Under the agency model | Why is China's 85% of medical device companies doing little?

Medical Network June 27th The medical device company in China has such a curse of survival, that is, more than 85% of companies do not do much.

This problem has plagued practitioners for 20 years. Nowadays, along with the rapid development of high technologies such as artificial intelligence, big data, and 3D printing, can China's medical device industry overturn and turn upside down? Its investment and Entrepreneurship What is the opportunity?

China's medical devices cannot be separated from the word agency. Of course, this model still plagues the current medical device industry. For example, Shenzhen Mindray and Sichuan Mike, currently selling hundreds or even hundreds of millions of companies, are basically agents. .

Take Mindray's growth model as an example.

In the early days of Minray, we are more familiar with the "agent sales + independent research and development + internationalization + domestic and international mergers and acquisitions" routine.

However, it is worth mentioning that, unlike the private entrepreneurs and township entrepreneurs of other medical device companies, most of the seven founding members of Mindray graduated from prestigious universities such as Tsinghua University, Peking University and China University of Science and Technology.

This has caused Mindray to achieve successful transformation among many medical device companies that started as agents, and even to buy partners in the opposite direction.

For example, Mindray's three major production lines, monitoring, ultrasound and inspection, and the cooperation models adopted are all cooperated with large multinational corporations. Subsequently, with the enhancement of the company's strength, Shenzhen Mindray began the road to M&A. The monitoring was later acquired by the US Datascope. , Ultrasound is Japan's Toshiba, the test is the United States of Kurt and Beckman.

Of course, Mindray is also different from other companies in acting as agents. For example, others are acting as agents to make money. At Mindray, they are also acting as agents and are familiarized with related products and technologies through agents. Under the premise of attaching great importance to quality, Mindray Medical has come out. Its own development path.

At Mindray Medical, partner Cheng Minghe's return attaches great importance to the needs of international clients, and he never fails to study and discuss the opinions of each client, and then asks R&D to provide support. The most typical is that Mindray’s monitors are entering Europe. At the time, small European countries all had their own languages, especially Eastern Europe and Northern Europe, and languages ​​were complex. Mindray's monitors had more than 20 multilingual versions. He took hold of ODM's major customers and won not only big orders but also more. It is important to learn from the strongest pair of hands and to get the Scriptures.

In the end, Mindray Medical made American partners and customers convinced by cooperation and integration.

Maybe Mindray is just a different type of success in the agency model. In the absence of technology and products, the model of acting as a king has caused more Chinese medical device companies to fall. In 2017, there were 15,000 medical device markets in China. Medical device survival companies and 40,000 medical device dealers operate in 44 categories and hundreds of thousands of specifications.

For example, in Jinxian County, Jiangxi Province, the No. 1 township of medical devices in China, the company currently has more than 150 medical device manufacturers and more than 3,000 operating companies. Hongda Group has annual sales revenue of over 100 million yuan. Yikang Group The medical device market in Lidu Town, Jinxian County has 300 production enterprises from all over the country. It mainly produces and operates disposable infusion sets, syringes, needles, etc. Currently, over 60,000 people have formed in Jinxian County. The national sales force has annual sales of 100 billion yuan.

For another example, in the township of disposable medical consumables in China, there are currently 96 manufacturing companies, 52 operating companies, nearly 200 products, 6,200 employees, and nearly 5,000 marketing personnel. A company has a taxable sales of over 100 million yuan, most of which are between tens of millions of dollars or even millions. The main products are concentrated on extremely low-end disposable medical consumables, including anesthesia packs, puncture packs, and analgesia pumps. And other disposable supplies.

Compared with the world's top 5000 competition, this model is destined to not go further.

At present, the global high-end home medical device market is basically dominated by the products of US, German, and Japanese companies, and well-known multinational companies have invested in establishing production bases in China, seizing market share, and squeezing the survival space of medical agents.

According to statistics, Johnson and Johnson still occupy China's commanding heights today. China imports more than US$20 billion in high-end medical devices, mainly from high-tech equipment produced by giants such as Johnson & Johnson, Philips, Siemens, and General Electric.

Moreover, these companies still have huge investment in R&D. In 2016, the total R&D input of US medical device revenue TOP10 companies was 10.4 billion U.S. dollars, accounting for 8.14% of the total revenue. During the same period, the total R&D investment of Chinese medical device revenue TOP10 companies was the same. It was 1.806 billion yuan, accounting for 5.35% of the total revenue.

Therefore, in the context of the two-voting system in the Chinese medical industry and the latest medical background, 40,000 medical device dealers have started a new round of reshuffle - at present, 'the industry's increasingly strict medical device market environment, the future In three, five years, there will be tens of thousands of medical device dealers and thousands of medical device manufacturers eliminated. 'An industry source told GPLP Jun.

The upper reaches are under pressure from technological squeeze. Downstream, under the impact of the Internet, the medical device industry is also facing changes.

For example, with the further changes in the Internet, China’s traditional medical device consumables have been severely hit by the Internet. Under this background, the medical device industry has emerged batch after batch of Internet+ platforms, squeezing medical device manufacturers and agents. Business's living space.

In addition, judging from the long-term goal of the national policy, the number of circulation enterprises will be greatly reduced, the industry concentration will continue to increase, and capital advantages will be provided. Upstream suppliers will accumulate resources, and enterprises with accumulated channel resources will be able to obtain a share. Currently, they are like Sinopharm. , Pharmacy, China Resources medicine , Large circulation companies such as Kyushutong (markets 17.25 +1.65%, medical stocks) are staking their enviornment, the industry structure is becoming clearer, and the barriers to entry are getting higher and higher, so for operators, proxy + The self-produced model is more likely, and the risk during the transition is relatively small.

Of course, we do not rule out that powerful agents will act against giants such as Mindray, or become targets for major manufacturers to chase. For the agents, their future evolution will be:

Want to grow bigger and stronger in a category of manufacturers through the acquisition of powerful agents quickly become bigger and stronger. Such as Beijing Jia Shi Tang (Quote 19.74 -1.05%, diagnosis of shares) Pharmaceutical Co., Ltd. acquired several strong heart Medical supplies agents, in the heart of high-end supplies to achieve the layout of the national sales network.

Some manufacturers bind powerful agents through shares, allowing agents to obtain not only agency profits, but also share dividends.

Third, become a subsidiary of the manufacturer.

Some manufacturers set up subsidiaries locally through first-tier agents, and signed performance-based gambling contracts with first-level agents. Such as Mike Bio (marketing 25.00 +0.36%, diagnosis stocks) and first class agents in Hubei and Jilin, Bao Laite (market 15.89 +0.76%, diagnosis stocks) and Shenzhen, Zhuhai, Guizhou agents.

In this way, the two-vote system was solved.

For example, an in-vitro diagnostic company intends to jointly invest in a local subsidiary with an agent. The registered capital of the subsidiary is 11 million yuan, of which the manufacturer contributes 5.71 million yuan, which accounts for 51% of the registered capital of the subsidiary. 5.39 million yuan, accounting for 49% of the registered capital of the subsidiary company. After the establishment of the subsidiary company, the two parties agreed to implement equity transfer and delivery. The first-class agency promised to achieve a net profit of 12.22 million yuan in 2016 and a net profit of 14.06 million yuan in 2017. In 2018, the net profit will be 16.16 million yuan. The manufacturer will jointly acquire a 14% stake in the subsidiary held by an agent within three years, with a total price of about 42.7 million yuan.

Shuffle and rapid development co-exist, China’s medical instruments The industry staged the world's only industry characteristics.

On the one hand, driven by factors such as the richer economy, rapid population aging and increased government spending, the value of China's medical device market has reached 462 billion yuan (about 74 billion US dollars), and is growing at a rate of 20% per year.

According to Wind data, 23 of the 25 listed medical device companies achieved operating income growth, including Rongtai Health (72.80 +1.20%, medical stock), Kelly (quote 9.83 +3.26%, diagnostic stock) and nine Ann Medical (market 7.37 +1.10%, diagnostic stocks) increased by more than 40%; 19 net profit achieved year-on-year growth, including Xingpu Medical (11.95 +6.79%, diagnosis) and Sannuo (quote 21.50 + 5.91%, the stock market) rose more than 1 times.

Figure 2: China's medical device market scale (100 million yuan)

From 2015 to 2017, except for Xinhua Medical (quotation 13.85 +0.58%, diagnostic stock) and Aojiahua (quote 21.04 +2.33%, diagnostic stock), the income of the four listed companies maintained a CAGR of more than 20%. Growth. Among them, Aojiahua's net profit has the highest CAGR, reaching about 40%.

Figure 3: Xinhua Medical's operating income, net profit and net profit margin (100 million yuan)

McLinsey partner Florian Sean believes that (China) medical devices are still 'multiple multinational companies with double-digit growth in the market...but Chinese local companies are growing faster.' As China seeks to increase the use of local products, If you want to be among them, you should seriously consider the localization strategy.

For example, from the perspective of the product structure of China's medical device market in the past three years, imaging diagnostic equipment has occupied the largest market share, and it has remained at around 40% in recent years, and is on the rise. Followed by all kinds of consumables, it occupies 20%. About market share; The market share of orthopaedic and implantable medical devices continues to decline; The remaining market share is occupied by dental and other types of devices.

On the other hand, during the transformation of the agency model in China's medical device industry, a large number of small and medium-sized medical device companies and tens of thousands of agents have exited from the perspective of the entire Chinese medical device market. Although China has more than 2,000 enterprises that have obtained export certification, However, most enterprises have relatively weak competitiveness in terms of scale and brand, and lack of core technologies. Exports can only be OEM-based, lacking their own brands, and are generally at a disadvantage in the international market competition.

In terms of income, according to public statistics, about 90% of domestic medical device manufacturers are small and medium-sized enterprises with an annual income of about one million to twenty million. Their technical content is relatively low, and only a few dozen of them have annual revenues of over 100 million yuan. Compared to the average market size of the pharmaceutical market, which has an average of over RMB 100 million, the average enterprise market size of 18 million medical devices is just like playing.

Therefore, in the big changes in the medical device industry in China, there are certain segments of medical devices in China that are experiencing rapid development and entrepreneurial opportunities and investment opportunities. For example, in some segments, such as orthopaedic implanted medical devices , heart medical devices, clean operating room industry and freeze-drying system manufacturing are worthy of attention.

In addition, according to the 'Made in China 2025' plan, Beijing hopes that the share of domestic high-end medical devices in county hospitals in China will increase to 50% and 70% in 2020 and 2025, respectively, and seek to create a capability to conquer in this process. Export market's international famous brand.

This kind of change is happening. For example, of the medical device founders who grew rapidly in the last five years, most of them are born in well-known medical device manufacturers both at home and abroad. Typical is Shanghai Lianying. The founder is from a multinational company such as Siemens Medical. Guan, the founder of Suzhou Feinuo comes from GE.

From the entire industrial chain of medical devices in China, opportunities exist in many areas:

The upper reaches of the medical device industry chain mainly include industries such as electronics, biology, and advanced materials. The electronics industry provides medical device manufacturers with various detection devices and electronic instruments, etc. The bio-industry mainly provides biological information detection technologies and biological information conversion technologies; The materials industry mainly provides shell materials and certain special materials for device manufacturers. The downstream industries are mainly medical institutions at home and abroad. It is easy to understand that the downstream industries directly determine the market capacity and consumer demand of the medical device industry.

With the increasing precision of medical device products, good biocompatibility and 'longevity' development, the application of materials science and new materials has become increasingly important in the medical device industry, including raw materials for the aerospace industry. , Bionic new materials and other new materials have already become the basic raw materials for manufacturing new medical device products. New materials not only affect the cost of medical device products in terms of price, but also bring more opportunities for medical device products in terms of performance. .

On the other hand, the downstream market situation directly affects the medical device industry. In recent years, the downstream medical health market has been well developed due to the aging of the population and the increase in the number of patients. Also benefiting from this, medical devices have also been stabilized. Development. Especially in the domestic market, it has experienced explosive growth in recent years.

In the favorable environment of medical equipment and the dividends brought by the special attributes of its industrial chain, it can be said that the future of the domestic medical equipment industry is bright.

Due to the current low concentration of medical equipment industry in China, the low-end medical equipment products are too concentrated, which also promotes the integration of future medical equipment mergers and acquisitions.

At present, domestic medical device companies are limited by their technical level, which causes the main battlefield of domestic medical device manufacturers to focus on the low-end market. The result of the 'market shopping' will only cause losses to both sides, which also makes these companies less expensive. The profits are continuously compressed.

Figure 4: Domestic drug And equipment market conditions

With the tightening of supervision and the standardization of the industry, the integration of the industry is an inevitable trend.

Medical devices are different from most industries, and their subdivided areas are numerous and complex, which also makes a wide range of products. This also means that the market segments of medical devices can easily touch the ceiling, and the size of most of the subdivided industries is also about billions. Because of this limitation, many leading companies in the subdivided areas have also sought breakthroughs and turned to high-end device products. For example, Xinhua Medical, which has been in the surgical instrument industry for more than 80 years, has also begun to switch to high-precision surgery in recent years. Device development.

Due to the long development cycle of global high-end medical device products, this has led to international medical equipment giants to grow through mergers and acquisitions. At present, the largest market, Medtronic is also through a large number of mergers and acquisitions, gradually making large-scale eventually surpass the strong generation of medical Instrument Industry NO.1.

In fact, leading domestic medical device companies have also begun mergers and acquisitions in the medical device industry chain, such as Lepu Medical (market 35.70 -0.97%, diagnosis stocks), Diving (market 20.29 -3.38%, diagnosis stocks) and Mindray Medical.

Table 1: The main acquisition criteria for Lepu Medical

Table 2: The status of major acquisitions by diving medical

Table 3: Mindray's main acquisition targets

In the medical device industry, the business model of Apple’s 'product + service' has also been verified, and medical device companies with 'product + service' transition have enjoyed growth.

This model, in simple terms, means that the enterprise analyzes the data returned by smart wearable devices worn by users through the cloud to provide users with health management services.

Manufacturers of smart wearable medical devices are typical. From the initial manufacturer, these companies have not developed into a provider of integrated smart wearable solutions for hardware, software and cloud services.

Take Dean's diagnosis (markets 18.55 +2.88%, stocks for diagnosis) as an example. The company started with biochemical reagents, wholesale medical equipment, and retail sales. It sells Roche’s products, the world's largest manufacturer of diagnostic products. In recent years, it has relied on national chain Medical laboratory platform, business related to diagnostic services, product sales, technology research and development, cold chain logistics, forensic certification, health management, CRO and other fields, to create a 'service + product' integration of business models.

From the financial data for the past three years, it can be seen that the company's revenue increased from 1.858 billion yuan in 2015 to 5.004 billion yuan in 2017, with an average annual compound growth rate of 64.11%. This can also be seen from the side of 'service + product'. The feasibility of the model.

Figure 5: Dean Diagnoses Operating Income, Net Profit and Gross Profit (RMB RMB)

In addition, Solexa is a typical example of a single point of product innovation that drives domestic medical device companies to occupy market segments. Solexa was founded in 1998 and specializes in the field of gene sequencing. Its second generation sequencing technology is the originator. Solexa was Illumina in 2007. Acquired for $600 million, it became its gene sequencing subsidiary. At present, the sequencer developed by Solexa still maintains the highest global share.

Of course, medical device manufacturing companies have gone from the initial equipment manufacturing of a certain disease to the treatment of this series of equipment, and finally perfected the product line of this series to become the provider of the overall solution for the treatment of the disease. .

Perhaps no matter what kind of model, medical devices are waiting for brave people to go for gold as a big industry.

Figure 6: Ogilvy's operating income, net profit and net profit rate (billion yuan)

Figure VII: Operating income, net profit and net profit rate of Yuyue Medical (billion yuan)

Figure 8: Operating income, net profit and net profit rate of Shangrong Medical (Quote: 6.07 +1.51%)

Figure 9: Rongtai Health's operating income, net profit and net profit rate