Leaders in Pharmaceutical Business Intelligence (LPBI) Group

Author: Michael, Ward, DVM

I recently found a report, written by Mark Hollmer and published 28 November, 2012 by Fierce Medical Devices

http://www.fiercemedicaldevices.com/signup?sourceform=Viral-Tynt-

entitled, “Edwards’ mitral heart valve wins Chinese SFDA nod”.

Though I wonder why Edwards would be taking a more than 30 year-old medical device to China – only Edwards’ business leaders could answer that – I was stuck by one small paragraph that led to this writing.

“Edwards, like many device companies, has turned to China for new growth opportunities and the country factors into its long-term growth plans. Known for heart valves and hemodynamic monitoring devices, Edwards has also propelled U.S. growth with its Sapien transcatheter aortic heart valve, which won FDA approval earlier this fall to treat a larger class of patients.”

This discussion will address the current trend of Western companies attempting to penetrate China’s medical device market. As one who is often asked to speak at public meetings on this topic, I have given frequent and serious reflection on my experiences with and knowledge of this topic.

The uninitiated Western medical device companies may not realize that China is very much different from other major countries, in the areas of

• marketing/sales,
• regulatory affairs,
• clinical research, and
• hospital practices.

Historically, SFDA has been active since the 1990’s; however, their initial focus was limited to understanding and approving pharmaceuticals. Thus, SFDA’s

• regulations,
• extent of product and therapeutic knowledge, and
• GCP certification programs

have been primarily focused on drugs. With the exception of the counterfeit medicine epidemic, global pharmaceutical companies have become well entrenched and enjoy a strong presence in China’s hospitals. That does not mean they are making great profits.

Counterfeit drug enterprises in China have steadily grown into a lucrative opportunity since the 1990s. Often supported by local government and Chinese Military investment, counterfeit drug manufacturing plants can be rapidly set up and also re-established, if subjected to raids by SFDA officials. These fake medications have found their way into China’s pharmacies and hospitals, and now are a threat to the United States. The loss of bona fide sales as well as the money required to fight this criminal element significantly erodes the profits of major pharmaceutical companies.

In and above the aforementioned challenge to global pharmaceutical companies, all biomedical companies must share a considerable portion of any given patient population with Chinese Traditional Medicine (CTM). CTM has enjoyed centuries of development and use and it is an integral part of China’s society. Medical schools and hospitals teach and offer CTM therapies. Given the paucity of health insurance among the majority of China’s population and limited disposable income to pay for expensive medical treatments, CTM offers an attractive alternative – one that is deeply entrenched within the culture and also easily affordable. For reasons to which I will allude later, CTM lends itself to a culture that readily accepts anecdotal evidence and rarely scrutinizes medical therapies for compelling clinical evidence.

Medical devices have their own unique challenges to address. Initially, many of them are not readily apparent to any neophyte company that expects ‘business as usual’ when introducing products to China. Unlike Japan, where one of the biggest barriers to market entry rests in dealing with a well-organized, challenging, and complex regulatory authority, SFDA is a ‘work in progress’. China is the only country, of which I am aware, where the regulatory authority (SFDA) has asked experts in global companies for helpful guidance on the approval and oversight of medical devices. Couple that with the national governments focus on making it easier for Chinese medical device companies to access the market, and it’s easy to understand why several large home-born enterprises, such as Microport Medical, enjoy large shares of the domestic market for most indications.

For many years, and even today, many companies refuse to go to China for fear of having their technology reverse engineered and copied. This fear is fueled by China’s lack of effective laws on intellectual property (IP). Even where laws do exist, they are rarely enforced. This fear on the part of Western companies is irrational, which is why the major global medical device companies and many smaller organizations, including Edwards LifeSciences, have concluded that threats to their IP are no more an issue in China than in any other region of the world.

That is not to say copycat devices don’t exist in China. Many observers are curious as to how these large domestic medical device companies in China could have product portfolios that closely replicate those of the major global companies. To illustrate this point – during the 1990s, I knew a Chinese woman in Southern California who worked in QA and, therefore, had access to drawings, test results, and manufacturing processes for any of her current company’s product portfolios. Her open confession to me was that, after another year or so, she planned to go back to China to establish her own catheter company, using all the knowledge and information she had gathered in her job. Western media have uncovered a lot of copying of company proprietary information by Chinese citizens who find jobs in the USA or Europe. Many ‘industrial spies’ are highly qualified engineers and scientists who make valuable contributions to all aspects of product development. In spite of their devotion to product development, one can understand their culturally-inbred insensitivity toward issues of confidentiality and intellectual property.

Some readers might be thinking right now, “Damned if you do!” (going to China) and “Damned if you don’t!” (opting to stay in a protective mode outside China). Some might conclude that, if Western countries open up their doors to foreign engineers and scientists, no IP is safe. However, one only has to look at WL Gore (Flagstaff AZ), which experienced an American-bred and educated manufacturing ‘associate’ relocating down the mountain to Phoenix to establish a company that was alleged to have incorporated biomaterials, knowhow, and manufacturing processes inherent to Gore. Though the latter is uncommon, it does underscore the point that industrial espionage is not just a China-based challenge; however, in most Western countries, rigorous enforcement of strict IP laws is quite effective in keeping ‘copycat’ medical devices, including those that originate in China, off the market. Given this perspective, avoiding China only for fear of IP threats is irrational.

In September 2012, in Northern California, I met with a VP of International Business for one of the largest of China’s domestic medical device companies. I was curious about his company having no presence in the U.S. market and their international focus on African and South American countries – both regions being weak in enforcing laws on IP. Given his company’s limited global focus and his admission that the company leadership in Shanghai only understood China’s processes and had no appreciation of or interest in appropriate development and expensive testing of medical devices sufficient to achieve CE Mark or 510(k) clearance, Western medical device business leaders can breathe easy about the prospect of a company in China threatening market share in Europe, USA and many other Western countries with copycat devices.

This is just one of several instances where China’s culture and laws are deeply entrenched in the medical device community, resulting in unique perspectives and practices. Some of these differences and limitations make it very difficult for China’s physicians to compete with their Western counterparts in such areas as publishing in Western peer-reviewed medical journals and in carrying out quality research with medical devices. A significant challenge for Western medical device companies is to assure that their China-trained customers have sufficient skills to use their devices. Two-day training programs for physicians have proven to be quite ineffective.

There are many endemic factors, which contribute to the lack of sufficient technical skill and therapeutic proficiency on the part of China’s medical device users. Some of these are

(a) strong tendency to be dogmatic and carry on with older therapeutic approaches (justification is based on having treated large numbers of patients with long-established methods);

(b) hospital hierarchical management style, with older physicians at the top who direct all staff members to propagate older methods;

(c) medical school training does not include experience with newer medical devices;

(d) Western medical devices are often sold at Western prices, leaving so many uninsured patients unable to pay for these therapies (limited use of Western devices); and,

(e) the role of CTM further erodes opportunities to get valuable experience.

Edwards LifeSciences may enjoy early market penetration with a 30-year-old heart valve. Most companies initially focus on

• Beijing,
• Shanghai,
• Guangzhou and
• a few other major cities,

where more patients have health insurance and/or sufficient cash to pay for expensive treatments. But, to gain major market share, prices would have to come down dramatically, something many multi-national medical device companies are reluctant to consider.

The above comments are only a cursory reflection of some of the key challenges facing a company interested in the medical device market in China. I have not mentioned the unique challenges for

• marketing and
• distribution or the rather unique approach one must adopt to
• sponsor and manage clinical trials in China.

A STORY OF LAGGING BEHIND:

For more than a decade, medical device applications, modernization, and market expansion in China have lagged well behind a more mature pharmaceutical domain. Compounding this is another gap created between a hierarchical, dogmatic, and historically/culturally-entrenched medical community and those components of China’s society (examples are, IT, capitalism, banking, fashion) that have dramaticall expanded, modernized, and brought economic prosperity. I believe that the aforementioned gaps have narrowed in recent years and can be increasingly narrowed such that many Western medical devices will find a formidable market presence in China.

Other related articles on Medical Devices for Cardiac Repair published on this Open Access Online Scientific Journal. include the following:

http://pharmaceuticalintelligence.com/2013/01/29/direct-flow-medical-wins-european-clearance-for-catheter-delivered-aortic-valve/

6/19/2012 Executive Compensation and Comparator Group Definition in the Cardiac and Vascular Medical Devices Sector: A Bright Future for Edwards Lifesciences Corporation in the Transcatheter Heart Valve Replacement Market

http://pharmaceuticalintelligence.com/2012/06/19/executive-compensation-and-comparator-group-definition-in-the-cardiac-and-vascular-medical-devices-sector-a-bright-future-for-edwards-lifesciences-corporation-in-the-transcatheter-heart-valve-replace/

2/12/2013 Clinical Trials on transcatheter aortic valve replacement (TAVR) to be conducted by American College of Cardiology and the Society of Thoracic Surgeons

http://pharmaceuticalintelligence.com/2013/02/12/american-college-of-cardiologys-and-the-society-of-thoracic-surgeons-entrance-into-clinical-trials-is-noteworthy-read-more-two-medical-societies-jump-into-clinical-trial-effort-for-tavr-tech-f/