Last week it was big news that Concord Medical, with Chinese ownership, became the second largest investor in MD Anderson Cancer Center, but that might not be the real story. While some feared it was the start of more Chinese involvement in US health care, it seems the opposite might be true. With China’s health care spending predicted to reach a trillion dollars by 2020, the move might have been more about MD Anderson, rated the top cancer center in America by US News, creating a great partnership to help expand their reach into the Chinese market.
MD Anderson’s movement into China makes sense. In addition to rising demand for the best available treatment from successful urban Chinese, China is facing new challenges as cancer, heart disease, diabetes and other chronic diseases afflict more of its population. According to a report by the World Health Organization (WHO), China accounted for over three million newly diagnosed cases of cancer, almost 22 percent of the global total, and 2.2 million cancer deaths, 27 percent of the world’s total, in 2012. The WHO also estimates that approximately 230 million Chinese currently suffer from cardiovascular disease, and that annual cardiovascular events will increase by 50 percent between 2010 and 2030 based on population aging and growth alone. The incidence of diabetes tells a similar story. Almost one-in-three global diabetes sufferers today is in China, with approximately 114 million adults afflicted by the disease.
According to a McKinsey & Company report, for several leading pharma players, such as Bayer HealthCare and Novo Nordisk, China already ranks among the top three markets in total contribution to revenues. Medical-device and -equipment companies, such as GE Healthcare and Philips, have built China businesses that now boast annual revenues of more than $1 billion and are still expanding rapidly.
This steady growth of China’s market stands in contrast with those of the United States, Japan, and Western Europe, which have traditionally been the focus of health-care companies but now are less attractive due to declining R&D productivity, the ongoing expiration of patents, and decreases in government spending.
Companies like AstraZeneca, who started investing heavily more than a decade ago, and large global pharma companies who have ramped up efforts in the last five years, including GlaxoSmithKline, Eli Lilly, and Merck, have embraced the Chinese market as a major part of their companies’ strategies. Since 2006, 13 of the top 20 pharma companies have established R&D centers in China, and several have announced major manufacturing investments.
Medical device and pharma companies are not the only ones eyeing China. Health care is one of the last big industries in China to open up to foreign investment and technology. In August of 2014, China announced a pilot project whereby overseas investors can establish wholly foreign-funded hospitals, either by acquisition or greenfield, in seven of its cities and provinces. As a result, private equity and other substantial investors are actively searching for new investment opportunities in hospitals — and companies with the latest in health care technology.
Whether it is hospital management, specialty clinics, pharmaceuticals, higher tech medical devices, or other health care products or services, China’s health care industry — a trillion dollar industry in the making — will be important to watch as soon it will be one of the largest markets in the world.
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