The healthcare industry and life sciences has recognized for a number of years that
there is a great untapped potential in emerging markets. The medical device
market in developed territories such as the US, Europe and Japan is beginning to show saturation and the repercussion of economic recession has
restricted growth in recent years. But the size of the Americans is growing, as USA focuses on the
Obesity epidemic which is a $110 B market.
This, coupled with considerable
growth in the medical device market in emerging countries, has made
medical device companies look to these markets to grow their business.
The global CAGR from 2009 to 2012 was expected to be at 5.8%
1, whereas in China the compound annual growth rate of the market in the period 2002–2006 was 14.9%
2.
These regions are important not only for the growth in sales related
to increased adoption of medical devices owing to increased health
awareness, but also as a desirable location to build capabilities. As a
result there have been a number of acquisitions and partnerships; as an
illustration of this, in May, Johnson & Johnson (China) Investment
Ltd announced the acquisition of Guangzhou Bioseal Biotech Company Ltd
thus opening the way for Ethicon to immediately enter China.
“The healthcare industry has recognised for a number of years that there is a great untapped potential in emerging markets.”
Increasing expenditures on healthcare in the developing markets, for
example construction of hospitals and clinics, and establishment of
public / private health insurance, are driving growth in these sectors.
For instance the five year plan (2011–15) in China has allocated US$41
billion to develop and equip new hospitals and refurbish the grassroots
health service system and in its latest five year plan (12th such plan),
India has committed to increasing the government share of healthcare
expenditure to 2.5% before the end of the plan in 2017
3 4.
The trend for expenditure on health to increase, along with improvements
to the regulatory and market access environment in many emerging
markets has also made this an interesting opportunity for medical device
companies.
Figure 1: Total health expenditure (THE) % Gross Domestic Product (GDP) for selected countries5
The medical device market is challenging but potentially significant in China
It is expected that the device market in China will reach sales of US$42.8 billion by 2019
6.
Growth is fuelled by a favourable demographic – the aging population
increases demand on the healthcare system – and economic environment,
where growth continues to be steady with a GDP growth target of 7.5%.
New healthcare reform that began in 2009 and continued through 2011,
led to major upgrades of the healthcare system; however, the market
remains challenging as healthcare provision is very uneven across the
country, favouring urban populations. Of the US$173 billion that was
provided by the recent healthcare reform programme, more than US$10
billion was allocated solely for medical device and diagnostic purchases
by hospitals and clinics.
Public healthcare remains the mainstay of healthcare provision, with
the aim being for 100% government insurance by 2020, and despite
personal wealth increasing, the level of private insurance remains very
low
7. It should also be noted that the Chinese market is
characterized by a large number of domestic manufacturers that are able
to dramatically undercut prices of foreign manufacturers and despite
economic growth, price still remains a key factor especially in rural
hospitals.
Figure 2: Healthcare spend and GDP in China8
The regulatory authority that oversees the medical devices in China
is the State Food and Drug Administration (SFDA). The majority of the
administrative powers of the SFDA are in practice delegated to its local
branches. The food and drug administrations of the provinces,
autonomous regions and municipalities directly under the central
government (Local FDAs) are authorised to issue specific licences and
product registration certificates to medical device companies.
“It is expected that the device market in China will reach sales of US$42.8 billion by 2019.”
Medical devices are divided into three categories: Class I, II and
III relating to their properties, uses and potential risk to the user.
In broad terms Class I devices (those under routine administration for
their safety and efficacy) are subject to record-filing procedures
approved by an authorised Local FDA; Class II devices (those that must
be controlled for their safety and efficacy, such as weak laser in-vitro
treatment instruments) are registered at the provincial level FDA, and
Class III devices (those implanted into the human body and which pose
potential risk to human life) are subjected to a more stringent approach
that includes going through a prior examination process and then
approval from the central SFDA.
As many expected, the regulatory approval procedures for Class II and
Class III medical devices are more onerous. In fact, new medical
devices falling within Class II and III require clinical trials before
the submission of a product registration to SFDA or Local FDAs. The
results of the clinical trials must demonstrate the safety and efficacy
of the medical device. An additional complication for medical device
manufacturers is that different local FDAs may have their own specific
examination and approval requirements that go beyond national
requirements.
India has a growing medical device market: Diabetes capital of the world
Increased health awareness, a growing middle class and government
health initiatives have significantly grown the market in India. The
medical device market is expected to reach US$10.7 billion by 2019
9.
More than 60% of the population pays out-of-pocket for health expenses;
however, most of the employed are covered for medical expenses by
employer-sponsored health insurance. Additionally, unlike China, more
and more people are subscribing to private health insurance outside
employer schemes.
“Increased
health awareness, a growing middle class and government health
initiatives have significantly grown the market in India.”
Through RSBY (the National Health Insurance Plan) the government has
taken steps to collaborate with the private sector to offer quality
services at a subsidised cost. This is considered the main avenue for
increasing access to healthcare. This unique partnership framework
between the government and public / private providers of healthcare has
been remarkably successful in covering 56 million people.
For medical devices, the Indian government is currently working
towards establishing a medical regulatory agency, in addition to new
legislation around medical devices, in order to create a fair and
legitimate marketplace. This has been a slow process, but the aim is to
move towards a market authorisation process that is more transparent and
straightforward and based on the European CE mark system.
In lifting their citizens out of poverty and providing better
healthcare, China and India are inspiring success stories. However, this
is a two-way street and within these markets local companies have been
able to position themselves to play major roles in the global medical
device market.
References
1. Frost & Sullivan: APAC’s Medical Devices Market ready to skyrocket. Date Published: 17 Jun 2010
6. PharmaLive: New Medical Device Review and Outlook 2011. Published March 2011
7. Estimates based on WHO – National Health Accounts
Source: http://in.reuters.com/article/2012/07/16/us-obesity-report-merrilllynch-idINBRE86F1CT20120716
