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Analysis: Medtech in China – market opportunities

In the second part of our two-part series, Bart Van den Mooter, CEO of the TforG Group, and Helgert van Raamt, vp partnerships and new business at TforG Group, look at the medtech opportunities in China.

The Chinese medical technology (medtech) market is the third largest in the world, and expected to be the second largest worldwide by 2020, with steady growth of more than 10% expected in the coming years.

In 2016, the size of the Chinese medtech market was estimated at almost US$40 million, ranking just behind global leaders the US and Japan. Although the growth of the Chinese medtech segment has slowed from almost 18% to 11-13% in recent years, China remains one of the most attractive markets.

Traditionally, Chinese companies have dominated the low end of the markets, but a few years ago, the government started to launch a number of initiatives promoting innovation in the local medtech industry and changing the industry’s dynamic.

The Innovative Medical Device Assessment office (part of the Chinese Food and Drug Administration) provides grants and loans to local companies to support r&d in segments such as diagnostic imaging and cardiovascular implants, to name a few. These initiatives, together with reforms in reimbursement and tendering processes, have strengthened the competitive position of local companies. Today, this is reflected in an increasing share in the growing mid-portion of the market.

Last year, China spent 5.9% of GDP on health care, of which 3.3% came from public sources. Health care expenditures are expected to increase annually by approximately 3% leading up to 2020.

In total, there are 8,512 acute care hospitals in China (where patients are treated for brief but severe episodes of illness), of which 1,558 are Level 2 hospitals and 6,954 are Level 3 hospitals (Level 1 hospitals are not acute care hospitals). Together these hospitals represent 3,543,443 acute care beds.

Demographics: The size of the Chinese market is the primary factor driving China’s health care market. Effective control, far-reaching mechanisms, and Chinese government regulations for domestic and foreign business activities to create structural improvements and change are in many aspects unique to China’s size.

The Chinese population is aging and chronic diseases are becoming more prevalent. In fact, 330 million Chinese citizens currently have chronic diseases. The Chinese middle class exceeds the population of the US or Western Europe and is facing more lifestyle related diseases. They are also expecting more and better health care services.

Health care reforms and new policies: The share of health care expenses covered by the government will increase from 30% in 2010 to 40% in 2020. Nevertheless, regional inequalities in access to and quality of care will remain. Other changes include cost control through packaged pricing policy, for example, allowing hospitals to charge a fixed amount for a specific procedure. This reimbursement policy results in using fewer and lower cost products. Limited channel markup intends to limit the markup added by distributors, which will affect the partner strategy for many medtech manufacturers.

Shift in provider landscape: The government wants to boost the role of local hospitals (Level 1 hospitals) in low- and mid-range care. They also intend to reroute part of the patient referrals from reference centres (Level 3 hospitals) in Tier 1 cities to Level 2, and 3 hospitals in Tier 2 or 3 cities. Different reimbursement tariffs for the respective types of hospitals have to manage the patient streams. This will challenge the efficiency and profile of the sales and distribution resources of medtech companies.

Separately, the private sector is expected to play a larger role in acute care. Despite the fact that this process is proceeding slower than expected – since no specific action plans have been put into place – the number of private hospitals and clinics is increasing rapidly. Today we see an increasing presence of Chinese private investors in local (Level 1 and 2) hospitals that are operating in a difficult financial context, as well as an increase in military hospitals.

Keeping in mind China’s quintessential vastness of stakeholders, and its large and intricate social and organisational character, its complexity is what typifies it. Accordingly, the reimbursement system that it has developed is appropriate to its profile and is relatively functional and adequate.

With the appropriate insights and market expertise of Chinese policies and market regulations, medtech businesses can perform well in China and both parties can benefit.

Key success factors include:

Prepare. China requires a different preparation and form of operation; companies should be aware of and prepared for this before marketing their product locally.

Build real partnerships. Find a local partner and/or staff who can be trusted, and who trust you, to bridge language barriers, to tap into regional networks and contacts, and to facilitate an understanding and entry into the national/regional business culture.

Understand. Grasp the complexity of the differences in reimbursement, tendering and bidding, buying power, local competition and the like in the different segments in order to optimise pricing and marketing strategy and the adoption/integration of the product into the treatment protocols of Chinese medical practices.

Set priorities. It requires a much more rigorous prioritisation of resources and a specific, dedicated, new and improved sales process.

In addition, new medtech businesses intending to enter the Chinese market must be aware of the market’s unique characteristics and must be cognisant that setting up for commercialisation in China requires a strategy and business model that covers various market segments, regions and types of hospitals.

Moreover, there are other more general aspects such as a rigorous prioritisation of resources and solid sales processes that are important as well. And finally, those entering the market need to have a thorough understanding of the purchase policies of hospitals linked to the acquired technology, the types of treatments offered and the coverage available for those types of treatments.

This piece first appeared on BRINK Asia.

Posted on: 28/07/2017 UTC+08:00


News

First REIT, the SGX healthcare real estate investment trust owned by Indonesia’s Lippo Group, has reported a 0.9% rise in distribution per unit (DPU) of S$0.0214 for the third quarter of the year.
Metlifecare, New Zealand’s second-largest listed retirement village operator, plans to spend NZ$240 million (US$167.2 million) to develop a waterfront retirement village at Scott Point, in the Auckland suburb of Hobsonville.
Thonburi Healthcare Group, the country's third largest hospital operator, has inked an MoU with Korea’s Green Cross MS and Green Cross Laboratories.
At its annual general meeting at the end of last week, Gordon Ballantyne, new chief executive of Healthscope, Australia’s second largest private healthcare operator, said that he expected current private hospital market conditions to continue in the short term.
Hong Kong-listed healthcare company China Wah Yan Healthcare plans to consolidate its shares. The move has been pushed onto the company to comply with trading requirements.
Monash IVF Group, Australia’s second largest fertility treatment provider, has appointed David Morris as the CEO and managing director effective from 13 November. After eight years, James Thiedeman stepped down in May.
SGX-listed Singapore Medical Group, a multi-disciplinary specialist healthcare services provider has announced its latest acquisition.
Malaysia's Top Glove is on the acquisition trail. The world’s largest rubber glove manufacture has signed an MoU to buy all the ordinary shares of Eastern Press for M$47.25 million (US$11.18 million) in cash. Eastern Press is principally engaged as a printer and supplier of packaging material. It is also the major supplier of packaging material to Top Glove's subsidiaries in Malaysia.



Analysis

Is there a case to be made for a merger between Metlifecare and Summerset Group, New Zealand’s second and third-largest listed retirement village operators? First NZ Capital reckons so and analyst Arie Dekker makes an eloquent case for it in a new research note.
Stephenson Harwood’s Tom Platts, Ben Hickson and Su Wai Phyo report on key changes implemented by the Myanmar government to facilitate much-needed foreign investment in the country’s healthcare sector.
In the lead-up to the UN’s International Day of the Older Persons on 1 October, Jason Sadler, president, Cigna International Markets, looks at the impact of an aging population on the world’s healthcare system and the role that digital technology will play in meeting this new challenge.
By 2042 there will be more over-65s in Asia than the populations of the Eurozone and North America combined. We look at the business opportunities this creates.
Albert Wong argues that biomedical technology should not be ignored and explains how the Hong Kong Science and Technology Parks Corporation can support it.
Jacob Pope explains why medical tourism remains one of the region’s most significant industries.
APACMed’s Fredrik Nyberg looks at how local and multinational IVD companies are developing novel solutions for Asia’s unique needs.
It is perhaps a curious line in the sand to draw, but the new hospital in Dunedin, the second-largest city in the South Island of New Zealand, is gearing up to be a significant battle in the use of private-public partnership funding in the APAC region.


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