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China 2020: Medical Devices Sector

China 2020: Medical Devices Sector

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  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • Medical Device Industry:projects cutting edge medical equipment will experience the greatest demand, while low-end goods will keep the sector highly buoyant. By 2014, the value of the md industry will reach rmb 164 bn (usd25bn) posting a cagr of 12.9 % in usd. Total md market accounts for 6.6% of total healthcare market.
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • On April 6, 2009, the Central Committee of the Communist Party of China (“CCCPC”) and the State Council jointly endorsed and issued the Guidelines on Deepening the Reform of the Healthcare System (”Guidelines”)1, followed by the Implementation Plan on Focuses for Deepening the Reform of the Healthcare System 2009-2011 issued on April 7, 2009 (“Implementation Plan”)2. The Guidelines focus on directions, objectives and policy structure to reform the healthcare system in the long term, while the Implementation Plan details objectives in the coming three years. Priorities of China’s health reforms include:Expansion of health insurance programs, especially rural healthcare cooperatives• Building hospitals and clinics• Reducing government expenditures for drug costs• This memorandum addresses some of the efforts to control drug costs through the national essential drug system.Regulatory Frame work is improving: Guangdong Provincial FDA’s decision to revoke the licenses of 67 medical device manufactures and nearly three hundred distributors for producing and selling sub-standard goods. Meanwhile, the SFDA – China’s premier food, drug and medical device watchdog – recently completed the draft version of the revised regulations for the supervision and administration of medical devices. These two developments give a clear signal that quality is becoming increasing important, which is good news for the multinationals and also enlightened indigenous playersNational Essential Drug System – Program ChangesOne of the major reforms in the healthcare system in 2009-2011 will be the establishment of the National Essential Drug System, which covers three primary areas:1) Establishing the administrative system to adjust the National Essential Drug List. The National Essential Drug List will be renewed periodically. Ma Xiaowei, Vice Minister of Health, said in early April 2009 that the formulation of the National Essential Drug List is the first task to establish the National Essential Drug System, and it was intended to be issued in April3. As of early May, however, the List has not yet been published. 2) Establishing a bidding process for essential drugs. Both the producer and the supplier of essential drugs used by government affiliated medical institutions may be required to participate in public bidding held by institutions designated by the provincial-level government. Enterprises in various regions and in various ownerships shall be treated equal in the bidding. Purchase/pricing of essential drugs with small dosage, and certain designated production/suppliers will be structured through bidding. The central government will set guiding retail prices for essential drugs, while provincial-level governments may set unified prices of essential drugs in the corresponding regions within the price scope set by the central government. Government affiliated basic medical institutions shall sell drugs to patients at the purchase price without markup.3) Establishing a system that encourages the use of essential drugs. All government affiliated retail drug stores and medical institutions shall have and sell national essential drugs for patients’ needs. Urban and rural basic medical institutions shall all use national essential drugs, while other medical institutions shall give priority to the use of essential drugs and follow the requirement on utilization percentage of essential drugs which will be set by the health administrations later. All the essential drugs will be covered by the basic medical insurance system, and may see higher reimbursement rates than non-essential drugs in the insurance system. 2New drugs and patented drugs will be subject to an economic evaluation to help determine pricing. The economic evaluation is intended to provide an objective analysis of quality, curative effect, cost, safety, and other clinical and economic features. These evaluations will contribute not only to drug pricing, but also to the formulation of a drug reimbursement catalogue, formulation of national essential drug list, and prescription plans at medical institutions for patients. Further, in order to control costs, new generic drugs will be required to be sold at the current lowest market price. The markup percentage in the drug distribution will also be strictly regulated. Drug pricing in China currently is under the primary supervision of the National Development and Reform Commission (NDRC) and the State Food and Drug Administration (SFDA). Hospital Purchase/Sale of DrugsAnother major reform involves restrictions on public hospitals’ purchase and sale of drugs. More specifically, hospitals will no longer be able to markup the price on drugs in sales to patients. The percentage markups of drug prices will be gradually eliminated. To protect hospitals from significantly reduced revenues, patients’ payment to hospitals for medical services will be increased, and the government will also increase subsidies to public hospitals on infrastructure construction, purchase of capital equipment, public sanitary missions, etc.. Basic medical services of non-profit medical institutions shall follow the guiding price set by the government, and medical institutions are independent to price other medical services. The central government will work out the pricing policies and measures on medical services, and the provincial-level or the municipal-level pricing authorities will set the guiding prices jointly with the administration of health, human resources and social security. Observations and Implications:The Guidelines and the Implementation Plan are another step for the Chinese government to lower drug prices. Provincial-level governments will have the power to set drug prices of essential drugs in the corresponding jurisdictions through public bidding. Essential drugs will be sold in government affiliated basic medical institutions at the purchase price without markup, while in the future, both essential drugs and non-essential drugs will be sold without markup in more medical institutions including public hospitals. Official figures suggest that currently, about half the income of China’s general hospitals may come from price markups of the drugs sold to maintain operations. The government will reinforce the financial support to those institutions to maintain their daily operations. The unified procurement of essential drugs is intended to be fair to both domestic and foreign invested drug companies, as pursuant to the Implementation Plan, “enterprises in various regions and various ownerships are equal in taking part in the fair competition” in the bidding.To promote the reform, the State Council has established the Steering Team on Deepening the Reform of the Healthcare System, which is under the leadership of Vice Premier Li Keqiang and composed of officials from 16 ministries of the State Council including the National Development and Reform Commission, the Ministry of Health, the Ministry of Finance, the Ministry of Human Resources and Social Security, etc. The Steering Team will be responsible for formulating pilot program policies and principles. More affiliated documents and regulations on operations are expected to emerge soon.dk
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need
  • In state-owned hospitals, CEO is the key responsible person. So they are also the key decision-maker of the decision-making team in medical equipment purchase, instead of the expert who use the equipment as key person in western hospitals.Because CEO is not professional in techniques of the equipment to purchase, so in Chinese market, technical advantages are not as powerful as in western market. CEOs only recognize key parameter differences. So setting up industry standard and right positioning are the most important works to do in medical equipment marketing.The decision making team in China’s state-owned hospitals have a very complicated and even uncertain structure. Team members within hospital include CEO, vice CEOs, party secretary, equipment officer, user department director, related department directors, etc. Team members outside hospital include reference experts, healthcare bureau, government leader, related university dean, etc. To conquer such a big team, a sales dream-team is a must need

China 2020: Medical Devices Sector Presentation Transcript

  • 1. France Houdard
    Managing Director
    france.houdard@exolus.com
    April 2011
  • 2. Strategic Marketing Considerations
    Preface: China Strategic Market Considerations
    • The China market is highly fragmented and requires MD companies to provide products that can be tailored to a broad range of specific nuanced needs. There exists an increasing demand for higher quality products, of a quality that lies between local and imported products . Price remains a key determinant to success in China.
    Market Access
    • Each and every product sold into China requires both a sales license (and a production license if produced in the PRC) issued by the SFDA.
    • 3. The sales license approvals process is very protracted, taking more than three years, and delays hinder the ability to access the China marketplace. Also, the licenses come with expirations dates and need to be renewed every several years.
    Regulatory Challenges
    • Domestic China firms have a major advantage over foreign players, particularly as a means to accessing the China market; business contacts, tailored products, local knowledge – and, perhaps most importantly, knowledge of complex local regulations.
    • 4. Local companies’ product sales /production licenses provide a shortcut to market.
    • 5. Acquiring the right local company or forming a joint venture can give foreign firms an major advantage in gaining access and awareness of MD products to its customers.
    M&A / Joint Ventures
    • More than 160,000 distributors exist in China creating a highly fragmented environment for manufactures to access sales opportunities.
    • 6. No distributor in China has nationwide access and suppliers must work with many distributors to get broad yet effective coverage.
    • 7. Distributor due-diligence for foreign firms is a necessary step in order to gain access.
    Distribution
    • Dubious false advertising and marketing practices stating inflated claims have been monitored and cracked down on.
    • 8. Reimbursement list of medical insurance; if treatment or exam is not listed the demand for specific product will drop significantly.
    Risks
  • 9. Medical Devices Primed for Growth
    Preface: Market Size and Forecasted Growth Rate
    Life Science Industry Segments (2009 – 2012 growth forecast)
    USD (billions)
    Source: CLSA Asia Pacific Markets
  • 10. Recent Medical Devices M&A / Joint Venture Activity
    Preface: Trends in Medical Devices M&A / Joint-Venture Activity
    2008
    Medtronic acquired a 15% equity interest in Weigao Group Medical Polymer to market therapies in the spine and orthopedics sector. The agreement
    Gave Medtronic a 51% interest and Weigao a 49% interest.
    2009
    The Shanghai based Sym-Bio life science company, a supplier of diagnostic instruments was acquired by PerkinElmer for approximately USD 63.6 million.
    2010
    Chindex recently formed an alliance with Shanghai’s Fosun Pharmaceutical. The Joint Venture agreement will form Chindex Medical Limited and focus on manufacturing and distributing medical devices in China.
    .
    Source: Public Websites
  • 11. Recent Medical Devices M&A / Joint Venture Activity
    Preface: Trends in Medical Devices M&A / Joint-Venture Activity
    2004
    Neusoft and Philips formed a manufacturing and R&D Joint Venture for medical systems. The Agreement formed Philips-Neusoft Medical Systems to develop CT and x-ray equipment.
    2008
    Philips acquires Shenzhen Goldway to help strengthen its high-end patient monitoring business segment in China.
    2008
    GE Healthcare established a Joint Venture agreement with China’s Shinva Medical Instrument Co. and will focused on the manufacturing of x-ray equipment.
    Source: Public Websites
  • 12. Preface: Trends in Medical Devices PRC Research & Development Activity
    Foreign & Domestic Medical Devices R&D Operations
    Research & Development Centers
    Heilongjiang
    Jilin
    Liaoning
    Xinjiang
    Inner Mongolia
    Beijing
    Gansu
    Tianjin
    Hebei
    Shanxi
    Ningxia
    Shandong
    Qinghai
    Henan
    Jiangsu
    Shaanxi
    Tibet
    Shanghai
    Hubei
    Anhui
    Sichuan
    Zhejiang
    Chongqing
    Jiangxi
    Hunan
    Fujian
    Guizhou
    Yunnan
    Guangdong
    Guangxi
    Source: Company and Public Websites
  • 13. Preface: China Undergoing Major Healthcare and Insurance Reform
    USD130 billion Investment
    Healthcare and Insurance Reform (2009 – 2011)
    • Basic Medical Security (Insurance)
    • 14. Reduce drug expenses and medical access to urban and rural residents
    • 15. Individual subsidy goes from RMB60 to RMB120 starting in 2010
    • 16. Improve Healthcare Services at the Grass-Roots Level
    • 17. Focus on establishing 2,000 provincial level hospitals and complete 29,000 township clinics and 5,000 clinics in remote villages
    • 18. Construction and training at the township, community, and village levels
    • 19. Construct Preliminary National Essential Medicine System
    • 20. Drug reimbursements by hospitals and pharmacies
    • 21. Catalogue necessary drugs produced and distributed under government control and supervision starting in 2009; covered by medical insurance
    • 22. Basic Public Health Services
    • 23. Citizens (urban & rural) disease prevention awareness programs
    • 24. Gradually provide equal public health services in both rural and urban areas
    • 25. Public Hospital Reform Pilot Projects
    • 26. Reform public hospital administration, operations and supervision to improve service quality
    Source: Ministry of Health, National Development and Reform Commission
  • 27. Construction and Renovation of 50,000+ Medical Institutions
    Preface: Large-Scale Construction of New Healthcare Institutions
    Construction of Healthcare Institutions
    ren* = renovations
    Source: Ministry of Health, National Development and Reform Commission
  • 28. 2014 Market Value Forecasted @ USD 25 BILLION
    Preface: Market Size Forecasted to 2014
    Medical Devices Market Value (2005 – 2014f)
    USD (billion)
    Source: CAMDI, SFDA, China Customs BMI
  • 29. Medical Devices Primed for Growth across Major Sub-Segments
    Preface: Market Size of Medical Devices Industry Sub-Segments
    Medical Devices Industry Sub-segments
    (Dental Implants)
    (Implants, Supports)
    (Syringes, Catheters)
    (X-ray Machines, MRI)
    (ECG, Incubators, Ventilators, Heart-Lung Machines)
    Source: Epsicom Business Intelligence, DeviceLink.com
  • 30. Corporate Trends: Structural Optimization – Markets, Resources, Innovation
  • 31. Today’s Burning Platform: Global Markets, Cost Reduction, Innovation
    Market Access/Revenue Growth … Global Structural’ Cost Reduction
    1. Markets
    3. Knowledge
    REVENUE
    R&D
    Sales
    INNOVATION
    Engineering
    IT HR
    Service
    EFFICIENCY
    Efficiency/ Shared Services
    F&A Procure
    Distribution
    Sourcing
    Innovation/ Knowledge
    Production /Assembly
    Resources/ Cost Reduction
    COST
    Markets / Revenues
    2. Resources
    DRIVING Shareholder Value
  • 32. WEALTH + AGING POPULATION + LIFESTYLE/DISEASE + HEALTHCARE REFORM + INSURANCE REFORM
    1. Market Drivers: Growth Drivers for the Bio-Pharma Sector
    • Middle Class/ Income Growth
    • 33. More than100 million people join China’s middle class every 5 years.
    • 34. Aging Population
    • 35. Over-65 age segment: growing most rapidly (2 to 2.4 ppa), expected to reach 111 million by 2010.
    • 36. 55+ age group: to increase by 42% in next ten years; 0-14 age segment: to decrease by 8%.
    • 37. Lifestyle Changes
    • 38. Lifestyle-related disease accelerating -- e.g. obesity, diabetes, cardiovascular, chronic respiratory diseases.
    • 39. China will have 38 million diabetic patients by 2025, almost double projections of diabetes for the US.
    • 40. 1/3 of world’s smokers are Chinese.
    • 41. Healthcare Reform
    • 42. USD130 billion is being spent on medical sector reform over the three years spanning 2009 to 2011.
    • 43. Insurance Reform
    • 44. Insurance coverage for urban dwellers has increased 10-fold in past 10 years.
    • 45. Nearly all of China’s 1.3 billion population covered by some form of insurance by 2012.
    Source: Ministry of Health, KPMG
  • 46. 1.1 Income Growth: World Bank Projects China as #1 Economy
    2020 GDP*
    GDP* PPP-adjusted
    France
    France
    EU-27
    UK
    UK
    EU-27
    US
    US
    Germany
    Germany
    China
    India
    Japan
    $30.0 tr
    $13.4 tr
    $28.8 tr
    $6.8 tr
    $29.6 tr
    GDP* PPP-adjusted
    2009 GDP*
    China
    6,4 trillionsde $
    3,6 trillionsde $
    Japan
    India
    Japan
    $4.1 tr
    $3.8 tr
    $9.1 tr
    $14.2 tr
    $14.1 tr
    Source: World Bank
  • 47. 900
    800
    99
    700
    90
    600
    500
    53
    170
    355
    400
    461
    525
    239
    300
    255
    200
    157
    106
    100
    73
    35
    0
    2005
    2010F
    2015F
    2020F
    2025F
    1.1 Income Growth: Forward Trend in Exploding Middle Class
    China’s Middle Class: 400 million (2010) … 500 million (2015)
    Upper Middle Class
    Middle Class Income Bands for Urban Population
    Lower Middle Class
    Urban Household Income (US$ – PPP-Adjusted)
    822
    822
    756
    756
    Global > US$107,800
    684
    684
    Affluent US$3,800 - 107,800
    607
    607
    531
    531
    Urban Population (millions)
    Upper Middle US$21,501 – 53,900
    Lower Middle US$13,500 – 21,500
    Poor < US$13,500
    Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008
  • 48. 1.1 Income Growth: Significant Income Stratification across China
    Coastal Wealth Spreading Across the Country
    Per Capita Annual Income
    (USD, PPP-Adjusted)
    China Per Capita Annual Income
    (USD, PPP-Adjusted)
    Heilongjiang
    Jilin
    Xinjiang
    Liaoning
    Inner Mongolia
    Beijing
    Gansu
    Hebei
    Tianjin
    Shanxi
    Ningxia
    Shandong
    Qinghai
    Henan
    Jiangsu
    Shaanxi
    Tibet
    Anhui
    Shanghai
    Hubei
    Sichuan
    Zhejiang
    Chongqing
    Jiangxi
    Hunan
    Guizhou
    Fujian
    Yunnan
    Guangdong
    Guangxi
  • 49. 1.1 Income Growth: Healthcare Expenditure Per Capita Trend
    Healthcare Expenditure Per Capita Continues to Grow
    Healthcare Expenditure Per Capita (2005 – 2020f)
    249% Increase
    USD per Capita
    Source: PWC, Prof. Wen Tiejun, Renmin University of China
  • 50. 1.2 Aging Population:Aging Population … One-Child Policy
    87 MM 65+Yeal Old in 2000 … 112 MM in 2010 … 340 MM in 2050
    Population under 14 Years Old (% of Total Population)
    Population over 65 Years Old(% of Total Population)
    Source: Dr. Jean-Paul Rodrigue; Exolus
  • 51. 1.3 Lifestyle Changes:Wealth tied to Disease Accelerating Activities
    Disease Acceleration
    Lifestyle Changes
    1/3 of world’s smokers are Chinese
    Lifestyle-related disease accelerating -- e.g., obesity, diabetes, cardiovascular, chronic respiratory diseases
    China will have 38 million diabetic patients by 2025, almost double projections of diabetes for the US
    No established culture of health consciousness and fitness
    Source: Dr. Jean-Paul Rodrigue
  • 52. 1.4 Healthcaree Reform:Undergoing Major Healthcare Reform
    USD130 billion Investment
    China Healthcare Reform (2009 – 2011)
    • Improve Healthcare Services at the Grass-Roots Level
    • 53. Focus on establishing 2,000 provincial level hospitals and complete 29,000 township clinics and 5,000 clinics in remote villages
    • 54. Construction and training at the township, community, and village levels
    • 55. Construct Preliminary National Essential Medicine System
    • 56. Drug reimbursements by hospitals and pharmacies
    • 57. Catalogue necessary drugs produced and distributed under government control and supervision starting in 2009; covered by medical insurance
    • 58. Basic Public Health Services
    • 59. Citizens (urban & rural) disease prevention awareness programs
    • 60. Gradually provide equal public health services in both rural and urban areas
    • 61. Public Hospital Reform Pilot Projects
    • 62. Reform public hospital administration, operations and supervision to improve service quality
    Source: Ministry of Health, National Development and Reform Commission
  • 63. 1.5 Insurance Reform:Programming to Universal Coverage by 2012
    8-Fold Increase in Insurance Coverage in 10 Years … Coverage for Nearly All by 2012
    China Insurance Reform
    Source: CCCPC, Xinhua, Public Websites
  • 64. 2. Costs:First-World Infrastructure with Third-World Wages Exist?
    Asia Labor Costs: 10 – 20 Times Cheaper than in West
    Labor Costs (USD per month)
    Utility Costs
    Note: Units for Electricity $/kWh; Water in USD/m3; Waste Water in USD/m3
    Source: Wage Data from the International Labor Organization; Utilities Rates from Public Utilities (non-negotiated rates)
  • 65. Opportunities:Where are Future Optimal Investment Envelopes?
    Low Cost Bands + Emerging Mega-Cities + High-Income Geographies
    Per Capita Income / Wage Band Overlay
    Per Capita Annual Income
    (USD, PPP-Adjusted)
    Heilongjiang
    Jilin
    Xinjiang
    Liaoning
    Inner Mongolia
    1
    1
    Beijing
    Gansu
    Wage Bands
    Hebei
    Tianjin
    Mega-City
    Shanxi
    Ningxia
    Mega-Corridors
    Shandong
    Qinghai
    0.65 - 0.75
    Henan
    Jiangsu
    Shaanxi
    1
    1
    Tibet
    Anhui
    Shanghai
    Hubei
    Sichuan
    0.8 - 0.9
    0.7 - 0.8
    Zhejiang
    Chongqing
    Jiangxi
    Hunan
    Fujian
    Guizhou
    Yunnan
    1
    1
    Guangdong
    Guangxi
  • 66. 3. Innovation:Where are Key Nodes for Structuring R&D Platforms?
    “R” of R&D Seeks MD Clusters … “D” Seeks Hospitals & Production
    R&D Centers
    (# Operations)
    Research & Development Centers
    (Number of Operations in Select Cities)
    > 10
    > 50
    Deserts
    Heilongjiang
    Steppe
    > 150
    Jilin
    Wage Bands
    Mega-Cluster
    Liaoning
    Xinjiang
    Mega-Corridors
    1
    Inner Mongolia
    Beijing
    Gansu
    Tianjin
    Hebei
    Mountains
    Shanxi
    Ningxia
    Shandong
    Qinghai
    0.65 - 0.75
    Henan
    Jiangsu
    Shaanxi
    1
    Tibet
    Anhui
    Shanghai
    Hubei
    Sichuan
    0.8 - 0.9
    0.7 - 0.8
    Zhejiang
    Chongqing
    Jiangxi
    Hunan
    Fujian
    Guizhou
    Yunnan
    1
    Guangdong
    Guangxi
    Source: UNCTAD, WIR
  • 67. 3. Innovation:Existing Medical Devices R&D Operations in China
    Foreign Medical Devices R&D Operational Largely in YRD and Bohai Rim
    R&D Centers
    (# Operations)
    R&D Centers
    (# Operations)
    Foreign MD R&D Centers in the PRC
    > 10
    > 50
    Heilongjiang
    > 150
    Jilin
    Wage Bands
    Mega-Cluster
    Liaoning
    Xinjiang
    Mega-Corridors
    Inner Mongolia
    Beijing
    Gansu
    Tianjin
    Hebei
    Shanxi
    Ningxia
    Shandong
    Qinghai
    Henan
    Jiangsu
    Shaanxi
    Tibet
    Anhui
    Shanghai
    Hubei
    Sichuan
    Zhejiang
    Chongqing
    Jiangxi
    Hunan
    Fujian
    Guizhou
    Yunnan
    Guangdong
    Guangxi
    Source: UNCTAD, WIR
  • 68. 3. Innovation:Big Pharma also Migrating R&D Functions to China
    Foreign Life Sciences R&D Operational Largely in YRD and Bohai Rim
    R&D Centers
    (# Operations)
    Foreign Life Sciences R&D Centers in the PRC
    > 10
    > 50
    Heilongjiang
    > 150
    Jilin
    Wage Bands
    Mega-Cluster
    Liaoning
    Xinjiang
    Mega-Corridors
    Inner Mongolia
    Beijing
    Gansu
    Tianjin
    Hebei
    Shanxi
    Illustrative Innovation Trend
    Based on Big Pharma R&D Investment
    Ningxia
    Shandong
    Qinghai
    Henan
    Jiangsu
    Shaanxi
    Tibet
    Anhui
    Shanghai
    Hubei
    Sichuan
    Zhejiang
    Chongqing
    Jiangxi
    Hunan
    Fujian
    Guizhou
    Yunnan
    Guangdong
    Guangxi
    Source: UNCTAD, WIR
  • 69. 3. Innovation:Driving Creation of a National Innovation System
    19% YoY Increase in Research Spend for past Decade … RMB460 billion Total
    China National Innovation System
    1. Institutions that Drive Innovation
    CAS
    MOST
    CAE
    NSFC
    NDRC
    MOE
    MOC
    MOF
    2. Programs, Initiatives, Processes for Innovation
    4. Intermediaries / Aggregators of Innovation
    Government Programs
    863 Program
    973 Program
    211 Program
    985 Program
    NSFC Funding
    National Key Technology R&D
    Hi-Tech Development Zone (HTDZ)
    Science Parks
    Incubators
    Natural Clusters
    3. Academia, Firms, People that Drive Innovation
    Academia
    Private Firms
    Source: CCCPC
  • 70. Ministry of Science and Technology (MOST) Programs for R&D
    3. Innovation:Programs Created to Undergird National Innovation System
    Core Programs Supporting R&D in China
    Source: MOST, NDRC
  • 71. Ministry of Education (MOE) Programs for R&D
    3. Innovation:Programs Created to Undergird National Innovation System
    Core Programs Supporting R&D in China
    Source: MOST, NDRC
  • 72. China’s Economic Health … Report Card
  • 73. Senior Executives Select China as Most Attractive in World
    Investor Confidence in China #1 in World
    Top 14 Most Attractive Destinations for Future Investment (2009 – 2011)
    %
    Percent of Responses
    Source: World Investment Prospects 2009 - 2011
  • 74. Foreign Investment Continues to Soar – Strong Vote of Confidence
    Record FDI of USD106 billion in 2010
    Foreign Direct Investment Inflows (1990 – 2010)
    USD
    Source: China Statistical Yearbook
  • 75. Healthy Balance Sheets – Banks, Enterprises, Households
    USD2.85 trillion in Foreign Reserves … Insulation of Financial System … Clean Balance Sheets
    • China’s Financial System Healthy, Benefits from Insulation, Abundant Liquidity
    • 76. China banks cleaned up in 1990s: Non-performing loans in 1997 averaged 40 – 50%; only 6% in 2007.
    • 77. Financial institutions extended approximately USD1.4 tr in new loans in 2009; almost double that of 2008; and USD1.2 tr in 2010, slightly down from 2009.
    • 78. Forex Reserves Achieve Record High in 2010: USD 2.85 trillion
    • 79. The Central Bank has accumulated over USD 2.85 trillion in foreign reserves.
    • 80. The accumulation of large external surpluses means financial system enjoys abundant liquidity.
    • 81. Clean Balance Sheets for Enterprises and Households
    • 82. State Owned Enterprise net profits as share of GDP has grown from (-1%) in 1997 to (+4.3%) in 2007.
    • 83. Record corporate profit growth over past 5 years (industrial profits rose 38 ppa); liability ratios declined.
    • 84. Urban incomes have nearly doubled in past 10 years.
    Source: Deutsche Bank; Standard Chartered; UBS; IMF; Other
  • 85. Global Expansion Strategy & Cross-Border Investment Execution (Greenfield, M&A, Joint Ventures, Outsourcing)
    About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with management teams in the development of their global expansion strategies, across the range of investment formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by providing program management across all phases of cross-border investment projects, from candidate searches and evaluation, through investment structuring and negotiations.
    The founders of Exolushave spent the past two decades in the global service space and have direct experience operating in nearly all of the major investment destinations in the world (40+ countries). The team has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10 million to greater than USD1 billion. We have served clients across all of the following industry segments: Life Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector.
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  • 86. Disclaimer
    In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process.
    The opinions represented herein were prepared for information purposes only, at the time of publication. The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates.
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