The Ka-Ching in China Luring Medical GiantsBy
As China's leaders move ahead with a $125 billion, three-year plan to improve health care, foreign companies are lining up to get a share of the bounty. The three-year effort includes funding for some 31,000 new hospitals to be built by 2012, mostly in rural areas. With so much new building, "there's a good opportunity to upgrade technologies so they can treat more complex diseases," says Marcelo Mosci, CEO of GE Healthcare China (GE).
The Chinese market for medical equipment will grow an average of 13.5% a year, to $15.5 billion in 2012, the health-care unit of Philips Electronics (PHG) says. And China's drug market will hit $110 billion by 2015, up from $44 billion in 2008, estimates brokerage Credit Suisse (CS).
GE and its rivals are working to create products aimed at rural areas, where most of the hundreds of millions of Chinese without adequate health care live. Siemens Healthcare and Philips both have Chinese labs where they're developing relatively inexpensive imaging equipment. GE Healthcare has 600 engineers working in China, many of them coming up with products such as simple black-and-white ultrasound machines and CT scanners that sell for less than 10% of the price of more complex devices for urban areas. The rural market today makes up less than 10% of GE Healthcare's China sales, but it's growing twice as fast as the company's overall business in the mainland. "Village and county hospitals are moving from primary care to more sophisticated diseases," Mosci says. "We have a pipeline of products dedicated to this segment."
Cities, though, remain a big part of the mix. Last year, China surpassed North America as the biggest market for Philips' most advanced CT scanner, a $2 million machine that provides three-dimensional imaging of the brain. GE says the bulk of its business will continue to be selling sophisticated gear for China's big research hospitals and other facilities in cities. While GE declines to give specifics, its sales in China have been growing at a double-digit pace for the past four years and the company expects them to top $1 billion in 2010.
Pharmaceutical companies are hoping to benefit from the health-care plan, too. Beijing has drafted a list of 307 drugs that all hospitals and clinics must stock at fixed prices. Switzerland's Roche (RHHBY) and Novartis will both see China revenues grow as many of their drugs are on that list as well as a broader roster of medications eligible for reimbursement by insurers. London-based AstraZeneca plans a big push in rural areas, where it says sales are likely to climb by 20% annually for the next five years. One big winner from the essential drugs list: Betaloc, a hypertension medication that represents 16% of AstraZeneca's revenues in China. "The potential sales are going to be huge," says Yin Xudong, the company's China president.
The foreign companies will face growing competition from domestic rivals. Drugmaker Jiangsu Hengrui Medicine has 70 products on the essential drugs list, and Nanjing-based Simcere Pharmaceutical Group (SCR) has a dozen, including antibiotics and an anti-stroke medication. Shenzhen-based Mindray Medical International (MR) says sales by government tender—mostly of lower-tech devices aimed at rural areas—doubled last year, to $51 million, as overall revenues jumped by 25%, to $293 million. State spending, says Chief Financial Officer Ronald Ede, "has definitely helped us accelerate our sales growth."