Jiuzhou Tong and Johnson & Johnson Sign $7 Billion Medical Device Deal

▍Source: CBI Medical Devices

▍ Compiled by: Qiaokeli

5 Billion Yuan Mega Order

Recently, Fu Xiong, General Manager of Jointown Medical Device Group, stated that the cooperation value with Johnson & Johnson this year has reached RMB 5 billion.

It is reported that at the second China International Import Expo, Jointown Pharmaceutical Group’s medical device team held negotiations and signed a procurement agreement with Johnson & Johnson for ultrasonic scalpels and staplers.

Jointown Pharmaceutical Group’s primary collaborative products are Minimally Invasive Procedure (MIP) products (hereinafter referred to as “MIP Products”) and Advanced Energy Surgical Products (Energy). It serves as the national exclusive distributor for these two product lines of Johnson & Johnson in China.

Jointown Pharmaceutical Group disclosed to Saibailan Medical Devices today (November 7) that, in addition to Johnson & Johnson, it will sign a letter of intent with RenovoCare to procure cardiopulmonary consumables and neuromodulation products, aiming to improve patient prognosis and manage drug-resistant epilepsy.

In addition to this year’s RMB 5 billion order, one year earlier—on November 6, 2018—at the Shanghai China International Import Expo, Jointown Pharmaceutical Group signed an agreement with Johnson & Johnson to procure ultrasonic scalpels and staplers worth approximately RMB 4 billion.

At the time, a representative from Jointown Pharmaceutical Group stated that the RMB 4 billion signing amount accounted for one-quarter of the company’s annual import volume, and that more medical device products would be introduced in the coming period.

Holds 93% of the domestic market

Of the two products procured from Jointown Pharmaceutical Group, the ultrasonic scalpel, fully named “Ultrasonic Cutting and Hemostatic Scalpel,” is a novel surgical device for clinical surgery. It can be used to cut all human tissues except bone tissue and fallopian tubes, and has been widely applied in various surgical procedures.

Currently, only a few medical device manufacturers are capable of producing ultrasonic scalpels, such as Johnson & Johnson and Olympus, with Johnson & Johnson holding an absolute advantage.

According to relevant data from Guojin Investment Banking, Johnson & Johnson's market shares in China, the United States, and Europe in recent years were 93%, 92%, and 94%, respectively.

Industry insiders have stated that Johnson & Johnson’s strong market position is primarily due to its superior product quality, supported by its comprehensive product portfolio, which includes complementary devices and consumables such as endoscopes and sutures.

It is understood that ultrasonic scalpels offer advantages such as a smaller range of tissue damage in endoscopic surgeries. Industry insiders have stated that laparoscopic surgery, as an emerging minimally invasive technique, represents an inevitable trend in the future development of surgical methods.

Accounting for Nearly Half of the Domestic Market

Of the two products procured from Jointown Pharmaceutical Group, in addition to the ultrasonic scalpel, the stapler is also a device commonly used in laparoscopic surgery.

Surgical staplers are a major category of surgical instruments, serving as medical devices that replace manual suturing. Their primary mechanism involves using titanium staples to transect or anastomose tissue, functioning similarly to a stapler.

Compared with manual suturing, mechanical suturing and anastomosis are characterized by simplicity, speed, accuracy, and security; they can effectively shorten operative time and facilitate suturing and anastomosis in narrow surgical fields and deep anatomical sites.

Johnson & Johnson’s staplers account for nearly half of the domestic market. According to relevant data from China Industry Information Network, Johnson & Johnson and Medtronic together held 63% of China’s stapler market in 2017, with Johnson & Johnson alone accounting for 43%.

Furthermore, data from China Industry Information Network also indicates that the overall domestic substitution rate for surgical staplers remains low, with laparoscopic staplers exhibiting the lowest rate. In China’s open surgical stapler market, domestic brands collectively hold a 50% market share, whereas their share in the laparoscopic stapler market is only 15%.

In fact, among the various subcategories of surgical staplers, laparoscopic surgical staplers are basically dominated by foreign companies and have the lowest import substitution rate. According to relevant data from GTJA Investment, laparoscopic staplers are currently mostly imported products, with prices around RMB 4,000.

Chasing the Giants of Medical Device Distribution

Jointown Pharmaceutical Group Continues to Make Major Moves: Besides Signing a RMB 5 Billion Order with Johnson & Johnson, It Recently Secured the Exclusive National Distribution Rights for the Leading Influenza Drug Oseltamivir Phosphate (Kewei)

According to Sibailan’s research, sales of this major influenza product reached RMB 2.247 billion in 2018. Industry insiders have stated that during the winter season, this medication frequently experiences supply shortages. In the past, hospitals often had to endure long waits for reimbursement payments; however, to secure procurement of this drug, many hospitals are now willing to make advance payments or settle invoices immediately upon delivery.

It is understood that Jointown Pharmaceutical Group is one of the giants in pharmaceutical distribution. Its main business includes the wholesale of pharmaceuticals, medical devices, traditional Chinese medicinal materials and decoction pieces, food, and health products. Additionally, it operates retail chains, engages in pharmaceutical manufacturing and R&D, and provides value-added services.

The 2019 semi-annual report showed that Jointown Pharmaceutical Group offered more than 210,000 types of medical devices and family planning products, including ultrasonic scalpel tips, cutting staplers and cartridges, trocars, IVD reagents, electronic blood pressure monitors, glucose meters, oxygen concentrators, ultrasound diagnostic systems, and orthopedic materials.

According to annual report data, Jointown Pharmaceutical Group achieved a revenue of RMB 87.1 billion in 2018, representing an 18% year-on-year increase. In the first three quarters of 2019, the company generated a total revenue of RMB 73.4 billion, a 15% year-on-year growth.

Among all business segments of Jointown Pharmaceutical Group, the medical device sector has experienced the fastest growth. In 2018, the medical device segment generated RMB 11.2 billion in revenue, representing a year-on-year growth rate of 61% compared to 2017.

In the first three quarters of this year, Jointown Pharmaceutical Group’s medical device segment achieved revenue of RMB 11.3 billion, a year-on-year increase of 44.4%, maintaining a relatively high growth rate.

In fact, as early as 2016, Jointown Pharmaceutical Group had established a supply chain system for medical devices, including consumables, through the continuous establishment and acquisition of subsidiaries.

Meanwhile, other major distribution enterprises are also vying for position in the medical device industry.

In early 2018, Shanghai Pharma announced the completion of its acquisition of Cardinal Health’s medical device business for approximately RMB 3.7 billion. Cardinal Health’s operations have now been fully integrated into Shanghai Pharma.

According to Medtech Insight’s ranking of global medical device companies, Cardinal Health’s medical device business ranked fifth worldwide in 2016 with $12.43 billion in revenue, trailing only Medtronic, Johnson & Johnson, GE, and Siemens.

From 2017 to 2018, China Resources Medical Devices also underwent a series of changes, including significantly increasing its registered capital, partnering with Thalys, a supplier of intensive services for consumables and reagents, to establish a new company, and jointly expanding the national medical testing market.

CR Pharma’s intent to strategically restructure its originally weak medical device segment is becoming increasingly prominent.