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INTERVIEW WITH “CHINACONTACT” ABOUT MARKET ENTRY FOR OPHTHALMIC OPTICS AND HEALTHCARE COMPANIES INTO THE CHINESE MARKET

The Melchers Group founded its first Asian branch in Hong Kong in 1866 and is now active in China in the areas of machinery and industrial products, luxury goods, and healthcare. ChinaContact spoke to Mike Hofmann, Managing Director of Melchers China in Beijing.

Mike Hofmann has lived and worked in China for close to 17 years. He is the Managing Director of Melchers China in Beijing and Chairman of the Board of Directors of the joint venture Koehler Pharmaceuticals Beijing Ltd. Since 2021, Hofmann has been a member of the board of the German Chamber of Commerce in North China and has also been mentoring German start-ups at German Entrepreneurship Asia, part of the BMWK-funded German Accelerator Program.

 

Is market entry in China (still) worthwhile?

Hofmann: Even though the complexity has increased and will continue to increase, China remains a lucrative sales market for many industries. In the healthcare industry, in particular, the market is growing faster than the country’s GDP, driven by general indicators such as rising healthcare system costs, reform and development programs, and the population’s longer life expectancy. Especially in ophthalmic optics, the market volume is expected to boost to almost 19.5 billion euros by 2027. One reason is the short-sightedness rate, which is rising sharply in China. Young people are encouraged to study hard from an early age, and more and more work is done on screens. The Chinese Air Force has already warned that problems arise in pilot training because candidates cannot pass the mandatory eye test.

Therefore, we are seeing strong market interest in the healthcare sector in China and other sectors, whereby we are even observing an adjustment of the traditional export model towards local investments.

Do you recommend specific provinces or cities for establishing branches?

That depends very much on the sector and products. In general, the top hospitals are located in larger cities with higher incomes, representing the most interesting sales markets for medical technology. However, hospitals are also specializing – we are also active in cardiology, for example, for which Beijing has established itself as a center. There are also cardiac surgery centers in Guangzhou, Wuhan and Shanghai. Depending on the product, it is therefore advisable to first identify the location of the relevant specialist hospitals.

What does your export model look like?

Melchers is mainly active in sales from Europe to China and has traditionally also been active in sourcing in China. As a market expansion partner, we work in the healthcare sector primarily with medium-sized companies and family businesses that want to set up a Chinese subsidiary or expand their existing business. These partners generally deliver directly to China and primarily serve the local market.

Can you describe your partner model in more detail?

We offer companies tailor-made and brand-oriented operational solutions ranging from sales and corporate services to corporate governance and shareholdings. In the past, the classic joint venture was required by law in many sectors, particularly concerning technology and also in the healthcare industry. With the transformation of the Chinese economy, the joint venture obligation has been removed in many areas. However, we have observed a trend in recent years toward voluntary mergers and participation. Here, we support companies as a third partner in a so-called “three-party joint venture.”

Such a form of market development and partnership is not only a derisking issue but also addresses the resource requirements of doing business in China, which many family businesses cannot easily afford. This is where Melchers comes in, with over 150 years of experience in doing business in China. We support companies with back office, corporate governance, accounting, and human resources issues. We also offer management representation on the board of directors, for which there are special requirements in China. This allows our partners to concentrate on sales and leave the more complex management issues to us.

Melchers China also offers these services on a stand-alone basis; however, they are increasingly in demand from medium-sized companies in the 3-JV model.

Where do you see the biggest challenges currently?

Many companies, including our customers, have rethought their China strategy during the pandemic. Apart from this is the increasing complexity of supply chains and geopolitical tensions. However, this also means that companies that have not yet had a local presence are now taking a closer look at China after the opening regarding localization pressure in the healthcare industry and are approaching us in this way.

At the same time, Beijing is using programs to promote local players in particular, which leads to increasingly fierce competition. Chinese competitors are very innovative in many areas, especially when it comes to digitalization. There is also an increasing trend towards buy-local, particularly in the healthcare sector. In some cases, there is quite aggressive intervention in the market with certain purchase quotas for local products. In the future, more and more foreign companies will have to ask themselves how they will deal with these requirements and whether a local production chain may need to be established. Due to this trend, we assume that the pressure in the healthcare and MedTech sectors will increase significantly over the next five to ten years.

Last, the pandemic has made many companies and countries rethink their dependencies on foreign countries and reduce them where possible. The same discussions we are familiar with from Germany also occur in China. A prominent example is Chinese chip imports from the USA or China’s dependence on European export markets.

Another point is the tougher framework conditions in China, especially in the healthcare sector. In the past, corruption led to highly inflated prices, which the government countered with artificial price pressure. Central volume-based procurement programs are intended to reduce the costs of the healthcare system, forcing middlemen out of the distribution chain due to price pressure and other requirements. However, the programs also create increasing price pressure for all market participants.

Since the coronavirus pandemic at the latest, it has become clear that the Chinese market is very complex and changing rapidly and that a company’s own China strategy must be constantly reconsidered and adapted. This changeability is often underestimated in Germany. That is why feedback from local representatives or partners and knowledge of local events and trends is essential for successful business in China.

Can providers still score points with “Made in Germany”?

Ten or even five years ago, products “Made in Germany” sold themselves very well, but those days are now over. Chinese companies are catching up more and more technologically, so the unique selling point of German products is no longer necessary in many areas. Although in both B2C and B2B areas, products can still benefit from the association with German engineering and premium quality, however, in general, we see a stronger buying preference for Chinese products, which score points thanks to their proximity to the consumer.

German companies have to work harder these days. The product itself must be more innovative and competitive than the competition. There are also accepted intermediate paths. Just think of “Designed by Apple in California. Assembled in China”. Following this model, SMEs can produce locally but with German standards, quality, and expertise.

Does this also apply to the healthcare sector and ophthalmic optics?

In principle, the healthcare sector is not a mass market. Fewer medical technology manufacturers also specialize in certain areas, such as suppliers of ophthalmic optics. However, here, too, it is important not to rest on “Made in Germany” as a USP. In addition, many manufacturers already have a global supply chain and source preliminary products from other countries.

 

This interview was conducted by Lisa Wick and published in German in the business magazine “ChinaContact” 07-2023 under the original title “Durchblick im Reich der Mitte.” This is a translated reprint.

How Melchers supports you in China

With 155 years of business experience in various sectors in China, we know that every company needs its unique approach to the Chinese market. China’s business world is continually changing and varies significantly from region to region in terms of prosperity, regulation, openness to business, and other factors influencing the business environment. Due to its size and diversity, China can hardly be compared to any other country in the world. This is also true for the health care sector. Our longstanding experience and knowledge along the value chain of the Chinese healthcare industry through sales, management, and compliance activities, as well as corporate services, enables us to offer tailored and brand-oriented market approaches for all our partners. We help our selected brand partner to understand the Chinese healthcare market, quantify the scale and the competitor landscape, and identify short, mid, and long-term opportunities for market growth.

We take equity shares in our partners’ China operation with a focus on long-term partnerships, if desired.

Contact Melchers today via info@melchers.com.cn about establishing a presence or doing business in China or go to Healthcare • Melchers China (melchers-china.com) for more information.

MELCHERS PARTNERS WITH MAXWELL TO FURTHER EXPAND OFFERINGS FOR INTERNATIONAL MEDTECH COMPANIES IN CHINA

December 14, 2023, Shanghai & Hong Kong – Altride Healthcare, a newly formed subsidiary of the Melchers Group, has signed an agreement with the Chinese company Maxwell Medical Technology to form a joint venture to expand distribution activities of MedTech products in China. Combining strong local expertise and execution excellence with corporate governance by international standards, the Sino-German joint venture Meddax Medical is set to reinforce support for multinational medical device manufacturers in the Chinese market.

“The establishment of an independent healthcare unit and our strategic investment in the joint venture demonstrate our commitment to being a credible partner of international MedTech companies in China,” commented Anton Melchers, Global Managing Director of Melchers Group. “By bundling together our competencies in healthcare fields and teaming up with Maxwell, we further enhance our ability to navigate challenges in a changing market and capitalize on opportunities for accelerated growth of our healthcare clients.”

Liu Hongquan, Chairman of Meddax Medical, said: “The leadership team of Maxwell has a proven track record in scaling healthcare business. We are excited about our partnership with Melchers in which we will utilize our local relationships, commercial experience and regulatory and operational know-how to bring in and deliver innovative medical device products from abroad to millions of patients in China.”

On December 7, 2023, a signing ceremony between Altride Healthcare and Maxwell Medical Technology was held in Shanghai, followed by the first meeting of the new Board of Directors of Meddax Medical: Liu Hongquan, Chairman of the Board, John Shen, Managing Director, met with Non-Executive Directors Xu Sanping and Levin von Gehren to deliberate and agree on the business plan, operational and administrative topics. The management team of the joint venture brings extensive knowledge and over 25 years of experience across a range of Pharma and MedTech areas, strengthened by 30 dedicated medical device sales force and clinical application professionals. Based in Shanghai, with a warehouse in Shanghai and a sales office in Guangzhou, Meddax Medical has a well-established network of more than 1000 hospitals in almost all the provinces in China and maintains over 150 active sub-distributors.

 

About Altride Healthcare

Altride Healthcare is a company by the Melchers Group which was established in 1806 in Bremen, Germany, and has been active in China since 1866. With over 800 employees in Asia in 25 offices, Melchers has been a trusted pioneer in bringing global brands to market in Asia for over 155 years. Altride Healthcare offers a set of tailored and brand-oriented solutions with localized expertise for a seamless expansion of healthcare companies to Asia. Building on decades-worth of market and business management, Altride Healthcare’s value-adding solutions and services enable its clients to attain their goals and optimize each market opportunity with success. www.altridehc.com

About Maxwell Medical Technology

Maxwell is a newly established Chinese medical device company active in R&D, selling and marketing of medical devices. Backed by a local healthcare company, Maxwell covers more than 1,000 hospitals in over 28 provinces and maintains more than 150 active distributors. The company is active in a variety of hospital departments with a focus on ICU and General Surgery.

Contact

Mr. John Shen
Meddax Medical
+86 21 6352 8848
info@meddax-medical.com
www.meddax-medical.com

Mr. Levin von Gehren
Altride Healthcare
+852 2546 9069
lgehren@altridehc.com
www.altridehc.com

REGISTER FOR OUR WEBINAR: CAPTURING THE MEDICAL DEVICES MARKET POTENTIAL IN CHINA

Capturing the Medical Devices market potential in China is often discussed amongst overseas MedTech companies. On September 12, 2023, Cisema and Melchers will be presenting in a webinar on this hot topic, and our panel speakers will share insights on medical device registration, distribution and localization in China.

The webinar will answer some of the most frequently asked questions about efficient pathways to obtain medical device registration approval in the Chinese market, and key considerations for already registered products. Our speakers will also share views on the complications of the current regulatory framework, and best strategies to sell into the market.

Details

Date: September 12, 2023 (Tuesday)

Time: 9:00am-10:00am CET

Language: German

Target Audience

  • DACH medical device manufacturers looking at how to enter the China market
  • Companies not satisfied with the existing situation or looking for localization or registration renewal in China

Agenda

  1. Melchers: China medtech market overview
  2. Cisema: China medtech regulatory framework, registration pathways for medical devices, certificate maintenance (change and renewal)
  3. Cisema: local China agent (NMPA Legal Agent) requirements and change, alternative entry pathways, localization
  4. Melchers: recommendations and insights: go-to-market, distribution and localization strategy

Speakers:

  • Levin Gehren, Managing Director, Melchers China Hong Kong Branch
  • Mike Hofmann, Managing Director, Melchers China Beijing Branch
  • Anna King, Business Development Manager, Cisema Group
  • Stefan Fischer, Managing Director, Cisema Group
  • Nick Guo, General Manager, Cisema Beijing

Registration

Click here to register for FREE.

PERSPECTIVE IN THE MIDDLE KINGDOM?! INTERVIEW WITH MELCHERS ON HEALTHCARE INDUSTRY IN CHINA

The healthcare industry in China is a continuously growing market – with great potential. Here, too, society is aging, and the interest in innovations from the pharmaceutical industry and medical technology is correspondingly pronounced. Is the Chinese market exciting for our industry?

Mike Hofmann, Managing Director at Melchers China in Beijing. Melchers China is part of the globally operating Melchers Group with a broad portfolio of services and trading activities in a wide range of business areas. The Bremen-based company has been active in China since its first Asian branch was founded in Hong Kong in 1866.

China’s innovative power in these areas is high – and so is the acceptance of local developments in the Chinese market. “Locals first” applies to many products, so market development for foreign companies is time-consuming and expensive. Nevertheless, it is worth it, as Mike Hofmann, Managing Director of Melchers China in Beijing, can tell us. The 38-year-old has lived and worked in China for over 15 years, almost five years of which were with Melchers, where he supports healthcare companies in their expansion to China.

Mr. Hofmann, why is the Chinese market so exciting for German companies in the optics/medical technology sector?

Companies considering expansion should definitely set their sights on China – and the wordplay could hardly be more appropriate in this case. Some segments are forecast to grow strongly in China over the next five years and where attractive sales markets are emerging. In the field of ophthalmic optics, the prospects are promising. By 2027, a market volume of almost 19.4 billion euros is expected to be reached, corresponding to an annual sales growth of more than seven percent. Long working hours in front of a screen and too little sunlight have led to an extreme increase in the rate of short-sightedness in recent years. Among 15-year-olds, 47 percent are already short-sighted; among students, the figure is as high as 86 percent. The Chinese Air Force has already warned that finding suitable pilots is becoming increasingly difficult, as hardly any candidates still pass the required eye test. German ophthalmic optics enjoys an excellent reputation in the Chinese market, from which companies can benefit in their market development.

That all sounds very good and almost tempting. However, the perception in this country (Germany) is partly different – at least among the public. Keywords are long lockdowns, high dependencies, and declining economic performance. How does that fit together?

Yes, the past few years were challenging in China with its strict zero-covid policy. However, China’s economic output is not declining; only growth slowed during the Corona pandemic. In addition – and all forecasts currently speak the same language here – the healthcare market in China will grow faster than the gross domestic product until 2030. In the healthcare sector, dependencies exist in procuring active pharmaceutical ingredients but not on the sales side.

For many years, China was considered an important driver of innovation. Why, then, is the demand and interest in, for example, German optical innovations so high? Is China’s innovative power not enough?

That is true – and then again, it is not. Of course, innovations are developed and promoted locally, but German manufacturers of ophthalmic products enjoy a high reputation. During the debate on lessons to be learned from the pandemic, people sometimes thought that Chinese manufacturers dominated the pharmaceutical and medical technology industry. In reality, China is dependent on imports, and Germany and the United States are the major source countries for pharmaceutical products and medical technology, respectively. However, the traditional export business to China is becoming increasingly difficult, as medical product approvals are becoming more time-consuming and China is promoting a “buy local” policy and volume-based procurement. This builds up localization pressure, which will serve to lower costs, reduce import dependency and promote local manufacturers.

So, is it easier to produce and distribute in China locally than to export to China?

From a future perspective, the answer is affirmative, provided that localization is well planned in advance, closely monitored, and the approval process successfully completed. If the latter has not occurred yet, it should be professionally managed before market entry, as it takes up a lot of time and money. However, what is in demand today may no longer be necessary three to five years after approval. Accordingly, a good market analysis, trend research, and knowledge of the Chinese market are essential. This requires much experience, insight, and also local contacts. A partnership with a local company, for example, within the framework of a joint venture, can make perfect sense and is also in line with the Chinese strategy of “locals first.”

In other words, does that mean that if you want to expand to China, you have to bring partners into the company in order to be able to operate successfully on the market? Aren’t companies making a big commitment?

It depends. Of course, not every partnership – and every partner – is suitable for every company. We all have heard stories of failed joint ventures in China. It has to be a good fit and on different levels. Trust and protection of the core technology are essential! However, we at Melchers China are seeing a kind of rebirth of the joint venture, with the trend toward so-called “three-party joint ventures.” In other words, a partnership between a manufacturer, a Chinese partner, and, for example, a market expansion partner like Melchers. Especially medium-sized companies increasingly prefer this approach, as we can stand by them as a transparent and reliable partner in the joint venture regarding management representation, compliance, and corporate governance, and can also offer services such as accounting and personnel management if required. In this way, we share the entrepreneurial risk and act as a sort of pilot in the alliance. As a traditional house with Hanseatic roots, we represent corresponding values – also entrepreneurially – but at the same time, we are deeply rooted in the Chinese market.

In retrospect, this model often had another advantage: due to travel restrictions during the Corona pandemic, for example, it was sometimes impossible to travel to China and visit partners or branches, to fulfill ownership obligations or optimize processes. Those who had a strong partner in China had a competitive advantage. In any case, a company should always keep itself informed about the dynamic developments in China and regularly review its own China strategy.

 

This interview was published in German in the German Industry Journal “Der Augenoptiker” 05/2023 edition. This is a translated reprint.

How Melchers supports you in China

With 155 years of business experience in various sectors in China, we know that every company needs its unique approach to the Chinese market. China’s business world is continually changing and varies significantly from region to region in terms of prosperity, regulation, openness to business, and other factors influencing the business environment. Due to its size and diversity, China can hardly be compared to any other country in the world. This is also true for the health care sector. Our longstanding experience and knowledge along the value chain of the Chinese healthcare industry through sales, management, and compliance activities, as well as corporate services, enables us to offer tailored and brand-oriented market approaches for all our partners. We help our selected brand partner to understand the Chinese healthcare market, quantify the scale and the competitor landscape, and identify short, mid, and long-term opportunities for market growth.

We take equity shares in our partners’ China operation with a focus on long-term partnerships, if desired.

Contact Melchers today via info@melchers.com.cn about establishing a presence or doing business in China or go to Healthcare • Melchers China (melchers-china.com) for more information.

“HEALTHCARE COMPANIES SHOULD REVISIT THEIR CHINA SETUP. ” INTERVIEW WITH MIKE HOFMANN FROM MELCHERS CHINA

Redfern Digital spoke with Mike Hofmann, the Managing Director of Melchers China in Beijing and Chairman of the Board of Directors of Koehler Pharmaceuticals Beijing Ltd., about the Chinese healthcare market and the support Melchers China provides to foreign companies in China.

 

Mr. Hofmann, Melchers is a well-established diverse company with a long history in China. What is Melchers’ experience and background in the healthcare industry in China?

For more than 155 years, Melchers has been doing business with China. We enable our brand partner to succeed in China. It is our mission to create long-term value through customer-centric and customized approaches. Driven by our entrepreneurial mindset, we have seized opportunities along different areas in the value chain of the Chinese healthcare industry. For instance, we work with partners in different sectors such as pharmaceuticals and medical devices, medical consumables, pharma packaging, and pharma machinery. We act in the capacity of sales and after-sales agency, provide corporate governance, management, and corporate services, and take equity shares in the local operation. We have identified healthcare as a strategic sector for the Group, where we will enhance our activities.

What changes has the healthcare industry in China experienced over the past decade?

The Chinese healthcare industry is a sector that is showing fast development, especially because of government reforms and several long-term trends that have emerged during the past decade. For example, we are seeing changes in lifestyle, consumption, and eating habits due to increasing prosperity, leading to an increase in lifestyle diseases such as high blood pressure, diabetes, obesity, or overweight.

Increasing life expectancy and the consequences of the one-child policy led to the rapid aging of society and the end of population growth. According to the UN, by 2035, over 409 million Chinese will be older than 60 years, corresponding to over 28 percent of the population. The family planning policy, which has now been relaxed to three children, can only delay this development somewhat.

One of the first drives of the reform policy from 10 years ago was for the healthcare sector to provide health insurance for everyone. While the insurance might not be as high as in other countries, it is still a basis for everyone to receive basic medical coverage in China. But this, of course, has driven up expenditures. According to a recent academic study, healthcare spending in the country is expected to increase to $2.5 trillion in the next decade or so. The market share of spending on healthcare as a percentage of China’s GDP will increase from where it is right now, at 6.6 percent, to over 9 percent in 2035. This means that the country’s healthcare segment grows faster than its GDP. However, since it still needs some growth before it can be compared to Europe or the US, the healthcare industry in China is still definitely at a development stage.

During the beginning of the COVID-pandemic, Melchers has further increased its healthcare industry footprint by establishing the joint venture company Koehler Pharmaceuticals (Beijing) Ltd. How did it come about? What are the aims of establishing this joint venture?

Koehler Pharmaceuticals (Beijing) Ltd. is a more-party joint venture formally established in the first half of 2020, with the main shareholder being Dr. Koehler Chemie from Germany, as the product’s manufacturer. The other shareholders are two entities of the Melchers Group and a local Chinese company. Although the product sold by the joint venture, CUSTODIOL, has been in China since 2004, it was only distributed by local distributors until we founded the company in 2020.

There were different reasons for setting up the joint venture, including increasing the local support and service level for customers and increasing the market participation and reach. The company was also set up to explore opportunities to work with Chinese medical experts in terms of research, such as conducting more research into myocardial protection and organ preservation. With China being so fast developing, its medical experts will also play more prominent roles in the medical field in Asia in the future.

In conclusion, the rationale behind the joint venture is a combination of improving distribution and setup optimization and providing an avenue for future research projects.

What expertise is Melchers able to bring to the joint venture in terms of experience within China?

The establishment and operation of the joint venture, Melchers is leveraging its experience of doing business in China and flexibility for the customization of its services to meet the needs of the company and its shareholders. Specifically, our role contained to provide support and experience in terms of a company set up, which included the establishment of corporate governance and compliance mechanisms and operating policies, taking certain management and supervisory function roles in the company, providing corporate services to the day-to-day operation, and ensure that the company runs in compliance with Chinese regulations.

Let us talk about the product for a moment. What is CUSTODIOL, and what is its use within the healthcare industry, both abroad and in China?

CUSTODIOL is a cardioplegic and organ preservation solution used during cardiac and organ transplant surgery. It is suitable for ‘in situ’ open heart surgery and  kidney perfusion for blood free tumor resection and the removal of multiple organs during organ transplantation. It is used in more than 100 countries globally by renowned surgeons. Since the product has been in the Chinese market since 2004 and globally since the early 1980s, it is a well-established and known product.

What are the benefits of establishing this particular joint venture in China? How will it help to develop a closer relationship with Chinese customers? What can other companies learn from it?

Certainly, one of the main advantages of having established the joint venture is that the product owner is on the ground and closer to the customer, which allows for a better understanding of the specific needs and demands in the Chinese market. The reaction time is also faster, and market feedback is received unfiltered instantly. You can engage in key account management and better communication and relationship building with key experts. Being a healthcare company with a local entity in China means that you also can do more research in the future, such as participating in academic studies and cooperating with these clinical experts, making future product development easier. These are all the classic benefits of setting up a company in China that still hold true today. Considering the pandemic and the ongoing travel restriction, having its own setup in China has become a competitive advantage.

You mention the COVID-19 pandemic. What impact did the pandemic have on the operation of your healthcare business?

We established the joint venture during the height of the COVID-19 pandemic in China. Our choices were to wait and reconsider or to go ahead. It was a time of uncertainty. We decided to go ahead with the investment and the commitment, knowing that our first year might be a challenge. In hindsight, I can proudly say that we did the right decision, as the business has grown enormously since the company was set up. However, the pandemic sometimes interrupted or posed challenges to the business as hospitals postponed non-life treating surgeries, local travel restrictions delayed opening of new accounts and markets, academic conferences were canceled and postponed, and interruptions in the supply chain in terms of shortage of air freights and lengthen custom clearance processes drove costs.

On the general level, the pandemic posed a challenge to our strategic business development efforts as the discussion of Melchers with potential brand partners moved online, and some partners were hesitant to commit to an investment in times of uncertainty. On the other hand, the longer the travel restrictions are in place, the more discussions with companies who lost touch with the market and are looking for a reliable partner in China than can support them. This is also one reason that confirmed our direction to further engage in the healthcare space.

Looking back: Have there been improvements in 2021 regarding the impact of COVID-19? How will this change in 2022 and going forward?

Due to the successes of China’s zero COVID-policy, 2021 had fewer mass lockdowns than 2020, so surgery numbers were significantly higher, and we saw fewer interruptions. Furthermore, academic seminars and conferences took place again, albeit at a smaller scale or digital. However, the main challenge was that supply chain costs had increased significantly, especially for cold chain logistics, which flies the products in by air. In 2022, we expect the costs to continue to increase, with other impacts depending on how the current outbreaks develop and whether more restrictions will be implemented. That being said, the earlier discussed long-term trends will continue to unfold, and I would advise any company not to wait until China fully opens up its borders again but revisit their China setup or entry plans and consider the increased market participation actions.

What have been the main takeaways for Melchers during the past two years from its activities in the healthcare industry?

For many years already, we have been working with pharma companies, helping to supply their products and packaging materials specialized for pharma products, assisting with production lines, etc. Through Koehler Pharmaceuticals, we have continued to increase our exposure to medical technology and pharma. While establishing the joint venture has its specific challenges, it has also helped us streamline and optimize our strategy, building up our expertise in the healthcare category and increasing the value we can provide to brand partners.

With over 155 years of experience in the Chinese market, we are a reliable partner that looks for the long-term. This includes taking risks in times of the pandemic and having the courage to invest in businesses. Reliability is a core value of our company and is much appreciated from all sides. From our case studies, we are receiving more requests for assistance from companies facing COVID-19 related issues when it comes to entering the Chinese market. Through these talks, we realize that the biggest takeaway is that our knowledge and approach to a partnership to build and run a business in China continues to be highly relevant and valued by brand partners, particularly in times of crises like a pandemic.

In the market, we also see growing pressure in the healthcare industry, such as seeking domestic products and changing procurement methods. The pressure on prices and local production increases, making the Chinese market more complex. Companies need to make strategic choices for China to ensure future growth and market readiness.

Thank you for your time, Mr. Hofmann.

 

Company Backgrounds

The Melchers China organization is a member of the globally operating Melchers Group. Establishing its first Asian branch in 1866 in Hong Kong, Melchers has been engaged in doing business with China ever since. The company supports foreign companies as a market expansion partner from various industries.

Koehler Pharmaceuticals Beijing Ltd. is a Joint Venture company established in 2020 by Dr. Franz Köhler Chemie GmbH with partners in China. The company distributes cardioplegic and organ preservation solutions in the field of cardiac and transplant surgery.

 

For more information about our offerings for healthcare companies, please visit our website Healthcare • Melchers China (melchers-china.com)

A SIMPLE OVERVIEW OF CHINA’S BASIC MEDICAL INSURANCE SYSTEM

Healthcare and medical insurance in China have undergone significant changes in the past decade, with the country establishing a national healthcare system that is able to cover over 95% of the entire population. This comes at a time when demands for China’s healthcare market continue to expand , especially with the country’s increasing income, aging population, and economic growth.

The National Health Commission in China is the main legislative body that drafts laws and regulations related to national health and determines plans for the future development of public health services in the country. The basic health insurance systems are overseen by the National Healthcare Security Administration (NHSA), which was established in 2018.

In China, the national medical security system has multiple tiers, with Basic Medical Insurance (BMI) providing the main source of coverage, and medical aid, commercial health insurance, donations, and mutual aid as additional services.

BMI in China can be split into two groups. The first is called the Employee Basic Medical Insurance Program (EBMI) and is for enrolled employees, mainly financed by the employee and employer payroll taxes. In urban areas, enrollment in this program is mandatory for employees. The second group is called the Residents Basic Medical Insurance (RBMI) and is for non-working residents, covering rural residents, along with urban residents such as children, students, elderly, self-employed, and others. Enrollment in RBMI is voluntary for households.

In September of 2020, enrollment in either of the BMI programs reached more than 1.35 billion, which is over 95% of the population in China. This means that China now has the largest healthcare security network in the world. The breakdown of coverage by the two BMI programs is 337 million people enrolled in EBMI, and 1.014 billion enrolled in RBMI. Despite the massive coverage provided, China’s healthcare system continues to grow, with a revenue of RMB 2.44 trillion and expenditure of RMB 2.09 trillion for the BMI fund in 2019. Permanent foreign residents living in China are entitled to the same healthcare benefits as Chinese citizens. However, visitors or undocumented immigrants are excluded.

Despite the wide reach of China’s BMI programs, the coverage provided still cannot be compared to other countries who have more developed and extensive social security systems. Coverage by the public health insurance in China is dependent on region and local governmental regulations, with BMI programs typically including partial coverage for:

  • Primary and specialist care
  • Inpatient hospital care
  • Prescription medication
  • Mental health care
  • Emergency care
  • Physical therapy
  • Traditional Chinese Medicine

On the other hand, preventative services such as immunizations and disease screening are covered under a different public healthcare program, with funding provided by both the central and local government in China. Although maternity care is currently still under a separate healthcare program as well, it is being merged into the general BMI programs.

China has taken increasing steps to ensure basic healthcare for its population by more than tripling the governmental health expenditure from RMB 482 billion in 2009 to RMB1640 billion in 2018. The percentage of out-of-pocket expenses, that account for total health expenditure, decreased from 37.46% in 2009 to 28.61% in 2018.

Moreover, the gradual establishment of a national volume-based procurement system has pushed down the costs and pricing of several drugs, creating a standardized benchmark for different types of drugs procured across regions in China.

Process for Seeking out Healthcare

Depending on the region or area, primary care will be delivered by village doctors, community health workers, general practitioners (GPs), family doctors, urban community hospitals, and medical professionals in secondary and tertiary hospitals. Due to lower cost-sharing, local governments will usually advise patients to seek healthcare in village clinics, township hospitals, or community hospitals, prior to going to secondary or tertiary hospitals. However, patents are still able to go to higher level hospitals if they want to, usually without prior registration or referrals required, even for outpatient specialists.

The pricing of primary care within public government-funded health institutions is regulated and cannot be above a certain fee schedule. However, to encourage nongovernmental investment in healthcare, since 2014, non-public health institutions are allowed to charge above the fee schedule.

When it comes to long-term care and social support, these services are not covered by the public health insurance programs. Traditionally, in China, long-term care is mostly provided by family members at home, with no government funded financial support or tax benefits awarded. For the few professional long-term care facilities and providers that exist, it is almost always paid out-of-pocket.

To summarize, healthcare in China is accessible by almost the entirety of the population. The quality and specific type of coverage however, depend on individual circumstances such as place of residence, health insurance, and access to healthcare workers. Moreover, the Chinese government is still continuing the process of reforming and optimizing the medical security system in the country, with the aim of relieving concerns for illnesses and healthcare among all residents in China.

How Melchers supports you in China

With 155 years of business experience in various sectors in China, we know that every company needs its unique approach to the Chinese market. China’s business world is continually changing and varies significantly from region to region in terms of prosperity, regulation, openness to business, and other factors influencing the business environment. Due to its size and diversity, China can hardly be compared to any other country in the world. This is also true for the health care sector. Our longstanding experience and knowledge along the value chain of the Chinese healthcare industry through sales, management, and compliance activities, as well as corporate services, enables us to offer tailored and brand-oriented market approaches for all our partners. We help our selected brand partner to understand the Chinese healthcare market, quantify the scale and the competitor landscape, and identify short, mid, and long-term opportunities for market growth.

We take equity shares in our partners’ China operation with a focus on long-term partnerships, if desired.

Contact Melchers today via info@melchers.com.cn about establishing a presence or doing business in China. For more information about our offerings for healthcare companies, please visit our website Healthcare • Melchers China (melchers-china.com)

HEALTHY CHINA 2030 – RECENT TRENDS AND DEVELOPMENTS

In the wake of the debate over lessons learned from the COVID-19 pandemic, politicians in the West have called for a reduction in dependence on China as a sourcing country for active ingredients in medicines and medical products. Sometimes, there was the impression that Chinese manufacturers fully dominate the pharmaceutical and medical technology industry.

In reality, China itself depends on imports. According to the Chinese Customs Department and GTAI, China imported $26.8 billion worth of medical technology and $42.3 billion worth of pharmaceutical products in 2019. The USA and Germany were the top two supplying countries. In addition, international companies are increasingly serving the Chinese market through local production.

At the same time, the Chinese healthcare market, driven by various long-term trends, is growing rapidly. According to Deloitte, in 2025, market volumes will be $368 billion for pharmaceutical products and $210 billion for medical technology. Instead of turning away from the market, German companies should adjust their China strategies to participate in the present opportunities. However, it is essential to keep an eye on challenges and risks. Complexity and competition will continue to increase.

Market Trends: Ageing and Increase of Civilization Diseases

Several long-term trends and government reform and development programs currently impact the Chinese healthcare market. Increasing life expectancy and the consequences of the one-child policy led to the rapid aging of society and the end of population growth. According to the UN, by 2035, over 409 million Chinese will be older than 60 years, corresponding to over 28 percent of the population. The family planning policy, which has now been relaxed to three children, can only delay this development somewhat.

Changes in lifestyle, consumption and eating habits due to increasing prosperity lead to an increase in lifestyle diseases such as high blood pressure, diabetes, obesity, or overweight. According to a 2019 study published in the academic journal Health Affairs, this will mean that by 2035, additional treatment spending on chronic diseases will more than offset the declines in acute infectious diseases caused by improved health infrastructure. Accordingly, the demand for medicines and medical technology products will develop. Overall, healthcare spending is expected to increase to $2.53 trillion, representing a compound annual growth rate of 8.4 percent. The share of health spending in China’s GDP will increase from 6.6 percent today to 9.1 percent in 2035. According to the OECD, the figure was 11.7 percent in Germany in 2019 and 17.8 percent in the US.

Reforms: Healthy China 2030 Defines Long-term Targets

In order to dampen rising public health spending, the system of central volume-based procurement (VBP) is being rolled out more and more. For this purpose, central digital procurement systems are set up at different administrative levels and connected. In November 2020, the result of the first VBP tender at the national level was announced, resulting in an average price decrease of over 90 percent for coronary stents. Since price components determine product selection at the expense of clinical effects, foreign manufacturers will find it difficult to meet future price levels in the medium term without domestic production.

However, VBP is only one part of the current reform agenda. The Healthy China 2030 Strategic Plan, announced by the central government and the State Council in 2016, sets out the framework targets for domestic healthcare and industry companies. The overarching goal is that defined health indicators should reach the level of high-income countries. The aim is also to increase the local and global market share in medicines and medical technology products, promote localized production and create six to eight global medical technology champions. Healthy China 2030 is the guide for all reforms and programs published since then and in the future.

Opportunities and Challenges

While market cultivation is becoming more complex and local companies have become more innovative and are being supported; there are many segments in which foreign know-how and technology continue to be the first choice. There will be still numerous market opportunities for specialized medium-sized companies in the coming years; this applies, for example, to manufacturers in the following areas: niche and high-tech products of medical diagnostic and imaging equipment, In vitro diagnostics (IVD) and reagents, therapeutic products, dental medicine, orthopedics, as well as drugs for use in oncology and the treatment of chronic and rare diseases. However, the pressure of a local presence with local production increases and can become a prerequisite for market participation.

As already described, pressure on pricing, competition, and localization increases. In order to be able to participate in the Chinese market at all, product- and re-registration are essential requirements. Depending on the product class, medical studies must be carried out, and the various bureaucratic requirements must be mastered. Product classes do not always follow international classifications, and therefore approval can be much more complex and costly.

After the registration, the product must be listed in the various hospitals and on the VBP platforms; in the case of medicinal products, it is also important to achieve the listing in the reimbursement system. Depending on the sales structure (directly or via distributor), there are different sales processes and staff requirements.

Finding The Right Strategy

The Chinese healthcare market seduces through its size and growth rate, but companies often find it challenging to understand the market and correctly classify the increasingly complex developments. Local distributors often act in a non-transparent manner, on the edge of legality and in their interest. Companies should consider the following key points in their market strategy:

  • Resources: The Chinese market consumes high financial and management resources. Anyone who wants to work china on a low flame has already lost before he starts.
  • Production and Sales: It is vital to choose the appropriate structure depending on the willingness to invest and the desire for control. Local production and product adaptation are becoming increasingly important.
  • Customer Service: Technical support, specialist seminars, training, and education of hospital staff are essential success criteria on the market.
  • Market Intelligence: China’s legal and regulatory conditions change rapidly and are not always clear. The China strategy must be reviewed regularly.

It is crucial for companies to keep an eye on the increasingly complex Chinese healthcare market and identify growth opportunities. Local partners can make a decisive contribution to success due to their market knowledge and experience. Especially in times of COVID-19, you should work with trustworthy partners and review your China strategy on an ongoing basis.

About the Author

Mike Hofmann, MBA, is the Managing Director of Melchers in Beijing, a market expansion partner, and Chairman of the Board of Directors of the joint venture company Koehler Pharmaceuticals Beijing Ltd., which distributes cardioplegic and organ preservation solutions in the field of cardiac and transplant surgery.

This article was published in the German business magazine China Contact 05/2021 edition in German language. This is a translation.

For more information about our offerings for healthcare companies, please visit our website Healthcare • Melchers China (melchers-china.com)

DR. FRANZ KOEHLER CHEMIE GMBH (GERMANY) ESTABLISHES A JOINT VENTURE IN BEIJING, CHINA WITH MELCHERS GROUP AND CICEL

In order to provide better, faster and more attentive services to hospitals and clinicians, Dr. Franz Koehler Chemie GmbH Germany has set up the Joint Venture Company Koehler Pharmaceuticals (Beijing) Ltd.  in China. The new company will centrally manage and operate the business of CUSTODIOL for cardiac- and transplant surgery in the Chinese market. CUSTODIOL is worldwide used and known as the original Bretschneider® HTK-solution. Furthermore, Koehler Pharmaceuticals (Beijing) Ltd. will conduct further research on myocardial protection and organ preservation together with clinical experts in China.

Dr. Franz Koehler Chemie GmbH’s mission is the promotion of medical science and research. In addition to pharmaceuticals for cardiac surgery and multi organ transplantation Koehler Pharmaceuticals (Beijing) Ltd. will introduce further outstanding products for intensive care medicine into the Chinese market.

Shareholders in the new Joint Venture in China are the long-term distributor of CUSTODIOL for organ transplantation, Cicel (Beijing) Science & Technology Co., Ltd. and the Beijing subsidiary of German based service company Melchers Group.

Dr. Gernot Koehler and Mrs. Frauke Weiss, both co-CEO of Dr. Franz Koehler Chemie GmbH Germany, say: “We are excited about the launch of Koehler Pharmaceuticals (Beijing) Ltd. as it signifies the continued growth of Dr. Franz Koehler Chemie GmbH in the Chinese market and contributes to a closer relationship with our customers. Our premium product CUSTODIOL is the gold standard as cardioplegic- and organ protective solution in thoracic surgery and organ transplantation and used in more than 90 countries worldwide. We are looking forward to the intense collaboration with Chinese medical experts for the development of our products and to support Chinese patient’s health. “We are at your service” is our mission.”

Mrs. May Li Xiaomei, founder and Managing Director of Cicel (Beijing) adds: “We are sure that CUSTODIOL and further products have a bright future in China, as we will be able to substantially contribute to the growth of the medical sector in China. We are very much looking forward to the continuation of our fruitful cooperation with Dr. Franz Koehler Chemie GmbH through the Joint Venture in an even more successful way.”

 

About Dr. Franz Koehler Chemie GmbH, Germany

Dr. Franz Koehler Chemie GmbH is a pharmaceutical company with a long history. Founded in 1959 by Dr. Franz Josef Koehler, the company is specialized in organ preservation solutions, therapeutics for intensive care medicine, antidotes and x-ray contrast agents. On this foundation, Dr. Gernot Koehler has grown the organization into an innovative and research driven pharmaceutical company with a global presence. All products are manufactured in Germany under high ethical standards according to GCP and GMP requirements.

 

About Cicel (Beijing) Science & Technology Co., Ltd., China

Cicel (Beijing) has been developing for more than 10 years in Chinese medical field. Since its establishment, it has been committed to bringing advanced technologies into China. With “Technology advances medicine” as its mission, they aim to persistently provide more efficient, more convenient, and much safer clinical medical solutions to surgeons, to ultimately benefit patients.

 

About Melchers Group, Germany

Melchers Group is a distribution partner and service group based in Bremen, Germany with a presence in China for 155 years. Besides China, Melchers is active throughout Asia with 25 offices. Melchers (Beijing) Ltd. will take over specific roles in the Joint Venture. Melchers Raffel Ltd., Hong Kong, the advisory team of Melchers Group, is also one of the Joint Venture shareholders.

 

For any more information, please contact us via:

info@koehler-pharmaceuticals.cn(China)