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Q2 2019

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Asia
Medical De
Devic
vices
es R
Report
eport
Includes 5-year forecasts to 2023
Asia Medical Devices Report | Q2 2019

Contents
Key View............................................................................................................................................................................................ 4
Medical Devices Key View ......................................................................................................................................................................................................... 4

Industry Forecast........................................................................................................................................................................... 5
Medical Devices Forecast .......................................................................................................................................................................................................... 5

Industry Risk/Reward Index ....................................................................................................................................................12


Medical Devices Industry Risk/Reward Index .................................................................................................................................................................12

Industry Trends And Developments .....................................................................................................................................20


Medical Devices Industry Round-Up...................................................................................................................................................................................20

Industry Trend Analysis.............................................................................................................................................................22


Create In China Will Drive Medical Device Industry Development .........................................................................................................................22
Manufacturing Initiatives Will Support Indian Medical Device Industry ...............................................................................................................26
Malaysia's Medical Device Industry Facing Headwinds To Foreign Investme's..................................................................................................28

Medical Devices Methodology.................................................................................................................................................31

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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Key View
Medical Devices Key View
Key View: The Asian medical device market will continue to outperform globally, recording high single-digit growth from 2019, led
by Emerging Asia which will grow at more than twice the rate of Developed Asia. Growth from increased patient volumes due to
expanding healthcare systems, ageing demographics and the rising incidence of chronic diseases will be offset by the continued
pressure to maximise efficiencies, particularly in more mature markets, resulting in further cost-containment measures, a hardened
stance on reimbursement and increased market competition.

MEDICAL DEVICE MARKET INDICATORS, 2018-2023


Indicator 2018 2019f 2020f 2021f 2022f 2023f

Medical devices total sales, USDmn 79,588.13 84,015.85 89,934.88 97,398.02 103,942.71 112,226.28

Medical devices total sales, USD, % y-o-y 9.7 5.6 7.0 8.3 6.7 8.0

Medical devices total sales, USD, 5 year forecasted CAGR 7.1 7.7 7.8 7.7 7.9 7.8

Medical devices total sales per capita, USD 20.1 21.1 22.4 24.1 25.5 27.4
Source: National Statistics, Fitch Solutions

Latest Updates And Key Forecasts

• We maintain our forecast CAGR and project that the Asian medical device market will grow at a 2018-2023 CAGR of 7.1% in
weighted local currency terms, slightly lower than the 2013-2018 CAGR of 7.5%. The regional market will continue to benefit
from continuing economic outperformance in Emerging Asia, offsetting lower growth in Developed Asian economies. Despite an
improved economic outlook in some markets, efforts to contain health expenditure in more mature markets, slower import
growth as emerging economies seek to expand domestic production and increasing market competition will continue to
constrain overall growth.
• The Asia Pacific region remains the second most attractive region for medical devices, with some of the world's fastest growing
markets, despite significant regulatory and operational risks. Developed markets led by Japan top our Medical Devices Risk/
Reward Index, offering a high-reward low-risk profile. Bangladesh and Pakistan languish at the bottom of the Index with high risks
outweighing relatively low rewards. China and Malaysia represent some of the best market opportunities in the region through a
mix of high rewards and manageable risks, while India offers the most potential as a fast-growing market with an improving
regulatory environment, offset by a hardened stance on medical device pricing.
• Expedited review of innovative medical devices continues to accelerate in China with the National Medical Products
Administration registering 21 devices via the special approval process in 2018. The renewed focus on innovation will fuel
expansion of the domestic medical device industry which is entering a new development phase as it moves from ‘Made in China’
to ‘Created in China’, which will also lead to further steps to improve intellectual property protection. Domestic medical device
producers will benefit from the current drive to reduce import dependency and will also seek to capture a greater share of the
global medical device market.
• India will continue to implement initiatives such as the Andhra Pradesh Medtech Zone to develop its status as a global medical
device manufacturing hub. Additionally, the establishment of a National Medical Devices Promotion Council will support the
development of a comprehensive framework for medical devices to boost domestic manufacturing. An acceleration in domestic
manufacturing will reduce high dependency on medical device imports, which continue to grow strongly despite the threat of
further pricing controls.
• Malaysia’s reluctance to sign the CPTPP free trade agreement poses downside risks to the medical device industry which could
lose out on investment decisions to other ASEAN nations. The domestic medical device industry has seen rapid growth, but
investment slowed in 2018 amid concerns over the new government’s foreign investment policy. Additionally, Johnson &
Johnson’s decision to shut down its intraocular lens plant in Kulim will negatively impact orthopaedics production.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Industry Forecast
Medical Devices Forecast

Latest Updates

We maintain our forecast CAGR and project that the Asian medical device market will grow at a 2018-2023 CAGR of 7.1% in
weighted local currency terms, slightly lower than the 2013-2018 CAGR of 7.5%. The regional market will continue to benefit from
continuing economic outperformance in Emerging Asia, offsetting lower growth in Developed Asian economies. Despite an
improved economic outlook in some markets, efforts to contain health expenditure in more mature markets, slower import growth
as emerging economies seek to expand domestic production and increasing market competition will continue to constrain overall
growth.

On a product basis, consumables will record the highest 2018-2023 CAGR at 7.6%, reflecting ageing demographics and the rising
incidence of chronic diseases in both developed and emerging markets, which will result in increased patient volumes.
Orthopaedics & prosthetics will record the second highest 2018-2023 CAGR at 7.3%, due to an acceleration in the Japanese market,
which will offset planned pricing cuts for implants in Australia. Other medical devices will record the third highest 2018-2023
CAGR at 7.1%, just ahead of patient aids which will see below average growth due to pricing pressures in key sectors, including price
caps on stents in India. Diagnostic imaging and dental products will be the slowest growing product areas, each with a
2018-2023 CAGR of 6.6%. Diagnostic imaging will be the only product area where the 2018-2023 CAGR will be higher than the
2013-2018 CAGR, reflecting renewed growth in the Chinese market, although health expenditure pressures will continue to contain
the adoption of new technologies that require significant capital expenditure, particularly in more mature markets.

Note, CAGRs are in weighted local currency terms, which are aggregated from the country-level US dollar proportions and have
been equalised to minimise currency fluctuations using a time series-weighted calculation.

Lower CAGRs Apart From Diagnostic Imaging


Medical Device Market CAGR By Product Area, 2013-2018/2018-2023 (Weighted Local Currency)

Source: National Statistics, Fitch Solutions

We have revised our forecast CAGR downwards in US dollar terms and now project that the market will record a 2018-2023 CAGR of
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

7.1%, which will take the value to USD112.2bn by 2023. The market will see mid single-digit growth in 2019 and high single-digit
growth from 2020. Note, CAGRs refer to US dollar denominated market forecasts, so these regional trends are impacted by
fluctuations in local currency valuation, relative to the US dollar.

2019 Will See Lower Growth


Medical Device Market, 2018-2023

Source: National Statistics, Fitch Solutions

On a product basis, other medical devices will remain the largest product area, followed by diagnostic imaging and consumables.
These three product areas account for more than two-thirds of the total market. Patient aids and orthopaedics & prosthetics will
continue to each account for 10-15%, while dental products will remain the smallest product area.

Other Medical Devices And Diagnostic Imaging Largest Product Areas


Medical Device Market By Product Area, 2018 & 2023 (USDmn)

Source:National Statistics, Fitch Solutions


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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

All product areas will have high single-digit 2018-2023 CAGRs, led by consumables at 7.7%. Diagnostic imaigng and dental products
will have the lowest CAGRs at 6.7% and 6.8% respectively. The remaining product areas will record CAGRs ranging between 7.0%
and 7.4%.

Consumables To Lead Growth


Medical Device Market CAGR By Product Area, 2013-2018/2018-2023 (USDmn)

Source: National Statistics, Fitch Solutions

On a sub-regional basis, Emerging Asia will overtake Developed Asia to represent 51% of the total market by 2023. The market in
Emerging Asia will outstrip the market in Developed Asia in consumables, diagnostic imaging and other medical devices, but will
remain proportionally smaller in dental products, orthopaedics & prosthetics and patients aids, due to a younger demographic
profile. Japan will continue to represent the largest market in Developed Asia, accounting for over 60% of the total, while China will
account for just over 70% of the market in Emerging Asia by 2023.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Emerging Asia To Overtake Developed Asia


Medical Device Market By Sub-Region/Product Area, 2023 (% Total)

Source: National Statistics, Fitch Solutions

Markets in Emerging Asia will continue to outperform within the region, registering a US dollar 2018-2023 CAGR of 9.5%, driven by
relatively high economic growth, rapidly expanding populations and increasing healthcare access. Growth will be spearheaded by
Bangladesh and the Philippines, which will have double-digit 2018-2023 CAGRs, while China, Vietnam, Indonesia, India, Malaysia and
Thailand will have high single-digit CAGRs and Pakistan a mid single-digit CAGR.

Markets in Developed Asia will record a much lower US dollar 2018-2023 CAGR of 4.9%, hindered by under-performing economies,
a hardening stance on reimbursement and other pricing pressures, although Singapore will remain an outperformer, supported by
strong government financial backing for the healthcare sector, new healthcare development projects and a well-established
medical tourism industry. Taiwan will have a high single-digit CAGR, while Hong Kong, South Korea, Japan, Australia and New
Zealand will have mid single-digit CAGRs.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Emerging Asia To Outperform


Medical Device Market CAGR By Sub-Region/Product Area, 2018-2023 (USDmn)

Source: National Statistics, Fitch Solutions

MEDICAL DEVICE MARKET BY SUB-REGION/PRODUCT AREA, 2018-2023 (USDMN)


2018 2019 2020 2021 2022 2023

Medical devices total sales 79,588 84,016 89,935 97,398 103,943 112,226

Developed Asia Medical devices total sales 43,471 45,225 47,549 50,233 52,627 55,345

Emerging Asia Medical devices total sales 36,117 38,791 42,386 47,165 51,316 56,882

Consumables total sales 13,975 14,789 15,915 17,338 18,618 20,209

Developed Asia Consumables total sales 7,076 7,374 7,792 8,280 8,738 9,237

Emerging Asia Consumables total sales 6,899 7,415 8,123 9,059 9,880 10,971

Diagnostic imaging total sales 20,699 21,652 23,104 24,933 26,572 28,565

Developed Asia Diagnostic imaging total sales 9,897 10,256 10,760 11,354 11,901 12,470

Emerging Asia Diagnostic imaging total sales 10,802 11,396 12,344 13,579 14,671 16,095

Dental products total sales 4,670 4,911 5,240 5,651 6,026 6,483

Developed Asia Dental products total sales 3,066 3,176 3,326 3,501 3,667 3,844

Emerging Asia Dental products total sales 1,604 1,735 1,914 2,151 2,358 2,640

Orthopaedics & prosthetics total sales 8,409 9,046 9,773 10,547 11,138 12,028

Developed Asia Orthopaedics & prosthetics total sales 5,415 5,816 6,208 6,542 6,753 7,127

Emerging Asia Orthopaedics & prosthetics total sales 2,995 3,230 3,565 4,005 4,385 4,902

Patient aids total sales 10,980 11,566 12,360 13,384 14,279 15,410

Developed Asia Patient aids total sales 6,338 6,583 6,919 7,341 7,735 8,162

Emerging Asia Patient aids total sales 4,643 4,984 5,441 6,044 6,544 7,249

Other medical devices total sales, USDmn 20,855 22,051 23,544 25,544 27,311 29,531

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

2018 2019 2020 2021 2022 2023

Developed Asia Other medical devices total sales 11,680 12,021 12,545 13,216 13,833 14,505

Emerging Asia Other medical devices total sales 9,175 10,031 10,999 12,328 13,478 15,026

Source: National Statistics, Fitch Solutions

Structural Trends

In Developed Asia, the market will benefit from:

• Strong fundamentals: generally stable governments with longstanding democratic traditions; a sizeable economy accounting
for around 10% of global GDP, led by Japan; high per capita GDP contributing to stable societies; highly educated workforce; well-
developed high-tech manufacturing sectors; and strong intellectual property rights protection.
• Healthcare drivers: a growing elderly population of nearly 50mn with increasing healthcare needs; high standards of living; a
high level of health insurance cover; well developed and technologically advanced healthcare systems; and highly trained
medical personnel.
• Market drivers: a substantial market led by Japan, the world's second largest market; high per capita spending; an eagerness to
remain at the forefront of medical technology; high import reliance, apart from Japan and South Korea; and improvements in
market access through free trade agreements.

The market will be constrained by:

• Weak fundamentals: security issues and terrorist threats; military tensions in north east Asia with North Korea;
underperforming economies seeing low single-digit growth; and rising global trade protectionism which threatens externally
focused economies such as Singapore and South Korea.
• Healthcare barriers: continued pressure to cut healthcare costs; and healthcare systems and insurance schemes burdened by
the relatively large elderly population.
• Market barriers: cost containment measures and pricing pressures; hardening stance on reimbursement; a relatively slow and
complex approval process in most markets; enhanced regulatory requirements for higher risk devices; and high market
competition.

In Emerging Asia, the market will benefit from:

• Strong fundamentals: a large economy accounting for more than a fifth of global GDP, led by China; the world's fastest
developing economic region growing at more than twice the global average, despite slowing economies in China, India, Malaysia,
Thailand and Vietnam, with most countries seeing mid single-digit real GDP growth; and the growing levels of foreign investment
supporting infrastructural and industrial development.
• Healthcare drivers: more than half the world's population, of whom three-quarters reside in China and India; an elderly
population of 250mn; rising incidence of chronic diseases resulting in increased patient volumes; an expanding middle class with
rising healthcare expectations; expansion of health insurance cover in most countries; large scale development of hospitals and
other healthcare facilities; and initiatives to increase private sector participation in the healthcare system.
• Market drivers: above average market growth by regional and global standards; an expanding middle class supporting further
development of the private sector, which seeks high quality, high-tech products; regional market development outside major
cities; continued reliance on imports despite moves to increase size and sophistication of domestic production; improvements
to the regulatory framework to speed up registration timeframes; and trade agreements to increase market access.

The market will be constrained by:


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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

• Weak fundamentals: the vast geographic size of the region with much poorer underdeveloped rural areas in Bangladesh, India
and Indonesia; high income inequality in many countries restricting access to healthcare for the very poor; slowing economic
growth amidst increasingly uncertain global outlook and escalating international trade tensions; rising political risks with the
change of government in Malaysia, repeated delays to elections in Thailand and religious and social tensions in Bangladesh
following elections at the end of December 2018, all dimming the investment outlook; strong opposition to Prime Minister Imran
Khan's reform drive in Pakistan; the growing threat of radical Islam in South East as Islamic state foreigner fighters return from
the Middle East to their home countries, as evidenced by the May 2018 terror attacks in Indonesia; and corruption and opaque
business practices.
• Healthcare barriers: decentralised healthcare systems in many countries resulting in weak co-ordination in implementation of
healthcare policy; low per capita health expenditure; low health insurance uptake; relatively modest level of health insurance
cover for most residents making costly treatments unaffordable; patchy public healthcare provision; and underdeveloped
healthcare infrastructure, particularly in rural areas.
• Market barriers: low per capita spending on medical devices; a lack of medical device regulation in some markets, although
new medical device regulation in India and Pakistan represents a positive step; a more proactive stance on pricing, including
pricing controls for stents and other implantables in India; a fragmented domestic industry; government incentives to encourage
the uptake of domestically-produced products, notably in China; ongoing US-China trade tensions hindering Chinese market
access for US-manufactured medical devices; and increasing market competition impacting on profit-margins.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Industry Risk/Reward Index


Medical Devices Industry Risk/Reward Index
Key View

• The Asia Pacific region remains the second most attractive region for medical devices, with some of the world's fastest growing
markets, despite significant regulatory and operational risks.
• Developed markets led by Japan top our Medical Devices Risk/Reward Index, offering a high-reward low-risk profile.
• Bangladesh and Pakistan languish at the bottom of the Index with high risks outweighing relatively low rewards.
• China and Malaysia represent some of the best market opportunities in the region through a mix of high rewards and
manageable risks, while India offers the most potential as a fast-growing market with an improving regulatory environment,
offset by a hardened stance on medical device pricing.

Asia Pacific: Developed Markets Top Performers


Asia Pacific Medical Devices Risk/Reward Index Heat Map

Scores Out of 100. Higher Score = Lower Risk. Source: Fitch Solutions Medical Devices Risk/Reward Index

Main Regional Features & Latest Updates

• Asia Pacific is the second most attractive out of six regions in our Global Medical Devices RRI, outperforming the global scores
for both Rewards and Risks. The region benefits from the presence of two of the world's five largest markets and more than half
the world's population, including an elderly population of 300mn.
• Developed markets outperform emerging markets on most Rewards and Risks components, driven by a high rate of
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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

urbanisation, superior access to healthcare, more robust regulatory frameworks and lower operational risks. Emerging
markets have the edge in terms of overall population size, population growth and market growth, indicating higher long-term
potential that counterbalances the considerably higher risks that these markets pose.
• As Asia Pacific's largest market, Japan ranks first in the region, heading the scores for both Rewards and Industry Risks, followed
by South Korea and Singapore. China ranks first among emerging markets with strong Industry Rewards factors offset by
below average scores for Country Rewards and Industry Risks. Malaysia is the second most attractive emerging market, offering
a balance of relatively high Rewards and comparatively low Risks. In tenth place, India offers considerable potential, ranking sixth
for Industry Rewards, but much lower for other components of the RRI. The country's Industry Risk profile has improved with the
introduction of new medical device regulations in January 2018.
• Bangladesh and Pakistan are the least attractive markets, limited by small market sizes, large rural populations, poor access to
healthcare services, weak regulatory systems and unfavourable operating environments.

Asia Pacific High Potential


Asia Pacific Medical Devices Risk/Reward Index

Scores out of 100. Higher Score = Lower Risk. Source: Fitch Solutions Medical Devices Risk/Reward Index

Japan Remains Most Attractive Market In The Region

• Japan occupies the top position in our Asia Pacific Medical Devices RRI and the fourth position globally. The country's Index is
bolstered by a particularly strong score for Industry Rewards and Industry Risks. The Industry Rewards score reflects the market
size and high level of per capita spending, despite strong emphasis based on cost-containment, while the Industry Risks score is
enhanced by excellent healthcare access and a robust regulatory environment. The overall Rewards score is further boosted by a
large urban population and rapidly ageing demographics.
• South Korea occupies second place, supported by strong Industry Rewards, having the third largest market, per capita
spending well above the regional average and a strong domestic industry. In third place, Singapore is the leading ASEAN
market, supported by a particularly high Country Risks score, on account of its political stability and business-friendly
environment.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Japan Driven By High Industry Rewards And Low Industry Risks


Japan And Asia Pacific Average Medical Devices Risk/Reward Scores

Scores Out Of 100. Higher Score = Lower Risk. Source: Fitch Solutions Risk/Reward Index

China And Malaysia Head Emerging Asia

• China is the top emerging market and sixth in the overall region. China ranks top for Industry Rewards, having the second largest
market in the region, which is seeing renewed growth after a period of weakness, supported by the "Healthy China" strategic
plan, making health a national political priority. However, the drive to reduce import-reliance, which will intensify as a result of the
more protectionist trade stance of the US Trump administration, means rising demand for medical devices will primarily benefit
domestic producers. A strong Industry Rewards performance is offset by below average scores for Country Rewards and Industry
Risks reflecting patchy access to medical services, particularly in rural areas and the absence of a comprehensive pricing and
reimbursement framework. On the upside, the national regulator is taking steps to align the regulatory framework with
international norms.
• Malaysia is the second most attractive emerging market, and the seventh overall, offering a balance of relatively high Rewards
and comparatively low Risks. The market is one of the largest in South East Asia, which supports a strong Industry Rewards score.
Within Country Rewards, the highly urbanised and fast growing population offsets the small elderly population, meaning a
comparatively smaller burden posed by chronic diseases associated with old age which limits demand for medical devices. The
country's relatively new medical device regulations have increased the attractiveness of the market for multinationals, which
continue to invest in local industry, contributing to the development of Malaysia as a high value-added manufacturing hub,
supporting an above average score for Industry Risks. Economic stability and a business-friendly environment underpin the
Country Risks score, which is above the regional average, although the change of government in May 2018 has increased
political uncertainty, particularly with regards to foreign investment.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

China And Malaysia Offer High Rewards With Manageable Risks


China, Malaysia And Asia Pacific Average Medical Devices Risk/Reward Scores

Scores Out Of 100. Higher Score = Lower Risk. Source: Fitch Solutions Risk/Reward Index

India Offers Long Term Potential

• India sits in the bottom half of the Asia Pacific Medical Devices RRI, despite being sixth for Industry Rewards on account of its
relatively large market and above average market growth. The large rural and predominantly young population contributes to a
Country Rewards score that is below the regional average. India remains a difficult place to do business with significant structural
risks including internal security threats, corruption, excessive bureaucracy and weak utilities infrastructure, which lowers the
score for Country Risks. The overall position is further dragged down by a particularly low Industry Risks score, reflecting poor
access to healthcare for the majority of the population, low uptake of health insurance and a weak regulatory environment.
While the introduction of new medical device regulations in January 2018 will strengthen the regulatory framework, access to
specialist care will remain limited despite measures to improve healthcare access in the FY2018-19 budget. Additionally, a more
proactive stance on medical device pricing, including pricing controls on high cost implantable devices such as coronary stents
and artificial knee implants, poses further downside risks.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

India A High Reward, High Risk Market


India And Asia Pacific Average Medical Devices Risk/Reward Scores

Scores Out Of 100. Higher Score = Lower Risk. Source: Fitch Solutions Risk/Reward Index

Pakistan And Bangladesh Low Reward, High Risk Markets

• Pakistan is the least attractive market in our Asia Pacific Medical Devices RRI. The country occupies bottom position for Industry
Rewards and Country Risks hindered by very low per capita spending, limited production geared to export and a poor operating
environment. Pakistan also scores below average for Country Rewards and Industry Risks despite its large and rapidly expanding
population due to the fact that less than 40% of inhabitants reside in urbanised areas, leaving the market highly fragmented with
poor access to healthcare services.
• Bangladesh has the second lowest position in our Asia Pacific Medical Devices RRI. The country has the smallest market in the
region and the lowest per capita spending. The Country Rewards score is also below average hindered by the large rural
population and the predominantly youthful demographic profile. Poor healthcare access, a weak regulatory system and a poor
operating environment hinder the Industry and Country Risk scores.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Asia Pacific: Japan, South Korea And Singapore Score In Global Top-15
Asia Pacific Medical Devices Risk/Reward Index

Scores out of 100. Higher Score = Lower Risk. Source: Fitch Solutions Medical Devices Risk/Reward Index

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Asia Pacific: Japan, South Korea And China Offer Highest Rewards
Asia Pacific Medical Devices Industry And Country Rewards Scores

Scores out of 100. Higher Score = Higher Reward. Source: Fitch Solutions Medical Devices Risk/Reward Index

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Asia Pacific: Pakistan And Bangladesh Pose Highest Risks


Asia Pacific Medical Devices Industry And Country Risks Scores

Scores out of 100. Higher Score = Lower Risk. Source: Fitch Solutions Medical Devices Risk/Reward Index

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Industry Trends And Developments


Medical Devices Industry Round-Up
Key View

• Economic growth in Asia-Pacific will continue to slow in 2019, but the region will maintain its global economic outperformance,
driven by expanding economies in Emerging Asia, which will support above average medical device market growth.
• We now expect regional real GDP growth to come in at 4.6% in 2019, down from 5.9% in 2018, versus 3.0% for the global
economy.
• Most countries will see static or declining GDP growth in 2019 with rising global trade protectionism posing downside risks to
China and externally focused economies such as Hong Kong, Singapore, South Korea and Taiwan.
• Cost containment measures in key markets, along with rising political risks in South East Asia, will weigh on investor confidence
and hinder regional performance.

Developed Asia Constrained By Cost-Containment Measures

The Developed Asia region will remain constrained by low economic growth and cost-containment measures in mature markets
such as Australia and Japan. Singapore will be an outperformer on the back of strong government financial backing for the
healthcare sector and a rapidly expanding medical technology industry. Taiwan, Hong Kong and South Korea will also see above
average market growth driven by ageing demographics, epidemiological shifts, healthcare expansion and technological acquisition.
Emerging technologies such as artificial intelligence (AI), personalised medicine, 3D printing and robotics will further drive growth.
Market competition will increase as governments in less developed markets support their domestic industries' expansion into
higher value manufacturing. Australia, Japan, New Zealand and Singapore will benefit from reduced trade barriers under the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which entered into force for these countries at
the end of 2018. Recent developments include:

• In Australia, the Therapeutic Goods Administration (TGA) is proposing the introduction of a Unique Device Identification (UDI)
system for medical devices which will improve the traceability within the supply chain by ensuring timely access to complete,
accurate and consistent information on medical devices.
• In Hong Kong, local medical device manufacturers will benefit from improved integration with the Chinese regulatory system
following the Chinese National Regulatory Authority's recognition of Hong Kong marketing approval certification as supporting
documentation for medical device registration applications in mainland China.
• In Japan, Olympus' records of supplying medical devices with defects will be the biggest risk to the company’s growth
prospects over the short-term. The company will maintain a strained financial performance as sales decline, while also setting
aside funds to pay for its recent fine. Olympus will nevertheless remain a leader in the global market for endoscopes as the
company restructures its business operations from April 1 2019.
• In New Zealand, the construction of a new private orthopaedic hospital in Auckland, which is due to open in mid-2019, will
boost treatment capacity to meet the rising demand from the growing elderly population in the Auckland area.
• In Singapore, medical device manufacturers will benefit from the signing of an EU-Singapore Free Trade Agreement (EUSFTA),
which will improve market access from 2019. EUSFTA will provide a boost for Singapore’s medical device industry which has
seen falling output in recent months.
• In South Korea, the government’s pro-growth agenda will generate upside risks for the medical device industry. Companies will
benefit from government plans to create a digital platform for big data analytics and AI and invest in biotechnology and
healthcare. The supportive business environment will encourage multinationals to partner with local companies to exploit new
growth opportunities.
• In Taiwan, the medical device industry will benefit from measures in the 2019 budget to support innovation and increase the
competitive edge of Taiwanese businesses, together with a TWD10.1bn (USD0.3bn) allocation for biomedical industry
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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 20
Asia Medical Devices Report | Q2 2019

development, reinforcing the government’s commitment to investing in biomedical industry growth.

Emerging Asia To Outperform

While Emerging Asia will continue to comfortably outperform within the region, companies will have to comply with increasingly
strict regulatory requirements as governments seek to drive up standards. We are broadly positive about reform prospects in
ASEAN and believe that most member countries will continue to improve their business environments and reduce trade and
investment barriers within the bloc and externally, in contrast to a more protectionist stance in the US. The ASEAN, China and India
are set to benefit from reduced trade barriers under the Regional Comprehensive Economic Partnership (RCEP), which will most
likely be finalised in 2019. Ongoing US-China trade tensions will drive greater efforts to reduce import dependency in key markets
such as China where companies are likely to increase their focus on the domestic and broader Asian market. We believe that China
will play an increasingly influential role across Asia as it increases its investment in the region through the Belt And Road initiative.
China is already one of the single largest trading partners for most countries in Asia and will remain a major player in ASEAN as
Chinese investment continues to flow into the region.

Recent developments include:

• In Bangladesh, primary health services will be boosted by a USD110mn loan from the Asian Development Bank (ADB) to
provide additional financing for the Urban Primary Health Care Services Delivery Project (UPHCSDP).
• In China, expedited review of innovative medical devices continues to accelerate with the National Medical Products
Administration registering 21 devices via the special approval process in 2018. The renewed focus on innovation will fuel
expansion of the domestic medical device industry which is entering a new development phase as it moves from ‘Made in China’
to ‘Created in China’, which will also lead to further steps to improve intellectual property protection.
• India will continue to implement initiatives such as the Andhra Pradesh Medtech Zone to develop its status as a global medical
device manufacturing hub. Additionally, the establishment of a National Medical Devices Promotion Council will support the
development of a comprehensive framework for medical devices to boost domestic manufacturing. An acceleration in domestic
manufacturing will reduce high dependency on medical device imports, which continue to grow strongly despite the threat of
further pricing controls.
• In Indonesia, an enhanced procurement system focused on the healthcare sector will make medical device procurement
easier and more manageable, while an increase in company participation in the national e-Catalogue system will increase
transparency and support medical device market growth.
• Malaysia’s reluctance to sign the CPTPP free trade agreement poses downside risks to the medical device industry which could
lose out on investment decisions to other ASEAN nations. The domestic medical device industry has seen rapid growth, but
investment slowed in 2018 amid concerns over the new government’s foreign investment policy.
• In Pakistan, Imran Khan's administration will continue to introduce much-needed reforms in the country's health system, which
will benefit the medical devices market. The most interesting development so far has been the government's plan to establish a
new health insurance scheme, which will provide free services to the poor, and issue health cards to the citizens.
• In the Philippines, efforts by the government to achieve Universal Health Coverage (UHC) will support the medical device
market. To achieve UHC, local health facilities will continue to be upgraded and equipped, creating significant commercial
opportunities for medical device companies.
• In Thailand, price controls on medical supplies and services will limit investment in new medical equipment. Tough pricing
policies will make Thailand a less favorable investment destination in Asia for medical device manufacturers, while sluggish
investment will restrict market growth over the coming years.
• In Vietnam, the healthcare market is set to benefit from an Asian Development Bank funding package aimed at improving
healthcare service quality which will support the government as it implements reforms aimed at attaining universal health
coverage.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 21
Asia Medical Devices Report | Q2 2019

Industry Trend Analysis


Create In China Will Drive Medical Device Industry Development
Key View

• Expedited review of innovative medical devices continues to accelerate with the National Medical Products Administration
(NMPA) registering 21 devices via the special approval process in 2018.
• The renewed focus on innovation will fuel expansion of the domestic medical device industry which is entering a new
development phase as it moves from ‘Made in China’ to ‘Created in China’, which will also lead to further steps to improve
intellectual property (IP) protection.
• Domestic medical device producers will benefit from the current drive to reduce import dependency and will also seek to
capture a greater share of the global medical device market.

In 2018, the NMPA approved 21 medical devices and IVD products under the country’s accelerated review process
for innovative devices for which an innovation patent has been obtained in China. This is nearly double the 12 devices
approved in 2017. Since the launch of the accelerated review process in late 2014, over 1,000 applications for innovative devices
have been submitted and nearly 200 products have entered the programme. At the end of 2018, the NMPA had issued registrations
for 54 products, of which around 40% were for implantable devices. According to the NMPA’s Centre for Medical Device Evaluation,
the average review and approval time under the expedited process was 83 days faster than for other first time technologies.

Additionally, 20 products have been included on a separate Medical Device Priority Approval Process (CFDA Order No. 168),
introduced in January 2017, of which five have been approved. This programme caters for new products with clinical applications
that are currently unmet on the Chinese market and is open to both domestic and imported devices. To date, six imported devices
have been included on the list, all of them in 2016.

Chinese Innovation Accelerating


Medical Device Registrations Under Special Approval Process For Innovative Medical Devices, 2014-2018

Source: NMPA, Fitch Solutions

Shanghai Lianying Medical Technology (United Imaging) was the most successful company in terms of innovative product
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Asia Medical Devices Report | Q2 2019

approvals in 2018, obtaining marketing clearance for a PET/MRI system and a linear accelerator. We highlight that United Imaging is
investing heavily in R&D, with research bases across China and the US and more than half of the company’s 3,300 employees
working in R&D. Beijing Pinchi Medical Equipment achieved marketing clearance for its implantable phrenic nerve stimulator
device with two registrations for the stimulator kit and stimulation electrode lead set, having previously gained approval for an
implantable vagas nerve stimulation system in 2016, the first domestically produced implant of its type for controlling epileptic
seizures. Other notable registrations in 2018 included a cerebral thrombectomy device submitted by Jiangsu Nico Medical
Devices, a medical electron linear accelerator submitted by Guandong Zhongneng Accelerator Technology, a neurosurgery
navigation and positioning system submitted by Huake Precision (Beijing) Medical Technology and a vascular reconstruction
device submitted by Mini-Chuang Shentong Medical Technology.

In November 2018, China revamped the programme, replacing the Special Approval Process for Innovative Medical Devices (CFDA
No.13, 2014) with the Innovative Medical Device Special Review Procedure (Order 83, November 2 2018), which took effect on
December 1 2018. According to the NMPA, the revised programme is more scientifically based and will encourage more innovation
in medical device R&D and promote the high quality development of the domestic medical device industry. We note the new
regulation includes a clause specifying that companies must submit innovative device applications to the NMPA within five years of
obtaining a patent and increases the review timeframe from 40 to 60 working days.

China’s emphasis on innovation and high-quality manufacturing will fuel expansion of the domestic medical device
industry which is entering a new phase of development as it moves from ‘Made in China’ to ‘Created in China’. We
highlight that strengthening innovation and speeding up the development of advanced manufacturing was the top priority out of
eight key targets outlined during the Ministry of Industry and Information Technology’s (MIIT) national work conference held on
December 27-28 2018. We therefore expect President Xi Jinping’s administration will continue to push forward with a structural shift
towards high-tech and increased value-added manufacturing, which the Chinese leadership sees as a critical part of the roadmap
for China to become a leading global power by 2050.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

EIGHT PRIORITIES OF MIIT NATIONAL WORK CONFERENCE


PRIORITIES

1 Strengthen innovation, speed up the development of advanced manufacturing

2 Push forward with upgrading of traditional industries

3 Focus on smart manufacturing, build platform for Internet Plus Manufacturing

4 Grow the domestic market, ensure steady growth of industrial sector

5 Build a more competitive environment for high quality companies

6 Improve support and the potential of the digital economy

7 Deepen reforms and enhance the optimisation of the communications segment

8 Ensure the strict governance of the party

Source: MIIT, Fitch Solutions

According to the National Bureau of Statistics, high-tech manufacturing production growth remained relatively steady at about
11.8% y-o-y for the first 11 months of 2018. Its outperformance relative to headline manufacturing output growth of 6.6% y-o-y in
the same period highlights China’s focus in this area.

High-Tech Major Outperformer


China – Manufacturing And High-Tech Manufacturing Output, YTD % chg y-o-y

Source: Wind, Fitch Solutions

The increased focus on innovation will also drive further efforts to improve IP protection, as a strong legal
framework will incentivise innovation. IP protection was a notable mention during the MIIT national work conference, and was
identified as being key to strengthening innovation and speeding up the high quality development of the manufacturing sector. IP
protection was also a hot topic at the first China Medical Device Innovation Week, organised by the Medical Device Industry
Technology Innovation Strategic Alliance and China Medical Device Industry Association, held in Suzhou in September 2018.
Recent progress in this area includes the establishment of the IP Court under the Supreme People’s Court to handle complicated
cases involving patents and technical secrets and the drafting of a new law banning forced technological transfers in December
2018.
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Asia Medical Devices Report | Q2 2019

Domestic medical device producers will benefit from the current drive to reduce import dependency which will
intensify on the back of US-China trade tensions. The growing number of high-end innovative medical devices created in
China will facilitate further import substitution, which we calculate has resulted in the import share falling below 70% for the medical
device market as a whole. Chinese-made devices already predominate in low tech sectors and have started to prevail in several
high-end implantable device sectors including cardiac stents, cardiac occlusion devices and vena cava filters.

We highlight LifeTech’s LAmbre left atrial appendage occluder, which controls around one third of the Chinese market and is the
only Chinese manufactured device of its type that is cleared for marketing in Europe. In addition, Microport Scientific's in-house
developed Firehawk rapamycin eluting coronary stent system, the world's first target-eluting stent which, in September 2018,
became the first China manufactured drug eluting stent to have its clinical results published in The Lancet.

New devices in the pipeline include Venus MedTech’s transcatheter pulmonary VenusP-Valve, the world first self-expanding
pulmonary valve, for which the company expects to receive Chinese approval in 2019, with mitral and triscupsid replacement valves
also in development. Venus MedTech anticipates these devices will build on the success of its Venus A-Valve, the first Chinese-
made transcatheter aortic heart valve replacement device approved in China.

Mindray Medical and United Imaging are making inroads into high-end equipment sectors. Mindray will expand its Chinese
manufacturing facilities and upgrade its R&D innovation platform following successful completion of an IPO on October 16 2018.
United Imaging is capturing a growing share of the MRI market with a range of innovative systems including the PET/MRI system
approved in August 2018. The company has invested CNY300mn (USD42mn) to set up an artificial intelligence (AI) subsidiary which
will develop medical imaging AI to enhance clinical diagnosis and treatment and has entered into a strategic partnership with
Wuhan Tongji Hospital and Medical College of the Huazhong University of Science and Technology to build an innovative research
platform, including medical big data and artificial intelligence.

Leading domestic producers are also expanding in the US and Europe to further their globalisation strategies. United
Imaging has established a US business headquartered in Houston, including a 100,000 sq ft manufacturing facility, which will begin
production of CT, digital radiography and MRI systems in H219. Within the past year, the company has gained FDA approval for more
than a dozen of its devices, including the UExplorer total-body PET/CT scanner developed in partnership with the University of
California.

Microport Scientific has been a front runner in the quest for globalisation, having embarked on an international expansion drive five
years ago, acquiring Wright Medical’s orthopaedics business, Cordis’ drug eluting stents business and most recently LivaNova’s
Cardiac Rhythm Management (CRM) business, giving the company manufacturing bases in France, Italy and the US. Smaller players
have now embarked on the international acquisitions pathway. In December 2018, Venus MedTech acquired Israeli cerebral
embolic protection device manufacturer Keystone Heart, which will provide the company with an established clinical and
commercial organisation in both the US and Europe. Venus MedTech hopes to acquire CE Mark approval for the company’s TriGuard
embolic protection device in Q119, followed by FDA approval in Q319.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Manufacturing Initiatives Will Support Indian Medical Device Industry


Key View

• India will continue to implement initiatives such as the Andhra Pradesh Medtech Zone (AMTZ) to develop its status as a global
medical device manufacturing hub.
• Additionally, the establishment of a National Medical Devices Promotion Council will support the development of a
comprehensive framework for medical devices to boost domestic manufacturing
• An acceleration in domestic manufacturing will reduce high dependency on medical device imports, which continue to grow
strongly despite the threat of further pricing controls.

The inauguration of a manufacturing park in Visakhapatnam, Andhra Pradesh State, will support the production of
high-end medical devices and contribute to India’s drive to become a global medical device manufacturing hub. Chief
Minister of Andhra Pradesh Nara Chandrababu Naidu inaugurated Phase 1 of the Andhra Pradesh Medtech Zone (AMTZ) on
December 13 2018. The AMTZ was launched in 2016 as a public private partnership between the Andhra Pradesh state
government and the Association of India Medical Devices Industry. Construction of Phase 1 was completed in under a year at a cost
of INR4.5bn (USD61.6mn) and will see around 80 manufacturing units operational in 2019. Phase 2 will be completed at a cost of
INR1.1bn (USD15.1mn).

The 270-acre manufacturing park will eventually have the capacity to accommodate up to 240 manufacturing units along with
specialised development laboratories and testing facilities to allow production of high-end medical devices at a reduced cost. The
AMTZ also houses India’s first institute dedicated to medical technology. The Kalam Institute of Health Technology is funded by the
Department of Technology and will work to bring together academic research institutions and industry to help bring promising
innovations to market and address the gaps in the domestic industry’s capacity.

Additionally, the establishment of an agency to coordinate medical devices policy will facilitate the development of
an ecosystem to support the further expansion of India’s medical devices industry. Union Minister of Commerce and
Civil Aviation, Suresh Prabhu, inaugurated the National Medical Devices Promotion Council (NMDPC) during the fourth WHO Global
Forum on Medical Devices hosted at the AMTZ on December 13-15 2018. The NMDPC will operate under the Department of
Industrial Policy and Promotion (DIPP) within the Ministry of Commerce and Industry. It will act as a facilitating and development
agency for the medical devices industry and will coordinate medical devices policy previously covered under various Ministries and
departments.

One of its prime objectives will be to drive a robust Preferential Market Access (PMA) policy by discouraging unfair trade practices
and pro-actively monitoring public procurement notices to ensure compliance with the DIPP's PMA guidelines. The Medical
Technology Association of India (MTaI), which represents research-based medical technology companies, has welcomed the
establishment of the NMDPC and pledged its support to expand domestic production of high-end devices. However, MTaI has
questioned the minimum local content requirement for different categories of medical devices outlined in the Department of
Pharmaceuticals' March 2018 Public Procurement Order (PPO) guidelines as not reflective of the reality of current production
capacity. MTaI has also raised concerns over the decision to make Bureau of Indian Standards (BIS) certification mandatory for
public procurement where BIS standards exist rather than regulatory approval granted by established national regulatory authorities
such as the FDA.

An acceleration in domestic manufacturing will reduce high medical device import dependency. Imports supply around
70% of the domestic medical device market rising to over 90% for more advanced devices. Medical device imports grew by 15% in
9M18. All major product areas made double-digit gains, apart from dental products which had a high single-digit rise.

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fitchsolutions.com 26
Asia Medical Devices Report | Q2 2019

Sustained Import Growth


Medical Device Imports, January 2017-September 2018, USDmn

Source: ITC, Fitch Solutions

Robust medical device import growth continues despite the threat of further pricing controls and a weakening rupee which is
making imported products more expensive. We note that in November 2018, MTaI called on the government to allow an 18% rise in
the Maximum Retail Price of medical devices subject to pricing controls, such as stents and artificial knee implants, to offset the
impact of inflation and rupee depreciation.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 27
Asia Medical Devices Report | Q2 2019

Malaysia's Medical Device Industry Facing Headwinds To Foreign


Investme's
Key View

• Malaysia’s reluctance to sign the CPTPP free trade agreement poses downside risks to the medical device industry which could
lose out on investment decisions to other ASEAN nations.
• The domestic medical device industry has seen rapid growth, but investment slowed in 2018 amid concerns over the new
government’s foreign investment policy.
• Additionally, Johnson & Johnson’s decision to shut down its intraocular lens plant in Kulim will negatively impact orthopaedics
production.
• On the upside, Malaysia could benefit from the US-China trade war and technological incentives in the 2019 Budget 2019 will
help local manufacturers to adopt intelligent technologies.

The Pakatan Harapan government, which took office in May 2018, continues to express reservations over the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The free trade agreement entered
into force for Australia, Canada, Japan, Mexico, New Zealand and Singapore on December 30 2018, with Vietnam joining them on
January 14 2019. Malaysia and Brunei are the only signatories yet to commit to a ratification timeframe with Chile and Peru
expected to ratify the agreement shortly.

The CPTPP represents the world’s third largest trade agreement, after the United States-Mexico-Canada Agreement (USMCA,
previously NAFTA) and the European Single Market, and is a reworking of the TPP following the withdrawal of the US in January
2017. Under CPTPP, tariffs on over 90% of goods have been eliminated, with tariffs on other goods set to be eliminated over a
12-year timeframe. The pact will also improve access to government procurement, boost intellectual property rights protection,
promote the growth of the digital economy and increase minimum employment standards for workers in participating countries.

A decision not to ratify the CPTPP could leave Malaysia at a competitive disadvantage to other ASEAN members,
notably Vietnam which also has a rapidly developing medical device industry. Malaysia’s domestic medical device
industry has seen robust growth in recent years, but investment slowed sharply in 2018 with MIDA approving 15 medical device
manufacturing projects in the January-September 2018, period with investment of MYR641.2mn (USD160.3mn), compared to 25
projects with investment of MYR2.2bn (USD0.5bn) in 2017 and 41 projects with investment of MYR2.9bn (USD0.7bn) in 2016.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Sharp Decline In Investment


Medical Device Industry Investment, 2016-2018

Source: MIDA, Fitch Solutions

New projects approved in 2018 before the change of government include an investment of MYR70mn (USD17.5mn) by Japan
Lifeline to build a production unit for cardiac rhythm management devices in the North Penang Science Park which is scheduled
to begin operations in 2020. One of the leading foreign investors is B. Braun Medical which has invested MYR3.5bn (USD0.9bn)
since 2010 in its Penang site, the company’s leading production facility for the Asia Pacific region. In April 2018, B. Braun Medical
officially opened five new and enhanced production plants and other administrative buildings in Penang. Built over a period of nine
years, the new facilities feature the latest production technologies for the manufacture of infusion therapy devices, surgical
instruments and pharmaceutical solutions.

The slowdown coincides with uncertainties over the government’s policy on foreign investment. Although the
government has publicly said that it welcomes foreign investment, there is a contradictory signal in the spate of project
cancellations and the unfavourable rhetoric toward foreign ownership. Furthermore, there has been increased uncertainty as to the
requirements foreign investors must meet before being eligible to invest in Malaysia. For instance, Prime Minister Mahathir
Mohamad has said that foreign investment projects must employ Malaysians and satisfy their financing needs with loans from
Malaysian banks.

In the medical device sector, Johnson & Johnson’s decision in September 2018 to shut down its intraocular lens plant in
Kulim will negatively impact orthopaedics production. J&J acquired the site as part of its purchase of Abbott Medical Optics in
September 2016. The plant, which opened less than three years ago, was designed to produce more than four million lenses a year
with a 95% export ratio and has already contributed to a sharp rise in exports of artificial body parts. The IOL business has alternative
manufacturing facilities in the Netherlands and Puerto Rico. We note that in 9M18, medical device exports continued to see strong
growth rising by 14.5% to MYR8.1bn (USD2.0bn) with performance led by orthopaedics, where exports more than doubled in value,
although they still account for less than 5.0% of the export total.

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Asia Medical Devices Report | Q2 2019

Robust Export Growth


Malaysia Medical Device Exports, 2008-2018, MYRmn

*Jan-Sep 2018. Source: ITC, Fitch Solutions

Despite these headwinds, medical devices remain among the high potential growth subsectors that are prioritised
under the mid-term review of the 11 Malaysia Plan. In its newly released Medical Device Industry Status and Outlook Report
2018/2019, the Association of Malaysian Medical Industries (AMMI) highlights that 74% of AMMI members surveyed have future
expansion plans involving a combined projected value of around MYR1.5 billion (USD0.4bn). The association expects export growth
of around 8% in 2019. AMMI also believes that the US-China trade war will have a positive impact as it could help drive foreign
investment into Malaysia, which can be used as a manufacturing base to supply both the US and Chinese markets.

To stay competitive, companies will need to embrace emerging technologies and invest in automation, robotics and
artificial intelligence to improve productivity. Technological incentives in the 2019 Budget 2019 will help local manufacturers
to adopt intelligent technologies. These include an allocation of MYR210mn (USD49mn) from 2019 to 2021 to support the
transition and migration of industries to Industry 4.0. MIDA will also provide High Impact Fund matching grants to support adoption
of Industry 4.0 initiatives among local manufacturers to accelerate the adoption of smart technology.

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Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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Asia Medical Devices Report | Q2 2019

Medical Devices Methodology


Forecast Methodology

Fitch Solutions uses a wide definition of medical device, similar to that used by the US FDA or EU EMA. In short, we define it as any
piece of equipment or apparatus used to treat or diagnose an illness that comes into direct contact with the patient.
Pharmaceuticals, IV diagnostics and laboratory equipment are not within the scope of our forecasts.

We have estimated national markets at ex-factory prices for the historical period in current local and USD terms. We have calculated
the markets using a trade-based approach, looking at imports, and then adding in domestic production, minus any exports. We have
sourced import and export data from national customs authorities, as compiled by the International Trade Centre (ITC).

We have estimated production data, considering factors such as the value of exports, taking into account re-exports, the known
presence of local and multinational manufacturers, sales data when available, and officially published estimates of production, again
when available.

We have forecast national markets at ex-factory prices for the forward period. Firstly, we have calculated growth rates in local
currency terms for each product category using a linear regression method, and then converted the figures back to USD terms,
using average exchange rate projections.

We have calculated growth rates by looking at a number of factors: macro-economic performance (private and government final
consumption); demographic and epidemiological trends; healthcare trends and expenditure levels; medical device trade trends; and
medical device manufacturing size.

Trade Code Classifications

International trade is universally classified according to the Harmonised System (HS). This began to be used in the 1990s, and is
overseen by the World Customs Organization. Medical devices are generally well-defined in the HS. There is one major code,
HS9018, named Medical Equipment, but there are a number of other codes for products with a specifically medical use. For the
majority of countries, it is not possible to provide a more detailed breakdown than this.

We have rearranged the data from their original code order, to create six major product areas: CONSUMABLES, DIAGNOSTIC
IMAGING, DENTAL PRODUCTS, ORTHOPAEDICS & PROSTHETICS, PATIENT AIDS AND OTHER MEDICAL DEVICES. We have sub-
divided these into categories and sub-categories. We have used them to analyse medical device market and trade data. Their
relation to the trade codes is shown on the following table.

REARRANGED HS TRADE CODES


Code Product

CONSUMABLES

BANDAGES & DRESSINGS

'300510 Medical dressings (adhesive)

'300590 Medical dressings (non-adhesive)

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Asia Medical Devices Report | Q2 2019

Code Product

'300610 SUTURING MATERIALS

SYRINGES, NEEDLES & CATHETERS

'901831 Syringes (with/without needles)

'901832 Tubular metal needles/needles for sutures

'901839 Other needles, catheters, cannulae, etc

OTHER CONSUMABLES

'300620 Blood-grouping reagents

'300650 First-aid boxes & kits

'300691 Ostomy products

'401511 Surgical gloves

DIAGNOSTIC IMAGING

ELECTRODIAGNOSTIC APPARATUS

'901811 Electrocardiographs

'901812 Ultrasound

'901813 MRI

'901814 Scintigraphic apparatus

'901819 Other electrodiagnostic apparatus

RADIATION APPARATUS

'902212 CT scanners

'902214 Other medical x-ray apparatus

'902221 A, B, C ray apparatus

IMAGING PARTS & ACCESSORIES

'300630 Contrast media

'370110 Medical X-ray film (flat)

'370210 Medical X-ray film (rolled)

'902230 X-ray tubes

'902290 Other imaging parts & accessories

DENTAL PRODUCTS

CAPITAL EQUIPMENT

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 32
Asia Medical Devices Report | Q2 2019

Code Product

'901841 Dental drills

'940210 Dental chairs

'902213 Dental X-ray

INSTRUMENTS & SUPPLIES

'300640 Dental cements

'901849 Dental instruments

Teeth & other fittings

'902121 Artificial teeth

'902129 Other dental fittings

ORTHOPAEDICS & PROSTHETICS

'902110 FIXATION DEVICES

'902131 ARTIFICIAL JOINTS

'902139 OTHER ARTIFICIAL BODY PARTS

PATIENT AIDS

PORTABLE AIDS

'902140 Hearing aids

'902150 Pacemakers

'902190 Other portable aids

THERAPEUTIC APPLIANCES

'901910 Mechano-therapy apparatus

'901920 Therapeutic respiration apparatus

OTHER MEDICAL DEVICES

WHEELCHAIRS

'871310 Wheelchairs, not mechanically propelled

'871390 Wheelchairs, mechanically propelled

'901850 OPHTHALMIC INSTRUMENTS

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 33
Asia Medical Devices Report | Q2 2019

Code Product

'940290 HOSPITAL FURNITURE

'841920 MEDICAL, SURGICAL STERILISERS

'901820 ULTRA-VIOLET OR INFRA-RED RAY APPARATUS

'901890 OTHER INSTRUMENTS & APPLIANCES

10 digit Blood pressure monitors

10 digit Endoscopy apparatus

10 digit Dialysis apparatus

10 digit Transfusion apparatus

10 digit Anaesthetic apparatus & instruments

Source: ITC, Fitch Solutions

Sources

We have sourced historical and forecast political, macro-economic, demographic and healthcare data, where indicated, from Fitch
Solutions.

We have analysed the medical device markets using, where possible, primary qualitative and quantitative data from local sources.
These include:

• national ministries (or departments) of health,


• national statistical institutes,
• national medical device trade associations, and
• national and multinational medical device companies.

We may also make reference to a number of secondary sources, such as those listed below:

• Eurostat, http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
• Inter-American Development Bank (IDB), http://www.iadb.org
• International Trade Centre (ITC), http://www.intracen.org
• Organisation for Economic Co-operation and Development (OECD), http://www.oecd.org
• United Nations (UN), http://www.un.org
• World Bank (WB), http://www.worldbank.org
• World Customs Organization (WCO), http://www.wcoomd.org
• World Health Organization (WHO), http://www.who.org
• World Trade Organization (WTO), http://www.wto.org

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 34
Asia Medical Devices Report | Q2 2019

Contact

We welcome feedback on all the medical device market reports. If you have any further questions, comments or suggestions about
the contents of this report, please send them to:

Ricardo Vicente

Head of Medical Devices Markets

enquiries@fitchsolutions.com

Risk/Reward Index Methodology

Our Medical Devices Risk/Reward Index (RRI) quantifies and ranks a country's attractiveness within the context of the Medical
Devices industry, based on the balance between the Risks and Rewards of entering and operating in different countries.

We combine industry-specific characteristics with broader economic, political and operational market characteristics. We weight
these inputs in terms of their importance to investor decision making in a given Industry. The result is a nuanced and accurate
reflection of the realities facing investors in terms of: 1) the balance between opportunities and risks; and 2) between sector-specific
and broader market traits. This enables users of the Index to assess a market's attractiveness in a regional and global context.

The Index uses a combination of our proprietary forecasts and analyst assessment of the regulatory climate. As regulations evolve
and forecasts change, so the Index scores change providing a highly dynamic and forward-looking result.

The Medical Devices RRI universe comprises 75 countries.

Benefits Of Using Fitch Solutions' Medical Devices RRI

• Global Index: One global table, ranking all the countries in Fitch Solutions' universe for Medical Devices from least (closest to
zero) to most attractive (closest to 100).
• Accessibility: Easily accessible, top down view of the global, regional or sub-regional Risk/Reward profiles.
• Comparability: Identical methodology across 75 countries for Medical Devices allows users to build lists of countries they wish to
compare, beyond the confines of a global or regional grouping.
• Scoring: Scores out of 100 with a wide distribution provide nuanced investment comparisons. The higher the score, the more
favourable the country profile.
• Quantification: Quantifies the Rewards and Risks of doing business in the Medical Devices sector in different countries around
the world and helps identify specific flashpoints in the overall business environment.
• Comprehensiveness: Comprehensive set of indicators, assessing industry-specific Rewards and Risks alongside political,
economic and operating risks.
• Entry Point: A starting point to assess the outlook for the Medical Devices sector, from which users can dive into more granular
forecasts and analysis to gain a deeper understanding of the market.
• Balance: Multi-indicator structure prevents outliers and extremes from distorting final scores and rankings.
• Methodology: It is a combination of proprietary Fitch Solutions forecasts, analyst insights and globally acceptable benchmark
indicators (for example, World Bank's Doing Business Scores, Transparency International's Corruption Perceptions Index).

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 35
Asia Medical Devices Report | Q2 2019

Weightings Of Categories And Indicators

Source: Fitch Solutions

The RRI matrix divides into two distinct Categories:

Rewards:

Evaluation of an Industry's size and growth potential (Industry Rewards), and also macro industry and/or country characteristics
that directly impact on the size of business opportunities in a specific sector (Country Rewards).

Risks:

Evaluation of micro, industry-specific characteristics, crucial for an industry to develop to its potential (Industry Risks) and a
quantifiable assessment of the country's political, economic and operational profile (Country Risks).

Assessing Our Weightings

Our matrix is deliberately overweight on Rewards (70% of the final RRI score for a market) and within that, the Industry Rewards
segment (60% of final Rewards score). This is to reflect the fact that when it comes to long term investment potential, industry size
and growth potential carry the most weight in indicating opportunities, with other structural factors (demographic, labour statistics
and infrastructure availability) weighing in, but to a slightly lesser extent. In addition, our focus and expertise in Emerging and
Frontier Markets has dictated this bias towards industry size and growth to ensure we are able to identify opportunities in countries
where regulatory frameworks are not as developed and industry sizes not as big (in USD terms) as in developed markets, but where
we know there is a strong desire to invest.

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 36
Asia Medical Devices Report | Q2 2019

Indicators, Rationale And Sources

MEDICAL DEVICE RISK/REWARD INDEX, INDICATORS


Indicator Rationale Source

REWARDS

Industry Rewards
Denotes breadth of the medical device market. Larger markets score higher than smaller Fitch Solutions
Sales, USDmn
ones. Forecast

Sales Per Capita, Denotes depth of the medical device market. High value markets score higher than low Fitch Solutions
USD value ones. Forecast

5 Year CAGR, Denotes the projected performance of the medical device market. Markets with higher Fitch Solutions
USDmn CAGRs score better than those with lower CAGRs. Forecast

Denotes medical device production within the medical device market. Markets with larger Fitch Solutions
Production, %
production capabilities score better than those with lower production capabilities. Forecast

Country Rewards
Evaluates medical device demand associated to population size. Countries with larger Fitch Solutions
Population, mn
populations score higher. Forecast

Evaluates long-term prospects associated to population growth. Fast-growing countries Fitch Solutions
Population, % y-o-y
suggest better long-term growth across the medical device industry and score higher. Forecast

Evaluates proportion of the population 65+ as an expenditure ratio. Countries with ageing Fitch Solutions
65+ Years, %
populations tend to have higher per capita medical device expenditure and score higher. Forecast

Evaluates urbanisation as a proxy for development of medical facilities. Predominantly urban Fitch Solutions
Urban Population, %
countries score higher than rural countries. Forecast

RISKS

Industry Risks
Evaluates health policies, health insurance coverage, health expenditure and access to
Fitch Solutions
Healthcare Access health resources, activity and personnel. Markets with a good healthcare access score
Subjective Indicator
higher.

Evaluates the strength of the competent authority, national regulations and regulations Fitch Solutions
Regulation
aligned regionally, if existing. Markets with a strong regulation score higher. Subjective Indicator

Evaluates the level of government spending on medical devices and the attractiveness of
Fitch Solutions
P&R P&R policies. Markets with good government spending and friendly P&R policies score
Subjective Indicator
higher.

Country Risks
The LT ERI takes into account the structural characteristics of economic growth, the labour
Fitch Solutions
L-T Economic market, price stability, exchange rate stability and the sustainability of the balance of
Country Risk Index
payments, as well as fiscal and external debt outlooks for the coming decade.

The ST ERI seeks to define current vulnerabilities and assess real GDP growth, inflation,
Fitch Solutions
S-T Economic unemployment, exchange rate fluctuation, balance of payments dynamics, as well as fiscal
Country Risk Index
and external debt credentials over the coming two years.

The LT PRI assesses a country's structural political characteristics based on our assumption Fitch Solutions
L-T Political
that liberal, democratic states with no sectarian tensions and broad-based income equality Country Risk Index

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 37
Asia Medical Devices Report | Q2 2019

Indicator Rationale Source

exhibit the strongest characteristics in favour of political stability, over a multiyear


timeframe.

The ST PRI assesses pertinent political risks to investment climate stability over a shorter Fitch Solutions
S-T Political
time frame, up to 24 months forward. Country Risk Index

The ORI focuses on existing conditions relating to four main risk areas: Labour Market, Trade Fitch Solutions
Operational Risk
and Investment, Logistics, and Crime and Security. Operational Risk Index

Source: Fitch Solutions

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

fitchsolutions.com 38
Asia Medical Devices Report | Q2 2019

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data included in the report are solely derived from Fitch
Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.

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