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Medtech's Future Success Could Depend Largely on China
September 16, 2013
4 Min Read
In recent years, China has grabbed headlines for its soaring healthcare industry and market. While an ever-larger middle class has greatly increased domestic healthcare spending, the country wants to keep spending under control and cut down on bribery and other unethical conduct. Recently, GlaxoSmithKline, a global healthcare giant that pulls in 3% of its annual revenue from the country, has faced a regulatory probe over illegal kickbacks and bribery in its pharmaceutical division.
While GSK's China experience hasn't been optimal in the past few months, several medtech companies are standing strong in the Far East. These include Accuray, Intuitive Surgical and Stryker.
Several factors contribute to the success of these companies. Since China's one-child policy has led to an aging population, the need for medical devices to treat health-related illnesses is on the rise. In total, there are approximately 194 million Chinese citizens are over age 60. By 2050, that number is expected to increase to 440 million.
On top of this, China's emerging middle class has a high demand for healthcare-related services and products. In the next nine years, approximately three-fourths of China's urban population will have an income ranging from $9,000 to $34,000. While this income still lags behind incomes for Western nations like the United States, it will put China on the same ground as countries likes Italy and Brazil.
In the early part of 2012, Stryker purchased Trauson Holdings for $764 million. Trauson Holdings, a Hong Kong-based manufacturer, provides such as trauma products, implants, as pelvic reconstruction plates. Armed with Trauson, Stryker will be able to take on both the lower and higher ends of the device and implant market.
While Stryker is one of the largest trauma and implant device manufacturers in the world, the company's products target higher-income Chinese households. On the other hand, Trauson's medical products are targeted towards those with lower incomes.
Intuitive Surgical's robotic surgery systems may be also poised for significant growth in China. The da Vinci robotic surgical system by Intuitive can be used for cardiac valve repair, gynecologic procedures, and minimally-invasive prostatectomies. Approximately one-fourth of hospitals in the United States have these systems. With each system carrying a price tag of $1.45 million, growth for Intuitive has been mostly strong, although the company has seen its stock price decline significantly this year. While the company has experienced some regulatory and legal issues with its system, Intuitive has weathered many of theses, allowing for strong growth.
In 2007, the company started to sell its robotic surgical system to luxury Chinese hospitals. However, the company still has significant room to grow. During its last quarter, the company reported that only one-fourth of its revenue came from abroad.
While da Vinci's reputation has been sullied in the United States, the Chinese market represents a clean, uncapitalized region. With strong potential, Intuitive's Chinese presence may drive future growth.
Accuray manufactures both the TomoTherapy and CyberKnife cancer treatment devices. Since cancer is usually an age-related disease, China's rapidly-aging population could prove a boon for Accuray. According to data from China's 2010 Cancer Registry Annual Report, approximately 2.7 million Chinese citizens die from cancer-related diseases every year. Since pollution has led to increased cancer rates in some parts of China, the market for chemotherapy and cancer treatment technologies is strong.
Accuray's CyberKnife is designed to deliver targeted radiation. Since the laser knife causes minimal damage to healthy tissue, the device can minimize side-effects associated with cancer treatments. In addition, the company's TomoTherapy system provides targeted radiation treatment. By delivering slice-by-slice radiation to targeted areas, the system can treat complex anatomies.
In August, Accuray showed off its technology at the China International Medical Instruments and Equipment Exhibition. As of now, several large players have purchased the company's technology. This includes both the Peking Union Medical College and the PLA General Hospital.
While Accuray's finances are tepid at the moment, higher Eastern sales could help the company achieve solid revenue growth in the future.
Out of these three companies, some analysts view Stryker as the strongest contender for future Chinese growth. While Eastern growth of Accuray and Intuitive Surgical is speculative, all three companies are poised for success in China. As the country's economy continues to expand, the market for vetted, high-quality medical devices will rise.
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