China has already been one of the most important medtech markets globally and it is quite critical for multinational players’ sustainable growth. Medical device products in China are composed of equipment, instruments, In Vitro Diagnostics (IVDs) and other related materials, and are classified into three categories for supervision. Sales volume of medical device products in China was US$ 76.8 billion in 2018 with a CAGR of 16.6% from 2014 to 2018. It is also expected to reach US$ 100 billion by 2020 according to G-MedTech Research report, China MedTech Industry Yearbook – 2019 Edition.
Multinational companies have expanded China medtech business for many years and they were quite active in the recent years especially after China’s issuing Foreign Investment Law and holding the second China International Import Expo (CIIE) in Shanghai.
This article covers key segments of the industry including government relationship, distribution, end users, localization, and finally summarize the trends and opportunities based on analysis of government policies, healthcare statistics, and MNCs’ strategic activities mainly in the second half of 2019.
Part I: Government Relationship
The China International Import Expo (CIIE) is a trade fair held annually since 2018 in Shanghai, and it is the world’s first import-themed national-level expo. At the Second CIIE in November 2019 leading multinational medical device manufacturers presented a series of most innovative products to China visitors, showing their willingness to contribute to Healthy China Campaign.
Will Song, Chairman at Johnson & Johnson China, participated in the 2nd CIIE together with more than 200 business unit leaders. The Expo is an important measure for the government to expand its openness, support innovation and create a more optimized business environment, according to Will Song. Johnson & Johnson has been in China for more than 30 years and is looking forward to bringing more innovative products, cutting-edge technologies and medical solutions to the Chinese market, and working with the government and partners to build a healthy China, Song stated.
GE Healthcare presented most innovative products at the 2nd CIIE including APEX CT which is a deep-learning based AI CT system that had newly been approved by U.S. FDA. Being in China for more than 40 years GE Healthcare is trying to contribute to China healthcare, according to Yihao Zhang, President & CEO at GE Healthcare China. Focusing on high-end market segment, grassroots healthcare, and non-public healthcare, GE Healthcare will keep investments, accelerate localization, and try to provide more innovative products in China, Zhang added.
Siemens Healthineers has participated in the CIIE for two consecutive sessions and this year it exhibited four innovative segments including chest pain center solution, digital healthcare, 5G remote ultrasound systems, and mobile CT ambulance. With the initial intention of “Rooting China & Long-term Commitment”, Siemens Healthineers is trying to support Chinese health providers as well as the development of “Healthy China 2030”. Participating in the CIIE is an excellent opportunity to showcase the latest technological advantages and further deepen cooperation with Chinese partners, according to Elisabeth Staudinger-Leibrecht, president at Siemens Healthineers Asia-Pacific.
Beside participating in the 2nd CIIE, Philips CEO Frans van Houten also met with China Vice Premier Sun Chunlan in Beijing and Shanghai Secretary of CPC Municipal Committee Li Qiang in Shanghai. Sun Chunlan stated that Philips is one of the first multinational companies to enter the Chinese market after China’s economic reform and opening up and hoped that Philips could actively participate in the Healthy China Campaign and continuously deepen exchanges and cooperation in health science and technology and personnel training. Frans van Houten replied that Philips is willing to further strengthen cooperation with Chinese companies in healthcare area. Li Qiang stated that biomedical has been one of the main strategic emerging industries for Shanghai to develop and Philips is welcome to bring more innovative products, R&D projects and high-end manufacturing bases in Shanghai which will support Shanghai’s construction of Asian medical center city. Frans van Houten replied that Philips has been in China for nearly a hundred years and in recent years the rapid development in China and Shanghai has benefited more and more from the continuous optimization of the business environment. Philips will focus on promoting the localization development strategy, further increase cooperation with Shanghai, more accurately meet the needs of the Chinese market, and strive to contribute more to the development of China’s health.
Medtronic exhibited nearly 50 innovative cardiac and surgical products at the 2nd CIIE. China is expected to become one of the largest medical markets in the world and Medtronic will collaborate with China partners to accelerate the importing of innovative medical solutions, co-development new products with the aim of supporting Healthy China Campaign, according to Alex Gu, president at Medtronic Greater China. China market has always been great potential, said Medtronic CEO Omar Ishrak who comes to China several times each year, China government is constantly striving to improve people’s health conditions and has made very important efforts to provide accessible medical services and strengthen supervision. Medtronic will focus on localization strategy in China to provide more advanced and innovative products based on both global and local R&D, Omar stated.
Beside these leading medtech companies, other multinational players had also actively exhibited their innovative products and solutions at the 2nd CIIE including Varian, Boston Scientific, FujiFilm, Canon, Elekta, Terumo, Samsung, and PerkinElmer. Varian did not have booth at the first CIIE last year but still had made procurement intention agreements of US$ 841 million as an invited company, according to Xiao Zhang, president at Varian China.
Part II: Distribution
As there are around 1 million healthcare institutions around China including hospitals, community health centers, and township health centers, distribution networks play quite key roles for multinational companies to have successful business in China.
At the 2nd CIIE SinoPharm Group which is the leading distribution player for pharmaceuticals and medical device products in China, signed 12 procurement agreements with many multinational companies including Medtronic, GE Healthcare, Elekta, Siemens Healthineers, Samsung, and Sysmex.
Meanwhile another distribution giant Jointown Group signed procurement intention agreements with Johnson & Johnson and LivaNova, for medical device products worth of RMB 5 billion in 2020. In June 2019 Jointown signed strategic partnership agreement with BD Company for distribution of diabetes care solutions in China, especially in western China regions.
In July 2019 John A. Kowalczyk, senior VP of global sales at Smiths Medical, and James Shen, general manager at Smiths Medical China, met with Liu Tong, chairman at Sinopharm United Medical Device, for strengthening distribution cooperation in the future. As a subsidiary company of Sinopharm Group, Sinopharm United Medical Device has provided nationwide distribution networks for Smiths Medical for many years. The two sides agreed to strengthen cooperation and bring more innovative products to China.
In June 2019 Zhang Jie, general manager at Sinopharm United Medical Device, met with Myra Eskes, president at Smith & Nephew Asia Pacific. Discussing about effects of the Two-Invoice System in China, the two sides agreed to bring more Smith & Nephew products to China via Sinopharm United Medical Device’s strong distribution networks.
Part III: End Users
Multinational companies have also strengthened cooperation directly with China top hospitals which show strong interests in advanced and innovative medical solutions. At the 2nd CIIE Philips signed agreement with Laiwu Central Hospital for Ingenia 3.0T MRI equipment. Shanghai Shenkang Hospital Development Center purchased 35 big medical equipment for 18 hospitals in Shanghai including PET/CT, DSA, CT, SPECT, as well as Varian’s VitalBeam and TrueBeam radiotherapy systems.
Led by Guizhou Health Commission hospitals from Guizhou province including Guizhou Provincial Hospital, the Affiliated Hospital of Guizhou Medical University, and the Affiliated Hospital of Zunyi Medical University signed procurement intent agreements for medical devices worth of US$ 100 million.
Led by Jiangxi Health Commission 16 hospitals from Jiangxi province including some private hospitals signed 15 procurement intent agreements for medical devices worth of US$ 70 million.
Hospitals from Shandong province including the Affiliated Hospital of Qingdao University and Qilu Hospital of Shandong University signed procurement intent agreements with Siemens Healthineers, Philips Healthcare, Draeger Medical, and Accuray for medical devices worth of US$ 30 million covering medical imaging equipment and high value medical consumables.
Hospitals from Ningxia Hui Autonomous Region including the Fifth People’s Hospital of Ningxia and the General Hospital of Ningxia Medical University signed procurement intent agreements with Philips Healthcare, GE Healthcare, and Draeger Medical, for medical devices worth of US$ 18.5 million.
Led by Jiangsu Health Commission 1193 health professionals from 345 medical institutions in Jiangsu province visited the 2nd CIIE to learn the most advanced medical technologies and equipment, which will help them improve medical services capabilities and choose the right and high-quality medical solutions for patients in Jiangsu.
At the Second China International Import Expo, Boston Scientific presented a series of innovative products especially cardiovascular devices. It also signed partnership agreement with Boao Hengda Hospital for co-establishing Liver Cancer Radiation Intervention Therapy Center. Hainan Boao Lecheng International Medical Tourism Pilot Zone is a world-leading green city project which integrates medical services, wellness, pharmaceuticals, scientific research, rehabilitation, senior care, and tourism in an area dedicated to energy conservation and environmental protection. At the 2nd CIIE companies from Boao Lecheng signed 10 procurement intent agreements with B. Braun, Johnson & Johnson, Boston Scientific, Roche, and Medtronic, for medical devices worth of US$ 30 million. Meanwhile Lecheng Authority signed strategic partnership agreements with B. Braun, Johnson & Johnson, and Roche.
Part IV: Localization
Doing business in China localization is always the main strategy for multinational companies. It is same in the medtech industry and in the recent years multinational companies had strengthened their localization strategic actions.
As one of the leading multinational medical device companies, GE Healthcare has launched more than 150 new medical device products in China in the past 40 years including 60 products developed by local team. Its total installed equipment units had reached 300,000 with total value of RMB 40 billion. Focusing on three areas in China, grassroots healthcare, non-public healthcare, as well as high-end market segments, GE Healthcare is increasing investments for innovation with the aim of presenting innovative products timely. During the 2nd CIIE GE Healthcare held signing ceremony for its SIGNA Architech 3.0T MR Equipment Manufacturing Base in Tianjin city. GE Healthcare has 1,000 R&D engineers in China who understand China’s market challenges and clinical challenges very well and could develop products and technologies that are more suitable for China. There are three kinds of opportunities in China medical market, according to Yin Dai, chief innovation officer at GE Healthcare China, solutions and technologies to help top hospitals improve their efficiency, more medical big data will be shared with China’s pushing medical consortiums, and lacking of experienced physicians will bring opportunities for wide applications of medical AI.
Johnson & Johnson (China) Medical Devices was established in 1994 and its business covers cardiovascular disease treatment, surgical sutures, minimally invasive and open surgery, orthopedics, women’s health, and products for sterilization and disinfection. Its new 180-million-dollar Ethicon factory in Suzhou city is expected to begin formal operation by the end of 2019. Johnson & Johnson also plans to gradually localize the procurement of raw materials and equipment once the new Ethicon factory has gone into operation. It will provide management and training for local partner suppliers so as to further promote the upgrading of technological and management standards both upstream and downstream within the industry. In October 2019 it initiated Johnson & Johnson China Innovation Powerhouse in Beijing and in July 2019 Johnson & Johnson Innovation announced the opening of JLABS @ Shanghai, the world’s largest JLABS and the first in Asia Pacific. Most recently in November 2019 it established partnership with Changmugu Medical for orthopaedic artificial intelligence project.
Medtronic has launched more than 500 innovative products in China in the past 30 years. As localization is the key strategy it has built an all-around presence in China covering sales, marketing, clinical training, R&D, and manufacturing. In April 2019 Medtronic MedTech Innovation Accelerator was launched in Shanghai which will provide services for MedTech start-ups worldwide, address unmet clinical needs in China, and welcome its initial roster of portfolio companies. The Accelerator represented another collaborative innovation initiative by Medtronic China following establishment of the Medtronic China Ventures in 2016. Most recently in November 2019 Medtronic exhibited innovative spine and trauma products at the 14th Chinese Orthopaedic Association (COA) International Congress together with local subsidiary Kanghui Company which was acquired by Medtronic for US$ 755 million in 2012.
In October 2018 Siemens Healthineers announced to invest RMB 3 billion to establish diagnostics manufacturing base in Shanghai. In China it will focus on three areas for future development:
- Rural Healthcare: providing integrated solutions and products to grassroots healthcare institutions;
- Digital Healthcare: trying to establish digital healthcare ecosystem in China with wide partnerships;
- Non-Public Healthcare: releasing its strategic plans to support private hospitals in China, covering financing, new hospital construction, 5G technologies, hospital management, education and trainings.
Understanding China’s importance for business growth, Boston Scientific keeps focusing on innovation, local partnerships, and education & trainings in China. In the middle October it established the second HQ in Chengdu city in Sichuan province. Boston Scientific will partner with Chengdu Hi-Tech Zone to establish a smart health center which is based on 5G technology, artificial intelligence, big data management. Meanwhile the regional education system will also be established in Chengdu city.
One month after the closing of the first CIIE, Elekta established the only regional headquarters in Asia in Shanghai and made China as an important research and development base. The core intellectual property rights can be registered directly in China. Since entering the Chinese market in 1982 its radiotherapy equipment has occupied more than 50% of the tier 3A hospitals in China. In the just-concluded fiscal year 2018/19, the number of orders for the company reached an increase of 17% over the same period last year.
Terumo established manufacturing base for medical products in Hangzhou city in 1995 and now China has been one of the most important markets for Terumo. Terumo will try to strengthen R&D and innovation with the aim of providing more new products in China, according to Shinjiro Sato, CEO at Terumo. He also stated that Terumo will establish more R&D centers and manufacturing bases in China, as well as strengthen cooperation with China partners.
Part V: Trends
China government is constantly striving to improve people’s health conditions via deepening Healthy China 2030 plan. Multinational companies are welcome to bring their advanced and innovative medical solutions and equipment for diseases prevention and treatments to China which local medtech players could not provide. Issuing Foreign Investment Law and holding the second China International Import Expo (CIIE) have shown China governments’ efforts in creating open and better business environment for multinational players. Supervision on medtech manufacturing, adverse events, and applications will also be strengthened.
Facing with China’s deepening the Two-Invoice System in distribution of pharmaceuticals and medical consumables, medtech distribution industry has been impacted strongly and it is very hard for many small distributors to continue their business. Big distribution companies will strengthen collaborations especially with top multinational companies.
Multinational companies will strengthen direct sale and collaboration with China top hospitals which want to improve their medical service capabilities based on the advanced medical solutions and equipment. Furthermore, regional health authorities are also supporting hospitals to provide high quality medical services to local people. As currently China local medical device companies could not develop enough innovative and advanced medical solutions, this will be a better direction for MNCs to develop.
Rather than M&As in China in the past several years, multinational medtech companies will strengthen their localization strategy via establishing R&D centers, manufacturing bases, local partnerships, with the aim of providing the exact innovative products that China needs exactly. Knowing Chinese market much better their local teams will play more important roles for the localization strategy and some medtech veterans were promoted to be China heads in the recent years including Jerry Wang at Siemens Healthineers, Yihao Zhang at GE Healthcare, and Alex Gu at Medtronic.
Total sales volume of medical device products in China is expected to reach US$ 100 billion by 2020 with strong annual growth rate. Facing with China government’s efforts in creating better business environment and deepening Healthy China Campaign, it will be the better opportunities for multinational companies to expand China medtech business based on their appropriate strategies.
- China MedTech Industry Yearbook 2019 Edition (G-MedTech Research Report)
- China Private Healthcare Market (G-MedTech Research Report)
- China Grassroots Healthcare Market (G-MedTech Research Report)
- China MedTech Industry Newsletters
- Newspapers and websites in China
- Press releases, announcements, and financial reports of MedTech Companies
- Strategy Analysis of Top MedTech Companies in China – to be published
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