It's no secret that the Asia Pacific healthcare market is rapidly expanding, and orthopedic device companies want in. The top companies already have established footholds in China, making it the new "wild west." So, who will win?
Medtronic makes a compelling case. The company acquired Kanghui Medical in 2012 for $816 million and continues sales growth there. According to a Forbes report, Medtronic reported $50 million sales in China; the company is on track to report more than $90 million in sales for 2014.
Growth potential is huge in China because of the large population and expanding access to healthcare. However, government regulations could make it difficult for foreign companies to gain much traction. Medtronic is poised to become one of the biggest players in the market after finalizing its acquisition of Covidien. The Chinese Ministry of Commerce cleared the acquisition earlier this month in addition to a slew of other countries and the Federal Trade Commission. The transaction is set to close in early 2014.
Here are four key thoughts from the Forbes report.
1. Despite China's National Health and Planning Commission policy to pursue domestic manufacturers first, physicians and hospitals are still choosing implants from outside companies for their procedures. As a result, the report suggests companies would face anti-monopoly questions, if any.
2. Medtronic's Director of Channel Management for all of China suggests the government is moving "rapidly" to expand reimbursement for procedures using foreign manufactured devices.
3. Medtronic has a three-year partnership with the Ministry of Health and National Health and Planning Commission to optimize care inside and outside the hospital for Type-1 diabetes.
4. The company is also partnering with the National Institute of Hospital Administration to help physicians, patients and government officials understand the "economic and clinical value of therapies."
However, not all news is so rosy. Distribution partnerships are critical in China but face tough regulatory challenges. Companies entering into distribution partnerships are at compliance risk and the distribution network is relatively fragmented. Medtronic reports more than 700 independent distributors in the country, according to Forbes. Additional challenges include:
• Stagnated reimbursement
• High out-of-pocket expenditures
• Closing gap between Medtronic best-in-class and domestic products
Device companies and innovations are able to happen more rapidly in China than in other places in the world as well. Earlier this year, spine surgery with the first three-dimensional printed vertebrae was successful and on Dec. 3, another patient reportedly underwent the procedure successfully, according to a 3DPrint report. Medtronic, like the other big players in the western market, rely on strict regulatory processes in the western world to develop new products.