This article was also published on Medical Device Daily
Demand for orthopedic devices is surging across Asia, as people there become older and wealthier. Sales of knee implants, hip implants, trauma devices and other orthopedic products have experienced double digit growth since the early 2000s. However, although half of the world’s elderly population lives in Asia, the region constitutes only one quarter of the global $41 billion orthopedics devices market. This means that foreign orthopedic device companies will find numerous sales opportunities in Asia both now and in the near future.
A number of factors have contributed to growing demand among Asian consumers. The first is age. Quickly falling birth rates combined with rapidly rising life expectancies mean Asians are aging faster than any other population in the world. More than 30 percent of Japanese are already over the age of 60. By the year 2050, nearly 30 percent of Chinese and 20 percent of Indians will also be over the age of 60. As Asia’s number of elderly increases, so do patients with bone, spinal and joint afflictions needing treatment.
Another factor behind the rise in demand is income. Hong Kong and Singapore boast higher per capita incomes than even the US. Japan, Korea and Taiwan also have relatively high per capita incomes. In 2010 alone, Japan made up more than half of all sales revenue in the Asian orthopedic devices market.
Low wages in developing nations like India, China and Vietnam are also rising quickly. In China, average per capita GDP (in PPP) quadrupled from 2000 to 2012, and now stands at just under $8,500. In India, average annual income more than doubled over the same period, to $3,700 in 2012. Orthopedic devices and procedures that many considered unaffordable a decade ago are now within financial reach of India’s and China’s growing middle classes.
Along with the growth of the middle class has come a growth in obesity rates. Obesity is the third major cause behind rising Asian demand for orthopedic devices. Obesity puts pressure on large and small joints, and it contributes significantly to bone fractures, bone loss and early onset arthritis. Obesity is a problem in every Asian country, but especially in India and China. In China alone, the proportion of overweight adults went from one in four in 2002 to one in three in 2010.
The last factor behind demand is a growing awareness of possible treatment options. Twenty years ago, only a few doctors in developing Asian countries were trained as orthopedic specialists. Likewise, few patients were aware of available surgeries and therapies. Now, both domestic and foreign orthopedic device firms are educating healthcare workers and patients in these countries, through orthopedic learning centers, mobile clinics and mass advertising.
Throughout Asia, the largest orthopedics growth category is the reconstructive segment, followed by the spinal products sector. In China alone, orthopedic procedures are projected to increase at an annual rate of 17 percent through 2016. Of all orthopedic procedures, fracture management and repair should expand at the fastest rate (24 percent), followed by joint replacement (16 percent) and tendon repair (14 percent).
Demand for large joint reconstruction devices (like bone cement or knee and hip implants) far outpaces demand for small joint products in Asia. Japan’s market for large joint devices was $1.24 billion in 2012, for example, compared to just $65 million for small joint products.
WESTERN DEVICE MANUFACTURERS
Since the 2008 financial crisis, Western orthopedic device firms have intensified their Asian operations. Slow economic growth and high unemployment in the US and Europe have led to very slow growth rates in Western markets. For example, in 2012, growth in the US joint reconstruction and spine markets was 1 percent and 0 percent, respectively.
Western device companies like Zimmer, Stryker, Medtronic and DePuy Synthes have large market shares in China, India and Japan. Johnson & Johnson (through subsidiary DePuy Synthes) controls nearly half of India’s large joint market, while Smith & Nephew is the second largest player in China’s large joint market. Currently, these companies get most of their business through the top tier hospitals of each country. Patients there are willing and able to spend their money on sophisticated orthopedic devices. Small and medium sized Western orthopedic firms are also increasing their Asian presence.
However, these Western companies have focused until now on high end devices, pricing most middle class Indian and Chinese consumers out of the market. In order to gain market share, several Western device manufacturers have established local factories to make basic, low-cost versions of their top of the line products. Still others have acquired local orthopedic companies with good market shares and broad product portfolios, which include competitively priced midrange products.
For example, in order to expand its line of artificial knees, hips and surgical instruments tailored to the Chinese market, Zimmer acquired China-based Beijing Montagne Medical Device Co. in 2010. In 2012, Medtronic paid more than $750 million for China Kanghui Holdings, then the largest domestic supplier of orthopedic products in China. Finally, in 2013, Stryker paid almost $765 million for the Chinese spine products manufacturer Trauson. In 2012, Trauson was the leader in China’s trauma market and held third place in its spine products market.
Many Western device manufacturers have increased their business in Asia by way of training programs for regulators and doctors. Stryker established an orthopedic “learning center” in Hong Kong in the late 1990s. Since then, several thousand surgeons from China, Hong Kong and the rest of Asia have trained at the center. In addition, Stryker also set up its own “mobile training center” to tour rural Chinese cities that might have limited access to instruction for advanced medical equipment. Members of the mobile training center instruct local healthcare workers on how to use Stryker products.
Along with opportunities, the orthopedics market in Asia also poses significant challenges. The biggest is competition from local manufacturers. In China and India, medical device companies like Weigao and GPC Medical can make products far below the cost of most Western manufacturers. In consequence, the price points of these devices are much lower. While their quality might not be as good as the high end devices produced by Western manufacturers, these orthopedics devices are oftentimes “good enough” and also within the price range of middle class consumers in China and India.
Local companies have gained market share through the additional benefit of favorable government regulations. Regulations include centralized tendering (in which companies with local connections gain an advantage) and reductions in reimbursement pricing (in which companies with “good enough” B-line products have a distinct market advantage).
Some Asian orthopedics manufacturers are now competing globally. For example, Korea’s Corentec Co. Ltd. has recently started penetrating the US market. In 2012, Corentec established a wholly owned subsidiary in Irvine, California. Corentec America markets spine implants, orthopedic intsruments and hip and knee replacements for the US market. The company currently manufactures its medical devices in Korea, where it leads the market in total hip arthroplasty.
Foreign orthopedics device manufacturers will discover many opportunities for expansion into the Asian market. Growth is dramatically picking up from China to India, even as it stalls in the West. However, foreign medical device manufacturers still face considerable competition from local manufacturers, who produce B-line products that are quite attractive to cost-conscious middle class consumers. Foreign manufacturers that expand their portfolios to include midrange versions of their A-line orthopedic products will find they have better chances of succeeding against local competitors.