2019 Analysis of China's Medical Device Market: Strong Market Demand, Qualified for Import Substitution

      Domestic high-endMedical Devices，already have the qualifications for import substitution

      As ofIn 2017, the size of China's medical device market was approximately 445 billion yuan, with an industry growth rate of 20%, far exceeding the global growth rate. There are many sub-sectors in the medical device industry, includingIn-vitro diagnostics、cardiovascular, imaging, orthopedics, etc. In China, the proportion of domestically produced imaging products is approximately20-30%, and in-vitro diagnostics is about 30-40%. The overall domestic share is low, with considerable room for import substitution.

      In recent years, with the rise of domestic private enterprises, products in some sub-sectors have been able to meet clinical needs. The improvement of policies, capital, patents, and talents has accelerated the process of domestic substitution of imports. In some sub-sectors, such as the blood cell market for in-vitro diagnostics, domestic products have already been able to replace imports.

      ForecastIn 2019, the market size of China's medical device industry will exceed 640 billion

      With the improvement of the living standards and the enhancement of medical and health awareness of Chinese residents, the demand for medical device products continues to grow. According to the statistical data released by the Prospective Industry Research Institute in theChina Medical Device Industry Market Demand Forecast and Investment Strategy Planning Analysis Report》statistical data shows,From 2014 to 2018, the Chinese medical device market maintained a high-speed growth trend. In 2014, the market size of China's medical device industry reached 255.6 billion yuan, and in 2015, it exceeded 300 billion yuan. By 2017, the market size of China's medical device industry had grown to 445 billion yuan. By the end of 2018, the market size of China's medical device industry reached 530 billion yuan. It is predicted that in 2019, the market size of China's medical device industry will reach 645 billion yuan.

Statistics and Forecast of the Market Size of China's Medical Device Industry from 2014 to 2019

Data Source: Prospective Industry Research Institute

      Valuation differences between pharmaceuticals and medical devices; medical devices enjoy high valuations due to three characteristics

     Compared with pharmaceutical companies, the capital market gives medical device companies higher valuations. The valuation of medical devices in mature markets in the United States is relatively high.(PE/G) averages 2-3 (pharmaceuticals are 1-1.5). Over a long period of time, the compound rate of return on investment in medical device companies is higher than that of pharmaceutical companies. We believe that there are the following reasons:

     1. Stability of growth: When the patents of blockbuster drugs expire, a valuation cliff appears. The difficulty of overcoming the patent barriers of medical devices is high, and the product life cycle of medical devices is longer;

     2. Lower risk: In the research and development of innovative drugs, clinical results determine that huge investments may completely fail. Medical devices do not have clear life-or-death nodes;

     3. High input-output ratio: The input-output ratio of R&D investment is higher, and medical devices are a more cost-effective business.

      Strong demand for domestic medical devices in the market

     The concentration of the medical device industry is obvious,The top 10 companies account for 39% of the market, and the top 30 companies account for more than 60%. The top 20 companies are mainly concentrated in the US, Europe, and Japan. Based on history, we analyze the development history of the medical device industry in the US, Europe, and Japan, and we find that the birth of excellent companies is inseparable from the strong demand of the local medical market, mainly due to the following reasons:

     1. High aging rate, prompting government investment in medical and health care;

     2. Strong national economic strength, which enables sufficient resources to be invested in medical and health care;

     3.Medical insurancereimbursement ratio. Whether it is government-led insurance or commercial insurance, covering a large part of disease expenses will promote the rapid development of the local medical device market.

      Grasping core competitiveness and promoting global development

      At the micro level of Chinese medical device enterprises, we have selected international excellent medical device companies in the following text(Medtronic, Siemens Healthineers, Sysmex) for research and analysis. Although these companies currently have a wide range of businesses and many projects, their development paths are all to make their existing products to the extreme, occupy the main position in the local market, and gradually move towards globalization. The core competitiveness of enterprises is still products. Only by carefully refining products can the sustainable development of enterprises be supported.

      It is suggested to pay attention to the targets with core product competitiveness:

     1. Antu Bio (high prosperity of chemiluminescence, 100-speed instruments are being gradually developed + closed biochemical industrial chain, launching production lines);

     2. Jianfan Bio (high-speed growth of blood perfusion devices + multi-center RCT research provides data support);

     3. KaiLi Medical (government centralized procurement continues to advance + new product volume);

     4. Lepu Medical (platform effect + new product iteration);

     5. MicroPort Scientific (new 300-speed luminescence instrument drives high business growth + complete product line and high risk resistance);

     6. Mindray Medical (import substitution + global layout);

     7. Wanfu Bio (continuous expansion of industry scale + new products start to be sold), etc.