The challenge for Medtronic is making devices accessible to more patients, who can pay up to RMB50,000 for pacemakers and stents. That requires more training of physicians, building up centers of surgical excellence and convincing government and insurers of the cost effectiveness of devices over pharmaceutical therapies – as Medtronic President William Watkins explained to,China Economic Review.
Q: How important is China for you?
A: We've been here for 15 years and it's been a growing part of our business. We principally treat chronically degenerative diseases and many of the things we're doing have a real application to the Chinese population. I would hope within five years it will be 10% of our business.
Q: Is diet important? Everyone talks about the rise of fast food and heart disease in Asia.
A: We're in a number of different therapeutic areas, principally cardiovascular diseases, and certainly there's a relationship between diet and cardiovascular diseases. Diabetes is another important focus for us. We see a correlation.
Q: What does Medtronic do on the manufacturing front in China?
A: We've been manufacturing here for some time. One of our product lines is in the pacemaker area – one of our latest technologies in pacemaking. Today, we have a good foundation. We'll evaluate [increased manufacturing in China] over time.
Q: Hitachi, according to KPMG, is moving all its medical manufacturing to China.
A: Well, we were visiting another large company this morning, and they just established a big R&D presence here – and they don't do as much manufacturing. I think there are a number of factors which come into play as to whether it makes sense to manufacture here. One of the reasons we put a facility here is that we wanted to send a message that we were committed to being in this market.
Q: How much R&D goes on here?
A: We've done a number of projects – a couple of our products have been developed jointly with our clinical customers; some of our leads for the cardio management area have come out of joint R&D programs. And we've done some clinical trials. It's more hospitals and universities we're involved with. For our pacemakers and defibrillator business, we implant these devices and then we have programs to monitor the device and download information whether looking at the EKG or the diagnostics of the device – and we developed the programs for that here in China.
Q: There are something like 67,000 hospitals in China but perhaps six or seven thousand Class I and Class II hospitals – do they more or less define your market?
A: I don't know? We probably implanted 25,000 pacemakers last year in China so we have a pretty large presence. Again, if you look at China's demographics and the fact that people are living longer, we think there's a real opportunity to make a difference. There are a number of things that have to be addressed. Obviously, to ensure these devices are available to people there is a need to help ensure an infrastructure that would support reimbursement. We are encouraged that the regulations have been getting a little better, but there are things we need to work on. For instance, it used to take four months to get a device approved; now it takes nine to 12, so we've got to make sure those barriers don't inhibit companies from bringing new products to the marketplace.
Q: I've read that, in China, you cannot present qualifying data used elsewhere, say in the US.
A: I don't think it's categorical, but there are some therapies that require a certain cohort done in certain markets- for example in "living" stents, one of the breakthroughs in medicine in the last few years. The problem in the past was that you could open up a vessel but then it would reclose – now when you combine drugs with those devices, you can treat the mechanism that causes them to reclose. To get that living stent approved in China, we have to have local clinical data.
Q: Aren't your devices out of reach, well, for a high percentage of China's population?
A: If you look at the device versus pharmaceuticals, it's a one-time implant that, in the case of a pacemaker, will manage that patient for seven or eight years. You're paying a certain amount of money up front, but it's providing that therapy on a day to day basis. If you look at pharmaceuticals, you take that pill every day, sometimes twice a day, and if you look at the cost of a device, it is very reasonable. But there is this upfront cost, which makes it important for us to work with the government and to work with private insurance companies to get them to recognize the value of innovation. We've been doing large-scale trials to demonstrate how devices improve quality of life and in some cases, extend life. We have made a major investment in providing training to clinicians in these therapies and in some cases we have to provide tools that are standard in other parts of the world.
Q: So does that make your cost structure different from, say, the United States?
A: Well, it's not just a question of selling a product. It really is a process of continuing education and support. We have 500 people in China and that number has been growing at 25% a year.