Domestic medical devices are ushering in a golden period of development, with the performance of national brands shining brightly in the third-quarter reports

In the third-quarter report released in October, medical device companies showed impressive achievements. In the third quarter, Mindray Medical's operating revenue increased by 20.24% year-on-year.

The Shenzhen Stock Exchange's "Analysis of the Performance of Listed Companies in the First Three Quarters of 2019" points out that, by industry, the average net profit of the ChiNext pharmaceutical and biological industry in the first three quarters reached 237 million yuan, and the net profit growth of the pharmaceutical and biological industries also reached more than 20%, with the net profit growth rate reaching more than 40%.

In recent years, the domestic medical device industry has shown vigorous development. The "Shenzhen Medical Device Industry Analysis Report (2019 Edition)" (hereinafter referred to as the "Report"), jointly released by the Shenzhen Municipal Food and Drug Supervision Bureau and the Shenzhen Medical Device Industry Association, shows that by the end of 2018, there were a total of 45,403 medical device-related enterprises in China, including 16,000 manufacturing enterprises. The size of China's medical device market is approximately 530.4 billion yuan, and the growth rate of the medical device industry leads the world.

In the domestic medical device industry, Mindray Medical is undoubtedly the industry leader. Among the top 10 companies in the total market capitalization of listed companies in the Chinese medical device industry in 2018, Mindray Medical ranked first.

Looking back at Mindray's history, it is almost a microcosm of the development of the domestic medical device industry. From only being able to produce single-parameter blood oxygen saturation monitors to the three major product lines developed around the entire life cycle, it has written a representative story of the development of Chinese national Brands.

Independent Innovation: The "Spring Buds" of Domestic Medical Devices Sprout

In the history of medical device development, China started late and once relied on imports to meet market demand. However, relying on imports is not a long-term solution. Widespread use of imported medical devices is not only costly but also risks being controlled by others.

Independent research and development is imperative. However, independently researching and developing medical devices is not something that can be solved with a snap decision. Unlike the "going to sea" boom at that time, which could be started immediately, medical devices belong to the high-tech industry and are one of the knowledge-intensive industries. To Enter this field without "true skills" may not be feasible. Under the constraints of industry barriers, even if someone sees the business opportunity, they may be powerless.

In the 1980s and 1990s, China was in the early stages of reform and opening up, and enterprise development was mainly dominated by processing enterprises. Before the 1990s, even a color ultrasound device had to be imported. It was not until 1990 that the first color ultrasound device in China was developed.

Mindray Medical was established in 1991. At this time, 12 years had passed since the story of "In the spring of 1979, an old man drew a circle on the South China Sea," and Shenzhen had also entered a new stage of development.

The Road to Revitalization: "Trials," "Leaps," and "Sublimation"

"For Shenzhen to develop into a high-quality city, it must develop high technology, and our company was registered at that time." Mindray Medical Chairman Li Xiting said in an interview with the Securities Times that Mindray has followed the Shenzhen Special Economic Zone's development direction of focusing on high technology and kept pace with the government's policies.

In order to encourage the development of high-tech industries, Shenzhen provided tax reductions, loans, and other policy and financial support to enterprises.

For a start-up company, even with a founder like Li Xiting with high education and technology, as long as the company lacks funds, it cannot carry out production, conduct research and development, and even survival becomes a problem. In order to support enterprises in conducting research and development, the Shenzhen Municipal Science and Technology Bureau opened up loan channels for enterprises, and Mindray borrowed 950,000 yuan from this to develop a single-parameter blood oxygen saturation monitor.

For domestic high-tech companies without foreign capital backgrounds, independently developing products is difficult, but selling products is even more difficult. As described in Marx's "Das Kapital," "The transformation of commodities into money is a risky leap. If you fall, what is broken is not only the commodity but also the owner of the commodity."

To complete this initial leap, the product must gain market recognition. The high-end market is monopolized by foreign Brands. To make a move on this piece of the cake, without strong strength, it is easy to be destroyed.

Chinese domestic medical device companies, represented by Mindray, are almost all start-up companies, so how can they afford such a big risk? Selling products has become a major problem facing enterprises. However, domestic enterprises have the advantages of domestic enterprises, and low prices are a major "killer weapon" for domestic enterprises. Mindray relied on a low-price strategy to quickly find its target consumer market, winning the title of "low-price killer."

For an enterprise, profitability is its main development goal, but if it only sees the immediate small profits, it may not be able to undertake the great responsibility of revitalizing national Brands. As Li Xiting said, doing business is not simply doing business; enterprises must assume their responsibilities and cannot only care about how much they earn.

The rise of Chinese national Brands relies on the rise of individual enterprises. "A journey of a thousand miles begins with a single step." Mindray is one of these "streams." In the process of Chinese independently developed medical devices entering the international market, Mindray took the lead, becoming the first Chinese medical device company to be listed overseas, completing another leap in the company's development.

In 2006, in order to improve Brand awareness in overseas markets and gain a share of the market from giants like Siemens and Philips, Mindray made a major move—listing on the New York Stock Exchange.

Strong Return: Domestic Brand Market Share Continues to Rise

More than 10 years have passed, and while Mindray has grown and developed, China has also developed rapidly. Seeing the potential of the Chinese market, Mindray chose to delist from the US and successfully completed its IPO on the Shenzhen Stock Exchange in 2018. Mindray is not the only domestic company to return from overseas capital markets. In 2016, 360 delisted from the New York Stock Exchange and returned to the A-share market by listing on the Shanghai Stock Exchange. Nowadays, more and more companies are willing to return to China, and even the Internet giant Alibaba has expressed its willingness to return.

Regarding the reason for returning to China for listing, Li Xiting publicly stated that as a company that grew up domestically, it should leave something good for the country and future generations. He believes that the Chinese people can make China a true highland for medical device research and development. He hopes that in the future, medical devices with Chinese Brands will be seen in major hospitals around the world.

Today, at Mindray's Shenzhen headquarters, teams come to visit and learn continuously. In the exhibition hall, various medical devices are categorized according to their three major medical product lines and distributed in different locations. Medical devices such as monitors, defibrillators, electrocardiographs, blood cell analyzers, and digital X-ray imaging systems have become leading medical equipment in the industry. Its color ultrasound equipment is leading in exports. It is reported that 19 of the top 20 teaching hospitals in the United States use Mindray's color ultrasound.

The golden age of development for domestic medical devices has arrived, with more and more domestic medical device companies participating in global competition. In 2018, China's medical device exports reached US$23.63 billion, an increase of 8.88% year-on-year. In terms of export regions, China's exports to the EU and North American markets achieved double-digit growth of 10.92% and 10.25%, respectively, with the United States remaining China's largest export market for medical devices. Among them, in 2018, complete in-vitro diagnostic equipment (excluding reagents) was exported to 175 countries and regions, with total exports reaching US$760 million, a year-on-year increase of 24.4%, the fastest growth rate.

Simultaneously with medical device exports, domestic substitution is becoming increasingly common. The Report points out that in 2018, domestic brands continued to break through the blockade of major imported brands, with more and more brands achieving a domestic market share exceeding 10%. In the supply room and operating room disinfection category, Xinhua Medical alone accounts for 56.5% of the market share, while in the monitoring product category, Mindray exceeds 60%.

Multiple positive factors for the medical device industry usher in a "golden decade".

Today, the development of domestic medical devices is booming. The market prospects of the medical device industry are answered by the population size and the aging population trend. Looking at the world, the aging phenomenon is becoming increasingly serious. The World Health Organization report points out that in 2017, the global population aged 65 and above reached 650 million, and will reach 810 million in 2025. This phenomenon is also not optimistic domestically. By the end of 2018, the population aged 60 and above was 249.49 million, accounting for 17.9% of the total population; among them, the population aged 65 and above was 166.58 million, accounting for 11.9% of the total population.

In this regard, Mindray's annual report stated that with the natural population growth and the increasing aging population globally, the demand for the medical and health industry will continue to increase. In addition, economic growth in developing countries has increased consumption capacity, and the global medical device market will maintain a long-term growth trend.

On the one hand, market demand is continuously expanding, and on the other hand, various favorable policies have been continuously introduced. In order to encourage the development of innovative medical devices, the state has introduced documents to accelerate the review and approval of innovative medical devices and support the independent research and development and innovation of medical devices. In addition, support for the hardware construction of primary medical institutions is also continuously increasing.

"If the 10 years before 2018 were the 'golden decade' for the development of the domestic pharmaceutical industry, then we can say that 2018 marked the beginning of the 'golden decade' for the domestic medical device industry." Li Xiting stated in the 2018 annual report.

Benchmarking internationally and accepting the test of the international market is a key link in the revitalization of national brands. Looking to the future, domestic medical device companies have a long way to go on the road to independent research and development and going global.