China’s in-vitro diagnostics (IVD) market is among the fastest growing in the world, with recent annual growth rates of more than 18 percent. In 2007, China made up just 3 percent of the global IVD market. Today, it makes up 8 percent. If current rates hold, China will be the world’s second biggest IVD market by 2017.
Several factors underlie this rapid rise in demand. China’s quickly aging population means the country is experiencing an explosion of chronic conditions such as diabetes, heart disease and cancer. All of these conditions can be diagnosed and monitored using IVD products. Further, the average Chinese consumer is now willing and able to pay more for healthcare than he was ten years ago. Rising disposable incomes mean that average annual spending on healthcare — which was $42 per capita in 2000 — is now $305 per capita.
Finally, the Chinese government is enacting policies that encourage direct and indirect investment in IVD processing facilities and diagnostics labs. Starting in 2009, China’s Ministry of Health (MOH) launched a $100 billion program to renovate the country’s 23,500 hospitals. Much of that money has since gone to upgrading IVD facilities. In January 2012, the MOH announced a ban on drug markups in public hospitals, to be enacted by 2015. Drug markups now generate more than 50 percent of public hospital operating revenues. If this source of funding is at risk, then hospitals will likely turn to in-house IVD and diagnostics labs to offset lost revenue.
MARKET SHARES AND REIMBURSEMENT
The IVD market in China is dominated by foreign medical device firms, which generate more than 65 percent of all sales revenue. Roche has the greatest IVD market share, followed by Abbott, Beckman Coulter/Danaher and Siemens. Diagnostics products sold by foreign firms include reagents, diagnostic test kits, instruments and other testing products. However, most sales come from instruments like immuno-chemistry analyzers.
Chinese companies control the remaining 35 percent of the IVD market. Leading firms include Mindray, Da An and Fosun. China has more than 400 manufacturers of IVD instruments and reagents. Previously, these manufacturers focused on reagents and inexpensive test kits. Now, they are starting to move into the integrated instrument/reagent sector, specifically in the area of chemiluminescence immunoassay (CLIA).
Additional products on the China IVD market include point of care (POC) and lab based instruments as well as diagnostic kits that test for tumor markers, cardiac markers, infectious diseases, diabetes, thyroid disorders, autoimmune diseases and pregnancy. As rates of cancer and diabetes continue to rise across China, physicians are more frequently prescribing IVDs that test for these conditions.
The central government does not reimburse for lab based tests or home based rapid testing. However, some provincial governments partially reimburse IVD testing costs. Tests that are eligible are listed in an annual guidance issued by the Ministry of Human Resources and Social Security (MOHRSS). Foreign medical device companies should be aware that reimbursement pricing is not based on the product sold, but on the drug or medical treatment that is used. So while there is no price code for “blood glucose strips,” there is a price code for “blood glucose testing.”
However, this will likely change in the future. China’s MOH is shifting its healthcare focus to preventative care, largely as a cost containing measure. Along with that will come support for more diagnostic testing products. Companies with a focus on POC test systems and the oncology market will benefit the most from any future changes to national reimbursement policies
Product registration is among the highest barriers of entry for foreign IVD medical device manufacturers. IVD reagents must be registered separately from IVD instruments, and both must be registered with the medical device division of the China Food and Drug Administration (CFDA). Exceptions to this include the following four products, which must be registered with the pharmaceutical division of CFDA:
- Blood screening instruments
- Human tissue cell reagents
- Radioimmunoassay (RIA) tests
Product registration takes about one year for IVDs that are in the medical device category. Those in the pharmaceutical category are usually processed in two years. All IVD products must be re-registered once every four years.
FOREIGN COMPANIES IN CHINA
Foreign medical device companies and pharmaceutical firms like Abbott, Roche and Siemens have been investing heavily in China’s IVD market, particularly in the diabetes and oncology sectors. In 2013, Germany’s Wilex signed an exclusive distribution agreement with China’s CRO GeneDiagnostics Inc. to commercialize its ELISA diagnostic test for breast cancer, called HER-2/neu.
Since 2009, Roche has seen its IVD business in China post annual revenue increases of greater than 30 percent. The Swiss company has said it will further increase its China presence by focusing on sales in rural hospitals and regional blood banks, and not just the urban hospitals where it has significant sales. At the same time, Roche is also developing instruments that exclusively use Roche reagents, much like a razor uses a specific brand of razor blades.
China’s IVD market is growing faster than the market of any country in Asia. With an aging population, a rapidly growing middle class and a government encouraging preventive care, China has the potential for more dramatic growth in the future. However, Chinese IVD manufacturers are increasingly competitive, especially in the areas of instrumentation and advanced molecular testing. Therefore, foreign IVD firms should focus on disease areas where few Chinese companies have a strong foothold, like cancer and diabetes. They should also explore delivery methods that are just now entering the Chinese market, such as POC and home based rapid testing.