Posted: April 1, 2013 |  AUTHOR: KEN FOX | CONTACT ME

 

China’s 1.3 billion population represents gold for medical and pharmaceutical companies seeking future growth. The government’s future Five Year Plan (FYP) supports healthcare spending, broadening healthcare coverage, improving the country’s infrastructure and supporting innovation.

Some of China’s disease statistics and trends:
*China has one-third of the worlds’ smokers, and suffers from around one million tobacco related deaths annually.
*Cancer is the leading cause of death, with lung cancer heading the list, followed by gastric, esophageal, colorectal, pancreatic and leukemia.
*China is experiencing a diabetes epidemic. Diabetes affects 25 million people in the U.S. versus and estimated 92 million people in China.

According to McKinsey, “China’s healthcare spending was projected to be worth $357 billion dollars in 2011 and is expected to grow to $1 trillion by 2020. China is one of the most attractive markets, and by far the fastest growing of all the emerging markets.” A number of factors will influence the pace of growth, including the Chinese government’s commitments and regulations guiding foreign company and product entry into the country. There has been a number of success stories in China related to medical company Foreign Direct Investments. These include acquisitions and joint ventures to mine opportunities in China. However, what started as sales or branch offices have evolved to major R&D centers with aims to benefit the world not just China.

Two companies that invested early in China are Denmark based Novo Nordisk and UK based AstraZeneca. Novo Nordisk, one of the world’s leading suppliers of insulin and related products for diabetic patients, built an R&D Center in Beijing about 15 years ago. In September 2012, Novo Nordisk announced it would invest an additional $100 million expansion of their R&D complex. Their Chief Scientist and Executive Vice-President, Mads Krogsgaard Thomsen, stated:
“We see the investment in this new R&D facility as a win-win opportunity for both Novo Nordisk and China. Novo Nordisk recognizes the strong science being performed in China and we want to bring innovation from Chinese scientists into our company to help tackle the growing burden of diabetes and other chronic diseases throughout the world.”

AstraZeneca has about 4,700 employees in China, representing manufacturing, sales, clinical research and new product development. The company launched a $100 million AstraZeneca Innovation Center in Shanghai (in 2007). Its initial focus was China only but now its mission is broader, as a full fledged discovery center focusing on diseases more prevalent in Asia. Steve Yang, the company’s vice-president and head of R&D for Asia and emerging markets, recently stated:
We are ready to expand our mission to become a drug discovery center, with special focus on cancers prevalent in Asia, such as gastric and liver cancers. But the journey has just started.”

Finding in country basic science talent has not been a problem. However, finding highly specialized scientists are in short supply, as are experienced managers. Examples of experienced specialists needed include: toxicologists, pathologists, statisticians and clinicians. The evolving nature of the pharmaceutical market represents opportunities for China. Foreign company investments will provide valuable training and testing grounds for the many new Chinese science and related graduates to work.

Examples of global pharmaceutical and medical device companies investing in China include the following:

AstraZeneca (UK)
Acquires Guandong Beikang (Nov. 2011) to produce branded generics starting in 2014. AstraZeneca also signed a risk sharing and outsourcing agreements with two Chinese Clinical Research Organizations (CROs) Wusi Pharm Tech and BRO Pharnaron.

Covidien (U.S.)
Announced in August 2012 it will spend $5 million over the next three years to add a Shanghai R&D Center, It will be 100.000 square feet, have 17 laboratories and eventually hire 300 employees

GlaxoSmithKline (UK)
The company owns Shienzhen Neptunes Interlong Bio-Tech, which it acquired in 2010 to manufacture vaccines.

Johnson & Johnson (U.S.) The company acquired Guangzhou Bioseal Biotech in May 2012 to develop porcine derived biologic product for controlling bleeding during surgery. It additionally acquired Shanghai Elsker Mother and Baby Company in January 2013 which will manufacture natural baby skincare products.

Merck (U.S.)
Merck announced in December 2012 it will invest $1.5 billion over the next five years to establish an Asian R&D facility in Beijing that will eventually employ 600 scientists.

Medtronic (U.S.)
The company acquired an orthopedic company Kanghu for $755 million in October 2012. It forms a strategic alliance with a cardio-vascular company, Life Tech Scientific, and owns 40% of the company.

Novartis (Switzerland)
Novartis plans to add 250 employees to its Shanghai R&D Center. It will also invest $1.5 billion over the next five years to build a pharmaceutical ingredient factory in ChangShu.

PerkinElmer (U.S.)
The company acquired Shanghai Haoyuan Biotech for $38 million in December 2012. This acquisition will allow P&E to enter the Chinese nucleic acid blood supply market.

Stryker (U.S.)
The company pays $764 million to acquire Trauson Holdings, a company specializing in trauma and spinal devices.

The above clearly shows the investment activity by global pharmaceutical and medical device companies in China. However, there is more. Some of the largest radiology equipment manufacturers created expansion strategies to penetrate the secondary and rural markets in China. Products and training facilities are being developed and introduced for the entry level segment, after achieving success in high end markets. These areas represent tremendous growth, and support by the Chinese government initiatives to provide better healthcare to these regions of the country.

GE Medical (U.S.)
In April 2012 GE opened its fourth Chinese Innovation Center in Chengdu, following centers in Beijing, Shanghai and Wuxi. The cost of the Chengdu center was $85 million. Its goal, to develop products for China’s second and third tier cities and rural areas.

GE Healthcare initiated a “Spring Breeze Plan” with the aim of supporting and expanding rural healthcare. The company created and launched a series of “In-China-For China” products, including a Logiq C Series scanners, analog x-ray products and Brivo CT systems. They plan to launch 40 products over the next three years for these markets, 70% which will be developed specifically for “rural” healthcare. Also in 2012, GE started a financing and loan division to help Chinese county hospitals and clinics afford MRI and other radiological equipment and supplies.

Philips Healthcare (The Netherlands)
Philips invested $54 million to build a manufacturing facility in Suzhou which went into operation in 2012. Its goal is to “make products for the Chinese rural healthcare market with competitive prices.” The company launched what is called the “Dandelion Plan” in October 2012 for entering the rural markets of China. The plan covers product design, financing, after-sale service, training and information platforms.

Siemens Healthcare (Germany)
Siemens has given priority to expanding to lower-tier markets. Siemens introduced a “SMART” strategy in 2006 to deliver products and services that are “simple, maintenance friendly, affordable and timely to market, and are dedicated to the needs of emerging markets.” It claims to focus on developing entry level medical equipment, including CT for county hospitals.

Toshiba (Japan)
Toshiba opened its fourth global training center for scientific research in Beijing during 2012. Its other centers are located in Japan, the U.S. and Europe. They also opened an R&D Center in Beijing to develop products specifically for the Chinese market.

Comments

The expansion of medical products and services in China is exciting, but more importantly needed. Generally, medical equipment in Chinese hospitals is outdated and limited. The Chinese government recognizes its shortfalls in delivering good healthcare, especially in the rural areas of the country. U.S. and foreign manufacturers will tap this market for growth. A challenge will be to find managers to supervise, train and oversee the guidance needed for delivering quality products and services. U.S. medical device manufacturers, having faced a new 2.3% excise tax (as of January 1, 2013) on most medical devices may benefit from manufacturing in China for the Chinese or Asian markets. All this activity represents an eventual global benefit of potential new drug discoveries and technologies from the synergistic efforts of funding, available talent, state-of-the art facilities and hopeful and consistent Chinese government support.

Resources:
1. Imaging Vendors Target China’s Rural Market, by Owen Tang, Radiology News, Education Services, February 7, 2013
2. Innovating in China’s Pharma Market, Pharmafile, Dec. 4, 2012
3. Novo Nordisk boosts China R&D with $100 million Diabetes Research Project, by John Carroll, September 24, 2012
4. China Experiences Diabetes Epidemic, Drug Discovery New, February 2012
5. Healthcare in China: Entering Uncharted Waters, McKinsey & Co., July 2012

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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