For device and Dx companies, there's no turning back from China
Now more than ever, medical device and diagnostics companies can't avoid a simple truth: China is a crucial ingredient for their growth and future. And they're embracing that reality with a vengeance.
As China Daily reported recently, the country's medical equipment market alone was worth $15.7 billion as of 2011, and that's a massive 26.6% jump from 2010. Did that torrid pace of growth continue in 2012? It almost certainly did. And through the year, many of the industry's major international players invested hundreds of million of dollars into either establishing or expanding their presence in China, with that enormous market growth clearly in mind. Now that their beachheads are established, major device and diagnostics players hope to propel their investments into major results in the years ahead. They know that the government is spending billions of dollars to modernize its health care system, and that to properly tap that market and maximize the potential it offers, they must grow (or buy themselves) a local presence. And so they're doing just that, just like the pharmaceutical industry.
Medtronic ($MDT) understood this more than most of its rivals in 2012, spending close to $1 billion alone to boost its presence and clout in China. Earlier this month the company closed an $816 million buyout of China Kanghui Holdings, one of the country's larger orthopedics companies. But that wasn't its only overture. Also in November, Medtronic bought a $66.2 million stake in Shenzhen's LifeTech Scientific. And earlier this year, the Minnesota device giant launched its R&D center in Shanghai, a strategically important move to develop and commercialize products in China and develop products that best serve the Chinese market. Plans also call for hiring and training another 1,000 employees in China over the next 5 years, and more M&A involving Chinese companies is likely.
But Medtronic is far from alone. Name many of the major device and diagnostics players, and they committed significant resources to China in 2012. Among them: Johnson & Johnson ($JNJ) bought Guangzhou Bioseal Biotech back in May for an undisclosed price, its first major medical device company purchase in the country. General Electric ($GE) opened an $80 million medical device research center in Chengdu; Covidien ($COV) debuted its $45 million Shanghai-based R&D facility; and PerkinElmer ($PKI) grabbed Chinese molecular clinical diagnostics player Shanghai Haoyuan Biotech for $38 million. St. Jude Medical ($STJ) also established a technology center in China within the last year.
Others are penetrating the Chinese market in different and creative ways. Zimmer ($ZMH) said it will help train Chinese regulators about orthopedic device development standards, in exchange for the Beijing Drug Administration's guidance about Chinese laws and regulations concerning device sales. Edwards Lifesciences ($EW) just gained Chinese regulatory approval for a long-selling mitral heart valve; expect it to pursue other regulatory signoffs in China for products approved elsewhere as a way to grow its market share in the months ahead. Similarly, Boston Scientific ($BSX) rolled out its Promus Element drug-eluting stent in China over the last year, and the company is in the midst of a 5-year, $150 million investment to build a local, wholly owned manufacturing facility in the world's most populous nation.
Of course, it's not just the big players who want in. The World Trade Center of Buffalo Niagara in New York, for example, launched a three-year program to help Buffalo-based devicemakers export their products to the Chinese market. And many other regional communities in the U.S. and abroad are pursuing ways to give their companies a boost in China, in order to strengthen their net prospects at home.
This is by no means a definitive list. But it shows how international device and diagnostics companies' investment in China is accelerating with no end in sight. Expect those investments to mushroom in 2013 and beyond. -- Mark Hollmer (email | Twitter)