2016 Developments and Investment Trends in Medical Devices: Significant Potential in Precision Medicine Equipment

Recently, the 2016 Taihu Forum on Investment and Development in China’s Healthcare Sector was held in Suzhou. Organized by the Pharmaceutical Investment and M&A Club and undertaken by Mingjia Capital, the forum invited representatives from investment institutions in the pharmaceutical industry, medical sector, and broader health and wellness field.

Healthib Pharmaceutical Investment and M&A Club centers on pharmaceutical investment and mergers and acquisitions, extending its reach to broader healthcare sectors including pharmaceutical commerce, hospitals, medical services and health management, medical devices, diagnostic reagents, and elderly care. It serves as a platform for resource sharing and value co-creation among entrepreneurs and investors in the pharmaceutical, medical, and broader healthcare industries.

On the first day of the forum, Yang Ruirong, Partner at Yuanyi Capital, delivered an insightful speech on the current status and development of the medical device market. Yang stated, “Technological innovation and advancement are key to the growth of the global medical device industry, and R&D has always been critical to the success of leading companies.” VCBeat (WeChat ID: vcbeat) has compiled and edited his views.

Over the past decade, the market size of the medical device industry has nearly sextupled. However, in China’s medical device sector, multinational corporations hold an absolute advantage in the high-end market, particularly in areas with high technical barriers such as medical imaging equipment and in vitro diagnostics (IVD), where their market share exceeds 75%. China’s imports of medical devices amounted to USD 6.106 billion. Domestic tertiary hospitals generally adopt imported medical devices, and even in secondary hospitals, two-thirds of medical devices are imported products.

Domestic enterprises primarily occupy the mid- and low-end segments of China’s medical device industry. Leading companies in certain niche sectors are concentrated in higher value-added product areas, benefiting from natural advantages in the mid- and low-end markets, such as cost-driven pricing advantages due to lower production costs, favorable national policy support, and strong control over localized distribution channels. Some leading domestic players in specialized fields are also making breakthroughs in the high-end market. For instance, Mindray, which boasts the largest R&D team and the strongest comprehensive development capabilities in China, has achieved a 49% market share in the domestic high-end patient monitoring segment.

On top of foundational factors such as revenue growth, population aging, and industrial policies, the drivers within the medical device subsector present the following opportunities:

1. The development of primary healthcare infrastructure drives demand for low- to mid-end products;

2. The rise of the home medical device market drives the development of portable electronic products;

3. Driven by product innovation and industrial upgrading, import substitution and export growth represent long-term trends;

4. Horizontal M&A integration will help leading enterprises pursue a path of comprehensive development.

Industry-Specific Characteristics Drive the Major Trend of Consolidation

High technical complexity: Medical device design involves highly proactive fields such as traditional manufacturing, mechanics, electronics, information technology, and materials, requiring support from upstream and downstream industries, thereby driving overall vertical integration.

Market Segmentation and Product Differentiation: There is a wide variety of medical devices, with approximately 80,000 types. Each niche market is relatively small in scale; therefore, horizontal expansion is essential for achieving significant growth.

High R&D and clinical costs: Only by achieving large-scale operations and extending the product chain can companies effectively mitigate R&D and clinical trial risks and demonstrate synergies;

"First strengthen, then expand; leading enterprises must pursue comprehensive expansion."

Market Analysis of the Global and Chinese In Vitro Diagnostics (IVD) Industry

Analysis of the In Vitro Diagnostics (IVD) Industry Chain Suggests That Specialization and Scalability Will Shape the Sector’s Future. Upstream, imported raw materials account for a significant proportion, where breakthroughs translate directly into profits. In the midstream, policies are becoming increasingly clear, enabling leading domestic manufacturers to strengthen their dominant positions. Downstream, demand is growing increasingly differentiated, benefiting companies with comprehensive, large-scale offerings.

In 2013, the global IVD market size reached $53.3 billion and is expected to maintain a compound annual growth rate (CAGR) of approximately 5%, reaching $74.65 billion by 2020. In 2014, China's IVD market size reached RMB 30.6 billion, and it is projected that the IVD market size will reach RMB 72.3 billion by 2019, with a CAGR of 18.7%.

The largest in vitro diagnostics (IVD) market is in the United States, with China accounting for only 2%. However, China’s domestic IVD market is experiencing rapid growth. The primary drivers include significant room for growth in per capita IVD expenditure, sustained rapid increases in total national health spending, rising urbanization rates and an increasing proportion of elderly population, persistently high incidence rates of chronic and infectious diseases, long-term benefits from healthcare reforms, and supportive industrial policies that safeguard industry development.

As the market size continues to expand, the competitive landscape is also undergoing constant change. Specifically, the share of clinical chemistry and immunoassay products has been declining year by year, while the proportion of tests based on molecular diagnostics, microbiology, histology, and flow cytometry has been increasing annually, with a compound annual growth rate (CAGR) exceeding 10%. In the coming years, the growth rate of traditional testing methods is expected to slow down, whereas the market share of novel testing methods will continue to rise. Foreign brands currently dominate the majority of the domestic in vitro diagnostics (IVD) market, while Chinese diagnostic reagent companies are characterized by their small scale and fragmented structure.

Biochemical Diagnostics Remain One of the Dominant Segments in China, with Industry Growth Slowing

After more than three decades of development, biochemical diagnostics has become the most mature segment within China’s in vitro diagnostics (IVD) industry. While the sector has experienced an overall decline, it is projected to grow at a rate of 6–8% in the future. The market share of domestically produced reagents has exceeded 60%, basically achieving import substitution. In contrast, due to high entry barriers, the biochemical diagnostics instrument market remains largely monopolized by foreign brands. Open biochemical systems will inevitably follow the global trend and gradually transition toward closed systems.

Immunodiagnostics: Rapid Industry Development, with Chemiluminescence as the Key Focus

Immunoassay has emerged in recent years as one of the largest, most rapidly expanding, and fastest-growing segments within the in vitro diagnostics (IVD) industry. Immunoassay reagents are gradually replacing clinical biochemistry reagents to become the mainstream solution. Among these, the market for enzyme-linked immunosorbent assay (ELISA) is steadily shrinking, while demand for chemiluminescence immunoassay instruments and reagents continues to rise. As chemiluminescence immunoassay operates as a closed system with high technical barriers, there are few domestically developed products in China, with the market dominated by imported brands. In the future, domestic companies are expected to achieve import substitution by leveraging their cost advantages, enhancing product performance, and expanding their testing menus.

Molecular Diagnostics: A Rapidly Rising Industry

China’s molecular diagnostics market is still in its early stages of development, with a growth rate exceeding the global average. It accounts for 11% of the country’s overall in vitro diagnostics (IVD) market size. Chinese companies hold a negligible share of the global molecular diagnostics market, where European and American firms maintain absolute dominance; Roche, for instance, commands a 32% global market share. Due to genetic differences between Eastern and Western populations, as well as disparities in pricing mechanisms and healthcare systems, foreign companies face significant barriers to entering the Chinese market. Moreover, their products are priced higher than domestically produced alternatives, thereby creating opportunities for Chinese enterprises to secure a foothold.

The market size of the gene sequencing industry grew from $8 million in 2007 to $4.5 billion in 2013, and is expected to maintain rapid growth in the coming years, reaching $11.7 billion by 2017.

POCT Market and Investment

Driven by clinical demand, technological advancements, and economic development, the global POCT market is expanding rapidly. Although the market is substantial, it remains highly fragmented: non-blood glucose monitoring segments continue to offer significant growth opportunities for smaller niche players. The POCT market in developing countries holds greater growth potential, particularly in nations lacking centralized laboratory service infrastructure. Coagulation marker testing and cardiac marker testing are the two fastest-growing segments in the global POCT market, with projected five-year compound annual growth rates (CAGRs) of 14% and 13%, respectively. In China, the cardiac marker POCT market has achieved a 25% growth rate over the past five years.