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John Gregg,
Associate Principal Greater Chna & Head Monitor Emerging Markets Group
Monitor Company Group
Copyright 2009 by Monitor Company Group, L.P.
No part of this publication may be reproduced without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
CAGR%
(2002-09)
Billions of US dollars
10
8.8
8
CAGR%
(2006-11F)
Analyst reports
Case #1 25%
Case #2 24%
26.5
Case #3 20%
7.1
200
6
5.4
4.1
4
2.4
2
2.9
150
1.7 2.0
0
2002 03
04
05
06
07
08
09
100
2007
08
09F
10F
11F
Cardiovascular
Percent
100
90
Pulmonary
Incubators
Ventilators
Other
2%
13%
Dental products
Orthopedic and
implantable products
Dental implants
20%
Consumables
Pacemakers
Stents
60
50
27%
80
70
ECG
Heart lung machines
40
Catheters
30
20
39%
Diagnostic imaging
10
0
Syringes
X-ray machines
MRI
Driver
Impact on
growth
Commentary
Changing
patient population
Access
to care
Economic growth
China has achieved GDP growth of ~9% p.a. for the past 20+ years
Rank
Company
2009 revenue
(Worldwide)
2009 revenue
(China)
Year of China
entry
J&JMedical
$23.1B
$500M
1994
GEHealthcare
$17.4B
$700M
1991
Medtronic
$13.5B
$300M
1989
BaxterInternational
$12.3B
$200M
1988
PhilipsHealthcare
$10.7B
$1.1B**
Unclear^
Covidien
$8.9B
$65M*
Unclear^
10
AbbottLaboratories
$7.2B
Unclear^
1995
Rank
Company
2008 revenue
(US$M)
Employees
LaunchYear
MindrayMedical
547
5,500
1991
ShandongWeigao
200
9,800
1988
Microport
61*
650
1998
YueyueMedical
59
1200
1999
LepuMedical
58
500
1999
Note: *2008/09 revenue; **Includes other key emerging markets; ^Unreported entrance date / revenue from
China Source: Medical Product Outsourcing, Monitor interviews and analysis
Imports
5
3.7
3.8
4.3
5.3
0.6
0.2
3.1
2.5
4.3
Consumables
Medical dressing
1
0
12
11.1
1.9
Exports
10
Healthcare products
Dental supplies
Medical technology
8.4
6.9
3.1
3.2
2.3
0.2
4.1
Chinese medical
device exports are
mostly low-value
disposable products
3.6
2
0
2003 04
05
06
07
5.3
6
4
Chinese medical
device imports are
mostly high-value
medical technology
08
Source: General Administration of Customs, China Now: Medical Products, Monitor analysis
100
20
18
15
9
10
10
7
0
U.S.
Japan GermanyFrance
UK
Italy
Switzerland
India
Mexico China
Population
304M
127M
82M
62M
61M
60M
192M
33M
46M
8M
1.1B
106M
1.3B
Per capita,
Market size
$329
$157
$223
$139
$138
$138
$34
$173
$107
$513
$3
$18
$6
Increase medical
insurance coverage
Build a basic
medicine system
Upgrade grassroots
medical institutions
Equalize services in
rural & urban areas
Efforts are expected to increase rural area public health services to equal
existing level of service in urban areas; expansion of basic programs and
major projects will be driven by change in grassroots medical institutions
Public hospital
reform programs
2008
Top
hospitals
Top
hospitals
Mid-scale
hospitals
Lower level
hospitals
Community
health centers
Grassroots
medical
institutions
Current system:
Patients treated in
crowded top hospitals
Companies focus efforts
selling to top hospitals
Future system:
Key Implications
Top hospitals will continue to handle
advanced procedures; remain a main
customer of advanced devices
Initial demand for basic medical
devices from development of a larger
base of lower tier hospitals
Ongoing demand for consumable
devices at country level institutions
due to increasing patient base
However, future regulations and
government funding support may have
adverse impact on foreign suppliers
Initial treatment in
rural or community level
Utilization of different
levels of medical services
Complexity of market
1
Operational challenges
4
10
Socioeconomic diversity
Overall, existing resources are highly concentrated in the more developed cities,
which has implications for suppliers sales and marketing efforts
Number of 3A hospitals vs. Urban resident disposable Income, by City
(2008)
50
Beijing
Tier 1
40
30
Tier 2
Harbin
Xian
Shenyang
20
10
Tier 3
0
1000
Chongqing
Chengdu
Lanzhou
2,000
2,500
Guangzhou
Tianjin
Wuhan
3,000
Nanjing
Jinan
3,500
Shanghai
Hangzhou
Shenzhen
Dongguan
Wenzhou
4,000
5,500
7,000
Tier 1 cities
Tier 2 cities
Tier 3 cities
Source: China Healthcare Yearbook 2009, China Statistics Yearbook, Monitor analysis
11
Percent
Percent
100
10
80
60
40
20
0
Average of
Tier 1 cities
Average of
Tier 2 cities
Average of
Tier 3 cities
Average of
Tier 1 cities
Average of
Tier 2 cities
Average of
Tier 3 cities
Suppliers educational efforts, especially for physicians, has been and continues to be vital in
expanding disease awareness and thus the addressable markets
Source: China Healthcare Yearbook 2009, China Statistics Yearbook, Monitor analysis
12
Development stages,
select medical devices
Percent
40
Device
adoption
in China
Introduction-Expansion
stage products
Mature products
include various
catheters,
needles, etc.
Introduction
stage
30
Newer products
include various
stents, ports, etc.
Expansion
stage
Mature
stage
20
10
0
Tier 1
City
Tier 2
City
Tier 3
City
Professional medical education by suppliers could accelerate adoption curves for newer products
Source: Monitor Interviews and analysis
13
Shanghai
Beijing
Hangzhou
Tier 2
cities
Per capita annual
medical spending
>US$550
US$300-450
US$200-300
<US$150
Tier 3
cities
Suzhou
Jinan
Not reimbursed
Jinhua
Not reimbursed
Nantong
Not reimbursed
0
20
40
60
80
100
Percent
City-specific insurance programs differ widely in device coverage and reimbursement rates, as
well as annual reimbursement caps
Note: * The main insurance program in China covering urban employees
14
6.2
5.8
5.4
5
4
3.2
3
2
1
0
Singapore Australia
New
Zealand
Hong
Kong
China
China has made improvements, particularly in urban areas, although enforcement can still be a
concern, especially in developing countries
Note: *Scores based on responses from executive survey. Executives from 130 countries were asked to rate IP
environment in their country on a scale from 1 (weak / not enforced) to 7 (strong / enforced)
15
Chinas Patent Law was revised through the Third Amendment (October
2006), impacting how companies will compete for patents
Ongoing challenges
Despite recent changes to Chinas Patent Law, foreign-based suppliers should use proper
caution and diligence in developing strategies based on patent protection
Source: China Business Review, Jones Day Commentary, Medical Device Network, Monitor analysis
16
Ongoing
monitoring
Contracting
Specify payment or
performance terms, scope
of grant, and provisions for
audits
Include non-compete
covenants for partner and
key personnel, complete
with specific compensation
for covenants
Consider installation of
firewalls, surveillance
equipment, or onsite
representatives
Conduct training on
professional ethics,
confidentiality, and security
measures
17
Central tendering
In 2006, the Ministry of Health (MOH) created
a mandate to strengthen central control of
medical device sourcing for state-owned nonprofit hospitals
Regulatory challenges
Technological restrictions
The MOH also requires approval from the
government before hospitals can purchase
high-value medical devices
This process can result in biases towards
established or favored medical devices, and
can deter physicians from proactively
educating themselves on new equipment
18
Thank You
Questions?
John Gregg
Director & Head Monitor Emerging Markets Group
33