Opportunities and Pitfalls in China’s Medical Device Market

Opportunities and Pitfalls in China’s Medical Device Market

By Ames Gross, President and Founder of Pacific Bridge Medical

This blog post was also published on MedTech Intelligence.

There are many challenges to succeeding in China’s medical device market. Let’s first talk about the roadblocks to success. One barrier is the difficulty of registering devices. Even filing a notification application for Class I products that do not require registration often involves a back and forth discussion with the China Food and Drug Administration (CFDA). Class II products with predicates can still be registered, but finding exact predicates that meet the new CFDA requirements is not easy. In addition, many Class II and all Class III devices that are not on the clinical trial exempt list will need local clinical studies in China in order to obtain registration approval. China has also implemented new Good Clinical Practice (GCP) standards for devices, which must be followed.

Even when registration is completed, reimbursement is not easy to obtain. Most medical device reimbursement takes place at the provincial-level pricing bureaus, and negotiating with these bureaus can be tricky. Reimbursement for foreign-made devices is normally low, and cash supplements from patients are often required. The government also incentivizes Chinese hospitals to buy locally made products.

It is also important to keep in mind that Chinese society fosters copying and rote training. As everyone knows, copying is rampant in China, and Western medical devices are not immune to this practice. It is not unusual to see Chinese “copycat” device products with identical features that were made from the exact same material and disposables. Intellectual property (IP) protection in China is still weak and difficult for small to mid-sized medical device manufacturers to enforce due to the large legal bills required.

In addition, China is moving away from the mass production of commoditized devices and is now developing its own local research and development (R&D) capabilities. These more advanced R&D capabilities will increase the quality and sophistication of Chinese-made devices and, in some cases, perhaps assist with copying.

Finally, getting your Chinese distributor to excel in conceptual sales is often challenging. Chinese distributors, like other distributors around the world, often focus on easy-to-sell products where conceptual sales are not required to maximize commissions. Setting up your own subsidiary operation or entering into a joint venture is more complicated now than ever before.

Opportunities for Success. Despite the factors discussed, it is possible for device companies to succeed in China. The best way to go, despite the fact that it may take a long time to get approved, is to produce a unique product that is not easily copied. Companies should continually upgrade their innovative products so that the Chinese copycat producers have trouble keeping up. Medical device companies that wish to acquire IP protection can also register their patents in China, although normally only large companies can afford to pay for expensive IP lawyers in the country.

Some device companies may take advantage of the cheap local labor and manufacture their products in China. However, this labor is not as cheap as it was in the past. If a company can make its Class II products in China, they generally only need to apply for provincial approval—not national CFDA approval—which is faster. However, if a Chinese manufacturer is to be the Original Equipment Manager (OEM), the product must be registered under the local manufacturing company, not the foreign device manufacturer. If the foreign manufacturer has its own Chinese facility and Good Manufacturing Practice (GMP) certificate, it may outsource some of the manufacturing and then register directly in its name with the CFDA. Furthermore, by manufacturing in China, companies may also be able to export to other markets in the fast-growing Asia region more easily.

There is an additional opportunity that lies within sourcing medical devices or medical device components from China. For many Class I and II products, the quality of the devices manufactured in China by local manufacturers is acceptable for global export, including to the West. Some foreign companies are now beginning to import locally made Class III products for global distribution. Of course, Class III products made in China will need to be approved there, go through local Good Clinical Practice (GCP) clinical trials, and meet Chinese Good Manufacturing Practice (GMP) standards before they can be registered in the West.

Most companies that are serious about China are setting up their own operations in the country, including representative offices, branch offices, or Wholly Foreign-Owned Enterprises WFOEs. It is up to the foreign companies to make sure their local Chinese employees know the difference between right and wrong and to outline punishments for violating intellectual property rights. Foreign companies are no longer setting up joint ventures in China, generally because they become too problematic over time.