The challenges faced by China’s medical device industry, as well as the opportunities it can leverage, were on display at the 67th China International Medicinal Equipment Fair (CMEF), which was held at the Shenzhen Convention and Exhibition Center from 17 to 20 April.
While the government’s emphasis on improving healthcare, living standards and innovation in the 12th five-year plan is a force for positive change, a number of policy and regulatory measures hamper industry’s ability to develop innovative medical products and services. This became glaringly obvious as I walked the show. While industry icons such as GE, Philips, the Weigao Group and Mindray impressed attendees with an array of innovative products, too many domestic medical device manufacturers are hobbled by a lack of focus on R&D and a “me-too” business strategy. A post-show report published by J.P.Morgan explains why.
Fierce competition among domestic players in the low end of the market has eroded prices and profit margins, which has had a negative impact on R&D funding, notes JPMorgan analyst Sean Wu. Multinational corporations “will dominate high-end markets for years to come,” he writes in the “Key Takeaways from CMEF” report. “Domestic companies are unlikely to come out with breakthrough products due to low R&D investment,” Wu explains.
Another area of concern for industry involves the government’s intention to regulate the pricing of medical consumables.
In August 2011, the National Development and Reform commission (NDRC) released a revised draft of the “Provisional Measures for Administration of Implantable (Intervention) Medical Device Prices,” which established price caps on six categories of medical devices: implantable pacemakers, endovascular stents, endovascular catheters, artificial joints, internal orthopaedic fixation devices and a catch-all category that includes cochlear implants, intraocular lenses and heart valves. The revised draft sets a maximum allowable mark-up. It is unlikely that the plan will take effect by 1 July as originally planned, notes the JPMorgan report. However, this is merely a delay. It appears all but inevitable that the government will regulate pricing for medical consumables more vigorously going forward, adds Wu.
As profit margins diminish, so will R&D funding, and innovation will suffer as a result. That is not what China’s medtech industry needs as it tries to position itself as a world player in the medtech marketplace.