The hottest medical devices ushered in a high-low

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Medical devices usher in a battle of high and low levels, and foreign capital accelerates its penetration into the grass-roots market

China's medical device industry is growing strongly, multinational enterprises accelerate their penetration into rural areas by taking advantage of technological advantages, while domestic enterprises gathered in the middle and low-end markets strive to make breakthroughs in high-profit areas. The balance pattern that multinational enterprises monopolize the high-end and domestic small and medium-sized enterprises occupy the low-end is expected to be overturned

in the first five months of the year, four medical device enterprises, dongfulong, Shangrong medical, Qianshan pharmaceutical machinery and Nippon instruments, landed on the gem or SME board respectively, and the issuance P/E ratio was more than 45 times, and the issuance P/E ratio of dongfulong was as high as 96 times. Behind the successful IPO of these companies, there are many venture capital institutions that provide strategic or financial support, including Fosun Pharmaceutical, Shenzhen Venture Capital and other well-known domestic venture capital enterprises (Table 1). In the booming medical and health industry, the charm of the medical device sub industry is gradually emerging

Table 1: in addition to the new financing events of medical devices

IPO, the investment and financing events in this field are also accelerating. The latest data released by CIC group shows that from January 2010 to April 2011, the number of private investment cases and financing amount in the field of medical devices accounted for 23% and 18% respectively in the whole medical and health industry, both second only to the traditional strong pharmaceutical industry. The first RMB pharmaceutical industry fund, CCB international medical industry fund, invested 100million yuan into Jiangyin Lanling bottle stopper, a vaccine packaging enterprise, and invested in the preparation technology of a new rubber variety in Pushi pharmaceutical plastic packaging enterprise under Wuliangye; Grafting and copolymerization technology; Halogenation technology; Special synthetic rubber material technology; Special fluororubber, silicone rubber, fluorosilicone rubber, fluoroether rubber, polysulfide rubber and product preparation technology; Preparation technology of new rubber functional materials and products; Major rubber matrix composite new material technology, etc 800 million yuan

the logic of the growth rate of medical devices or the favor of funds over the drug market is not only that the whole pharmaceutical and biological industry has stepped into the rising channel under the background of China's implementation of medical reform, but also that it stems from the development potential of the sub industry of medical devices. Data show that the global consumption ratio of medicine and medical devices is about 10:7, while developed countries such as Europe, America and Japan have reached 1:1.02. However, under the traditional mode of supporting medicine with drugs in China, the scale of the drug market is far larger than that of the medical device market. The capacity and development depth of the two do not match, and the structure of the pharmaceutical industry will change in the future. The proportion of drug expenditure is unsustainable, while the proportion of medical devices in the pharmaceutical sector is expected to rise

the profit data of relevant enterprises in recent years also further proves this point. According to the research of he Pingge, an analyst of Guosen Securities pharmaceutical industry, the compound annual growth rate of income and profit of the medical device industry in was 28% and 41% respectively, much higher than the 19% and 21% growth rate of income and profit of the pharmaceutical industry in the same period. Sun Liang of CICC predicts that the compound growth rate of China's medical device industry will remain at%, which is much higher than the compound growth rate of 16% of annual drug consumption predicted by Luo, an analyst of Shenyin Wanguo pharmaceutical industry. At the same time, Shenwan predicts that the proportion of drug expenses in medical and health expenses will drop from 33% in 2007 to 20% in 2040

in the process of import substitution and upgrading, China's medical device industry is also expected to occupy more market share in the world. At present, the size of the global medical device market is about 350billion US dollars, of which 78% is controlled by developed countries, but the emerging market represented by China is experiencing rapid growth. Statistics from the General Administration of Customs showed that in 2010, China's total import and export of medical devices reached US $22.656 billion, an increase of 23.47% year-on-year. Among them, the export volume was 14.699 billion US dollars, an increase of 20.05% year-on-year; The import volume was US $7.957 billion, a year-on-year increase of 30.35%, and the trade surplus reached US $6.7 billion

before the cake of capacity expansion, the market competition and cooperation situation is more intense. The rural market with policy dividends is coveted by foreign investors, and the high profits of the high-end equipment market are enough to make domestic enterprises trapped in the low-end price war jealous. As the tentacles of both sides extend to each other's sphere of influence, the original balance is brewing a change

foreign capital accelerates its penetration into the grass-roots market

in China's rapidly developing medical device industry, foreign capital and joint ventures have become the main force. Among the top 10 enterprises in terms of export volume, there are 7 stable and reliable foreign capital and joint ventures. In the domestic large-scale medical diagnosis and treatment equipment market, foreign-funded enterprises led by general electric, Philips and Siemens occupy an absolute monopoly position. According to the special survey conducted by China Market Research Center in 2007, about 80% of the domestic CT market, 90% of ultrasonic instruments, 85% of inspection instruments, 90% of magnetic resonance equipment, 90% of ECG machines, 80% of medium and high-end monitors, 90% of high-end physiological recorders and 60% of sleep graph markets are occupied by multinational brands

as the new medical reform tilts towards primary health care, the coverage of rural cooperative medical care is expanded and the reimbursement ratio is increased, multinational medical device enterprises turn their attention to the rural primary market, trying to take advantage of technology and marketing advantages to eat all the high, middle and low-end fields, and it is a common practice for foreign-funded enterprises to enter the Chinese market through shortcuts such as acquisition and cooperation

as early as 2008, Medtronic, famous for its cardiac pacemakers, coronary stents and other products, invested HK $1.726 billion in Shandong Weigao group, and became the second largest shareholder of the latter with 15% equity. At the same time, the two sides announced the establishment of a joint venture to exclusively distribute the orthopedic products of Medtronic and Vico orthopedics in China. General Electric, a medical and health giant, has also established joint ventures with several domestic enterprises such as Xinhua medical (600587, Guba), and its policy sensitivity is not inferior to that of local enterprises. In the health creation strategy launched in May 2009, GE announced that it would invest $3billion in the next six years to develop 100 new products that could increase medical coverage, improve quality and reduce costs. In addition, when John Dinin, President of its medical and health department, visited China, he announced that the county-level medical and health institutions in Sichuan were the ones he most wanted to visit

as early as 2005, the world-renowned medical imaging and information technology company care Stream Health (Ruike medical, formerly Kodak's medical imaging business unit, was sold to Canadian equity investment company onex for $2.55 billion), has made strategic adjustments in its product structure, gradually increasing the proportion of products invested in rural and community grass-roots markets, and taking the initiative to reduce prices, For example, the imaging system has been reduced from the previous 2million yuan to 1/2 or even 1/3. Driven by the strategy of going deep into the grass-roots level, the contribution of middle and low-end product sales to the total sales in 2009 has increased to 40%. Siemens in Germany has also launched affordable versions of advantageous products such as CT machines and ultrasound machines for the community and rural medical markets

multinational enterprises have accelerated their penetration into China's grassroots market. On the one hand, the growth of the high-end medical device market is weak, with an annual growth rate of about 10%, while the growth rate of medium and low-end medical devices is 30%. On the other hand, the large gap of grass-roots equipment also gives them sufficient reasons. In China, medical resources are mainly concentrated in urban secondary and tertiary hospitals; 15% of the existing instruments and equipment in national medical institutions are products before the 1970s, and 60% of the equipment is products before the mid-1980s. This phenomenon is more serious in rural areas of the central and western regions and the arithmetic mean of the two diagonals of d-indentation. According to the data of the Department of planning and finance of the Ministry of health, at present, the average equipment allocation gap of more than 2000 county hospitals in China is 30%, and a large number of medical diagnostic equipment need to be purchased or upgraded. Among the 850billion Yuan medical reform cake promised by governments at all levels, it is also clear that basic medical care will be favored

under the guidance of the policy of developing medical devices suitable for China's national conditions, in addition to R & D and product cost performance approaching the needs of the grass-roots market, multinational enterprises also frequently make new moves, channel sinking and donation first to create a public welfare image, and the practice of using the power of financial leasing to drive sales is also widely used by them, so as to enter this increasingly valued market as soon as possible

domestic enterprises: advancing into the high end

different from the strong top-down penetration of multinational enterprises, most domestic enterprises gather in the grass-roots market. The statistics of the State Food and Drug Administration (SFDA) show that at present, there are more than 6000 medical device manufacturing enterprises and 118000 operating enterprises that have established assessment and evaluation mechanisms in China. Before foreign capital disdained to get involved, these small and medium-sized local medical device manufacturers, which accounted for the vast majority, carved up the middle and low-end market by virtue of their cost and channel advantages. However, due to the price war caused by disorderly excessive competition, coupled with the rise in raw materials and labor costs, and export exchange losses, the overall profit space of the industry has been severely squeezed

although the construction of the grass-roots medical and health system has boosted the market demand for medium and low-end devices, foreign-funded enterprises that understand the policy direction have done their homework to divide the new cake. Once the top-down inertial advantage continues, the threat cannot be underestimated. While facing the main battlefield, domestic enterprises are also striving to enter the high-end market. Yuyue medical (002223, Guba) set up a special laboratory in 2010, hoping to embark on the road of specialization from extensive growth, and enhance its technical competitiveness in sub sectors such as oxygen generators; Shenzhen Mindray, which ranks second in the industry's export volume, also said that while deepening its efforts in the grass-roots market, it will focus on the high-end and export-oriented markets

Jiang Feng, President of China medical device association, pointed out that compared with the pharmaceutical industry, the medical device industry is at the intersection of multiple disciplines and has comparative advantages in machinery manufacturing and it technology. Chen Yun, partner of China health care fund, also believes that in the pharmaceutical and biological industry, the gap between this sub industry and the international leading level is the smallest, and the return is fast. In addition, domestic investors have given a positive response to the listing of medical device companies, with active venture capital and high P/E ratio. If the over raised funds are used properly, it is not unthinkable to make a breakthrough in the high-end market from the segmentation field. However, in addition to the technical gap, the gap in soft power such as service, after-sales and marketing mode cannot be filled in one day

in fact, domestic enterprises deeply involved in the price war to break through the high-end, although it is a counterattack against the pressure of strong enemies, it should be regarded as an instinctive choice to pursue high profits. Yuyue medical, which has an advantage in the basic medical market, and Lepu medical, which has successfully broken through the monopoly of foreign enterprises in the drug stent system, although they are in the same medical device market, there is a world of difference in gross profit rate and net profit rate. The former has 20% of its revenue from the basic medical market of government bidding, but the net profit rate hovers below 20%, while Lepu medical, which has an advantage in subdivisions, Then we can obtain relatively strong pricing power through higher market share, with gross profit rate of more than 80% and net profit rate of more than 50% (Table 2)

Table 2: comparison of profitability between Yuyue medical and Lepu medical

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