New History! Chinese Medical Device Companies Expanding in Guangdong, Surpassing Beijing and Shanghai

According to Thomson Reuters data, the M&A scale of China's medical device industry reached US\$10.893 billion in 2018. Overseas M&A showed significant growth, with 27 overseas M&A events totaling US\$7.466 billion, a year-on-year increase of 464%. Shumeng Medical Group believes that as industry integration accelerates, market concentration will further increase.

China's medical device companies are mainly located in eastern coastal cities.

According to statistics from YaZhi.net, domestic medical device companies are mainly concentrated in the Pearl River Delta, the Yangtze River Delta, and the Bohai Rim regions. As of April 2019, there were approximately 18,800 medical device companies nationwide. The top three provinces and cities with the most medical device companies are Guangdong, Jiangsu, and Beijing, with 3743, 2558, and 1852 companies respectively.

In terms of the regional distribution of listed companies (including A-shares and H-shares), as of the end of 2018, Guangdong province had the most listed companies, with 17, followed by Beijing and Shanghai with 8 and 7 respectively.

In terms of the regional distribution of revenue from listed companies, in 2018, 58 listed medical device companies (including A-shares and H-shares) achieved revenue of 113.68 billion yuan. Among them, 17 listed companies in Guangdong province achieved revenue of 34.485 billion yuan, accounting for 30.3%, and 4 listed companies in Shandong province achieved revenue of 23.639 billion yuan, accounting for 20.8%.

The scale of enterprises in China's medical device industry is still difficult to compete with international giants.

—— Cross-border M&A cases are increasing, and the global medical device market concentration is rising.

In the past three years, mergers and acquisitions in the global medical device industry have shown three characteristics: larger and larger mergers, leading to higher and higher concentration, and fewer and fewer acquirable targets; increasing cross-border and cross-track mergers and acquisitions; accelerating cross-border mergers and acquisitions, with a significant increase in Chinese acquisition targets.

According to EvaluateMedTech data, in 2017, the global medical device industry M&A scale was US\$98.2 billion, a significant increase from the previous year.

The increase in cross-border M&A by medical device giants has driven a further increase in the concentration of the global medical device market. In 2015, the global medical device market CR10 (sum of the top ten market shares) was approximately 35%, and in 2018, it rose to 37%.

Domestic medical device companies are relatively small in size and have low market concentration.

Compared with international medical device giants, domestic medical device companies are relatively small in scale. In 2018, the total revenue of the top ten listed companies in China's medical device industry was 66.66 billion yuan, only one-third of the revenue of Medtronic, an international medical device giant.

In terms of market concentration, the total revenue of the top ten medical device companies in China in 2018 was 66.66 billion yuan, accounting for 12.6% of the market share, and the market concentration is still far lower than the international level.

The reason for the low market concentration in China's medical device industry is mainly due to the fact that domestic companies have relatively single product lines in segmented fields, and have not yet formed a comprehensive strength with a significant scale effect. The number of product categories and manufacturers in specific fields is relatively large, resulting in a relatively dispersed industry concentration.

—— Domestic companies are accelerating overseas mergers and acquisitions, speeding up the process of concentration.

In recent years, with the ceiling effect of the medical device segment market becoming apparent, cross-border mergers and acquisitions have become the main way to achieve business acquisition growth. In recent years, the merger and acquisition process in China's medical device industry has accelerated significantly, with the scale of industry mergers and acquisitions rising from US\$2.82 billion and 125 items in 2014 to US\$10.893 billion and 205 items in 2018.

In addition, Chinese overseas M&A targets have also increased significantly. According to Thomson Reuters data analysis by Shumeng Medical Group, the scale of Chinese overseas M&A in 2018 increased significantly, with 27 overseas M&A events, a year-on-year increase of 35%, and a total M&A amount of US\$7.466 billion, a year-on-year increase of 464%.

Shumeng Medical Group believes that as the integration of China's medical device industry accelerates and cross-border mergers and acquisitions speed up, market concentration will further increase.