What does a company do when its primary product line begins to saturate the market it operates in? If it is China Medical Technologies (CMED), it is likely to expand in to new markets both geographically, and in relation to products offered.
For some time the company focused on marketing its HIFU (High Intensive Focused Ultrasound) product which is used to treat various tumors. As the system became widely accepted in China, the opportunity to sell more units domestically dwindled. But rather than accept a slowing growth trajectory, management began exploring opportunities to sell their products outside of the mainland. At the same time, an acquisition in early 2007 allowed the company to step into the diagnostic equipment business, effectively re-tooling the company’s path and core business.
CMED’s primary market is China, but the geographic reach of the company is beginning to expand. With positive announcements in Korea and potential Japan and Russian deployments, the addressable market could quickly ramp higher. While it would likely take several quarters to grow the installed equipment base to a level that generated strong reagent sales, the long-term fundamentals point to some very exciting potential growth initiatives.
At the same time, future acquisitions are expected to be a key part of the company’s growth strategy. Management has proven its ability to seek and purchase new business lines which enable its sales team to leverage their relationships by selling new products to many of the same clients. In January, the company announced the purchase of Beijing BioEkon, which is a small diagnostic company. The purchase brings a new automated diagnostic system into the suite of products offered and should propel reagent sales even further. Additional acquisitions should be expected over the next several quarters.[1]
