Analysis of the Development Path of Medical Device Listing Companies in China

I. Current Status of Listed Medical Device Enterprises

120Screening criteria for listed companies: (1) The proportion of enterprise medical device sector revenue is greater than50%; (2) Enterprise"Medical devices+Drugs"revenue accounts for2018the proportion of annual revenue≥70%; (3) Enterprises disclosed2018years of specific data on R&D investment expenditure. Inclusion criteria: Comply with(1)(3)or(2)(3)enterprises. A total of101listed medical device companies were included in the results, and a development status analysis was conducted.

1.Listed medical device companies are relatively small in scale and lack industry leaders

2018year101listed medical device companies had average operating income of9.65100 million yuan, but101companies exceeded the average level, only26companies, accounting for only25.74%。2018Annual revenue exceeding100100 million yuan listed medical device companies only Shenzhen Mindray Bio-Medical Electronics Co., Ltd., most of the operating income are in1-10100 million yuan, accounting for75.25%. This suggests that China's medical device industry is still in a stage of relatively small scale and low industry concentration, with great potential for future development.

Figure1  Distribution of operating income of listed medical device enterprises in 2018

2.Listed medical device companies are in the initial stage of innovation and development

2018year101listed medical device companies' R&D investment expenditure accounted for an average of8.07%of operating income, far exceedingTOP20R&D investment of listed medical device companies accounted for operating income (5.1%). Among101listed medical device companies, the proportion of R&D investment >5.1%is61companies.2018The top five companies in terms of R&D investment ratio in the year had operating income lower than the average, but the R&D investment ratio was above20%above, the highest44.13%. This shows that China's listed medical device companies are all in the initial stage of innovation-driven development, and the continuously accumulated R&D capital will inevitably lead to the positive development of the medical device industry in the future.

Taking Shanghai Bio-Aote Technology Co., Ltd., which ranks first in terms of R&D investment ratio, as an example, it is a high-tech company dedicated to the development and industrialization of biochip technology, and is a pioneer in individualized drug gene diagnosis in China. Since its establishment, the company has focused on the R&D of personalized drug gene diagnostic products, and in recent years has continued to increase R&D investment, pursuing advanced technology and continuing to enhance its core competitiveness.2018The proportion of R&D investment to operating income in2017year was17.55%increased by1.51times. In the future, driven by gene technology,5Gtechnology and precision medicine, the company will develop at a faster pace and become a leader in in-vitro diagnostics.

Figure2  Distribution of R&D investment ratio of listed medical device enterprises in 2018

Table1  Top five listed medical device companies in terms of R&D investment ratio in 2018

Combined2018the average operating income of listed medical device companies in9.65) and the R&D investment ratio exceedingTOP20the average level (5.1%) for cross-statistical analysis, it was found that only14companies met the conditions, and the operating income and market scale of other companies with R&D investment ratio above the average were not significant.

Table2  Revenue and R&D status of 14 listed medical device companies

II. Analysis of Business Characteristics of Listed Medical Device Enterprises

China's medical device industry has always been dominated by small and medium-sized enterprises. With the acceleration of the review and approval of innovative medical devices,MAHsystem establishment and other series of strong policies, the competition is becoming increasingly fierce, mergers and acquisitions are accelerating, and medical device companies are choosing their own development paths to seek better and faster development. After sorting out the business structure of listed medical device companies, the following three business characteristic models are summarized: (1) Focus on the multi-product chain combination model of medical devices; (2)"Pharmaceutical and medical device integration"integrated development model; (3) Focus on the medical device sub-sector model.

1.Focus on the business model of multi-product chain combination of medical devices

Many companies have adopted a business model of focusing on a multi-product chain of medical devices through multi-field layouts, thus dispersing operational risks and expanding market scale. Representative companies of this model include Mindray Medical International Limited, Cellular & Gene Engineering Co., Ltd., Zhuhai H&J Medical Equipment Co., Ltd., Blue Sail Medical Co., Ltd., and Shenzhen LBP Medical Technology Co., Ltd. This analysis will focus on Mindray Medical, a leading company in this field.

Mindray Medical2018annual137.5hundreds of millions of yuan in operating revenue and1327.8hundreds of millions of yuan in market value, holding an absolute advantage and ranking first in the industry. In terms of business structure, Mindray Medical has always focused on the medical device sector, with operating revenue accounting for2017the year99.62%，2018the year99.69%. In the highly concentrated medical device field, Mindray has formed three product lines: life information and support products, in-vitro diagnostic products, andmedicalimaging products, with operating revenue accounting for37.98%、33.63%and26.15%respectively, totaling97.76%。

Figure3  Mindray Medical's 2018 operating revenue by industry and product structure

The three product lines basically meet the system solutions of medical service institutions and cover different levels from high to low, which helps to penetrate all levels of the market, including the top three hospitals in the country and medical institutions in developed countries such as Europe and the United States.99%above

Table3  Mindray Medical's three major product lines and their main products

2. “Pharmaceutical and medical device integration"Integrated Development Business Model

Drugs and medical devices play a synergistic role in the diagnosis and treatment of medical institutions and patient health care. In recent years, some manufacturers have explored"Pharmaceutical and medical device integration"integrated marketing models, forming a dual-engine development of drugs and medical devices, thereby increasing the higher stickiness of downstream customers."Pharmaceutical and medical device integration"Representative companies of the integrated development business model include Lepu(Beijing)Medical Equipment Co., Ltd. and Anhui Anke Biological Engineering(Group)Co., Ltd. This analysis will focus on Lepu Medical.

2018Lepu Medical's annual operating revenue is63.6hundreds of millions of yuan, and its market value is370.8hundreds of millions of yuan. Lepu Medical's business covers four major business segments: medical devices, pharmaceuticals, medical services, and new medical formats. Among them, the medical device sector accounts for45.74%of operating revenue, and the pharmaceutical sector accounts for49.90%thus integrating the entire industrial chain from devices and drugs to services, forming the company's unique core competitiveness of synergistic development among different segments.

Figure4 Lepu Medical's 2018 operating revenue by industry and product structure

Lepu Medical focuses on the cardiovascular field, with stent systems as its main products, and actively develops areas such as in-vitro diagnostics, surgical instruments, and artificial intelligence instruments. Lepu's pharmaceutical products are mainly divided into four categories: centrally procured cardiovascular preparations, non-centrally procured cardiovascular preparations, non-cardiovascular preparations, and raw materials. Its cardiovascular therapeutic drugs account for65.10%of the pharmaceutical sector, forming a business model that focuses on the cardiovascular field and drives dual development with drugs and instruments.

Table4 Lepu Medical's main products in the medical device sector

3.Business Model Focusing on Specific Medical Device Sub-fields

Focusing on a specific sub-field for specialized development has become a business model choice for some medical device companies. For example, in recent years, China'sIVDindustry has grown rapidly at a rate of15%above per year, and2018in the year, the market capacity of in-vitro diagnostic products in China has reached700hundreds of millions of yuan, becoming the fastest-growing sub-sector in the entire medical device industry. Therefore, companies focusing onIVDthe field are increasing, with representative companies including Guangzhou Wondfo Biotech Co., Ltd., Zhengzhou AnTu Bioengineering Co., Ltd., Sun Yat-sen University Dagan Gene Co., Ltd., and San Nuo Bio-Sensing Co., Ltd. In addition, there are Shanghai Haohai Biological Technology Co., Ltd., which focuses on high-value consumables; and Shenzhen KaiLi Biological Medical Technology Co., Ltd. and Shanghai Donghulong Technology Co., Ltd., which focus on independent research and development of medical diagnostic and therapeutic equipment. This analysis will focus on Wondfo Biotech.

Wondfo Biotech is one of the leading companies in China'sPOCT（Point-of-CareTesting）field. The company focuses on the in-vitro diagnostic field, deploying eight technical platforms: immunocolloidal gold technology, immunofluorescence technology, electrochemical technology, dry biochemistry technology, chemiluminescence technology, molecular diagnostics technology, instrument technology, and biological raw materials. Based on these eight technical platforms, it has formed a rich product line in the testing fields of cardiovascular and cerebrovascular diseases, inflammation, infectious diseases, toxicology (drug abuse), and eugenics, making it the company with the most technical platforms and the richest product line in the industry. In recent years, the company has initially formed a"downstream strengthening of markets and channels, and upstream layout of products and technologies"of"Wondfo ecosystem"。

Figure5 Wondfo Biotech's 2018 main business layout

III. Development Path Analysis of Medical Device Enterprises

For medical device enterprises to grow stronger, the most basic development paths are: firstly, to obtain endogenous power through increased innovation efforts; secondly, to achieve external growth through accelerated mergers and acquisitions.

1.Innovation-driven development

In recent years, China has achieved import substitution for low-end medical devices, and can even export them in large quantities. In the future, driven by relevant policies such as tiered diagnosis and treatment, grassroots expansion, the "two invoices" system, and the reform of business tax into value-added tax, more medical device sub-sectors such asCT、MRTand color ultrasound will achieve import substitution. However, the realization of import substitution depends on product and technological innovation. Analysis of the above three representative listed medical device companies2018shows that the proportion of R&D investment to operating income and the proportion of R&D personnel to the total number of employees are both at the upper-middle level of the industry. Therefore, in the development process of the medical device industry, we must first grasp the direction of new technologies, increase the input of R&D manpower and funds, further enhance independent innovation capabilities, and accelerate the R&D speed of import substitution products. This will create opportunities to secure a place in future industry competition.

Figure6 2018 R&D Personnel and Investment Ratio of Three Representative Listed Medical Device Companies

2.Mergers and Acquisitions Accelerate Layout

The market size and space for a single field or a single product are relatively limited. With the concentration of resources, competition in the medical device industry is intensifying, and the industry concentration is increasing. Through mergers and acquisitions, we can quickly Enter into new business systems, reduce R&D costs, and improve organizational operational efficiency. From both a development and survival perspective, mergers and acquisitions are one of the important future development paths for medical device companies. For example, Mindray Medical, since2008has embarked on a path of mergers and acquisitions, eventually becoming an industry leader.

Table5 Overview of Mindray Medical's Merger and Acquisition Path

2018In 2018, China's medical device industry experienced2mergers and acquisitions exceeding50100 million yuan, namely, Blue Sail Medical's acquisition of Parsenn International (59100 million yuan) and Wego's acquisition of American Alang (56100 million yuan), setting a new high for the scale of mergers and acquisitions in China's medical device industry. In the same year, Lepu Medical acquired Ningbo Bingkun with4.2100 million yuan35%equity, consolidating its position in the health care medical equipment field, and acquired Xindonggang Pharmaceutical with10.5100 million yuan45%equity.

IV. Summary

In recent years, the domestic medical device industry has developed rapidly, accounting for approximately16%of the global medical device market share. Although the overall output ranks first in the world, the enterprises are small and scattered, and products are mostly concentrated in the mid-to-low end. The high-end medical device market is still largely occupied by foreign companies. Regardless of the business model or development path adopted, medical device companies should understand their own capabilities, find their own suitable strategic positioning, and make reasonable layouts, avoiding blindly copying the development models of other successful companies.