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www.eusmecentre.org.cn

Opportunities for EU SMEs in

China's Healthcare Sector

Dr. Sara Medina

saramedina@spi.pt

April 10, 2014

A project funded by the European Union

Our Speaker –

Dr. Sara Medina

• Dr. Sara Medina is a Member of the Board of SPI – www.spieurope.eu, an international consulting Group with

offices located in Europe, USA and Asia (Beijing, Macao and Singapore). Dr. Medina contributes to the overall

management of SPI and is responsible for managing SPI’s activities and services in China since 2004.

• Dr. Medina has coordinated projects for public and private sector clients in Europe and around the world in

the fields of technology transfer, innovation management, R&D, internationalization, sector studies,

establishment of partnerships and policy development, among others. She has expertise in a range of

industries and manages projects funded by international organizations such as the European Commission,

the World Bank and InterAmerican Development Bank. In November 2013, Dr Sara Medina successfully

completed the INSEAD Asia International Executive Programme in Singapore.

• Previous to SPI, she worked with Accenture in the consulting area, where she developed marketing and

industrial strategies for a number of distribution and manufacturing companies. Dr. Medina has a Bachelors

degree in Food Engineering from the College of Biotechnology in Portugal, a European Masters degree in

Food Studies from 5 major European Universities and a Ph.D. degree in Food and Resource Economics from

the University of Florida, USA.

• Dr. Medina has been invited as an expert at the EU SME Centre and has provided a series of training

seminars on issues regarding the China market to representatives of SMEs in Latvia, Italy, Spain, Portugal

and France. Dr. Sara Medina is also an invited member of the Access to Risk Finance Advisory Group

appointed by the European Commission, DG Research and Innovation and a Member of the Board of the

Portuguese Business Angel Association.

• Dr. Medina has published several scientific papers in international journals and participated as speaker

through various international conferences around the world, having recently concluded courses on Innovation

and Leadership at the Universities of Wharton and Harvard.

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In Today’s Webinar

I. Healthcare Sector in China

II. Opportunities and Challenges for European SMEs

III. Case Studies, Events and Useful links

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I. Healthcare Sector in China

Market Size

The structure of healthcare industry

Healthcare Industry

Medical Devices Pharmaceuticals and

Biotechnology Healthcare Services

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Market Size

• China’s healthcare market is increasingly attracting attention: it is now the third largest in

the world in medical devices, second in pharmaceuticals and its healthcare service market

is also becoming one of the largest in the world.

• China has the world’s most attractive emerging medical device market， driven by

increasing prevalence of chronic diseases, modernisation of healthcare facilities, a greater

uptake of diagnostic procedures and an ageing population.

• The population of those aged 65 and older will almost double by 2030, from the current 122

million to 223 million.

• The total healthcare expenditure is expected to increase to 6.7% of GDP in 2015.

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Opportunities in Chinese

Second Tier Cities 11

• Qinghai

Beijing

Tianjin

Shanghai

Fujian

Shanxi

Hainan

Heilongjiang

Jilin

Liaoning

Hebei

Shandong

Jiangxi

Anhui Hubei

Hunan

Guangdong Guangxi

Inner Mongolia

Shanxi

Ningxia Qinghai

Sichuan

Yunnan

Tibet

Xinjiang

Zhejiangg

Jiangsu Henan

Gansu

Guizhou Per capita GDP (in USD) (2012)

9000 or above

7000 to 9000

4000 to 6000

Below 4000

• China is not just one

large market, but

several markets in

different regions. Each

of these regional

markets has a distinct

potential and poses

distinct opportunities

and challenges.

Market Size

Medical devices

• The sales volume for medical devices was more than

200 billion CNY (33 billion USD) in 2013.

• With double-digit annual growth rates of the medical

device industry, China is expected to become the 2nd

largest market before 2020.

• The value of China’s import and export of medical

device reached 30.062 billion USD in 2012,

increasing 13.03%.

• The import value reached 12.472 billion USD,

increasing 14.56% compared with 2011.

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Market Size

Pharmaceutical and biotechnology

• The value of the pharmaceutical market will reach 62

billion USD in 2015, surpassing India, Brazil and Russia

added together by 20 billion.

• Within the 12th Five-Year Plan-period, 30 innovative

drugs, 150 diagnostic reagents, 40 new biological drugs

are supposed to be developed, and 10 clinical trials of

new drugs to be initiated.

• The growth rate is expected to reach 16.9% between

2010 and 2014. This rapid growth will contribute to China

becoming the world’s second largest pharmaceutical

market by 2015 after the US.

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Market Size

Healthcare services

• In rural areas the Chinese government has ambitious plans to make

access to healthcare services easier by constructing or upgrading

3,700 community hospitals and clinics, and 11,000 village clinics.

• By 2020, health expenses are expected to take up 6.5 percent of

GDP, one percent higher than in 2012.

• The number of hospitals with rehabilitation facilities will increase to

almost 7,800 in 2015, more than twice the number now.

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E-health Market

• 80% of the Chinese believe it is inevitable that e-health solutions will be widely

adopted very soon

• Wireless communication between patients and clinicians, through internet or smart

phone apps, in some cases combined with the usage of home electronic

diagnostic devices, may significantly improve the availability of healthcare.

• The Chinese Health Information System (HIS) is highly imbalanced among regions

and different levels of hospitals.

• The expenditure on HIS is only about 0.8% of the total health expenditure, which is

much lower than the 3-5% in developed countries.

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Major Life Sciences Clusters

• Shanghai ZhangJiang Hightech Park is a state level innovation park and

has become the center for pharmaceutical R&D of China.

• Beijing Zhongguancun (ZGC) Life Science Park is part of the ZGC

Science and Technology Park and aims to be a national innovation base for

life sciences, new medicines, and advanced pharmaceuticals.

• Taizhou China Medical City (CMC) is a state level pharmaceutical and

biomedical high-tech industrial park in China

• Suzhou BioBay has attracted both domestic and international

pharmaceutical and medical companies, which focus on drug discovery,

diagnostic medical devices, and nanomaterials.

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Key Growth Drivers

Government support in enhancing social welfare system

While meeting the healthcare demands of its urban population, the government has

endeavored to improve the current social welfare system and build a more

comprehensive healthcare system in rural areas by constructing and upgrading

county level hospitals, urban community health centres, community health clinics and

township health centres.

Increasing disposable income and demand

Along with China’s continuous economic growth, the general public’s living standard

and purchasing power have improved dramatically.

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Key Growth Drivers

An ageing population

Ageing population has become a pressing issue for many countries in the world

including China. In 2013, 123 million people in China, or 9 percent of the

population, are over 65.

The attraction of imported high-end products

High-end medical devices are mostly imported from abroad and endow a certain

prestige on the institution using them; it is not uncommon to see hospitals or

clinics compete on how many pieces of advanced equipment they have.

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Regulatory Environment

In China, policy and regulations in the healthcare sector are managed by

the Ministry of Health (MOH). The MOH sets up national policies in health

related issues, such as food safety, and the coordination of healthcare

resources, amongst other things. Three sub-sectors regulatory environment

as follow:

• Medical devices: relatively easy market entry compared with the

process for pharmaceuticals. This is a key area for opportunities and

competition for EU SMEs.

• Pharmaceuticals: As with other markets, the legal environment favors

big pharmaceutical companies because of the length and resources

required for drug registration.

• Healthcare services: the legal environment is semi-open, existing as a

grey area for non-Chinese service providers.

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Healthcare Reform

Source: Healthcare reform 12th Five-Year Plan; McKinsey analysis

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Healthcare Reform

• Healthcare reform plans to expand medical insurance coverage, strengthen

public health infrastructure and improve rural healthcare services will increase

access to newer therapies.

• For the pharmaceutical industry, the single biggest factor shaping the landscape

is the healthcare reform plan of 2009. This reform plan is anchored on the two

pillars of accessibility and affordability, wherein the government has pledged

approximately 124 billion USD over three years to undertake a two-phase plan.

• The reform of hospitals in China is expected to accelerate, driven by the

emergence of clearer policies governing the payment mechanism between

payers and providers.

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12th Five-Year Plan on

Healthcare Industry 22

Healthcare focus activities – 12th Five Year Plan

• Basic medical insurance system: increase basic medical insurance participation

to ensure the entire population has basic medical coverage

• Public healthcare service system : improve healthcare monitoring and specialist

healthcare service infrastructure such as rural emergency and mental

healthcare

• Medical service system: improve capabilities of country level hospitals and

strengthen the development of provincial maternal hospitals, local general

hospitals in outer regions and county level Chinese medicine hospitals

• Drug and healthcare information system database: develop a healthcare

information database for grassroots institutions

• Training of general practitioners: develop standardized training of general

practitioners

II. Opportunities and Challenges for

European SMEs

Medical devices

1. Home-use medical devices

Care and rehabilitation equipment in general are predicted to

have good market potential due to the ageing population.

2. Mid to low-end medical equipment

Second tier and third tier medical institutions are important for

consumers of mid to low-end medical equipment.

3. Implantable devices

Some Chinese locally-made products are becoming new

players in the segment. EU SMEs could enter this segment by

working with local Chinese partners.

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Opportunities for EU SMEs

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Medical devices – Distribution channels

Due to the fact that China’s healthcare service is dominated by state-owned public

hospitals and professional public healthcare institutions, public procurement is the

primary method for the purchase of medical equipment.

The private purchase market is emerging for home use medical devices. The main

distribution channels are drug stores and supermarkets, hospitals, dedicated sales

counters, self-run shops and dealers & agents.

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Opportunities for EU SMEs

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Medical devices – Leading players

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Opportunities for EU SMEs

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Pharmaceuticals & biotechnology

1. Generic drugs

When original branded drugs’ patents expire, pharmaceutical companies can

produce generic drugs identical to these branded drugs. Hence, there are

opportunities for EU SMEs who can find out which patents are about to expire and

have the R&D capabilities to reproduce the product.

2. Innovative drugs

EU SMEs with technology and formulas for innovative drugs can use various

approaches, including technology transfer, to enter the Chinese market. Chinese

pharmaceutical companies generally favour this kind of cooperation as it is high

value-added.

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Opportunities for EU SMEs

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Pharmaceuticals & biotechnology

3. Vaccines

The Chinese government has provided preferential taxation policy for bio-

technology companies. Since this is a relatively new segment, EU SMEs are

encouraged to work with a reputable Chinese partner to gain access.

4. Biopharmaceuticals

Chinese biopharmaceuticals are aware that they need foreign technology and

expertise to make further progress. Multinationals now seem to aim to join forces

with Chinese players by sharing their technology in return for access to the

lucrative Chinese market.

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Opportunities for EU SMEs

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Pharmaceuticals & medical research – Distribution channels

China has a highly fragmented drug distribution system. Direct sales and marketing

at doctors is not developed in China.

There are more than 10,000 national and provincial wholesalers that sell the drugs

through hospitals, clinics and retail pharmacies, which then sell to patients.

It was estimated by Business Monitor International that up to 80% of all Western-

style drugs are distributed through hospitals and clinics, whilst the remaining 20%

are distributed through retail pharmacies.

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Opportunities for EU SMEs

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Healthcare services

• Currently, the main players in the Chinese healthcare service industry are public

hospitals.

• Sino-foreign joint venture hospitals are targeted at providing professional services to

the high-end market, such as tumor centers or maternity and childcare services

targeting foreign people in China and wealthy Chinese people.

• There are more than 60% of the Sino-foreign joint venture hospitals located in Beijing,

Jiangsu, Shandong, Liaoning and Guangdong. The investment is mainly from the

USA, Japan, Hong Kong, Macao and Taiwan.

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Opportunities for EU SMEs

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Healthcare services

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Opportunities for EU SMEs

China’s healthcare service

infrastructure .

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Healthcare services

1. Private hospital provision

Sixteen pilot cities have been selected for providing private hospital

services, and a more detailed government work plan on privately

funded hospitals is still expected. It is suggested that EU SMEs

maintain an ongoing monitoring of the latest policy developments.

2. Professional training/consulting in hospital management

and clinical governance

EU SMEs can work with such domestic training providers and jointly

deliver programmes. Supplying expert advice and innovation

consultancy to government, universities/institutes/hospitals are also

an opportunity.

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Opportunities for EU SMEs

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Healthcare services

3. Rehabilitation sector

Chinese government is strongly boosting the rehabilitation sector,

almost doubling the number of rehabilitation facilities by 2015.

EU SMEs may provide opportunity to provide local governments

with integrated projects

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Opportunities for EU SMEs

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Challenges

• Registration Requirements

For device manufacturers who are entering the Chinese market for the first time, it

may take up to three years for clinical trials and testing before it is able to advertise

and market its products. With this long registration process, EU SMEs may lose the

opportunities because they cannot access the market quickly enough.

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Challenges for EU SMEs

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Challenges for EU SMEs

Challenges (Cont.)

• Distribution channels

Between medicine producers and end users, distributors have significant impact on

how well the newly developed medicines are distributed. It is rather difficult for

medicine producers to directly approach customers. Thus, having a good

relationship with distributors, especially local distributors, will allow EU SMEs to gain

a good position in the highly competitive market.

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Challenges for EU SMEs

Challenges (Cont.)

• Ambiguity of regulations

Although China has been encouraging private investments into the healthcare

services segment, no clear regulations/policy papers have been published. The

legal environment for foreign companies in this segment is still grey. EU SMEs

should continue to monitor the latest developments.

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Challenges for EU SMEs

Challenges (Cont.)

• The lack of long-term care insurance

China is urgently looking for concepts that will work in the Chinese situation, and

shows a great openness to learn from foreign experience. A challenge is the lack of

long-term care insurance as well as the lack of standardization, which makes the

business model for elderly care still underdeveloped.

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III. Case Studies,

Events and Useful links

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Case Studies

Medigreen – Entering the Chinese market

• Medigreen is a company based in Bulgaria that offers non-toxic anti-viral and anti-

bacterial disinfectants targeting mainly hospitals and other medical institutions.

• Medigreen was established in 2009 in Bulgaria by Via Group, a diversified

investment group with businesses in the areas of aviation, petro-chemical, solar

energy, float glass production, detergents and real estate.

• Medigreen has been conducting market research in China since 2009. To approach

the market, the Bulgarian company has contacted consultancies and law firms in

China in order to get help with obtaining a business license and the registration

process.

Please find the case study in EU SME’s Knowledge Centre:

http://www.eusmecentre.org.cn/content/medigreen-%E2%80%93-entering-chinese-market

Case Studies

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Bluepharma- Entering the Chinese pharmaceutical market

• Bluepharma is a Portuguese pharmaceutical company based in Coimbra, Portugal.

• At the end of 2010, the company paid its first visit to China. A year later, with the help

of a Portuguese consultancy and a Chinese partner, Bluepharma was very close to

obtaining the registration of their first product in China and launched in the Chinese

market in 2013.

Please find the case study in EU SME’s Knowledge Centre: http://www.eusmecentre.org.cn/content/bluepharma-%E2%80%93-entering-chinese-pharmaceutical-market

The 71st China International Medical Equipment Fair/The 18th International

Component Manufacturing & Design Show

April 17th – 20th, 2014, Shenzhen

http://www.cmef.com.cn/en/index.htm

BIOTECH CHINA 2014

April 24th -26th, 2014, Shanghai

http://www.biotech-china.com/english/01.asp

The China (Shanghai) Medical Devices Exhibition (CMEH)

June 11th – 13th, 2014, Shanghai

http://www.cmedexpo.com/english/index.asp

The 15th Beijing International Medical Devices Exhibition 2014

September 16th – 18th, 2014, Beijing

http://www.cmedexpo.com/beijing/english/index.asp

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Events

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Useful Links

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China Health Labs & Diagnostics: http://www.chinahealthlabs.com/

China Biotech Information Network ;http://www.biotech.org.cn/

China Pharmaceutical Net: http://www.pharmnet.com.cn/

China Medical Health Information Network: http://www.ylwsxx.com/

China Medical Equipment : http://www.pharmnet.com.cn/ylqx/

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