This article is excerpted from the Yikai Research Report 'Eve of Qualitative Change - 2017 China Healthcare Industry Investment White Paper'

Overall, China's medical technology and medical device market will present the following important development trends in 2017:

1. Full implementation of the two-vote system to promote channel change

In 2017, the two-vote system will be fully implemented from last year's pilot. Large enterprises will sink the channels, and small and medium-sized agents will be eliminated, merged, and transformed. Under this trend, there will be three major trends in the industry: horizontal acquisition, vertical extension and transformation.

In terms of horizontal acquisition, large-scale commercial companies with abundant capital, strong strength and wide channels will continue to merge and integrate regional channels, and will become the provider of supply chain integration solutions, and the performance will usher in an outbreak.

Vertical extension can be divided into three types: First, the downstream channelization of production enterprises, that is, large-scale enterprises to acquire dealers, such as Meikang to acquire Yitian Bio, Antu to acquire Shengshi Junhui; second, the upstream production of circulation-type enterprises, namely Circulating companies acquire upstream technologies, such as Runda Medical, which has been in circulation, and acquire POCT high-tech barrier product lines. Third, downstream services of distribution enterprises, that is, circulation enterprises extend to terminal services. For example, Dean Diagnostics continues to actively deploy terminal third-party laboratories. The vertical extension allows the company to have more voices in the upstream and downstream, thus enhancing the profitability of the company through synergy.

Transformation refers to the transformation of the business model between medical device manufacturing enterprises and channel companies. For example, some equipment dealers transform CSO in the context of two-vote system, business reform and major rectification; some equipment-agent businesses are in the above context or Will transform the distribution business.

In short, the channel mergers, acquisitions, extensions, and transformations will gradually channel the channel links. This is the future way of channel integration under the two-ticket system trend.

2, the opportunity to bring domestic equipment to graded diagnosis and treatment

In 2017, the grading diagnosis and treatment reform will continue to deepen and be rolled out across the country. Although the concept of the patient's side will not change rapidly, the 'Spring River Plumbing Duck Prophet', the graded diagnosis and treatment will bring the medical resource allocation to the grassroots. Different from the situation that China's high-end medical equipment market is monopolized by foreign companies, the broad primary medical market has always been the battlefield for domestic brands. From a policy perspective, the state also encourages and supports grassroots medical units to use excellent domestic medical equipment. With equipment. We expect that with the policy inclination and the focus of capital investment, domestically-made excellent equipment brands, whether it is a big brand with channels and products, or a rising star with unique technology, will usher in an outbreak in the grassroots field.

Among them, on the one hand, it is an opportunity to upgrade existing equipment at the grassroots level, and on the other hand, it is an opportunity to meet the growing demand for primary medical care, but it is easy to operate. We will focus on the field of basic equipment such as inspection and diagnosis equipment (especially POCT and rapid inspection equipment), chronic disease related household equipment, medical rehabilitation equipment, doctor follow-up equipment, ultrasound and other safe and simple imaging equipment.

3. Device-based third-party services are on the rise

With the continuous deepening of medical reform and the continuous exploration of various emerging models, we believe that more and more institutions and companies will realize that the “mutually beneficial model” for hospitals and hospitals will win. The “subversion model” of rushing hospital business is more in line with the current medical business environment. Under this circumstance, various types of device-based third-party service organizations will have a lot to offer, and various “Internet+” thinking and models will be integrated into these services. .

In October 2016, the National Health and Family Planning Commission issued the “Notice on the Basic Standards and Management Regulations of Medical Laboratory (Trial)”, clarifying that the medical laboratory is a separate medical institution and is an independent legal entity, which independently bears corresponding legal responsibilities. Approved by the provincial health and family planning administrative department. Furthermore, in January 2017, the National Health and Family Planning Commission issued the 'Interpretation of the Basic Standards and Management Regulations for Independently Established Medical Institutions such as Medical Imaging Diagnostic Centers'. It is imperative to identify medical imaging, testing, blood purification, and pathology centers as independent medical institutions.

From the Health Planning Commission's support for third-party diagnosis, imaging and pathology, as well as the layout and mergers and acquisitions of large medical companies in this area, third-party diagnosis, imaging, pathology, logistics, disinfection, based on medical devices and equipment, can be seen. Emerging intensive service models such as maintenance and equipment packaging will strongly promote the development of the medical industry. Since these areas are also capital-intensive, it is believed that there will be a large number of investment and mergers and acquisitions.

We have seen that in the field of third-party inspection, the leading enterprise Jinyu test will be listed soon. The rising stars such as Qianmai Medicine and Beijing Hehe will continue to receive rapid support from capital. In the field of third-party imaging, Yimai Sunshine will receive Goldman Sachs’ A round investment. Ping An Good Doctor and listed company Guangyu Group are also actively deploying this field; in the field of disinfection, Laoken Medical and Sinopharm are actively deploying third-party disinfection supply chains; third-party repair companies such as Kunya Medical and Kedu Medical respectively Landing on the New Third Board and getting capital investment.

We have also observed that third-party institutions such as third-party inspections and third-party imaging related to diagnosis can not only provide services to hospitals, but also to the vast consumer market, such as combining early screening and physical examination services. It will break through the shackles of the hospital market and create a trillion-level health care market. If it is combined with 'Internet +' such as big data and artificial intelligence, or with new drug research and development, it will have an inestimable potential for outbreak.

4. New technology penetration equipment field

Early screening technology, artificial intelligence, 3D printing, medical robots, etc. will bring a revolutionary revolution in diagnosis and treatment.

At present, early screening can be divided into two categories: early screening of genetic diseases and early screening of tumors. Early screening of genetic diseases usually refers to prenatal screening and genetic testing methods to calculate the probability of genetic diseases; early screening of tumors refers to the early detection of tumors by means of liquid biopsy, gene sequencing and other means before clinical symptoms. Both of them have important significance for improving the quality of the population and improving the survival rate of the tumor. A few days ago, cancer early screening company Grail won $900 million in Series B financing, which once again aroused the heat of capital. The importance of early screening is self-evident. In the future, combined with artificial intelligence diagnosis and other technologies, the blue-sea market of the trillions will be born.

In the field of artificial intelligence diagnosis, the combination of artificial intelligence and medical imaging is a recent hot spot. The number of medical images in China and the United States increased by 30% and 63% respectively, while the growth rate of radiologists was only 4.1% and 2.2%, respectively. New trends in artificial intelligence readings may overturn future imaging diagnostics to compensate for the lack of manual diagnosis and accuracy. At present, the accuracy of artificial intelligence diagnosis for breast cancer developed by scientists from Google Brain and Verily has reached 88.5%, which is better than the 73.3% accuracy of famous human pathologists. In the future, more breakthroughs in the diagnosis of artificial intelligence and improvement in accuracy will perfectly match the rapid development of the third-party imaging industry, making the image cloud diagnostic platform the ultimate solution for image diagnosis.

3D printing medical devices are another emerging field. The 3D printing industry of orthopedics has been put into use in recent years, such as Stryker's 3D knee replacement, Ikon Medical's 3D hip, and KotaMeddy's 3D key bone print. Another major application area for 3D printing is dental. The overseas giants such as BEGO and Planmeca have produced 3D printing devices suitable for oral applications. For example, 3D Systems and EOS have also been introduced into hospitals in China. The change of technology will be a certain trend in the development of the equipment market.

The global medical robot industry's revenue in 2016 reached approximately 8.5 billion US dollars. It is conservatively estimated that the average compound annual growth rate will reach 15% in the next five years and will exceed 15 billion US dollars by 2020. Among them, surgical robots will account for 60%, while rehabilitation robots will account for 20%. Among the surgical robots, the Da Vinci robot has successfully completed more than one million complicated operations since its approval. Rehabilitation robots are gradually entering the market under the gradual breakthrough of technology. According to the University of Michigan Rehabilitation Robotics Association, the recovery rate of rehabilitation robots in the next five years is 37%, much higher than other medical robots. In this field, the exoskeleton robots of foreign companies such as ReWalk, Cyberdyne, Hocoma, and Woodway have emerged, and the medical robots produced by China's Butterfly and Technology, Fourier Robot, Anyang Shenfang and other rehabilitation medical device companies also Gradually put into use.

At present, these new technologies in the field of medical devices are still in the early stage. They are still mainly based on pre-A round and A round investment. This year we expect more and more startups and investment events in these areas, and leading companies will also Initially revealed. Technology platform company v.s. vertical field company; large enterprise innovation department v.s small startup company, who will stand out from the crowd we will wait and see. We believe that platform-based companies see the ability to migrate, vertical companies see channel promotion capabilities, large enterprise innovation departments see synergy and resource interaction capabilities, and small startups see technology single-point explosive capabilities.

5, precision medicine gradually evolved from concept to maturity

In January 2015, the then President of the United States, Mr. Obama proposed the “Precision Medical Plan”. The term “precise medical treatment” has become a popular term in the medical field, with the continuous maturity of technologies such as NGS, gene editing, DNA capture, and biological information. Precision medicine has gradually evolved from concept to maturity. From the perspective of the diagnosis and treatment process, precision medicine can be divided into early screening, disease diagnosis, and prognosis.

In the field of genetic early screening, the leading enterprises are basically formed. Berry and Kang are about to land in the capital market. Nuohe Zhiyuan has obtained large-scale financing from SDIC, and the genetic sequencer NextSeq 550AR produced by Annoyouda, as well as the fetal chromosome non-doubling The body test kit is approved by CFDA for medical device product registration. In the field of early tumor screening, recently, cancer early screening company Grail won $900 million in Series B financing, which once again aroused the heat of capital. The importance of early screening is self-evident. In the future, combined with artificial intelligence diagnosis and other technologies, the blue-sea market of the trillions will be born. And one of the founders of Suiyuan Gene, Professor Zhang Wei and his team released the latest masterpiece in Nature Genetics, the world's first high-throughput methylation non-invasive detection technology, which can be used for cancer non-invasive early screening and Traceability. In China, Boercheng's colorectal cancer methylation gene early screening products have also obtained CFDA medical device certificates. These results will set off the industry's popularity. It is expected that a number of startup companies will also be born in this field in China. Technically, the development of early screening mainly relies on the development of technologies such as liquid biopsy, DNA capture and amplification, methylation and other target discovery, as well as the accumulation of sufficient clinical data and clear clinical indications. In order to gradually become the gold standard for early screening.

In terms of disease diagnosis, the most widely used precision medicine is the precise use and follow-up of tumors. Molecular pathology of tumors, such as NGS, first-generation sequencing, PCR, FISH, CTC, single-cell sequencing, etc., explain the patient's individualization from the molecular level, so as to develop a precise treatment plan and understand the prognosis in the clinic. Combine targeted drugs, cell therapy and other means to achieve precise and personalized treatment.

At present, the domestic competition between NGS and ctDNA is booming, and many companies are in a state of turmoil. After the last two years of staking, the industry is about to usher in a reshuffle and more brutal competition. We expect the industry to look at the business development and commercialization capabilities of each industry in the short term. In the medium term, we will look at service quality and product development and reporting capabilities and customer stickiness. We will look at the accumulation and application of big data, the creation of business ecosystem and new Development and commercialization of technology. On the enterprise side, the leading companies such as Gene and Gene, Burning Stone Medicine continue to receive capital attention, and emerging forces represented by Yuanma, Gene, Gene Plus, and Technology are catching up at different entry points. .

6. Overseas investment and M&A momentum continues to be strong

Since the end of 2016, investment institutions and large enterprises in the market have focused on the investment in medical devices, focusing on sales profits, stable investment opportunities with mature channels, and actively seeking overseas technology companies. Investment to achieve product introduction and complement the domestic channel advantages. As the overall cycle of medical device commercialization is faster than new drugs, we expect investment institutions, especially US dollar funds, to follow this trend this year and continue to increase investment and even mergers and acquisitions of overseas technology-based medical device companies; Mergers and acquisitions of overseas medical device companies will also continue, and overseas mergers and acquisitions have become an effective way for domestic companies to introduce foreign technology and overseas companies to land in China.

Since 2016, Jiu'an Medical has acquired eDevice for 99.38 million Euros, plus medical testing equipment; Zixin Pharmaceutical has acquired Nabsys2.0 and entered genetic testing; BOE has invested US$50 million in Cnoga, Israel's non-invasive medical equipment company; Sannuo Bio has US$200 million Acquired the US PTS diagnosis and entered the field of POCT diagnosis in the IVD industry. In vitro diagnosis, gene sequencing, and innovative medical equipment are hot areas of high technical barriers and rapid growth, which is a must for leading acquisitions. In 2017, it will be another year for domestic leaders to compete for overseas.