China: Opportunities and Hot-Spots in the MedTech (Medical Device), Pharmaceutical and Healthcare Markets


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In this presentation, Dr Neale Jones, Partner, L.E.K. Consulting Australia explores the "Opportunities and hot spots for Australian companies in China". This presentation aims to assist Australian companies in the life science industry in entering the China market. This was first presented at the Australia China Life Sciences Summit in Sydney Australia in February 2014.

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China: Opportunities and Hot-Spots in the MedTech (Medical Device), Pharmaceutical and Healthcare Markets

  1. 1. Bangkok Beijing Boston Chennai Chicago London Los Angeles Melbourne Milan Mumbai Munich New Delhi New York Paris San Francisco São Paulo Seoul Shanghai Singapore Sydney Tokyo Wroclaw China: Opportunities and Hot-spots L.E.K. Consulting Pty Ltd, Level 26, Aurora Place, 88 Phillip Street, Sydney NSW 2000, Australia T: 61.2.9323.0700 F: 61.2.9323.0600 19 February 2014 © L.E.K. Consulting Australia 2014
  2. 2. CONFIDENTIAL 1 China means different things to different companies ... ... an “attractive” commercial market ... a source of capital and investment ... part of my supply chain solution © L.E.K. Consulting Australia 2014
  3. 3. CONFIDENTIAL 2 China is the world’s fourth largest medical device market 2.3 3.4 3.5 4.7 5.1 5.5 6.3 8.4 8.9 13.3 14.0 23.2 31.5 155 12525 1203020100 35 France China Germany Japan USA Switzerland Mexico India Billions of US$ Brazil Spain Russia Canada Italy UK 120.4 Medical device market size by country (2012) Note: * Forecasts assuming exchange rate at US$1=RMB5.5 by 2017, according to EIU Source: Espicom, EIU, L.E.K. analysis China medical device market size* (2007-17F) 0 5 10 15 20 25 30 35 40 Billions of US$ CAGR= 20.2% CAGR= 23.1% 17F16F15F14F13F12E111009082007 © L.E.K. Consulting Australia 2014
  4. 4. CONFIDENTIAL 3 China is the third largest pharmaceutical market in the world and will account for a quarter of global value growth to 2015 China Russia Japan Canada U.S. UK Asia Pacific Spain Germany Italy France 15-20% 10-15% 5-10% 0-5% CAGR* 2010-15F Pharmaceutical market growth rate* by major market (2010-15F) The worldwide contribution of the Chinese pharmaceutical market is expected to continue growing through 2015, eclipsing the growth contribution of the U.S., EU5, and Japan combined Latin America Africa Note: * Constant USD exchange rate Source: IMS Health, L.E.K. analysis © L.E.K. Consulting Australia 2014
  5. 5. CONFIDENTIAL 4 The different types of cities have different dynamics and importance Note: *Number of population in the province times disposable income per capita; **Number of population in the city times disposable income per capita Source: L.E.K. interviews and analysis Groups Categorized cities Sub-segmentation criteria City tier segmen- tation City tier sub- segmen- tation # of cities Example cities National hubs Beijing, Shanghai and Guangzhou Tier 1 Tier 1 3 Beijing Shanghai Guangzhou Provincial hubs Key provincial hubs All provincial capitals excluding Guangzhou, such as Wuhan, Chengdu and Nanchang Total provincial disposable income* > RMB100bn Tier 2 Tier 2-A 16 Wuhan Nanjing Chengdu Non-key provincial hubs Total provincial disposable income* < RMB100bn Tier 2-B 12 Taiyuan Haikou Nanchang Non-hub cities Wealthy city markets Other cities, such as Jingzhou, Mianyang Total city disposable income** > RMB 25bn Tier 2-C 20 Wuxi Yantai Xiamen Other city markets Total city disposable income** < RMB 25bn Tier 3 Tier 3 236 Jingzhou Fushun Zhanjiang © L.E.K. Consulting Australia 2014
  6. 6. CONFIDENTIAL 5 The healthcare landscape encompasses a range of “segments” T3, C3 c.13 c.20 Tier 1 City, Class 3 Hospital c.50 c.2 c.7 T1, C2 T2, C2 c.3 T2, C3 30 20 40 50 China hospital landscape by average annual inpatients surgeries and hospital segments (2012) Thousands of inpatients surgeries 10 0 Number of hospitals 9,0008,5008,0007,5007,0006,5006,0005,5005,0004,5004,0003,5003,0002,5002,0001,5001,0005000 County c.3 T3, C2 Premium segment Value segment Un-addressable Source: China hospital database, L.E.K. analysis © L.E.K. Consulting Australia 2014
  7. 7. CONFIDENTIAL 6 Unlocking any commercial potential is dependent on a range of factors Product range Sales and distribution strategy Tendering and other areas Premium or value segment Pricing Service requirements and differentiation Direct vs. dealers Sales force roles and incentives Dealers roles and incentives Distributors and dealers consolidation Tendering roles and responsibilities Changes as a result of new regulations Regionalization of sales force Customer segmentation Account potential Current and future sales © L.E.K. Consulting Australia 2014
  8. 8. CONFIDENTIAL 7 Tendering and listing are becoming increasingly challenging Province/City tendering Hospital source list Surgeon selection Tendering and selection process Key outsider influencer • Manufacturer • Provincial distributor More than 20 domestic and imported brands A list of 15-20 domestic and imported brands c. 2~5 domestic brands and 1~4 imported brands* Preliminary selection criteria • Brand awareness • Historical performance • Completed documentation and support materials Brand used Description • Relatively easy to get onto the list, especially for a well-known brand • Sets the price ceiling for the brand’s products in the region Note: *For mid and lower tier markets Source: L.E.K. interviews and analysis • Local distributor or provincial distributor (in target hospitals) • Distributor relationship and access • Product payment structure • Product price and quality • Fierce competition • Many brands are excluded at this stage • Prices are negotiated • Level 2 Distributors • Product quality • Manufacturers’ pull from marketing activities • Patient affordability • Distributor’s recommendation and/or promotions • Surgeons select from brands that are on the hospital list © L.E.K. Consulting Australia 2014
  9. 9. CONFIDENTIAL 8 Innovation Indigenous innovation in MedTech sector has been listed as a key initiative in the 12th Five-Year Plan (2011-2015) published in 2011 Domestic firms are encouraged to enhance R&D efforts in order to develop indigenous technology and innovation, making them more competitive against foreign competitors Source: L.E.K. research and analysis Industry restructuring and upgrade A series of goals has been set for the development of MedTech sectors during the 12th Five-Year Plan. By 2015: 200 new patents of MedTech; 50-80 innovative medical devices; 40-50 innovative high-technology medical device companies c.RMB1.5billion special supporting fund from the government in 2013 and a total c.RMB10billion investment to support domestic MedTech innovations by 2020 Three key themes in healthcare initiatives in the 12th Five Year Plan Developing innovation is featured prominently in China’s 12th Five Year Plan (2011-15) Increase coverage and quality of services Increase insurance coverage Improve public hospital services Improve services for family planning, women, children, elderly and disabled Guarantee product safety © L.E.K. Consulting Australia 2014
  10. 10. CONFIDENTIAL 9 More than 10 provinces have set up at least one MedTech Science Park and the central government targets to build another 8-10 by 2015 Chongqing Jiangsu Beijing Guangdong Hunan Zhejiang Hubei Liaoning Heilongjiang Jiangxi Shanghai Henan MedTech science park locations in China (2013) By 2013, 12 provinces and municipalities had set up at least one MedTech Science Park The central government plans to build another 8-10 MedTech Science Parks by 2015 Beyond MedTech science parks, China established more life science parks across the country - there were already more than 120 life science parks in China in early 2010 Source: Local MedTech science park websites, Ministry of Health (MOH), 12th Five-Year Plan, L.E.K. research and analysis Province with MedTech Science Park Province without MedTech Science Park © L.E.K. Consulting Australia 2014
  11. 11. CONFIDENTIAL 10 Healthcare infrastructure is at the early stages of a long transition Healthcare provider landscape (2009) Level 3 (1,233) Level 2 (6,533) Level 1 & Community Healthcare Center (CHC) (10,825) Community Healthcare Station (CHS) (22,092) Township Healthcare Station (THS) (39,627) Healthcare provider landscape (2020*) Urban Rural Ad- vanced Hospitals (1,559) Community Healthcare Station (22,092) Village Clinic (632,770) Community Healthcare Center (5,216) Township Healthcare Station (38,475) County / District Hospital (6,056) Primary healthcare Initial diagnosis Essential medicines prescription Chronic disease management Public hygiene services Physicals Vaccination Healthcare education Advanced healthcare Care for severe or rare diseases Advanced diagnosis and treatment Scientific research Advanced secondary healthcare institution Primary healthcare institution (PHCI) Services provided © L.E.K. Consulting Australia 2014
  12. 12. CONFIDENTIAL 11 Further information and insights Expanding in China MedTech Market: Where To Go From Here, In Vivo Pricing and reimbursement for high value therapies in China, BIO Buzz Tackling China’s EDL Challenge: Navigating the Changes and Planning for Success, PharmAsia Newsletter Investing in Health, EuroBiz Looking After China’s Elderly, China Business Review Hospitals Adopt New Strategies to Boost Profitability, but Still Face Deep Challenges: A New Imperative for MedTech Biopharma & Life Sciences Outlook 2013 Articles can be found on our website: © L.E.K. Consulting Australia 2014
  13. 13. CONFIDENTIAL 12 China means different things to different companies ... ... an “attractive” commercial market ... a source of capital and investment ... part of my global supply chain solution Assisting Australian Companies to Enter China an AusBiotech/ Austrade initiative © L.E.K. Consulting Australia 2014
  14. 14. CONFIDENTIAL 13 kÉ~äÉ=gçåÉëkÉ~äÉ=gçåÉëkÉ~äÉ=gçåÉëkÉ~äÉ=gçåÉë iKbKhiKbKhiKbKhiKbKhK=`çåëìäíáåÖK=`çåëìäíáåÖK=`çåëìäíáåÖK=`çåëìäíáåÖ åKàçåÉë]äÉâKÅçãåKàçåÉë]äÉâKÅçãåKàçåÉë]äÉâKÅçãåKàçåÉë]äÉâKÅçã HSN=O=VPOP=MTMMHSN=O=VPOP=MTMMHSN=O=VPOP=MTMMHSN=O=VPOP=MTMM äÉâKÅçãäÉâKÅçãäÉâKÅçãäÉâKÅçã © L.E.K. Consulting Australia 2014