China: Land of Opportunity for Medical Devices?

5 Oct

By James Huang, Research Analyst, LSN

james-wp

In my recent discussions with several investors located in China, I noticed a trend occurring in my conversations: many of them are considerably more interested in medical devices rather than therapeutics. As a result, I brought this trend up in conversation with a few of them and received a few illuminating responses:

 

  • An investor told me that the medical devices market had grown in China by 20% in the past year and they anticipated that this trend would continue over the next few years. The investor therefore hopes to take advantage of this trend.
  • The Chinese medical device market is currently much smaller than the therapeutics market, and an investor I spoke to said that they therefore believe that there is more potential growth in the medical device market.
  • China’s government is putting money into innovative medical device startups; investors can potentially secure additional non-dilutive funding to go with their investments in medical device companies.

Due to these factors, the investors I spoke with were all interested in investing in medical device companies based in the US with technology that they believe would be applicable to China.

I decided to investigate this trend further, and uncovered the following data points:

  • Medical Devices in China only account for 14% of the country’s local healthcare products market. In other developed nations, medical devices account for 42% of the overall healthcare products market. This suggests that China has considerable room to grow in the medical device side of the market, which reflects what I have heard from Chinese investors.
  • China’s medical device market from 2015 to 2016 increased by $53.62 billion USD (a 20.1% increase) and this growth rate is expected to be maintained into 2017 as well.

  • China’s healthcare industry growth from 2004-2014 was an astounding 492%, as compared to the global average healthcare industry growth of 60%. This growth is expected to continue as the government has put forward more initiatives to reform healthcare (13th Five Year Plan for Medical and Healthcare System Reform).
  • China only spends 5.5% of their GDFP on healthcare compared to the United States’ 17.1%
    • The total dollar amount of the discrepancy between healthcare spending in China and the US is $574 Billion in China vs. $3 Trillion in the US.
    • Given China’s large and aging population, China’s continuing development will cause this healthcare spending to increase, bringing a lot of potential growth in future years.
  • Additionally, the CFDA (China’s healthcare regulatory body) has recently released a “Guidelines for the Preparation of Special Reports on the Application of Innovative Medical Devices” to encourage medical device innovation.
    • This and other initiatives by the Chinese government really emphasize their focus on medical devices in China and suggests that the government is willing to invest money to make these changes happen.

Given all these data points, it makes sense that China-based investors are seeking new medical device investment opportunities. However, given the large opportunity presented here, it seems curious as to why these investors aren’t looking within China to fill these needs. According to the investors, it’s simply because there aren’t enough new innovations coming out of China to fit the need. In fact, domestically made products account for less than one percent of the market value of the Chinese medical device industry. As a result of the lack of domestic innovation, Chinese investors are forced to look overseas for innovative technologies.

It’s clear that China has a large opportunity for growth within the medical device space and Chinese investors are interested in sourcing technologies from the US in order to fill the gap.  On the LSN Investor Platform, LSN Research tracks 99 China-based investors that have an interest in medical devices.  If you are a medical device entrepreneur, these investors should be on your radar.

Sources:

https://www.medicalplasticsnews.com/news/china-highlights-medical-device-industry-as-a-breakthrough-a/

https://www.export.gov/article?id=China-Medical-Devices

https://www.emergogroup.com/resources/market-china

https://www.pwccn.com/en/pharmaceuticals/pharm-china-ma-jun2016.pdf

https://chinameddevice.com/cfda-fast-track-innovation-medical-device/

http://www.chinadaily.com.cn/china/2017-06/05/content_29627481.htm

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