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In vitro diagnostics (IVD) in China: a market you can’t ignore

In vitro diagnostics (IVD) in China: a market you can’t ignore

Having been involved in many in vitro diagnostics (IVD) projects in China over the last year, I decided to look back and summarise the industry’s recent developments. It’s a complex market that’s changing significantly, with Chinese IVD companies rapidly becoming more mature and competitive.  

At the same time, it’s one of the biggest IVD markets in the world and set to continue growing faster than anywhere else. This makes it vital for international IVD manufacturers to address. In my opinion, you simply can’t afford to stay outside.

To gain further insight into the market, I spoke to insiders at two of the biggest IVD companies in China – Shanghai Kehua Biotechnology and Beijing Leadman — who kindly provided their views. 

Based on their insights and my own experiences, I’d summarise China’s IVD sector over the last year as marked by the following major developments, which I’ve grouped into regulations, innovations and mergers.

Regulatory shifts 

1 - Reform of the China Food & Drug Administration (CFDA)

One of the most important changes in the regulatory field in 2018 was the transformation of the CFDA (China Food & Drug Administration) into the NMPA (National Medical Products Administration). This has brought major improvements to clinical trial management - including an updated trial exemption catalogue, recognition of overseas trials data and a simplified authorisation process for clinical testing facilities. It’s also streamlined application review procedures. 

This is good news for international firms as optimised review and approval processes should speed up the import of devices which - usually labelled Classes I and II - pose low-to-moderate-risk. 

2 - Two-receipt regulation, DRG-based hospital payments and a hierarchical medical system

The two-receipt system that regulates the number of transactions from manufacturer to hospital - minimising medical products’ routes to market and ultimate costs - was implemented for drug distribution in China in 2013-2014. In 2018, the system was finally introduced to the IVD sector on a national scale.

International companies doing business in China will have to respond to the challenges brought by this new system as it will change channel structures and routes to market.

At the same time, a diagnostic-related group (DRG)-based hospital payment system is being introduced to replace the fee-for-service system. This will provide fixed fees to hospitals according to the patient’s medical conditions, regardless of actual costs. Pilot projects of DRG-based payments started to appear in 2017, with reform speeding up in 2018.

These medical payment reforms are likely to have far-reaching implications for the whole medical sector, with hospitals becoming increasingly cost-sensitive.

Last but not least, China's hierarchical medical system was a hot topic in 2018. Today, Class III hospitals are struggling to keep up with patient demand, whilst demand at Class II hospitals and below is comparatively subdued. Central government increasingly advocates the introduction of medical partnerships to combine classes of hospitals into multi-level regional conglomerates. The aim is for Class I hospitals to treat patients with common conditions and Class II and III hospitals to treat special cases and rare diseases. According to a report from The National Health Commission, 70% of regions were undertaking pilots for a hierarchical system in 2018.

Given the deficit-plagued national medical insurance system, such ongoing reforms aim to control medical costs more effectively throughout the whole chain. We can expect these changes to continue in the months and years to come and international medical companies with an eye on China need to monitor these carefully.   

3 - Increased protectionist measures 

In November 2018, the National Health Commission responded to proposals for changing how medical devices are treated in government procurement. 

Its response emphasised the importance of avoiding discrimination against domestic equipment by setting technical parameters based on imported products. It argued that general technical parameters should be applied to incentivise the use of domestic equipment. It said hospitals should be provided with special catalogues of ‘excellent’ Chinese medical equipment, and it recommended pilot projects for preferential use of domestic products.  

If put into practice, this will mean procurement specifications could be tailored in favour of the leading domestic brands, leaving international brands to compete on price rather than just quality. It’s an unfolding situation to watch closely.    

Sector innovation

Chinese companies are demonstrating accelerating progress in the development of new products – another trend on which international players need to keep a firm eye. 

In 2018, for example, Roche’s electrochemiluminescence (ECL) analyser’s patent expired. Roche is the ultimate champion of CLIA (Chemiluminescent Immunoassay) diagnostics in China, holding 30% of the market. Until last year, the company was the only one with ECL technology in China, but Shenzhen’s Lifotronic has now rolled out the first Chinese ECL instrument. 

Other Chinese CLIA companies have been successful in improving instruments’ throughput. Snibe launched the world-fastest workbench MAGLUMI X8 with a throughput of 600 t/h, while Mindray’s new CL6000i has an impressive throughput of 480 t/h.

Furthermore, Chinese companies demonstrated major achievements in liquid biopsy. In the field of ctDNA, Xiamen AmoyDX launched a human EGFR gene mutation detection kit (multiplex fluorescence PCR); in the field of CTC, Ningbo Nanolightsystems introduced a generation of CellRich automated microfluidic magnetic screening platforms.

Chinese firms also pioneered artificial intelligence medical applications. Guilin Urite released its US-2000 combined automatic urine AI auxiliary analysis system with deep learning capabilities.

The CFDA, meanwhile, approved Burning Rock Dx’s EGFR/ALK/BRAF/KRAS NGS products, making it the first domestic company with CFDA-approved NGS diagnostic kits.   

Mergers and acquisitions 

We saw significant international merger and acquisition activity in the IVD sector over the last year, too.

France’s bioMérieux acquired 54% of Suzhou Hybiome, which specialises in automated immunoassay tests. The company markets two automated, mid-throughput immunoassay systems (AE-180 and AE-240) using the latest generation CLIA technology and featuring a menu of nearly 80 parameters (bone metabolism, tumours, TORCH, hypertension, thyroid etc.)

Guangzhou Wondfo, meanwhile, formed a joint venture with Belgium’s Biocartis to commercialise a fully-automated molecular diagnostics Idylla platform in China. 

It’s apparent from this that Chinese companies are becoming increasingly open to technology transfer as a means to increase their competitiveness, and keen to form partnerships to bring their products to international markets. The clear implication, on the other side of this coin, is international companies may well find China a fertile place for investments or partnerships to enter - or improve access to - the Chinese market. 

Fruitful year

According to an estimation based on listed Chinese companies’ revenues, the IVD market in China was worth RMB 60 billion (USD $9 billion) in 2017. This concurs with figures from the China Association of In-Vitro Diagnostics and made China worth around 15% of the global market. 

Our discussions with industry stakeholders suggest 2018 was an extremely fruitful year for the industry in China and it continues to grow at a much faster rate than the 5-6% world average, so this global share is only set to increase. 

Despite the sector’s complexities, then, for serious international IVD firms, it’s a market you really can't afford to ignore. 

CACLP Expo - the most influential IVD tradeshow in China – takes place next week, 20 - 24 March, in Nanchang, Jiangxi province. It will undoubtedly attract domestic and international professionals alike and, given the promise shown by the Chinese market, I see this as the event not to miss. 

I’m certainly going to be there. Let me know if you are too, and you’d like to talk about your plans for China.

Olexandr Nykytyuk
About the Author

Olexandr Nykytyuk

Olexandr is based in our Shanghai office and a member of our Medtech & Life Sciences Group, helping western healthcare companies expand in China. He’s worked in and with China since 2007 and has degrees in English, Chinese and business administration from universities in Ukraine and China. 

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