The Golden Decade of Domestic Medical Devices: Mindray Medical Forges a High-End Chinese Manufacturing Brand with 'Artisan Spirit'

The medical device industry involves multiple sectors, including biology, chemistry, electronics, mechanics, materials, and optics. It is a high-tech industry characterized by multidisciplinary crossovers, knowledge intensity, and capital intensity. High-value consumables, in-vitro diagnostics, and high-end medical equipment within its sub-sectors boast high technological content and high profits, representing key competitive areas for major technological nations and multinational corporations.

Over the 70 years since the founding of the People's Republic of China, China's medical device industry has undergone a development History from scratch to catching up and even surpassing others. Since the reform and opening up, China's medical device industry has experienced rapid growth, with increasingly comprehensive product categories, steadily improving quality standards, and continuously improving innovation capabilities. It is currently developing towards domestic production, Brand building, high-end development, and internationalization.

Market expansion and favorable policies promote the rise of domestic medical device companies

According to the newly released "2019 China Medical Device Industry Development Report," the size of China's medical device market in 2018 was approximately 638 billion yuan. It is predicted that from 2021 to 2022, the capacity of China's medical device market is expected to reach 1 trillion yuan. Driven by multiple factors such as economic dividends, demographic dividends, product innovation and upgrading dividends, and import substitution, the compound annual growth rate is expected to exceed 15% over the next 10 years, significantly higher than GDP growth. The Chinese market will maintain a high-speed expansion trend for some time to come.

China's vast domestic market provides fertile ground for the growth of domestic medical device companies. Looking globally, it's not difficult to see that the top twenty medical device companies in the world all originated in countries with vast domestic markets such as the United States, Europe, and Japan. Therefore, China's enormous domestic market will undoubtedly provide strong support for the development of domestic medical device companies.

At the policy level, with the in-depth development of medical reforms, the tiered diagnosis and treatment system is gradually being improved, and local governments continue to increase their support for the hardware construction of primary medical institutions. The surge in demand for medical equipment from primary medical institutions is promoting the expansion of the primary-level equipment market. Policies encouraging social capital investment in medicine and the expansion of private hospitals have also increased the demand for domestically produced equipment. At the same time, the state continues to strengthen policy support for domestic medical devices and encourages device companies to innovate. Since 2014, a special approval process for innovative medical devices has been actively implemented, benefiting multiple companies including Mindray Medical, further guiding and promoting the development of the domestic medical device industry.

Against the backdrop of medical reform, hospitals' shift from focusing on medications to standardized diagnosis and treatment, increased attention to cost-effectiveness, and the improvement of the status of medical technology departments have all contributed to the sustained high growth of medical device demand. Against the backdrop of refined hospital budget management, the cost-effectiveness advantage of high-quality domestic equipment is highlighted. In addition, the US-China trade friction and the uncertainty of import and export trade will promote the country to continue actively supporting independent research and development and innovation, accelerating the import substitution of some advanced domestic fields.

At a regular press briefing on national policies held in August of this year, the National Medical Products Administration stated that the development of China's medical device industry shows two positive trends: firstly, the entire industry continues to maintain rapid growth, far exceeding the overall development level of the national economy; and secondly, the momentum of innovation development is very rapid. In particular, a considerable number of mid-to-high-end medical devices have been domestically produced and gradually replaced imported products in clinical settings.

With the support of favorable policies and the rapid development of the industry, domestic medical device brands are beginning to shine on the international stage. Recently, Mindray Medical's high-end color Doppler ultrasound system, Resona7, received a CE certificate issued by TÜV SÜD, a notified body of the European Union, making Mindray Medical the first medical device manufacturer in China to obtain MDR CE certification under the new EU Medical Device Regulation.

It is foreseeable that in the future, domestic medical device companies represented by Mindray Medical will increasingly participate in global competition. As domestic medical device companies improve their technology and expand in scale, they will play a more important role in the global medical device market and gain more market share.

Innovation drives development: Mindray Medical builds a high-end Chinese manufacturing Brand

According to data released by the National Medical Products Administration, by the end of November 2018, there were 17,000 medical device manufacturing enterprises in China, of which 9,189 could produce Class II products and 1,997 could produce Class III products. There were a total of 511,000 Class II and Class III medical device businesses nationwide. Overall, China's medical device companies are still characterized by small scale and scattered distribution, but a number of high-quality enterprises with a certain scale and innovation capacity have emerged during the development process and have entered the capital market.

Statistics show that 67 medical device companies have already been listed on the A-share and H-share markets. These high-quality listed companies are a collection of leading companies and are also a barometer of industry development. This group, to a certain extent, represents the current state of industry development, prosperity, and market structure.

Among them, Mindray Medical, as China's largest and a globally leading supplier of medical devices and solutions, and the only medical device listed company with a market capitalization exceeding 100 billion yuan, has seized market opportunities in the new round of medical device industry upgrading, achieving high-quality growth through innovation-driven development and building a high-end Chinese manufacturing Brand with "craftsmanship" spirit.

Mindray Medical was one of the earliest domestic medical device companies to enter the international market. Unlike many export companies, however, Mindray Medical did not take the OEM route but instead focused on independent research and development and the creation of its own Brand, selling under its own Brand and forming a competitive advantage centered on R&D. This has given them a leading position in the domestic industry.

The medical device industry is characterized by a large number of varieties and small batches, numerous categories, and complex technologies. Therefore, the development of medical devices is largely affected by the level of basic industrial development in each country. The United States, Europe, and Japan, with their advanced industrial bases and years of technological accumulation, have long held a leading position in the world.

China's medical device industry started relatively late, and there is still a certain gap with international medical device giants, especially for large-scale and high-end medical equipment. Domestic medical institutions still tend to use imported equipment, and the high cost of imported medical devices is one of the reasons for the high medical expenses.

For a long time, domestic medical device manufacturers have mainly focused on mid-to-low-end, Price-advantageous conventional products, including small and medium-sized devices and consumables. Only some products have the strength to compete with imported medical devices, such as patient monitors, anesthesia machines, blood cell analyzers, ultrasound machines, and biochemical analyzers.

Therefore, mastering core technologies and improving R&D capabilities is the fundamental solution to the constraints imposed by imported brands and is the only way for the overall level of domestic medical equipment to take to the international stage.

From its inception, Mindray Medical has clearly defined a development strategy of independent research and development and innovation, which it has consistently adhered to. Currently, Mindray Medical has established a research and development and innovation platform based on global resource allocation, with eight R&D centers located in Shenzhen, Nanjing, Beijing, Xi'an, Chengdu, Silicon Valley (USA), New Jersey (USA), and Seattle (USA). It has over 2,200 R&D engineers worldwide driving medical technology innovation.

The announcement shows that in the first three quarters of 2019, Mindray Medical's R&D expenses amounted to 1.084 billion yuan, a year-on-year increase of 11.9%. The company continues to increase R&D investment and accelerate product line iteration and upgrades.

In the first half of 2019, Mindray Medical launched several major new products and upgraded versions, including the high-end DC-80X-Insight version desktop color ultrasound system, the BS-2000M fully automated biochemical analyzer, and the CL-6000iM2 fully automated chemiluminescence immunoassay analyzer. In the second half of the year, Mindray Medical continued its efforts, pioneering China's fully independent testing module "流水线M6000." Through modular combinations, it innovatively integrated four independent testing systems: biochemistry, immunology, hematology, and coagulation, achieving fully automated and standardized testing processes.

Securities analyst He Wei believes that although China's medical device industry is still at a medium-to-low level overall, import substitution has begun or been completed in some high-end medical device fields.

Reporters learned that leading domestic medical device companies such as Mindray Medical, through continuous independent innovation and increased R&D investment in the high-end medical device field, have gained the strength to compete with international giants. Mindray Medical already possesses the most comprehensive product line in the domestic industry, with business segments covering life information and support, in-vitro diagnostics, and medical imaging. It is also actively cultivating a minimally invasive surgical product line. Its market share in monitoring, defibrillation, anesthesia, and blood cell analysis products ranks among the top globally.

A research report from Citic Construction Investment points out that Mindray Medical is expected to maintain rapid growth against the backdrop of import substitution in the high-end market and breakthroughs in foreign customer groups; in the medium term, Mindray Medical's powerful and efficient R&D platform is expected to launch more high-end new products, further enhancing its global competitiveness; in the long term, Mindray Medical has accumulated considerable experience in domestic and foreign mergers and acquisitions, and its product categories and global market space will be further expanded.

As Mindray Medical Chairman Li Xiting stated in his letter to shareholders, if Mindray's development in the last decade relied on "cost-effectiveness dividends," and this decade relies on industry-leading "engineer dividends" and "Brand dividends," then the "innovation growth dividends" will surely lead Mindray's future "golden decade" of rapid development.

In the future, Mindray Medical will continue to ensure R&D investment, continuously enhance its global R&D capabilities, and continuously explore cutting-edge technologies. It will strive to achieve a new stage of global technological leadership, transitioning from partial leadership in medical imaging to leadership across all product lines. This will help the domestic medical device industry seize the global R&D high ground, create a high-end medical device Brand that is uniquely Chinese, and let the world see the strength of China!