Under Siege from Chinese Brands, Medtronic, Johnson & Johnson, and 'GPS' Giants Seek Strategic Reinvention in China's Medical Device Market

In the past two years, due to the repeated outbreaks of the pandemic, the normalization of centralized procurement, and the rise of domestic brands, among other major events,The landscape of China's medical device market is undergoing earth-shaking changes.。

Especially in细分 fields such as medical imaging, surgical robots, orthopedics, minimally invasive surgery, IVD, electrophysiology, and vascular intervention,Chinese Brands Begin Collective Attack on Multinational Giants, capturing market share that once belonged to multinational medical device companies.

For example, in the field of medical imaging, domestic brands such as Neusoft, United Imaging, Kuanteng, and Mingfeng have begun to compete head-on with GE Healthcare, Philips Healthcare, and Siemens Healthineers. In the surgical robotics sector, Chinese companies like MicroPort Robot, Jingfeng Medical, and Sirui Zhe are engaging in price wars with the dominant da Vinci Surgical Robot. In the minimally invasive surgery field, domestic brands such as Kangji, Sinowave, Jianshi, and Houkai are capturing market share in the ultrasonic scalpel and stapler markets once monopolized by Johnson & Johnson, Medtronic, and Olympus…

Facing the encirclement of Chinese brands, what are the multinational device giants such as Johnson & Johnson, Medtronic, Stryker, Intuitive Surgical, Olympus, Siemens Healthineers, GE Healthcare, and Philips doing? How do changes in the Chinese market affect the revenue of these multinational device giants? Are Chinese brands welcoming a new round of development opportunities?

The medical device market in China is undergoing tremendous changes.

First, the centralized procurement with volume control is underway. With one hand holding the allocation rights of the national market share and the other holding product pricing power (bargaining power), the National Healthcare Security Administration is rapidly reshaping the landscape of China's medical device market.。

Faced with the coexistence of risks and opportunities in centralized bulk procurement, some multinational device giants have expressed that they "can't keep up with the competition" and have chosen to exit the Chinese market; others have become more actively involved in market competition, determined to secure a share from the world's second-largest medical device market.

For example, in March 2023, ZimVie, the original business unit of Zimmer Biomet, the world's third-largest orthopedic giant, announced that it plans to completely withdraw its spinal business from the Chinese market due to the impact of the national spinal implant procurement policy.

Previously, the three-year cycle of national procurement for spinal products was implemented. The winning companies will divide up China’s spinal consumables market, while those that did not win bids will almost entirely lose their competitive qualifications over the next three years. Compared to before the procurement, when foreign brands such as Johnson & Johnson, Medtronic, and Stryker held more than 60% of the market share, after the procurement, domestic brands like Wego Orthopaedics and Sanyou Medical will rapidly increase their market share, reshaping the spinal market landscape.

Moreover, unlike ZimVie, Roche and Beckman experienced the pain of not winning bids in the early stage and then decisively chose to participate in the centralized procurement later on. In 2021, neither Roche nor Beckman won bids in Anhui Province's immunoassay reagent centralized procurement. However, by the end of 2022, during the 23-province liver function biochemical reagent centralized procurement led by Jiangxi Provincial Medical Insurance Bureau with a procurement period of 2 years, both Roche and Beckman actively participated and successfully won bids, securing a certain market share.

An industry insider stated: "For the winning companies, although they have gained a certain market share, if the product price drops significantly, it may negatively impact the profit margin. Additionally, if the product sales volume grows limitedly or even the market share decreases, it will noticeably affect the company's revenue and profits."

However, no matter what, domestic brands are surrounding multinational giants by leveraging the opportunity of centralized bulk procurement, while multinational medical device companies have also started to actively participate in the procurement process, striving to regain market share.

Secondly, a large number of Chinese medical device companies have achieved technological breakthroughs. The FDA has approved an increasing number of high-end innovative medical devices for marketing, intensifying competition in the Chinese medical device market.。

For example, in the mid-to-high-end stapler market monopolized by Johnson & Johnson and Medtronic, domestic companies such as IntCare, SonoVibe, Tianchen Medical, Piert Medical, EaseMedical, F&E Medical, Genius Medical, Kangji Medical, and David Medical have all achieved technological breakthroughs. Currently, multiple high-end electric staplers have been approved for marketing, capturing the once-monopolized market.

In the field of medical imaging, the market was originally dominated by "GPS" (GE Healthcare, Philips Healthcare, and Siemens Healthineers). However, today, Neusoft Medical has launched the world's fastest spiral CT with a rotation speed of just 0.235 seconds per cycle; United Imaging Healthcare has released the world’s first full-body 5.0T MRI, the uMR Jupiter; and NanoVoxel has developed the world's first full-body multi-source static CT… As domestic brands break through technological barriers and achieve advancements from low-end to high-end, competition in the medical imaging sector will intensify, shifting the market landscape from a "three-way split" to a battleground of many contenders.

In addition, domestic brands have achieved technological breakthroughs in many细分fields such as endoscopes, ultrasonic knives, CGM, and electrophysiology. Relevant products have been approved for marketing and have begun to compete directly with multinational device giants in the market.

Finally, as the number of industry participants increases and market competition intensifies, price wars have erupted in multiple niche markets.The most representative field is surgical robotics. Previously, the da Vinci Surgical Robot dominated the Chinese market, with an average price of 23 million yuan. Now, multiple domestically produced surgical robots have been approved and are capturing market share through competitive pricing. Among them, the中标价 (中标价 refers to the winning bid price in tender processes) for MicroPort Robot and Jinfeng Medical's laparoscopic surgical robots ranges from 14 to 17 million yuan, while the中标价for SIRUIZHE's laparoscopic surgical robot SR1000 is 5.38 million yuan, approximately one-fourth the average price of the da Vinci Surgical Robot.

Overall, as China's medical device industry launches the "three major battles" of centralized procurement, technology, and pricing, the market share originally held by multinational giants is being rapidly eroded by domestic brands. At the same time, multinational medical companies are also contemplating countermeasures.。

As the world's second-largest market, changes in China's medical device industry are increasingly concerning multinational giants. Nowadays, Medtronic, Johnson & Johnson, and GE Healthcare are mentioning China more frequently in their financial reports.

May 25,MedtronicThe financial report for the 2023 fiscal year (April 30, 2022 - April 28, 2023) and the fourth quarter showed that: In the Surgical Innovations business segment, Medtronic achieved 4% organic growth. However,Excluding the impact of China's provincial stapler volume procurement, its growth reaches 8%.。

At the same time, Medtronic expects that by the end of the 2023 fiscal year, more than half of its business in the Chinese market will be affected by volume-based procurement, and by the end of the 2024 fiscal year, this proportion will increase to 80%.

Johnson & JohnsonThe 2022 annual report shows that in its medical device sector, surgical operations are the largest business, and orthopedics are the second largest business. AndThese two major businesses have both encountered centralized procurement in China.From the data, Johnson & Johnson's growth in the U.S. market was 5.4%, while it declined by 2.3% in other regions globally.Mainly influenced by China). At the same time, in the orthopedics field, trauma and spine businesses have experienced a decline.

Besides,Siemens HealthineersThe latest financial report shows: The company's imaging business grew by 5.2% on a comparable basis, driven by magnetic resonance imaging. From a regional perspective, the Asia-Pacific and Japan region achieved significant growth, while the Americas region showed strong growth. Revenue in Europe, the Middle East, and Africa experienced moderate growth.There was a decline in China due to the COVID-19 pandemic.。

GE HealthcareAlso pointed out in the latest financial report that,Undergo surgery in ChinaQuantityReduceDue to the impact of production material inflation pressure and decreased output, GE Healthcare's pharmaceutical diagnostics business revenue was US$473 million, a 5% decrease.

Regarding the rapidly changing market in China, Medtronic Chairman and Chief Executive Officer Geoff Martha recently commented: "I had a hard time understanding the bulk procurement policy a year or a year and a half ago, but now we have accepted this change and incorporated it into our financial expectations and guidance.We expect that last year, due to the volume-based procurement, our performance declined somewhat. This year, it will remain flat, and afterward, we will return to a high single-digit or double-digit growth rate. To be honest, the growth in the Chinese market might even be stronger than we anticipated."

In addition, the current medical device market in China has become more like a contracting system, with fewer suppliers, larger procurement volumes, and more contracts. In response to the above changes, multinational medical device giants are also taking various measures to cope. For example, Johnson & Johnson laid off more than 500 employees in its orthopedic business in 2022, and two senior executives in the China region have resigned; Medtronic adjusted the structure of its cardiovascular platform in China, merging the traditional seven teams into three, led by three leaders, to reduce sales and marketing expenses and alleviate the impact of price reductions on marketing...

It can be seen that although multinational medical device companies are striving to respond to market changes, they still find it difficult to resist the rise of Chinese brands. However, in addition to responses at the market strategy level, these multinational companies have also made changes at the strategic level.

Strategically, many multinational device giants are leveraging their financial advantages to enhance market competitiveness and capture market share through localization, collaborating with Chinese enterprises, innovation incubation, and developing new technologies.

In recent years, the state has gradually increased its support for domestically produced medical devices in China, but has imposed certain restrictions on imported products.

The Guiding Opinions on Promoting the Healthy Development of the Pharmaceutical Industry, previously issued by the General Office of the State Council, clearly stated: For government procurement projects, domestically produced drugs and medical devices that can meet the requirements should be used.In principle, domestically produced products must be purchased.，Gradually improve the level of domestically produced equipment configuration in public medical institutions.

On the other hand, the "Measures for the Administration of Government Procurement of Imported Products" stipulates that imported products refer to products originating from outside the customs territory that enter China through customs declaration and inspection.Medical devices produced domestically by foreign-funded enterprises are also considered as made in China and enjoy the same treatment as domestic products.

Based on the aforementioned provisions,More and more multinational device giants are choosing to "join if you can't beat them," accelerating the implementation of localization strategies.。

In April 2023, Olympus decided to produce its core products outside Japan for the first time and established a medical device production and R&D base in China.

In June 2023, Intuitive Fosun, a joint venture between Intuitive Surgical and Fosun Pharma, received approval for the "Thoracoabdominal Endoscopic Surgical Control System." This means that the domestically produced da Vinci surgical robot has been officially approved for marketing.

Besides, other multinational device giants have long been ahead in localizing their operations. For instance, Medtronic has established 1 R&D center, 2 innovation centers, and 3 major production bases in China; Siemens Healthineers has built a production and R&D base for magnetic resonance in Shenzhen; GE Healthcare has set up four global production bases in China; Philips Healthcare has constructed its only comprehensive imaging products base in Suzhou globally…

So far, the localization strategy of multinational device giants investing in building factories in China has achieved certain results, and their products manufactured in China have gained the status of domestically produced medical devices.Nowadays, some foreign brands have successfully won bids as domestic products in multiple public tenders that explicitly reject imported products. For instance, in the public tender procurement for equipment acquisition (imaging category) of primary-level medical and health institutions and professional public health institutions in Jiangsu Province, which clearly stated no imported products would be accepted, Philips' ventilator managed to win the bid as a domestically produced product.

In addition to localized production, multinational device giants also integrate into the local medical innovation ecosystem through incubation, investment, and collaboration.

In terms of incubation, many multinational device giants have established incubators or innovation centers in China. For instance, Boston Scientific has set up the first innovation center in western China in Chengdu's High-Tech Zone, and Stryker is preparing to build an innovation center in Shanghai… With the construction and commissioning of these incubators and innovation centers, multinational device giants are rapidly closing the gap with Chinese innovative enterprises.

In terms of investment, Medtronic's China Phase I Venture Capital Fund has invested in approximately 10 Chinese medical startups; Philips exclusively and strategically invested in Sinovation United, a Chinese company in the PET/CT field, in 2022. Through investment and incubation, multinational device giants are further integrating into the local medical innovation ecosystem.

In terms of cooperation,After the centralized procurement, an increasing number of multinational medical device companies have started cooperating with leading domestic pharmaceutical distributors to reduce their costs.For example, Medtronic, Danaher, Agilent, Canon, Edwards, and GE Healthcare have signed cooperation agreements with Sinopharm Equipment and its affiliated enterprises; Johnson & Johnson also signed a three-year strategic cooperation agreement with Jiuzhou Tong. In addition to cooperation in distribution and circulation, multinational medical device companies have also collaborated with domestic companies on innovation. For instance, Stryker partnered with Hitechin to co-develop and produce 4K high-end endoscope solutions; Edwards collaborated with Mindray to co-develop and produce the fifth-generation intelligent patient monitor...

In addition, multinational device giants are also acquiring outstanding domestic medical enterprises, such as Medtronic's acquisition of Kanghui and Boston Scientific's acquisition of CinnoVasc. Through investment incubation in Chinese innovative enterprises, acquisitions of excellent companies, and cooperation with local enterprises, multinational device giants are accelerating their integration into the local medical innovation ecosystem and enhancing their competitiveness in the Chinese market.

Among the domestic device companies interviewed by VCBeat, the vast majority plan to respond to competition from multinational device companies and the challenge of industry-wide centralized procurement through innovation. They hope to win market competition by rapidly developing and iterating innovative products.

In fact, multinational device giants are also responding to the increasingly competitive market through technological innovation.

For example, in the field of medical imaging, photon-counting imaging technology is considered a priority area for future growth. As a result, multinational giants such as GE Healthcare, Philips, Canon, and Samsung are accelerating the development of photon-counting CT.

In the field of electrophysiology, pulsed field ablation (PFA) technology is expected to become the mainstream ablation method in the future. Therefore, Johnson & Johnson, Boston Scientific, and Medtronic have all aggressively positioned themselves through acquisitions.

In addition, companies such as Johnson & Johnson and Medtronic have also focused on the layout of surgical robots, stating that these will be one of the main drivers of the company's future revenue growth.

However, despite increasing innovation efforts, multinational device giants have not yet outpaced domestic companies in China; instead, they are being closely pursued by them.

In medical imaging, domestic companies such as Boying Medical, ZhenGuang DeXin, Neusoft Medical, and United Imaging Healthcare are also simultaneously developing photon-counting CT. Moreover, NanoViz has chosen an alternative path by focusing on static CT.

In electrophysiology, domestic companies such as Jinjiang Electronics, Ruidi Bio, Denovo Electrophysiology, HT Medical, Hanyu Medical, Xuanyu Medical, Zhouling Medical, Yuanshan Medical, and Maiwei Medical have all laid out PFA-related product pipelines, with rapid progress.

Surgical robots have become fiercely competitive in China, creating a "red ocean." In 2022 alone, at least 15 surgical robots received NMPA approval, including 3 laparoscopic surgical robots, 10 orthopedic surgical robots, and 2 neurosurgical robots. Currently, these surgical robots have entered commercialization, intensifying market competition.

Overall, multinational giants that are reluctant to let go of the world's second-largest medical device market are enhancing their competitiveness and planning for the future through localization, investment, and innovation. Although these measures can help multinational medical device giants regain or capture a certain market share, they still cannot stop domestic brands with comprehensive advantages in policy, localization, technology, cost, and more.

And in this dramatic transformation of the medical device industry, Chinese enterprises have achieved phased victories in market share, technological innovation, and product strength. Moreover, Chinese brands are collectively expanding overseas to seize the global market. It can be seen that,New multinational device giants emerge, and they come from China.