The Chinese government has prioritized medical device development, as well as local and international investments by domestic device companies. These initiatives, along with shifts in OEM to hospital distribution channels and newly-structured tiered healthcare, are expected to affect and shape the orthopaedic market.
Whether your company is a leading OEM or supplier in the Chinese market (see sidebar), or is thinking of entering, it’s important that your strategy aligns with the government’s plans to drive medtech growth. Orthopaedics continues to grow in the mid- to high teens, and in 2016, orthopaedic implant revenue reached about RMB 20 billion (~US $3 billion), according to Helen Chen of L.E.K. Consulting.
We recently asked Chen for a primer on the market. Our conversation follows, starting with a trend documented in BONEZONE in recent years.
The largest companies in orthopaedics, not surprisingly, are among the Chinese markets top players: DePuy Synthes, Medtronic, Smith & Nephew, Stryker and Zimmer Biomet. Weigao (or Wego), the top Chinese brand, is closing in on the internationals in size, per Chen. And Kanghui (owned by Medtronic) and Trauson (owned by Stryker) are also notable brands in trauma.
While these U.S.-headquartered companies often account for the largest portion of market sales, domestic companies enjoy the majority share in volume due to the price differences; domestic products are often sold at a 30% to 50% discount of international brands.
Additional important players like Canwell Medical, Kanghui, Naton Medical, United Orthopedic from Taiwan and Weigao all serve as OEMs and contract manufacturers to the market.
BONEZONE: We’re seeing more U.S.-headquartered contract manufacturers opening facilities in China. What is the attraction for these companies?
Chen: Contract manufacturers want to be close to their customers. This often means following them to their international markets; this also demonstrates a globally competitive footprint.
China is the fourth largest medical device market globally, after the U.S. and Japan, and on par with Germany. Having a footprint in the expanding Asian markets is preparing for the future. Expansions have occurred in the past two years (such as that from Autocam Medical), though many component manufacturers had made the investment much earlier. Paragon Medical, for example, set up shop in Changzhou, just outside of Shanghai, in 2008.
In addition to supporting their international customers, I expect that the U.S. contract manufacturers would have a lot to offer to the Chinese orthopaedic companies, as well. The Chinese companies are in a race to advance their technologies and go global; experienced contract manufacturers are in a position to support these initiatives.
Among the State Council’s Made in China 2025 initiatives for medtech are goals which target the creation of national technology transfer platforms and innovation centers, as well as medtech demonstration bases. Clusters of medtech R&D and manufacturing facilities, as might be anchored by these contract manufacturers, would allow the hosting local governments to claim credit in supporting the national initiative, and thus be highly welcomed.
BONEZONE: An onslaught of buzzwords are used when discussing the U.S. market: innovation, additive, robotics. What are the recurring themes you’re hearing in China?
Chen: Innovation is a buzzword everywhere! For orthopaedics in China, it’s about local innovation and local manufacturing. These are strong themes throughout the government directives for both R&D and in hospital procurement.
China’s 13th Five Year Plan covering 2016-2020 lists promotion of R&D of advanced medical devices, which includes orthopaedic implantables. This was then echoed in State Council’s Guidance on Promoting the Development of Healthcare Industry released in March 2016, which extends from R&D to commercialization.
Since the Special Review Procedure for Innovative Medical Device was released by the CFDA in May 2014, 91 medical devices have been approved for expedited review, including eight imported multinational products. There were five orthopaedic products on the list, all from Chinese companies. Requirements for this “green channel” process is a China patent and a developed prototype with fully traceable research data.
Multiple approaches to enhance innovation, including in medical devices, are encapsulated in the State Council’s Made in China 2025 policy. This includes different funding and promotion mechanisms for innovation, and encouraging Chinese companies to acquire overseas technology.
Specific medtech targets in Made in China 2025 include share of domestic components in medical devices used in China (60% in 2020 and 80% in 2025), and number of internationally famous brands (5+ in each product area by 2025).
Beyond the local innovation theme, orthopaedic device manufacturers are also addressing the local clinical trial requirements, “sunshine procurement” processes and the likely distribution channel changes from the potential “two invoice” and GSP (good sales practice) implementations, and shifting patient demand from the “tiered healthcare” drive.