China's medical equipment enterprises are more difficult than innovative pharmaceutical companies

China's medical device companies are experiencing the test of ice and fire.

In 2021, the State Food and Drug Administration approved a total of 11,314 medical device registrations, and 35 innovative medical device products were listed, an increase of 35% compared with 2020. Among them, the products of many listed companies such as Xianjian Technology, Peijia Medical, and Heartpulse Medical are listed.

Compared with a class of new drugs, innovative medical devices are not highly concerned. In fact, in recent years, China's medical equipment innovation and progress is relatively fast. According to data released by the State Food and Drug Administration, only 1 innovative medical device product was approved in the mainland in 2014, 11 in 2016 and 26 in 2020.

However, in the tens of thousands of medical device approvals every year, these dozens of innovative products can not stir up a splash at all, which is reflected in the market performance.

In the second half of 2021, three A-share medical device companies: Kehui Medical and Chuanger Bio, and Nanjing Puai Medical have successively terminated their IPOs. In the Hong Kong stock market, almost all medical device companies listed since 2019 are in a state of breaking, and there are only a few stock prices that can stand above the issue price.

On the whole, domestic device manufacturers do not fully have the "soft power" with multinational giants, and medical devices have not achieved complete standardization. Unlike pharmaceuticals, there are few double-digit medical device "innovative products" every year, and clinicians may not be willing to use them at all.

Technology and sales are heavy on both legs, which is a dilemma that China's innovative medical devices must break through.

Innovation resources are no longer scarce, and a large number of listed companies are still in their infancy

Like the innovative pharmaceutical industry, innovative medical devices have received great attention from capital in recent years. In particular, the institutional innovation of Hong Kong stocks has lowered the entry threshold of listed enterprises, and unprofitable innovative medical device companies can be listed in Hong Kong and obtain financing channels.

A share requirements are relatively strict, the main board, the science and technology innovation board do not allow unprofitable medical device companies to list, but the medical equipment companies landing in the capital markets of the two places, the performance is not satisfactory accounted for the majority, the biggest problem is the lack of product novelty.

Huitai Medical is a "cutting-edge" of domestic cardiovascular devices, landing on the science and technology innovation board in 2021, and has been placed high hopes by the outside world to break the market threshold built by Johnson & Johnson, Abbott and Medtronic multinational pharmaceutical companies, and complete the localization substitution in the field of electrophysiology.

The reality is particularly bone-chilling. According to data from Guohai Securities, in 2020, Johnson & Johnson's electrophysiology business sold 3.03 billion yuan, with a market share of 58.8%, ranking first; Abbott and Medtronic were 21.4% and 6.7% respectively; Huitai Medical ranked fourth, with a market share of only 3.1%.

On March 11, Huitai Medical released its 2021 annual report. The company achieved revenue of 829 million yuan last year, an increase of 72.85% year-on-year, but Huitai Medical admitted frankly in its annual report: "There is a certain gap with import manufacturers, resulting in high-end products still dominated by foreign brands." ”

Like innovative pharmaceutical companies, innovative medical device companies are currently facing the double kill of R&D investment and market promotion.

In 2017, when the heart valve-related products of Qiming Medical, Jiecheng Medical and Minimally Invasive Heartcom were listed one after another, the products of Edward, Medtronic and Boston Scientific had not yet entered the domestic market. Qiming Medical relies on the first-mover advantage, exclusively enjoying 80% of the market share, but the company has not yet made a profit, and the stock price will break from 2022. Huge R&D investment and sales expenses are the main reasons.

R&D is a necessary condition for maintaining the competitiveness of innovative companies, and in the market, the promotion of medical devices may be more expensive than drugs. Some insiders pointed out: "Even if it is similar equipment, there are differences between different device manufacturers. The focus of medical device promotion is on how to train doctors more and become more accustomed to using their own products. ”

One of the purposes of multinational giants such as Johnson & Johnson and Medtronic to set up innovation centers in China is to teach doctors to use the company's products skillfully.

There is also a big difference between devices and drugs, that is, innovative devices have almost no medical insurance payments, and each promotion may depend on the company itself. As a latecomer to heart valves, two new products of Peijia Medical were approved in April and June 2021 respectively. According to the minutes of the investor communication meeting in February this year, in the second half of 2021, a total of 452 sets of products were sold for the two products, and the actual number of implants in the hospital was only 290 cases.

Frost & Sullivan predicted that in mid-2021, China will carry out about 8,800 TAVR operations. The market space of Peijia Medical is very large, but it is also very difficult to develop.

Peijia has said that the company will not fight with international giants for financial strength, and will adopt a model that combines self-research and BD.

Innovation is limited, and the cost of trial and error is pushed to the capital market

The field of medical devices has not yet fully enjoyed the sunshine of medical insurance, and the storm of collection has been ushered in first.

According to the unified deployment of the National Medical Insurance Bureau, high-value consumables such as vascular intervention, orthopedic implantation, electrophysiology, pacemakers and so on will gradually be included in the national collection, and the market price in related fields will shrink significantly in the future.

Most of the products that enter the collection are low-end products, and many innovative medical device products are not at the same level, but the basic functions are similar.

The collection of coronary stents has been carried out for more than a year, which has brought great impact to related high-end stent products. Some foreign companies even said that they may stop the promotion of high-end brackets. On the one hand, the brackets of tens of thousands of yuan and 700 yuan are put together, and most consumers will choose the latter; on the other hand, the admission of high-end products will also be affected by the collection.

For innovative drugs, the National Medical Insurance Bureau has opened a "dual channel" to try to alleviate the difficulty of admission to a certain extent; but for the device, there is no similar green channel policy at present.

Innovative medical device companies not only outperform the market, but also outperform policies. In particular, in the future, the provincial collection and procurement mode will be established, and the provinces will carry out more flexible consumable collection, and enterprises need to do more homework if they want to promote the market strategy as a whole.

As a result, the "hot" innovative business has become the choice of many enterprises.

The Health Bureau learned that Minimally Invasive Electrophysiology launched an IPO on the Science and Technology Innovation Board this week. On March 25, the Shanghai Stock Exchange issued a notice saying that the 24th Listing Committee Review Meeting of 2022 will be held on March 31 to review the IPO application of the Sci-Tech Innovation Board for minimally invasive electrophysiology. If successful, microport will usher in the fourth listed company.

Partners of well-known domestic investment institutions believe that in the short term, the innovation of Medical Devices in China is basically based on the improved innovation of multinational giants, and the experience accumulated by repeated trial and error is of great value. In his view, these innovations are easier to get recognized in the capital market.

Can these enterprises that require a lot of investment and time for market verification rely on the hammer of listing to solve the problem? At present, at least in Hong Kong stocks, there are still many problems.

In the face of today's challenges, traditional instrument faucets have begun to transform. Lepu Medical added anti-epidemic monitoring products, while Lanfan Medical launched the "second venture" to transform into a global medical device platform, focusing on the four major businesses of health protection, cardiovascular and cerebrovascular diseases, minimally invasive surgery and medical care.

Ever-changing, any industry, any enterprise will eventually return to value investment. Projects with good direction, team and technology are scarce resources at any time, and even if the capital markets temporarily squeeze the bubble, they will eventually return to the value normal.