Current Status: Opportunities and Challenges Facing China's Medical Device Industry

When people fall ill, doctors often use certain assistive tools to diagnose, treat, monitor, alleviate, and prevent related symptoms. These assistive tools are generally referred to as medical devices.

Medical devices refer to instruments, equipment, appliances, in-vitro diagnostic reagents and calibrators, materials, and other similar or related articles used directly or indirectly on humans, including the necessary computer software. The efficacy of medical devices is not obtained through pharmacological, immunological, or metabolic means, but primarily through physical means.

Medical devices are diverse in product types, with significant differences among products. After decades of development, China's medical device industry has formed several sub-sectors, including high-value consumables, medical imaging, in-vitro diagnostics, and low-value consumables. These include simpler products such as hemostatic sponges and disposable materials, as well as complex, large-scale equipment such as medical magnetic resonance imaging devices(MRI)This type of complex, large-scale equipment. Currently, the largest market segments5are mainly in in-vitro diagnostics (IVD), cardiovascular, medical imaging, spine orthopedics, and ophthalmology, accounting for approximately50%。

I. Medical Device Industry Chain

Currently, according to different supply chain segments, the medical device industry chain is divided into three major segments: upstream basic industry, midstream medical device industry, and downstream medical industry.

The upstream basic industry includes core segments such as medical raw materials, equipment supply, third-party services, processors, and component supply, mainly providing related products and services to the midstream.

The midstream medical device industry covers four major areas: high-value consumables, medical imaging, in-vitro diagnostics, and low-value consumables. For example, high-value consumables mainly involve cardiology intervention, orthopedics implants, dentistry, and ophthalmology; medical imaging involvesCT、nuclear magnetic resonance (MRI), color ultrasound,PACS、Xray machines, angiography, and nuclear medicine (CR) etc.; in-vitro diagnostics covers biochemistry, immunology, molecular, hematology, microbiology, andPOCTdiagnostics; low-value consumables mainly involve the use of disposable materials such as gauze, cotton swabs, gloves, and syringes. The medical device industry is in the middle of the industry chain, connecting upstream material procurement and downstream product supply. In addition, medical devices in China are currently classified as medical medical devices and home medical devices, with medical medical devices occupying an absolute dominant position in the entire medical device market.

The downstream is the medical industry. The medical industry mainly procures related products and equipment from the midstream according to the nature of medical applications.

II. Current Status of the Medical Device Market

Medical devices are closely related to human life and health. Countries around the world, especially developed countries and emerging economies, attach great importance to the development of the medical device industry and provide relevant policy support and encouragement.

1.The global medical device market is experiencing steady growth, and the Chinese medical device market has enormous potential.

The global medical device market is mainly distributed in developed countries such as Europe and the United States. Due to the early start of the medical device industry in developed countries and regions such as Europe and the United States, relatively high levels of income and living standards, and high demands for the quality and service of medical device products, the market size is large and demand growth is stable. From2014-2018year, the global medical device industry market size increased from3790US dollars to4250US dollars, with a compound annual growth rate of3%。

China's medical device industry started relatively late, but with the rapid economic development of China, the increasing aging population, and the continuously improving health awareness of the people, China's medical device industry has developed rapidly and has become one of the basic and leading industries of China's national economy. The market size of China's medical device industry increased from2014in2556billion yuan to2018in5302billion yuan, with a compound annual growth rate of approximately20%. At present, due to China's large population and significant room for improvement in the healthcare system, the potential market is still very broad.

2018In the year, the global and Chinese medical device market sizes reached4250billion US dollars and5302billion yuan, respectively. In comparison, the growth of the Chinese medical device market is strong, with a compound growth rate far exceeding the global growth rate.

2.The medical device market is concentrated in in-vitro diagnostics (IVD), cardiovascular, and diagnostic imaging.

Medical devices are numerous, with in-vitro diagnostics, cardiovascular, and diagnostic imaging having high market shares in both the global and Chinese markets. Specifically,2017in the year, the top5major medical device categories accounted for51%reaching2066billion US dollars, with in-vitro diagnostics (IVD), cardiovascular, and diagnostic imaging ranking among the top three,2017In the year, global market sizes were527billion US dollars,486billion US dollars and405billion US dollars.2017In the year, the top5major medical device categories in the Chinese market reached a market size of2434billion yuan, accounting for a total of55%with diagnostic imaging, in-vitro diagnostics (IVD), and low-value consumables ranking among the top three, with market sizes of708billion yuan,620billion yuan,57billion yuan, cardiovascular ranking fourth, with a market size of266billion yuan, and a market share of6%。

3.Mergers and acquisitions are key to breaking through the ceiling and gaining high-end market share.

The main method for medical device companies to cope with the decline in market share caused by technological changes is to maintain a relatively leading technology through mergers and acquisitions. In the last century90With the maturity of foreign chemiluminescence technology, the competitive landscape of the in-vitro diagnostic (IVD) industry began to rapidly reshape. Competitors such as Abbott were among the first to1993year to launchAxsymseries of products, followed by1998year launch of its high-end productsArchitecti2000，using advanced third-generation luminescence technology acridinium ester direct chemiluminescence. Roche's diagnostics business was severely impacted, with revenue declining. The subsequent spin-off of its laboratory business led to recovery, and through the acquisition of Boehringer Mannheim, achieved multiple times growth and maintained continuous growth in the subsequent10years.

In addition, cross-border mergers and acquisitions are the primary way for industry giants to break through their industry ceilings. In the past20years, the four major medical device giants have all conducted cross-border mergers and acquisitions to varying degrees, with Siemens' expansion in the in-vitro diagnostics (IVD) field being the most typical. Siemens' medical imaging business began in1877year, and in1896year launched its firstXX-ray inspection equipment, and has since maintained a leading position in the medical imaging field. However, after2002year, constrained by industry ceilings and intensified competition from General Electric and Philips, Siemens' market share declined, and revenue showed negative growth. Subsequently, Siemens began to strengthen cross-border mergers and acquisitions, acquiring2005to2006yearDiagnostic Products Corporation、BayerDiagnosticsandDade Behringto strengthen its business in the in-vitro diagnostics (IVD) field. Thanks to the successful completion of the mergers and acquisitions, Siemens Healthineers' revenue returned to growth, and has maintained high growth in subsequent years.

Driven by the wave of mergers and acquisitions, industry giants who early entered the medical device market have leveraged their advantages to continuously seize market resources with high profits. At present, developed countries such as Europe and the United States firmly hold significant market share in the high-end market, while most medical device companies in China, due to their late start and insufficient technological accumulation, are still in the mid-to-low-end medical device field.

Therefore, at present, the United States is the largest market and manufacturer of medical devices, accounting for approximately40%market share. The US medical device industry has strong R&D capabilities and world-leading technology levels. Europe is the world's second-largest market and manufacturing region for medical devices, accounting for approximately30%market share. Germany and France are the main manufacturers of medical devices in Europe. France is the second largest medical device manufacturer in Europe after Germany and is also a major exporter of medical devices in Europe. Japan is a significant medical device manufacturer globally; based on its industrial development foundation, Japan's advantages in the medical device industry are mainly reflected in the field of medical imaging. China's medical devices do not have any advantage in the global medical device market and only account for around25%in the domestic high-end medical device market, with the vast majority controlled by foreign manufacturers.

In this light, successful medical device giants have seized the opportunity in the competition for the main track. However, simply replicating the mergers and acquisitions of giants will not work. Like Xinhua Medical, in the past10years, it has acquired Boxun Biology, Yuanyue Machinery, Weishida, and Yingde Biology for3.1、3.5、3.8and3.7billion yuan respectively. Although initially successful, it ultimately failed to improve efficiency and, burdened by huge goodwill, faced excessive impairment risks, ultimately resulting in increased revenue but not increased profits. The pain of mergers and acquisitions it experienced is worth reflecting on for some companies that blindly pursue mergers and acquisitions without conducting in-depth analysis of specific scenarios and their own problems.

III. Mindray Medical——The domestic leading position brought by the main track mergers and acquisitions

Truly successful medical device companies through mergers and acquisitions, such as Medtronic, Johnson & Johnson, and Siemens, focus on their main sub-fields. This is the key. In China, Mindray Medical, a medical device company that developed early and successfully, is also like this.

Mindray Medical's main merger and acquisition projects are all centered around improving its intrinsic capabilities. Particularly in recent mergers and acquisitions, Mindray Medical's mergers and acquisitions to enter the main track and focus on improving production capacity, such asDatascopeGreenland,ZONAREMedical, etc.

Following a series of mergers and acquisitions, Mindray Medical's production capacity for its main products, including patient monitors, in-vitro diagnostic (IVD) reagents and analyzers, and ultrasound equipment, is at the industry-leading level, representing the highest level of the medical device industry in China. In addition, in terms of R&D capabilities,2017year, Mindray had1600R&D personnel, with R&D investment close to11billion, accounting for12%of main operating revenue, including191authorized invention patents in key areas. Its R&D capabilities are also at the absolute leading level in the industry.

With the gradual increase in the aging population, support from relevant medical policies, increased investment in R&D spending, growth in medical and health spending, adjustments in medical consumption structure, and the improvement of the medical insurance system are accelerating the development of China's medical device market. This is the greatest opportunity for domestic medical device companies in the future, and even more so for Mindray Medical, the leader.