China: Opportunities and Hot-Spots in the MedTech (Medical Device), Pharmaceutical and Healthcare...

Bangkok

Beijing

Boston

Chennai

Chicago

London

Los Angeles

Melbourne

Milan

Mumbai

Munich

New Delhi

New York

Paris

San Francisco

São Paulo

Seoul

Shanghai

Singapore

Sydney

Tokyo

Wroclaw

China: Opportunities and Hot-spots

L.E.K. Consulting Pty Ltd, Level 26, Aurora Place, 88 Phillip Street, Sydney NSW 2000, Australia

T: 61.2.9323.0700 F: 61.2.9323.0600 www.lek.com

19 February 2014

© L.E.K. Consulting Australia 2014

CONFIDENTIAL1

China means different things to different companies ...

... an “attractive” commercial market

... a source of capital and investment

... part of my supply chain solution


CONFIDENTIAL2

China is the world’s fourth largest medical device market

2.3

3.4

3.5

4.7

5.1

5.5

6.3

8.4

8.9

13.3

14.0

23.2

31.5

155 12525 1203020100 35

France

China

Germany

Japan

USA

Switzerland

Mexico

India

Billions of US$

Brazil

Spain

Russia

Canada

Italy

UK

120.4

Medical device market size by country (2012)

Note: * Forecasts assuming exchange rate at US$1=RMB5.5 by 2017, according to EIUSource: Espicom, EIU, L.E.K. analysis

China medical device market size* (2007-17F)

0

5

10

15

20

25

30

35

40

Billions of US$

CAGR=20.2%

CAGR=23.1%

17F16F15F14F13F12E111009082007


CONFIDENTIAL3

China is the third largest pharmaceutical market in the world and will account for a quarter of global value growth to 201 5

China

Russia

Japan

Canada

U.S.

UK

Asia Pacific

Spain

Germany

ItalyFrance

15-20%

10-15%

5-10%

0-5%

CAGR*2010-15F

Pharmaceutical market growth rate* by major market (2010-15F)

The worldwide contribution of the Chinese pharmaceutical market is expected to continue growing through 2015, eclipsing the growth contribution of the U.S., EU5, and Japan combined

Latin America

Africa

Note: * Constant USD exchange rate Source: IMS Health, L.E.K. analysis © L.E.K. Consulting Australia 2014

CONFIDENTIAL4

The different types of cities have different dynami cs and importance

Note: *Number of population in the province times disposable income per capita; **Number of population in the city times disposable income per capitaSource: L.E.K. interviews and analysis

GroupsCategorized cities

Sub-segmentation criteria

City tier segmen-tation

City tier sub-segmen-tation

# of cities

Example cities

National hubs Beijing, Shanghai and Guangzhou Tier 1 Tier 1 3 � Beijing� Shanghai� Guangzhou

Provincial hubs

Key provincial hubs

All provincial capitals excluding Guangzhou, such as Wuhan, Chengdu and Nanchang

Total provincial disposable income* > RMB100bn

Tier 2 Tier 2-A 16 � Wuhan� Nanjing� Chengdu

Non-key provincial hubs

Total provincial disposable income* < RMB100bn

Tier 2-B 12 � Taiyuan� Haikou� Nanchang

Non-hub cities

Wealthy city markets

Other cities, such as Jingzhou, Mianyang

Total city disposable income** > RMB 25bn

Tier 2-C 20 � Wuxi� Yantai� Xiamen

Other city markets

Total city disposable income** < RMB 25bn

Tier 3 Tier 3 236 � Jingzhou� Fushun� Zhanjiang


CONFIDENTIAL5

The healthcare landscape encompasses a range of “se gments”

T3, C3

c.13

c.20

Tier 1 City,

Class 3 Hospital

c.50

c.2

c.7

T1, C2 T2, C2

c.3

T2, C3

30

20

40

50

China hospital landscape by average annual inpatien ts surgeries and hospital segments (2012)Thousands of inpatients surgeries

10

0

Number of hospitals

9,0008,5008,0007,5007,0006,5006,0005,5005,0004,5004,0003,5003,0002,5002,0001,5001,0005000

County

c.3

T3, C2

Premium segment Value segment Un-addressable

Source: China hospital database, L.E.K. analysis © L.E.K. Consulting Australia 2014

CONFIDENTIAL6

Unlocking any commercial potential is dependent on a range of factors

Product range Sales and distribution strategy

Tendering and other areas

Premium or value segment

Pricing

Service requirements and

differentiation

Direct vs. dealers

Sales force roles and incentives

Dealers roles and incentives

Distributors and dealers consolidation

Tendering roles and responsibilities

Changes as a result of new regulations

Regionalization of sales force

Customer segmentation

Account potential

Current and future sales


CONFIDENTIAL7

Tendering and listing are becoming increasingly cha llenging

Province/City tendering

Hospital source list

Surgeon selection

Tendering and selectionprocess

Key outsiderinfluencer

• Manufacturer• Provincial

distributor

More than 20 domestic and imported brands

A list of 15-20 domesticand imported brands

c. 2~5 domesticbrands and 1~4 imported brands*

Preliminary selection criteria

• Brand awareness• Historical performance• Completed documentation

and support materials

Brand used

Description

• Relatively easy to get onto the list, especially for a well-known brand

• Sets the price ceiling for the brand’s products in the region

Note: *For mid and lower tier marketsSource: L.E.K. interviews and analysis

• Local distributor or provincial distributor (in target hospitals)

• Distributor relationship and access

• Product payment structure• Product price and quality

• Fierce competition• Many brands are

excluded at this stage • Prices are negotiated

• Level 2 Distributors • Product quality• Manufacturers’ pull from

marketing activities• Patient affordability• Distributor’s recommendation

and/or promotions

• Surgeons select from brands that are on the hospital list


CONFIDENTIAL8

Innovation

� Indigenous innovation in MedTech sector has been listed as a key initiative in the 12th Five-Year Plan (2011-2015) published in 2011

� Domestic firms are encouraged to enhance R&D efforts in order to develop indigenous technology and innovation, making them more competitive against foreign competitors

Source: L.E.K. research and analysis

Industry restructuring and upgrade

� A series of goals has been set for the development of MedTech sectors during the 12th Five-Year Plan. By 2015: 200 new patents of MedTech; 50-80 innovative medical devices; 40-50 innovative high-technology medical device companies

� c.RMB1.5billion special supporting fund from the government in 2013 and a total c.RMB10billion investment to support domestic MedTech innovations by 2020

Three key themes in healthcare initiatives in the 1 2th Five Year Plan

Developing innovation is featured prominently in Ch ina’s 12th Five Year Plan (2011-15)

Increase coverage and

quality of services

� Increase insurance coverage

� Improve public hospital services

� Improve services for family planning, women, children, elderly and disabled

� Guarantee product safety


CONFIDENTIAL9

More than 10 provinces have set up at least one Med Tech Science Park and the central government targets to build an other 8-10 by 2015

Chongqing

Jiangsu

Beijing

Guangdong

Hunan

ZhejiangHubei

Liaoning

Heilongjiang

Jiangxi

Shanghai

Henan

MedTech science park locations in China(2013) � By 2013, 12 provinces and

municipalities had set up at least one MedTech Science Park

� The central government plans to build another 8-10 MedTech Science Parks by 2015

� Beyond MedTech science parks, China established more life science parks across the country- there were already more than

120 life science parks in China in early 2010

Source: Local MedTech science park websites, Ministry of Health (MOH), 12th Five-Year Plan, L.E.K. research and analysis

Province with MedTech Science Park

Province without MedTech Science Park


CONFIDENTIAL10

Healthcare infrastructure is at the early stages of a long transition

Healthcare provider landscape (2009)

Level 3

(1,233)

Level 2

(6,533)

Level 1 & Community

Healthcare Center (CHC)

(10,825)

Community Healthcare

Station (CHS)

(22,092)

Township Healthcare Station

(THS)

(39,627)

Healthcare provider landscape (2020*)

Urban Rural

Ad-vanced

Hospitals(1,559)

CommunityHealthcare

Station(22,092)

Village Clinic(632,770)

CommunityHealthcare

Center(5,216)

TownshipHealthcare

Station(38,475)

County / DistrictHospital (6,056)

Primary healthcare

Initial diagnosis

Essential medicines prescription

Chronic disease management

Public hygiene services

Physicals

Vaccination

Healthcare education

Advanced healthcare

Care for severe or rare diseases

Advanced diagnosis and treatment

Scientific research

Advancedsecondaryhealthcareinstitution

Primaryhealthcareinstitution

(PHCI)

Services provided


CONFIDENTIAL11

Further information and insights

� Expanding in China MedTech Market: Where To Go From Here, In Vivo

� Pricing and reimbursement for high value therapies in China, BIO Buzz

� Tackling China’s EDL Challenge: Navigating the Changes and Planning for Success, PharmAsia Newsletter

� Investing in Health, EuroBiz

� Looking After China’s Elderly, China Business Review

� Hospitals Adopt New Strategies to Boost Profitability, but Still Face Deep Challenges: A New Imperative for MedTech

� Biopharma & Life Sciences Outlook 2013

Articles can be found on our website: http://www.lek.com/our-publications/articleswww.lek.com/medtechwww.lek.com/lifesciences


CONFIDENTIAL12

China means different things to different companies ...

... an “attractive” commercial market

... a source of capital and investment

... part of my global supply chain

solution

Assisting Australian Companies to Enter Chinaan AusBiotech/ Austrade initiative


CONFIDENTIAL13

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China: Opportunities and Hot-Spots in the MedTech (Medical Device), Pharmaceutical and Healthcare...

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