China- Overview of Innovative Medical Devices Investment Market

China’s economic growth is slowing down, but the medical device industry is still on the rise. In 2019, there were 8 domestic medical device IPO cases, 16 M&A cases, and 118 private equity financing cases. Compared to private equity financing and IPO events in 2018, the number has increased significantly.

In general, the number of transactions in each segment is still directly related to the market of the industry. Cardiovascular, cerebrovascular, orthopedics, imaging, tumor treatment are still the hottest tracks of medical devices, and the number of transactions is far ahead. 

The hot track of the previous two years has entered the harvest period, and early investment has entered a new theme. For example, in the cardiovascular field, investment hotspots have been shifted to Interventional Therapy and ventricular assist devices (artificial heart); orthopedics has shifted from traditional trauma and spine fields to joint sports medicine and upstream materialsmedical robots as a disruptive platform technology in the field of medical devices, 2019 still hot. Besides, emerging areas such as ENT, neuro regulation, and drug delivery systems are beginning to receive attention.

2019 Innovative medical device number of transactions – China

2019 Medical Device Top 4 Investment Transaction Fields

Track 1   Cardio-cerebrovascular and peripheral

1)     Continuous disclosure of transactions in the coronary arteries

The coronary field has undergone domestic substitution of stents in the past ten years. Industry giants have formed and the competitive landscape is stable. Products such as fully degradable stents, drug-coated balloons, and vascular access devices and accessories are the focus in 2019.

Biodegradable stent (BRS) leads the 4th revolution in the field of coronary interventional therapy and reflects the new concept of “non-interventional implant”.

With the progress of the Chinese centralized quantity-specific procurement of stent and the development of “non-interventional implant”, drug-coated balloons will be one of the key battlegrounds.

Guidewire catheters and other vascular access accessories have a huge domestic market, high technological thresholds, and high-profit margins. Non-Chinese products have established leading positions on brand and product advantages though Chinese domestic brands grow faster. With the progress of the Chinese centralized quantity-specific procurement system, we see more foreign brands will be localized to the Chinese market.

2)     The market of structural heart disease continues to be hot, and the field of valves has attracted much attention

3)     Artificial heart and defibrillator

Heart failure is known as “cancer in heart disease”. According to public data, there are 26 million heart failure patients worldwide. About 50% of patients with advanced heart failure (NYHA III, IV) will die within 2 years. Heart transplantation is currently the only effective treatment for patients with end-stage heart failure. However, due to the lack of donors, China can only achieve 300 heart transplants each year. In this context, artificial hearts bring new possibilities to patients.

The artificial heart has higher technical barriers and higher unit prices. The product and market will become more mature next year, which deserves capital attention. 

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Track 2: Interventional Therapy

Looking back on 2019, there were 8 private equity financing events throughout the year. Interventional Therapy has been booming in recent years. According to the data from CINS 2019, currently, more than 600 hospitals can execute thrombus removal surgeries in China; In 2019, there were 40,000 thrombectomy cases, whose annual growth is greater than 60%. This number is only about the ischemic stroke.

At present Interventional Therapy devices are still monopolized by imports. The products of international giants such as Medtronic, Stryker, Johnson & Johnson occupy the mainstream of the domestic market, but the market is still in short supply. We believe that with the positive policy from the Chinese central government, a further capital injection will help to accelerate the development of domestic brands.

Track 3: Orthopedics

More than 10 private equity financing transactions were completed in the domestic orthopedic field in 2019, mainly focusing on artificial joints and sports Medical, 3D printing and other segments.

In the research on raw materials upstream of orthopedic implants. Polyetheretherketone (PEEK) has gradually begun to replace metals in the application of some implants, and various types of bioceramics have begun to be increasingly used on the articular surfaces of artificial joints, artificial bones, degradable materials, and bioremediation materials.

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Track 4: Medical Robots

In 2019, a large number of robotics companies received financing. In addition to the traditional hot areas of endoscopic, hard tissue (orthopedics and neurosurgery), and rehabilitation, the companies in the field of soft tissue positioning and navigation, oral, ophthalmology, vascular intervention, and respiratory intervention has gained attention in 2019. 

The first landing of 5G technology in China is also a major factor in promoting the outbreak of domestic medical robots. The advantages of robots in telemedicine are even more significant after the application of 5G. Coupled with the promotion of the national graded diagnosis and treatment strategy, the domestic medical robot track is expected to overtake the overseas competitors. 

Conclusion:

The Chinese Sci-Tech innovation board (STAR Market) and the Hong Kong board for unprofitable tech companies have promoted private equity financing and mergers and acquisitions of equipment. Previously for the company’s annual net profit lower than 50-80 million RMB, it is difficult to list on the China GEM (Growth Enterprise Market) or the Main Board, which is a very high threshold for most medical device companies. The average price-earnings ratio of science and technology board companies is between 70-80. In terms of PE multiples, it is much higher than the average price-earnings ratio of other A-share medical devices (about 40 times), indicating the market’s expectations and overall recognition of high pricing for science and technology board, and innovation and high-growth companies.

The listing opportunities on the China Sci-Tech innovation board (STAR Market) and Hong Kong board for unprofitable tech companies are opening up new financial channels for medical device companies, as well as more abundant exit channels for PE&VCs. It encouraged PEVC to actively invest in innovative medical device companies in the primary market. To the innovative medical companies with a long R & D cycle, product development, and clinical registration that requires a long time and more capital investment, this undoubtedly provides huge development opportunities.