An Analysis of Marketing Trend of IVD in China

Gu Chi,Chen Yuwen＊

(School of Business Administration,Shenyang Pharmaceutical University,Shenyang 110016,China)

Abstract Objective To contribute to the in vitro diagnosis (IVD) industry taking a leading position and developing sustainably in the market,and to help enterprises to adopt a variety of methods to strengthen its capacity.Methods Current status of IVD industry was analyzed and some strategies for the development of IVD industry were put forward in combination with the characteristics of the industry.Then the exterior environment of IVD industry and the development of marketing were analyzed so as to help increase the market shares of Chinese IVD industry in the global market.Results and Conclusion Chinese IVD industry was analyzed comprehensively from various perspectives on the basis of study of the history of Chinese IVD industry and foreign IVD industries.Therefore,some strategies are put forward.

Keywords:IVD market; current situation analysis; development strategy

1 The overall introduction of China’s in vitro diagnosis (IVD) market

1.1 Introduction of marketing trend of IVD industry

IVD is a technology which has correlations with human health.It refers to a diagnostic method that samples (blood,body fluids,or tissues) are taken from body to detect certain diseases[1].IVD reagents refer to kits,calibration products and quality control products which are applied as vitro detection of human samples in the process of prevention,diagnosis,treatment monitoring,prognosis observation,health evaluation and prediction of genetic diseases[2].

IVD has developed fast in China since its entrance in the 1980s.Later,the automation level of clinical examination,the standardization of examination and the rise of market share were improved significantly.In recent years,China has made a lot of efforts in the field of economic development and IVD,already have considerable competitiveness.However,China is also confronted with many challenges.For example,this year,America imposed 25% tariff on medical device products in order to limit China’s export and slow down the development of high-end brands.In addition,IVD market in China still has many problems if it expects to become a deep-rooted industry.

Thirty years ago,China had no domestic manufacturers in IVD industry,and the development of testing technology was backward[3].For a long time,IVD market was occupied by foreign manufacturers.Until the 1980s,a number of manufacturers of IVD products emerged in China,which marked the prelude of localization of IVD products.However,in the early stage,due to the limitations of industry knowledge and technology,China’s IVD products had a big gap between the quality and technology with the foreign IVD products.What’s more,the development of IVD industry mainly focused on imitation and learning[4].After more than 30 years of continuous development,IVD market in China laid a solid foundation and many excellent domestic enterprises appeared,such as Shenzhen Mindray,Shanghai KHB,Sichuan Maccura,and so on.These national enterprises take a considerable market share in the international market,breaking the long-term monopoly of foreign IVD products.

IVD market consists of the market of diagnostic reagents,consumables and equipment.Among them,the market of diagnostic reagents accounts for the largest proportion,which is up to 80%.According to the statistical results of relevant data,the total size of IVD market in China in 2015 was about 50 billion yuan and the scale of IVD products was about 41 billion yuan,accounting for 82%.

1.2 Introduction of marketing trend of IVD industry

1.2.1 Market segmentation

IVD industry has the characteristics of low threshold and short R&D cycle[5].Therefore,there are a large number of manufacturers that enter into this field.As is shown in Fig.1,clinical biochemistry,clinical immunity and point-of-care testing (POCT)account for a large proportion and they are relatively mature.Clinical biochemistry and clinical immunity accounted for more than 50% of the total IVD market.Besides,the growth rate is the fastest among various types.Molecules and POCT have rapid growth and high social attention,and are a new field of subdividing industries.Clinical immunity accounts for 38%,taking the lead in this field.Meanwhile,Clinical biochemistry and POCT rank number two and three,taking up 23% and 14% respectively.Hemetology is responsible for 8% in total,followed by ICU,Molecular detection and Urine chemical analysis,all of which occupy around 3%.In terms of the Flow cytometry,it contributes the smallest proportion,only 1% in the IVD market.Other manufacturers account for the rest 6% of the field.

1.2.2 Regional marketing

As far as the enterprise agglomeration area is concerned,the Pearl River Delta,Yangtze River Delta and Beijing-Tianjin Wing are the pioneering regions.At present,IVD products made in Guangdong Province occupies a considerable share in the national market.Guangdong Province ranks No.1 in terms of the number of production enterprises,gross domestic product,and the qualified rate of supervision and spot check[6].

1.2.3 Competition

According to Fig .2,Abbott ranks the first among all the companies,taking up 14.9% in total.Both Beckman and Siemens make up a large proportion,about 8% and 7.7% respectively.The foreign companies,which are composed of a variety of other corporations,account for more than 90% of the IVD market in China.Reversely,the domestic Chinese companies only occupy less than 10%,having Ningbo’s and Beijing’s companies as representatives.

In addition,there are many other small companies in the industry,accounting for 33.7% of the total.Foreign companies account for about 50%of the total Chinese IVD market,but in some market segments,they have a market share of more than 90%.In comparison,the domestic substitution rate in these market segments is less than 10%.In 2015,domestic enterprises with a total export of more than 1 billion are Mindray,KHB and Maccura.

Overall,domestic IVD enterprises are smallscaled,and the number of domestic enterprises that can enter the world market is small.

Although the development of IVD products in China is good in recent years,not only the whole market is in a state of growth,but also some subdivisions of the market are developing at a high speed,there is a big gap between China and foreign mature IVD markets.It can be manifested in the unreasonable classification of IVD reagents,vague standards and the high requirements for operators as well as the contradictions between market demand and registration[7].What’s more,the market lacks supervision.

2 Market analysis of IVD products in China

IVD products consist of upper and lower components.The upstream is mainly the core raw materials and various chemical materials,while the downstream is the medical and scientific research institutions[8].In terms of market development in China,it inevitably can be affected by political environment.Therefore,IVD products can develop fast in China because the government has issued several policies to encourage and support IVD industry in the past decade.As for the economic environment,the market size of IVD is positively correlated with the economic level of the whole region or country.China’s IVD market is still in the initial stage of development,and the industry has great potentials in the future.

3 Overview and enlightenment of the development of IVD industry abroad

3.1 The analysis of the management model of classification and identification of diagnostic products in vitro

The EU Guidelines for the Management of External Diagnostic Medical Devices (EDMD) clearly stipulated that the main purposes of using EDMD could be illustrated from four aspects.First of all,the patient’s physiological or pathological state should be obtained to provide strong theoretical support for treatment.Secondly,it is critical to obtain the patient’s congenital malformation.Thirdly,it is essential to determine the correlation to ensure the safety and compatibility of treatment with potential recipients.Last but not least,it can have supervision for treatment measures[9].

Compared with the classification supervision and management of IVD products market in EU,China’s IVD products market is in disorder.Accordingly,China should introduce a clear classification criterion,which must be in line with the actual situation of the market.Besides,the market should be classified in order.According to the clear division of different management parts,the management and adjudication with different classification standards and conditions can greatly improve the effectiveness of market operation.What’s more,it can help to reduce the pressure of management departments and enterprises.There should be unified procedures for product testing.Besides,products with different risk levels should be tested accordingly,and finally these products can be issued the certification as the evidence by the unified department.

3.2 Competition and development experience of IVD market

Through reviewing the growth process of various medical equipment companies in the foreign IVD market,it can be seen that they have grown through mergers and acquisitions.These typical companies are Medtronic,Roche,Stryker and Siemens.In the past 20 years,these four giants have accomplished 152 times mergers and acquisition in the field of medical devices,which involves a total amount of $106.9 billion.Mergers and acquisitions can be a highprofit and high-risk behavior.The size of individual enterprises in emerging markets is relatively small and the number of them grows rapidly.Thus,there will be more choices and opportunities for mergers and acquisitions.The development of emerging industries is always full of opportunities,and many cases prove that enterprises that seize the first opportunity in the market can always make profit.The successful example of IVD industry is Danaher’s entry into the IVD field through the acquisition of Radiometer.

Medtronic is a case in point.In the process of achieving leapfrog growth through mergers and acquisitions,it is no longer satisfied with mergers and acquisitions of a single type of business,but gradually extends the hand of mergers and acquisitions to a wider range.At the same time,most of the industry giants will give priority to the synergistic effect between the cross-domain and the original domain when making cross-domain merger and acquisition choices.Medtronic’s global distribution has increased from 140 to 160 countries with a total employee of 85 000 people.Besides,its income has increased from $1 billion in 2014 to $30 billion in 2018.To some degree,it also proves that industry-leading enterprises pay more attention to the synergy between different fields when they have cross-domain mergers and acquisitions.The benefits brought by merger and acquisition are considerable.

In addition,the decline in the corporate income accelerates the merger and acquisition.Tracing back some of the equipment giants’ mergers and acquisitions experience,it can be found that most of the major acquisition cases occur during the downturn of enterprise growth,especially in the case of Medtronic and Strker.In 2001,the growth rate of Medtronic fell to 11%.Hence,in order to ensure the growth rate,the merger and acquisition of Minimed was implemented.As a result,the growth rate of enterprises rebounded soon.From the period of 2006 to 2015,the growth rate of Medtronic created a new record of 10% decline.

4 Trend analysis of IVD market in China

Combining with the development of foreign industry giants and the actual situation of IVD industry in China,it is believed that enterprises in domestic industry can be divided into three levels according to the income scale and market share[10].Thus they can achieve the most efficient development according to different requirements in different stages.

4.1 The first level enterprises should focus on crossdomain layout

Companies like Mindray,Xinhua and Wego have large shares in the domestic IVD market.That is,their market share in the dominant areas has reached more than 10%.Technically speaking,the above-mentioned companies can realize their technology preservation and even technology updating alone.In recent years,the growth rate of the top three domestic enterprises in their advantageous areas has been lower than that of their industries for three years.Therefore,leading enterprises need to expand extensively.If these leading enterprises would like to realize the transformation from domestic top enterprises to international top ones,it is of great necessity to resort to cross-domain mergers and acquisitions to achieve their success.

Besides the change of mergers and acquisitions for enterprises,they need to make full use of national policies as well[11].The change of market structure and the release of market demand brought about by import substitution and medical promotion are indispensable.In 2017,both the central government and the local governments introduced favorable policies to promote import substitution in the medical equipment industry in order to narrow the gap with overseas enterprises in terms of technology.In addition,the beginning of Sino-US trade war in this year accelerated the pace of domestic substitution of high-end products in China,and it is a good opportunity.

The first level enterprises in IVD industry should turn mergers and acquisitions (M&A) to the field with high-tech content and low localization under the general trend that domestic products should substitute imported products.The target of M&A is foreign enterprises with certain R&D production capacity,but they don’t have market share due to monopolies.Thus,technology from foreign enterprise can be introduced into China’s market,which will expand development space and improve the success rate of synergistic development after merger and acquisition.

4.2 The second level enterprises should focus on market position and technology protection

Since they are relatively low in income and scale,like Lepu medical and Microport,the choice of positioning is far more important than profit.These kinds of enterprises should absorb the technology from their counterparts in order to expand their market share.Hence,it can help them maintain their leading position of technology by merging enterprises with certain achievements in technological innovation.

The second level enterprises are potential in the field of subdivisions.From the specific data,the market share of these enterprises in their main subdivisions remains around 5%,and their market expansion is very strong.Stable leading products can ensure the research and production capability of enterprises.Most of these enterprises have realized initial public offering (IPO) in the stock market,and their financing ability is stronger than their peers.With the increasing competitiveness of their business,the capital market also continues to give these enterprises a valuation premium that is higher than the industry level.Therefore,their capability for M&A can be improved significantly.

4.3 The third level enterprises should improve competitiveness in the field of subdivisions

The annual income of these enterprises is less than 100 million yuan,and their profitability is still insufficient.They need to build basic capabilities and core competitiveness.Thus,they cannot expand the scale of enterprises by means of mergers and acquisitions.According to the statistics of China Pharmaceutical Administration,more than 70%of the market share is occupied by the top 5%of domestic enterprises and international giants.However,less than 30% of the market share is divided by 95% of domestic enterprises.In IVD industry,the competitiveness of follow-up homogenization competitors is generally smaller.In summary,it is proposed that the third level enterprises should focus on the increase of competitiveness in the field of subdivision and strive to develop its business without mergers and acquisitions.

Expectations about IVD products:

(1) The government is supposed to provide support for some leading enterprises to enhance their product competitiveness from the perspective of innovation.Innovative IVD products related to major diseases should be given significant support.

(2) Enterprises should enhance their capability of technological innovation as well as the overall trend of technological development.It means they should change from qualitative to quantitative,from single target to multi-target network.This can help China’s enterprises narrow the gap with developed countries.

(3) According to the characteristics of enterprise culture,advantages and resources,they should formulate marketing strategies that fully reflect their characteristics with unique effects.

From the perspectives of professional skills,IVD industry in China will show a vigorous development trend in the future for a long time,which will have an impact on the current medical diagnosis.The development of IVD industry has changed and it is no longer a monotonous industry but it can better meet the demand of consumers.At the same time,there are also high pursuits in technology and diagnostic level.The development of IVD industry will shorten the distance between medical treatment and diagnosis.

From the marketing level,it is necessary to fully integrate the overall market development environment to form the strategies based on the planning of the whole industry and the harmonious relationships among.According to the status of IVD industry in China,it is expected that in the near future,IVD industry can realize the localization of products,standardization of market management and industry centralization.Only in this way can the overall development of domestic enterprises be realized.