%||1.1%||1.0%||1.0%||1.1%||1.0%|
|Statutory welfare expenses||947||985||922||1,017||1,140||1,214||1,260||1,489||1,674||1,821|
|% of revenue||0.7%||0.7%||0.6%||0.7%||0.7%||0.7%||0.7%||0.8%||0.8%||0.7%|
|Retirement benefit expenses||226||226||391||429||394||405||374||411||452||454|
|Provision for employee bonuses||0||0||0||0||0||0||0||34||32||49|
|% of revenue||0.7%||0.7%||0.6%||0.7%||0.8%||0.8%||0.8%||0.7%||0.8%||0.7%|
|% of revenue||0.6%||0.6%||0.7%||0.7%||0.8%||0.8%||0.9%||1.0%||1.0%||0.8%|
|% of revenue||9.4%||9.4%||9.2%||10.0%||9.5%||9.6%||9.6%||9.7%||10.1%||9.1%|
The Ministry of Health, Labour and Welfare (MHLW) estimates the Japanese market for medical devices is worth about JPY4.0tn (based on shipments from holders of marketing authorization). Shared Research infers that the market has an estimated value of about JPY4.