Eight Key Questions to Understand Medical Device CDMO: Industry Insights and Product Overview

2019Year8Month1On [date], the National Medical Products Administration issued a notice to expand the pilot scope of the Marketing Authorization Holder (MAH) system for medical devices to21provinces, autonomous regions, and municipalities directly under the Central Government, to accelerate the innovative development of the medical device industry. The implementation of this pilot program has extended outsourced services for medical devices from clinical trials and registration to research and development (R&D) and production, thereby further expanding the business scope of contract research organizations (CROs) in the medical device sector.

On July 7, 2020, the State Council issued another notice encouraging the nationwide promotion of the entrusted production model for medical device registrants. This will further boost the medical device outsourcing services industry.

Two major positive developments have drawn intense attention from the medical device CRO sector to CDMO dynamics. So, where lie the primary growth opportunities in China’s medical device outsourcing services industry? What business areas have medical device CROs explored? What challenges exist in their operations? And what are the trends shaping the medical device CDMO landscape?

On the first anniversary of the expanded pilot program for the Medical Device Registrant System, VCBeat hosted a roundtable discussion titled “Exploring Device CDMO under the Medical Device Registrant System.” The panel discussed the impact of the Medical Device Registrant System on the industry, the service offerings and advantages of device CDMOs, as well as current challenges faced by device CDMOs and their solutions.

This event invited Associate Professor Jiang Haihong, Director of the Department of Medical Product Management at Shanghai University of Medicine & Health Sciences and a Distinguished Expert at the National Medical Products Administration’s Advanced Training Institute; Deputy Director Lei Juan of the West China Medical Technology Transfer Center at West China Hospital; Mr. Dong Binzhe, Chairman of MedisCreation; and Dr. Yan Jingran, Vice President of Honghui Capital, to explore the aforementioned issues from diverse perspectives.

The following is an edited transcript of the roundtable discussion:

Host:On August 1, 2019, the pilot program for the Medical Device Registrant System was expanded to cover 21 provinces and municipalities. On July 7, 2020, the State Council issued a notice to promote the registrant-entrusted production model nationwide. What impact does this have on the innovation and regulatory environments for medical devices? What do you foresee as the future trends of the Medical Device Registrant System?

Associate Professor Jiang Haihong:The Medical Device Registrant System was first piloted in Shanghai in December 2017, and subsequently expanded to pilot programs in provinces such as Guangdong and Tianjin. On August 1, 2019, the National Medical Products Administration (NMPA) expanded the scope of the Medical Device Registrant System pilot to 21 provinces and municipalities. Recently (Note: July 7, 2020), the NMPA issued a notice encouraging the nationwide promotion of the outsourced production model for medical device registrants.

The Medical Device Registrant System exerts such significant influence because it subtly yet profoundly impacts technological translation and product iteration within the medical device industry. Furthermore, as a management framework covering the entire lifecycle of medical devices, this system plays a crucial role in driving innovations in regulatory oversight.

The fundamental regulation governing the medical device industry, the Regulations on the Supervision and Administration of Medical Devices, is currently undergoing revision and is highly likely to be released in the second half of this year. The primary objective of this revision is to incorporate the Marketing Authorization Holder (MAH) system for medical devices into the Regulations, thereby establishing its legal status. Once included in the Regulations and officially promulgated, the MAH system will have a solid legal foundation, facilitating its smoother nationwide implementation across China.

Host: Does the implementation and promotion of the Medical Device Registrant System have any impact on hospitals' R&D and achievement transformation? What are the specific impacts?

Director Lei Juan:Since 2015, the Chinese government has issued a series of policies and regulations on medical innovation, greatly stimulating the enthusiasm of researchers and clinicians for innovation and the translation of scientific achievements. In 2018, West China Hospital established a dedicated Technology Transfer Office to promote the commercialization of its scientific outcomes. That same year, the hospital introduced a set of incentive policies for technology transfer, including allowing researchers and clinicians to establish companies by valuing their scientific and technological achievements as equity contributions. With the incentives and support from West China Hospital, researchers and clinicians have founded 13 enterprises through this equity-for-technology model.

The Medical Device Registrant System can significantly help enterprises lower the barriers to innovation, reduce investment costs, fully integrate more resources to accelerate project progress, and facilitate the early market launch and sales of products.

Host: What impact has the promotion of the Medical Device Registrant System had on the medical device outsourcing services industry?

Mr. Dong Binzhe:The promotion of the Medical Device Registrant system will facilitate the upstream expansion of medical device outsourcing services. The implementation of this system creates conditions for device CROs to extend their services into the upstream CDMO sector, enabling earlier involvement in innovative projects. This allows them to assist researchers and clinicians in developing compliant products more effectively, thereby delivering greater value.

Under the Medical Device Registrant System, medical device products across different sub-sectors and at various stages of development will benefit from professional services provided by third-party platforms.

Regarding Medisino’s CDMO client base for medical devices, the company is more optimistic about startups and overseas companies planning to enter the Chinese market.

Previously, startups had to build their own manufacturing facilities and purchase production equipment, requiring substantial capital investment and posing high barriers to entrepreneurship and innovation. Under the Medical Device Registrant System, however, medical device CROs offer CDMO services that help startups reduce or eliminate heavy asset investments in physical space and equipment procurement. This enables startups to allocate their limited resources more effectively toward team building and product iteration, thereby providing greater support for their growth.

Under the influence of factors such as the “Two-Invoice System” and domestic substitution, the competitive advantages of imported medical devices are diminishing. Moreover, establishing manufacturing facilities and quality management systems in China poses significant challenges for these enterprises. With the support of medical device CDMO services, however, such companies can rapidly localize mature overseas medical device products in the Chinese market, thereby realizing commercial value at an earlier stage.

Therefore, Medisino is highly optimistic about the expansion of its device CRO services and customer reach under the Medical Device Registrant system.

Host: How does capital view innovative medical device projects?

Dr. Jingran Yan:From the perspective of investment institutions, innovative medical devices have always been a highly watched hotspot, and this trend will continue, or even attract more attention.

Innovative medical devices have long attracted significant attention for several reasons. First, residents’ demands for healthcare quality are continuously rising, leading to an expanding market demand. Second, national policies encourage innovation in the medical device sector; for instance, the introduction of the Medical Device Registrant System has promoted more efficient development across the medical device industry chain. Additionally, during the pandemic, the government rolled out multiple subsidy and assistance policies to help innovative enterprises navigate through difficulties. Third, a growing number of clinicians and researchers have embraced an innovation mindset, thereby fostering the development of innovative medical devices.

From a capital perspective, the capital markets pay close attention to innovative medical device companies. For instance, some innovative enterprises are operating at a loss but have still gained recognition and secured investment. With this financial support, these innovative companies have achieved better development.

From the above four points, it can be seen that the innovative medical device industry is booming in China.

Host: How does medical device CDMO help improve resource utilization?

Associate Professor Jiang Haihong:From the perspective of the entire healthcare industry, China’s CDMO model has not yet achieved scale. In the pharmaceutical sector, due to the earlier emergence of CRO services and more standardized regulations, development is relatively mature, giving rise to a number of representative CDMO enterprises. In the medical device industry, both device CROs and CDMOs need to address all stages of the full product lifecycle of medical devices.

The Medical Device Registrant System is inherently conducive to the implementation of medical device CRO/CDMO models. In the R&D and manufacturing stages, device companies can outsource R&D or production to third-party service providers, thereby improving resource utilization efficiency.

Meanwhile, the Medical Device Registrant system has stimulated the enthusiasm of hospitals, physicians, and other stakeholders. Under this system, clinical physicians, researchers, hospitals, and research institutions can exercise greater control over the subsequent production and operational revenues generated after translating their technologies into products, thereby alleviating concerns related to factory establishment, manufacturing, and sales.

In the development of innovative medical devices, physicians and researchers prioritize practicality but often lack familiarity with regulatory compliance, creating opportunities for third-party service providers to leverage their expertise and stimulating their active participation.

Under the Medical Device Registrant System, applicants for medical device registration may include medical device manufacturers, research and development institutions, and other entities. These applicants can focus on product research and development while outsourcing production to qualified enterprises with adequate manufacturing capabilities. Furthermore, the registrant may commission multiple enterprises to manufacture the product, thereby achieving a “decoupling” of medical device registration from production. This approach lowers the barriers to innovation in the medical device sector and stimulates the enthusiasm of manufacturing enterprises.

Decoupling Medical Device Registration from Production Lowers Industry Entry BarriersThe decoupling of medical device registration from production has lowered the entry barriers for the medical device industry. Under the Marketing Authorization Holder (MAH) system, capital, entrepreneurs, and social resources can enter the medical device sector more easily. This has not only expanded the market size of the medical device industry but also improved resource utilization efficiency.

Host: From concept proposal to product launch, what kind of services or assistance are most desired for medical devices during this phase?

Director Lei Juan:The journey of a medical device from concept to market launch is divided into four stages: concept proposal, prototype development, small-batch trial production, and commercial sales. Innovations by healthcare institutions and research institutes are primarily concentrated in the early stages.

The hospital's strengths lie in its ability to clearly define clinical needs, rapidly apply innovative products in clinical settings for validation, and excel in academic promotion post-market launch.

Clinicians possess a deeper understanding of clinical needs, making their innovative ideas more feasible to implement; however, not all innovations can be successfully translated into commercial products. Therefore, healthcare institutions and research institutes require commercial value assessment services for early-stage projects to screen and prioritize concepts with higher potential for successful translation from a multitude of innovative ideas.

Currently, hospitals lack support from pilot-scale platforms for medical devices, making it difficult to develop prototypes for many innovative ideas due to the absence of engineering teams. Therefore, healthcare institutions and research institutes are in urgent need of prototype development and small-batch trial production services. Through third-party services, innovative ideas can be rapidly transformed into products.

Host: What are the key challenges in taking medical devices from R&D to market launch, and how can CDMOs address them?

Mr. Dong Binzhe:For innovative or entrepreneurial teams, while they understand clinical needs, there is significant uncertainty regarding whether their products can be successfully developed during the startup process and whether the final outputs will truly meet clinical requirements. Third-party CDMO platforms can effectively address these challenges. In particular, teams with strong CRO experience possess inherent advantages when entering the CDMO sector. By engaging earlier in various stages such as regulatory submission, testing, and clinical trials, third-party platforms can leverage their extensive service experience to anticipate, identify, analyze, and mitigate potential issues, thereby helping companies save time and reduce costs.

For example, among MedThink’s service cases, some enterprises only discovered discrepancies between their product’s R&D design, finalization, and clinical requirements when their products advanced to the clinical trial stage. Earlier involvement by third-party service platforms offers another advantage: helping companies establish stronger connections with the market and better understand market demands. By communicating with experts on these third-party platforms, companies can clarify product finalization during R&D and production, as well as optimize supply chain management. In this process, third-party service platforms can integrate resources from various stakeholders, delivering greater value to companies or talented entrepreneurs.

Moderator: When evaluating medical device CDMO companies as investment targets, what aspects will capital investors examine?

Dr. Jingran Yan:From the perspective of investment institutions, which is quite similar to that of CDMO clients, we evaluate whether a medical device CDMO has strong delivery capabilities. This involves assessing its innovative R&D capacity, production and supply chain management capabilities, as well as its business experience.

On the other hand, we will evaluate the corporate team from an operational perspective. This includes assessing the team’s experience, execution capabilities, internal complementarity of skills, and the robustness of internal management systems. These are additional areas that warrant attention from an investment standpoint.

The medical device CDMO industry is just emerging in China, with no established incumbents and new entrants continuously joining the market. As an investment institution, we will continue to track and monitor this sector. I also believe that many other investment firms share our anticipation for the industry’s gradual growth and maturation.