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

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

In 2017, the two-vote system will move from last year's pilot to full implementation. Large enterprises will sink their channels, and small and medium-sized agents will be eliminated, merged and transformed. Under this trend, the industry will breed three major trend changes: horizontal acquisition, vertical extension and transformation.

In terms of horizontal acquisitions, large commercial companies with abundant funds, strong strength and wide distribution of channels will continue to merge and integrate regional channels, and build channels into providers of supply chain integration solutions, and their performance will usher in an outbreak.

Vertical extension can be divided into three types: first, downstream channelization of production enterprises, that is, large enterprises acquire distributors, such as Meikang's acquisition of Yitian Biology and Antu's acquisition of Shengshi Junhui; Second, upstream self-production of circulation enterprises, that is, circulation enterprises acquire upstream technologies, such as Runda Medical, which started with circulation, acquired POCT high-tech barrier product lines; Third, downstream service of circulation enterprises, that is, circulation enterprises extend to terminal services, for example, Dean Diagnostics continues to actively lay out terminal third-party laboratories. The vertical extension makes the enterprise have more voice in the upstream and downstream, so as to improve the profit margin of the enterprise through the synergy.

Transformation refers to the transformation of business model between medical device manufacturing enterprises and channel-based companies, such as the transformation of CSO in the context of the two-vote system, business reform and increase and the transformation of CSO.

In short, the merger, extension, and transformation of channel providers will make the channel links gradually move towards concentration, which is the future way out for channel integration under the trend of two-vote system.

02 Graded diagnosis and treatment brings opportunities for domestic equipment

In 2017, the reform of graded diagnosis and treatment will continue to deepen and be fully rolled out throughout the country. Although the concept of the patient side will not change quickly, but "Chunjiang Plumbing Duck Prophet", graded diagnosis and treatment will bring the allocation of medical resources to the grassroots sinking. Different from the situation that my country's high-end medical equipment market is monopolized by foreign companies, the vast primary medical market has always been a battlefield for domestic brands to gallop. From a policy perspective, the state also encourages and supports primary medical units to use excellent domestic medical equipment. And equipment. We expect that with the tilt of policy and the focus of capital investment, domestic excellent equipment brands, whether they are big brands with channels and products or rising stars with unique technology, will usher in an outbreak in the grass-roots field.

Among them, on the one hand, it is the opportunity to upgrade the existing equipment at the grassroots level, and on the other hand, it is the opportunity to meet the growing needs of primary medical care, but it is easy to operate. We will focus on testing and diagnostic equipment (especially POCT and fast testing equipment, etc.), chronic disease-related household equipment, medical rehabilitation equipment, doctor follow-up follow-up equipment, ultrasound and other simple imaging equipment and other basic equipment.

03 Device-based third-party services are in the ascendant

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" of serving hospitals and win-win with hospitals will be more in line with the current medical business environment than the "subversion model" of reforming hospitals and robbing hospitals. Under this situation, various third-party service agencies based on devices will have great potential, all kinds of "Internet" thinking and mode will also be integrated into these services.

In October 2016, the National Health and Family Planning Commission issued the ''Notice on Basic Standards and Management Standards for Medical Laboratory Laboratories (Trial) '', clarifying that medical laboratory laboratories are separately set up medical institutions, are independent legal entities, and independently bear corresponding legal responsibilities. The provincial health and family planning administrative department set up approval. Then in January 2017, the National Health and Family Planning Commission promulgated the "Interpretation of Basic Standards and Management Standards for Independent Medical Institutions such as Medical Imaging Diagnostic Centers" to clarify that medical imaging, testing, blood purification, and pathology centers are imperative as independent medical institutions.

From the Health and Family 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, it can be seen that third-party diagnosis, imaging, pathology, logistics, disinfection, and disinfection based on medical devices and equipment 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 industries, it is believed that there will be a lot of investment and mergers and acquisitions.

We can see that in the field of third-party inspection, leading enterprises such as Jinyu Inspection will soon be listed, and rising stars such as Qianmai Medicine, Beijing and Hehe will continue to receive capital support for rapid development. In the field of third-party imaging, Yimai Sunshine has won round A investment from Goldman Sachs, and Ping An Good Doctor and listed company Guangyu Group are also actively laying out the third-party disinfection supply chain; and third-party maintenance enterprises such as Kunya Medical, Kedu Medical respectively landed on the new three boards and access to capital investment.

We have also observed that third-party institutions related to diagnosis, such as third-party inspection and third-party imaging, can not only provide services to hospitals, but also face the vast consumer market. If they can combine products and services such as early screening and physical examination, they will break through the stereotype of the hospital market and create a trillion-level health care market, such as combining with the "Internet" such as big data and labor, or docking with new drug research and development, etc., will have immeasurable outbreak potential.

04 New Technology Penetration in the Field of Devices

Early screening technology, artificial, 3D printing, medical robots, etc. will bring a subversive 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 for genetic diseases usually refers to prenatal screening and genetic testing to calculate the probability of genetic diseases; early screening for tumors refers to early detection of tumors by liquid biopsy, gene sequencing and other means before clinical symptoms. Both of them are of great significance for improving the quality of the population and improving the survival rate of tumors. A few days ago, Grail, a cancer screening company, received a $0.9 billion round of B financing, which once again aroused the enthusiasm of capital. The importance of early screening is self-evident. In the future, combined with artificial diagnosis and other technologies, a trillion-level blue ocean market will be born.

In the aspect of artificial diagnosis, the combination of artificial and medical imaging is a hot concern recently. The number of medical images in China and the United States grew by 30 percent and 63 percent, respectively, last year, while the number of radiologists grew by only 4.1 percent and 2.2 percent, respectively, leaving a huge gap between the supply and demand of imaging diagnostics. The new trend of artificial reading film may subvert the future imaging diagnosis and make up for the lack of quantity and accuracy of artificial diagnosis. At present, scientists from Google Brain and Verily have developed a manual diagnosis of breast cancer with an accuracy of 88.5 percent, beating the 73.3 percent accuracy of famous human pathologists. In the future, the breakthrough of more diseases and the improvement of accuracy of manual diagnosis will perfectly fit the rapid development and growth of the third-party imaging industry, making the image cloud diagnosis platform the ultimate solution of image diagnosis.

3D printed medical devices are another emerging field. The 3D printing industry of orthopedic equipment has been initially put into use in recent years, such as Stryker's 3D knee replacement, Aikang Medical's 3D hip joint, and Cotai Meidi's 3D key bone printing. Another major application area of 3D printing is dentistry. Overseas giants BEGO, Plameca and other medical giants have all produced 3D printing equipment suitable for oral applications. For example, 3D Systems and EOS have also been initially introduced into Chinese hospitals. The change of technology will be the deterministic trend of the development of the device market.

The global medical robot industry's revenue reached about US $8.5 billion in 2016. It is conservatively estimated that the average compound annual growth rate will reach 15% in the next five years and will exceed US $15 billion 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 complex operations since it was approved. Rehabilitation robots are also gradually entering the market under the gradual breakthrough of technology. According to the University of Michigan Rehabilitation Robot Association, the compound growth rate of rehabilitation robots in the next five years is 37%, which is much higher than that of other medical robots. In this field, exoskeleton robots from foreign companies such as ReWalk, Cyberdyne, Hocoma and Woodway have emerged, and medical robots produced by rehabilitation medical device companies such as China's Butterfly and Technology, Fourier Robot and Anyang Shenfang have gradually been put into use.

At present, these new technology companies in the field of medical devices are still in their early stages, and they are still mainly pre-A rounds and A rounds of investment. This year, we expect that there will be more and more startups and investment events in these fields, and leading companies will also begin to emerge. Technology platform companies v.s. vertical sector companies; innovation departments of large enterprises v.s. small startups, who will stand out we will see. We believe that platform-based companies look at the ability to migrate to the ground, vertical companies look at the ability to promote channels, large enterprise innovation departments look at the ability to collaborate and resource interaction, small start-up companies look at the ability to break out of a single point of technology.

05 Precision medicine gradually from the concept to mature

In January 2015, the then US President Barack Obama proposed the "Precision Medicine Plan". The term "precision medicine" has gradually become a hot word in the medical field. With the continuous maturity of NGS, gene editing, DNA capture, biological information and other technologies. Precision medicine is also gradually moving from concept to maturity. From the perspective of diagnosis and treatment process, precision medicine can be divided into early screening, disease diagnosis, and prognosis follow-up.

In the field of genetic early screening leading enterprises basically formed, Berry and Kang will soon land in the capital market, Nuohe Zhiyuan to obtain a large amount of financing from the State Investment Innovation, Annoroad production of gene sequencer NextSeq 550AR, as well as fetal chromosome aneuploid detection kit to obtain CFDA's medical device product registration approval. In the field of early screening of tumors, recently, Grail, a cancer early screening company, received a round B financing of US $0.9 billion, which once again aroused the heat of capital. The importance of early screening is self-evident. In the future, combined with artificial diagnosis and other technologies, a trillion-level blue ocean market will be born. Professor Zhang Kun and his team, one of the founders of Kun Yuan Gene, released their latest masterpiece in Nature Genetics, creating the world's first new high-throughput non-invasive detection technology for methylation, which can be used for non-invasive early screening and tracing of cancer in the future. In China, the colorectal cancer methylation gene early screening product introduced by Boercheng has also obtained the CFDA medical device certificate. These achievements will set off the heat of the industry. It is expected that a number of start-up companies will be born in this field in China. In terms of technology, the development of early screening mainly depends on the development of liquid biopsy, DNA capture and amplification technology, methylation and other target discovery technology. At the same time, it also needs to accumulate sufficient clinical data and have clear clinical indications, so as to gradually become the gold standard of early screening.

In terms of disease diagnosis, the most widely used precision medicine is the precise medication and follow-up of tumors. Through molecular pathological examination of tumors, such as NGS, generation sequencing, PCR, FISH, CTC, single cell sequencing and other technologies, the personalized situation of patients is explained from the molecular level, so as to formulate accurate treatment plans and understand the prognosis in clinic, and realize accurate and personalized treatment by combining targeted drugs, cell therapy and other means.

At present, the domestic NGS and ctDNA field competition situation is hot, many enterprises are competing for the trend, after the last two years of horse racing enclosure, the industry is about to usher in a reshuffle period and more cruel competition. We expect that the whole industry will look at the business development and commercialization of each company in the short term, the medium-term service quality and product development and reporting capabilities and customer stickiness, and the long-term will look at the accumulation and application of big data, the creation of business ecology and the development and commercialization of new technologies. In terms of enterprises, the leading enterprises such as Shihe Gene and Burning Stone Medicine continue to receive capital attention, while the emerging forces represented by Metamode Gene, Maingene, Gene Plus, Zhenhe Technology are also catching up with their own different entry points.

06 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 robustness in their investment in medical devices, paying attention to stable investment opportunities with sales profits and mature channels, and have begun to actively seek overseas companies with technology to invest in order to realize the introduction of products and complement the advantages of domestic channels. As the overall cycle of commercialization of medical devices is faster than that of new drugs, we expect that investment institutions, especially US dollar funds, will follow this trend and continue to increase investment and even mergers and acquisitions in overseas technology-based medical device enterprises; while A- share companies will continue to merge overseas medical device enterprises, Overseas mergers and acquisitions have become an effective way for domestic enterprises to introduce foreign technology and overseas enterprises to land in China.

Since 2016, Jiuan Medical has acquired eDevice for 93.88 million euros and added more medical testing equipment. Zixin Pharmaceutical Acquires Nabsys2.0 to Enter Genetic Testing; BOE Invests US $50 million in Cnoga, an Israeli Non-invasive Medical Equipment Company; Sannuo Biology Acquired PTS Diagnosis in the United States for US $0.2 billion to Enter POCT Diagnosis in IVD Industry. In vitro diagnostics, gene sequencing, innovative medical equipment as a high technical barriers, fast-growing hot areas, is the leading acquisition of the battleground. 2017 will be another year for domestic leaders to compete for overseas layout.