American medical technology companies have enjoyed rapid growth in China over the past decade, and expect it to continue. But there are potholes along the road to success.
A Chinese market for medical technology used to be on the long list of lofty goals for devicemakers like Medtronic. Now U.S. med-tech firms are seeing double-digit growth as they partner with Chinese manufacturers, purchase Chinese companies and race to educate and woo Chinese doctors and patients eager to tap the latest technology.
A growing Chinese middle class and increasing investment in health care by the Chinese government are making such devices as pacemakers, defibrillators, insulin pumps and spine products accessible to hundreds of millions of new patients. More-familiar factors play a role, too, as the nation falls prey to such chronic ailments as heart disease and diabetes, meaning even more customers will lean on technology from U.S. devicemakers to prolong and improve their lives.
Fridley-based Medtronic, for one, is banking on this.
China is the linchpin in Medtronic CEO Omar Ishrak’s emphasis on building business in emerging markets. Medtronic’s China revenues have shot from $50 million a decade ago to $800 million today.
“China is clearly a unique opportunity and one of four regions around the world we’re targeting for expansion,” Ishrak said at Medtronic’s 2013 annual shareholders meeting. China — growing at 15 to 20 percent a year — now accounts for 40 percent of Medtronic’s emerging-market revenue. Emerging markets make up 10 percent of all Medtronic business.
“You’re talking about more than 1 billion people who need care,” Ishrak said more recently, referring to China and India. “With globalization, the key to sustainable growth in emerging markets will be addressing the barriers of access to lifesaving medical technology.”
The burgeoning Chinese middle class is estimated to number more than 400 million people — larger than the entire population of the United States. That middle class is demanding better access to health care, and the Chinese government has responded by pledging to spend $125 million over the next three years, promising that all citizens will have access to basic health care by 2020.
“China and Medtronic both have similar goals, ensuring that patients have access to lifesaving medical technology,” said Chris Lee, Medtronic vice president and president of the company’s Greater China business. “Medtronic has made significant investments in China, including going down to lower-tier regions while continuing to serve major cities, and developing and delivering innovations that can address the health care needs and challenges for patients in China.”
American med-tech companies have gotten the message. Medtronic, which has been doing business in China since 1970, opened its Innovation Center in Shanghai in 2012 to develop products specifically for the Chinese market. It is the company’s first R&D center outside the United States and Europe, and has already introduced a titanium cranial closure system to treat skull damage.
“Our mission is to be a center of excellence for the emerging markets,” said Dr. Zhengrong Zhou, director of the center. “We want to develop products for the local Chinese market.”
Medtronic opened a patient care center in Beijing in 2010 to introduce its products to patients and their families. The center was developed in cooperation with China’s National Centre for Cardiovascular Diseases. In 2012, Medtronic paid $816 million for Kanghui Medical, a Chinese orthopedics company. It also spent $46.5 million to buy a piece of LifeTech Scientific Corp. to reach more cardiovascular patients. In addition, Medtronic has teamed with China’s National Institute of Hospital Administration to develop research projects for treating Type 1 diabetes.
Medtronic officials say they have provided therapy to more than 600,000 Chinese people. Including the workers at Kanghui, the Chinese firm that Medtronic recently bought, Medtronic employs nearly 3,000 workers in 10 mainland cities.
Other companies are pumping money into the market, as well. In 2011, Boston Scientific announced a five-year, $150 million investment in China, including a new local manufacturing facility. Its Institute for Advancing Science offers Chinese doctors programs in cardiology, cardiac rhythm management, electrophysiology, endoscopy, peripheral interventions, urology and women’s health. Also in 2011, St. Jude Medical opened its Advanced Technology Center Asia Pacific in Beijing. The center is expected to train up to 2,000 physicians each year. Covidien, which has Minnesota operations, has opened a $45 million R&D facility in Shanghai.
Karen Eggleston, director of the Asia Health Policy Program at Stanford University, said a multifaceted business strategy in China — from partnerships to training to facilities to outright purchases — is a solid approach. “It is common among the wiser firms, for people who are learning the market and trying to figure out which strategies work better,” she said.
No letting up
All that growth isn’t expected to slow down.
“The medical technology market in China has grown rapidly — consistently by double digits for the past decade or so — and it is projected to continue to do so,” said Ralph Ives, executive vice president for Global Strategy and Analysis at the Advanced Medical Technology Association, testifying recently to a U.S.-China trade commission in Washington. “The medical technology market in 2006 was about one-third the size of today’s market in China, and it could expand by 40 percent over the next three years.”