Both countries are inspiring success stories and are positioning themselves to play major roles in the global IVD market in the future.
The late Angus Maddison, an economist from the University of Groningen, compiled data that suggests China and India were the biggest economies in the world for almost all of the past 2000 years. They only lost this position during the Industrial Revolution. It now appears that China will regain its place as the world’s largest economy, overtaking the United States, sometime during the next decade.1
The IVD markets of China and India, two countries that account for approximately one-third of the world’s population, have demonstrated remarkable growth during the past 15 years. The IVD markets in what is coming to be known as “Chindia” have seen steady growth rates of 10-20% per year during most of that time, although the growth in India is starting from a substantially lower point. Recently, the pace of growth for both countries has increased, with China at around 25% and India at about 18%. This article will examine the similarities and differences in these two markets, the fastest growing large IVD markets in the world.
According to official figures, China’s economy has grown at an average rate of 9.1% during the last decade, but the real growth could be even greater. The Chinese economy has also been remarkably steady, and the increasing prosperity is one of the main drivers of IVD market growth in China. The other main driver is urbanization. Factory workers and office employees are more likely to be customers for diagnostic products than farmers in the countryside.
India’s economy has grown at an average annual rate of 6.1% during the last decade. Twenty years ago, faced with a financial crisis, India went to the International Monetary Fund (IMF) for help, and as part of the assistance package, India agreed to open its economy, lower tariffs, reduce licensing requirements, and allow more foreign ownership of companies in India. The result has been a remarkable increase in labor productivity and prosperity. Even though progress in economic reform has slowed down, it does continue, and Goldman Sachs has predicted that India will be the world’s third largest economy by 2050.
During the last 15 years, India’s IVD market has, like China’s, grown continuously. While the annual growth rate was around 10% a decade ago, it has increased and is currently at approximately 18%. The same two key drivers (increasing prosperity and urbanization) that are propelling China’s market have also contributed to India’s impressive growth in IVD spending.
With 1.33 billion people, China currently has the world’s largest population. However, sometime between 2025 and 2030, China’s population will be surpassed by India’s, which currently has 1.14 billion people. This is because India’s population
|Figure 1. Revenue figures for China's IVD market, 1995-2011, in billions of U.S. dollars.|
growth rate is 1.27% while China’s, which is constrained by their single-child policy, is 0.61%. This difference in growth rates has resulted in India’s having a much younger population. Only 20% of China’s population is under 15 years old, while 31% of Indians are under that age.
It has often been said that China will be the first country to grow old before it grows rich because its working-age population (15-60 years old) will decline during the next twenty years. On the other hand, India’s younger population will result in an increase in workers throughout that period.
Both countries, albeit China to a much greater extent, will start to see increases in health problems from chronic diseases (e.g., diabetes, heart disease, and cancer), which are common in developed countries. This will be the result of an aging population, changes in lifestyle and diet, and increased economic prosperity.
The global economic crisis of 2008-2009 had much less impact on China or India than on the world’s developed economies. Both China and India saw a temporary drop in growth followed by a rapid recovery, and neither country has the continuing problems still seen in the United States and Europe. China’s current GDP growth rate is 8.2%, and India’s is 7.8%.2
Both China and India are members of the World Trade Organization (WTO). India joined in 1995; China in 2001. Therefore, both nations are parties to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. While difficulties in enforcing and protecting intellectual property (IP) rights exist in both countries, China and India are now developers of intellectual property and will increasingly view IP rights as important to their growth. Continued, gradual improvements in IP enforcement are expected to be seen.
IVD Market Size
McEvoy & Farmer’s 2011 report on China’s IVD market estimates the size of the market to be $2.1 billion with a growth rate of about 25% (see Figure 1). Other reports give higher estimates for both market size and growth rate. McEvoy & Farmer’s 2011 report on India’s IVD market estimates the market size to be $531 million and growing at approximately 18% (see
|Figure 2. Revenue figures for India's IVD market, 1996-2011, in hundreds of millions of U.S. dollars.|
Figure 2). Aside from the difference in size, several characteristics of these IVD markets vary, which are discussed in more detail below.
While both countries are buying and using large numbers of automated IVD systems, China is a better market for instrumentation, particularly automated chemistry systems. While the total IVD market in China is roughly four times as large as India’s, its total number of automated chemistry systems is more than six times as high.
There is also a difference in the semi-automated chemiluminescence immunoassay (CLIA) market. These systems are converting low- and medium-volume labs from enzyme immunoassay (EIA) testing to CLIA testing and are keeping some of the market growth from going to imported closed immunochemistry systems. China has a vibrant domestic CLIA sector, with more than 13 local manufacturers that have supplied the market with roughly 8,000 instruments and the reagents they require. Of these systems, about 98% are semi-automated, but at least three local IVD companies have developed automated CLIA systems and are selling them aggressively.
In India, the CLIA sector is smaller, with about 2,300 semi-automated instruments. A single company, Lilac Medicare, is responsible for most of this market. There may be some local assembly of these systems, but for the most part, they are imported.
China and India have substantial differences in their molecular testing markets. At $112 million, China’s molecular market is more than ten times the size of India’s. This is due to the large volume of PCR testing for infectious diseases done in China using domestically produced kits. These tests account for about three-fourths of China’s molecular market, which sell at prices that no foreign IVD company is willing to match. As a result, the multinational companies are mostly selling instruments. However, emerging disease areas such as oncology will start to give international firms a greater presence in the molecular reagent market since there is no significant local competition.
Qiagen is the one exception to the local dominance of China’s molecular market. The company is active in two very different ways. First, Qiagen’s purchase of Digene gave it almost 100% market share of the domestic HPV market, and even though that share has been slipping due to increased competition, it is still the leader in this segment. Second, Qiagen acquired local PCR manufacturer PG Biotech of Shenzhen, the number-two supplier of PCR kits in China.
A lot of research and development activity in the area of microarrays and gene chips is taking place in China, but they are not yet a significant part of the molecular market. Such activity started in October 8, 2001, when China’s English language newspaper, the People’s Daily, reported that the country’s first Gene Chip Research Center had been established in Tianjin. Five government-funded national chip centers in China are now located in Beijing, Shanghai, Tianjin, Chengdu, and Xi’an. A proliferation of about 100 private companies has also been pursuing chip-based technologies.
India’s molecular market is the opposite of China’s with foreign products accounting for approximately 80% of the market, including both instruments and reagents, and about 20% coming from domestic production and homebrews. While India’s total molecular market is one-tenth the size of China’s, the international portion is only about one-third the size.
The structure of clinical laboratories in each country is quite different. China’s healthcare system continues to demonstrate uniformity that originates from its communist past. Historically, IVD testing has been done at hospitals where the labs served both inpatients and outpatients. The laboratory was the hospital’s second most important profit center, behind drugs and ahead of medical services, so the hospitals were unwilling to send tests out. All hospitals were owned by government bodies at various levels, state-owned enterprises, or the military. Doctors were not allowed to set up private practices, but instead worked for the hospitals.
While this is still the general structure of the healthcare system and IVD testing in China, there have been some changes. Private hospitals now exist, but they are mostly small specialty centers that account for less than 5% of the total beds in the country. Private medical practices appear to be on the upswing, but they are still a very small component of China’s healthcare system.
The total number of clinical laboratories in China is estimated to be around 20,000, which corresponds to the number of hospitals in the country. Almost all of these labs have automated chemistry systems. Many other healthcare facilities in the country, including clinics in small towns and the Chinese Center for Disease Control labs, also do some IVD testing. China continues to build new hospitals, adding about 500 per year.
Private labs also now exist in China, and they are becoming more important in the market. In most countries, private lab chains have emerged when a regional leader buys many smaller labs in the area and then continues to purchase other similar labs in other parts of the country. However, since there were no small private labs in China, new private companies are setting up their own labs around the country.
Four major groups are building national laboratory chains in China. Kingmed (Guangzhou, China) is the leader with 19 labs. Adicon (Hangzhou, China) is second with 15 labs. They are followed by Da An (Guangzhou, China), the leading supplier of locally made PCR kits with five labs, and Lawke (Beijing). While private laboratories have been slow to enter the marketplace and they still do only a modest proportion of China’s IVD testing, they will grow in importance in the coming years.
India’s laboratory structure is more complex, due to the long history of diverse institutions. There are hospitals that are run by the government, charities, and non-profit organizations as well as a group of world-class private hospitals. In addition, there is a rapidly growing number of private lab chains.
India is estimated to have more than 30,000 active clinical laboratories (other sources estimate as high as 40,000). The number of laboratories continues to grow, which is true for not only automated labs but all types of labs as new laboratories of all sizes continue to open. For example, the number of automated chemistry laboratories in India has grown from approximately 700 in 2004 to about 2,700 today. At some point, the private-sector portion of the lab market is expected to change with smaller laboratories coming under pressure from the rapidly expanding national lab chains.
Super Religare Laboratories (SRL) is India’s largest chain with 57 labs. Second is Dr. Lal PathLabs with 56 laboratories. Thyrocare is following a different path for expansion by implementing the Federal Express business model. It consolidates all of its testing in Mumbai, with specimens flown in from 20,000 local collection points during the day and testing done at night. But unlike the other labs, they are not growing via acquisition. Thyrocare is the largest processor of thyroid tests in the country and has added ToRCH to its specialties. Quest Diagnostics has established a 70,000-square-foot laboratory at the edge of New Delhi, but it is not known how well it is doing in the local market.
IVD Product Registration
IVD product registration is an area in which the two countries differ greatly. Product registration is going to get more difficult in India, but it still remains relatively inexpensive and rapid. India’s government is making changes in the regulations for medical devices and IVD products. According to industry contacts and Ministry of Health officials, a notification is expected that would bring a group of medical devices and IVDs under the regulatory framework. The authority regulating medical devices and IVDs will be the Central Drug Standard Control Organization (CDSCO) in the Ministry of Health.
In China, the situation is very different. The State Food and Drug Administration (SFDA) is responsible for regulating drugs and medical devices. Both IVD instruments and reagents must be registered, and all products must be re-registered every four years.
Two different SFDA branches are involved in IVD product registration. One is responsible for drugs, and the other for medical devices. The pharmaceutical branch originally registered diagnostics, but in July 2007, it became official that IVD products, with some exceptions, would be regulated as medical devices. (Only blood screening, RIA tests, human tissue cell reagents, and bio-chips continue to be registered by SFDA’s pharmaceutical branch, which remains more expensive and time consuming.) Eventually, it is expected that SFDA’s medical device section will also take over the remaining tests.
Products made domestically in China follow a registration process that is different for imported products. As such, the registration of locally manufactured products is considerably easier and faster than foreign products.
It takes 1-2 years to register an IVD product in China (closer to two years if the product has to be registered as a drug). However, this assumes that the application is done correctly. If there is any problem with an application, SFDA will return it, and the process will take longer. This is quite common since it is safer for an SFDA official to return an application for an error than to accept the responsibility for approving it. This issue came to light with the 2007 death sentence for Cao Wen Zhuang, one of the drug approval directors. He had approved products that led to several deaths in the country.
One of the commitments China made with its accession to WTO was to make all processes like product registration transparent and only as costly as is needed to administer them. This clearly has not yet happened in the case of IVD product registration. While it is expected that at some point all IVD products being sold in China will be registered at reasonable speed and cost, it is difficult to make a prediction as to when that will happen.
Local IVD Manufacturing
Local IVD manufacturing is a second area in which the two countries are very different. While there is local manufacturing of IVD products in both countries, China is much more prolific in this area. For example, McEvoy & Farmer’s recent report on India profiled 32 local manufacturers, while a similar China study had 138 local manufacturer profiles. In total, more than 300 Chinese companies are making IVD products.
Also, Chinese IVD companies have a greater presence in other countries around the world. For example, Mindray has an office in Brazil, while Brazilian companies distribute products by Autobio, ABON, IND, URIT, Dirui, Sunostik, Cornley, Beijing Blue Cross, and Sinnowa. Meanwhile, no Indian company has an office in Brazil, and it appears that only Transasia/Erba Mannheim and Span are present in the market.
Similarly, Mindray has an office in Mexico, and while Mexican companies distribute products by InTec, Rayto, Sinnowa, Dirui, and IND. The only Indian companies in Mexico are Transasia/Erba Mannheim and PMC, a company making rapid HIV tests.
Emerging IVD Companies
While there is more IVD manufacturing in China, both countries have impressive IVD exporters. The two companies discussed below are the best examples of what the rest of the world can expect to see from these countries in the coming years.
Mindray Medical. Mindray Medical is based in Shenzhen and is located across the border from Hong Kong. The company was established in 1991 and is listed on the New York Stock Exchange. It has more than 6,000 employees and manufactures IVD, patient monitoring, radiology, and ultrasound systems.
Historically, Mindray’s strength in the IVD markets has been hematology systems, but it has also added chemistry, urinalysis, and EIA systems to its product line. The company exported its first IVD products to the United States in 2007 and now has offices in 16 countries. Its 2010 sales totaled $704 million, of which IVD products accounted for $175 million.
Transasia Bio-Medicals. Founded in 1979, Transasia Bio-Medicals of Mumbai is a privately held company that is managed by its founder. The company is a distributor as well as a manufacturer, and has a long-term relationship with Sysmex. It represents Medica, Diesse, IMMCO, Wako, and Gen-Probe, among others.
For years, Transasia has been India’s leading IVD company. Now the company is becoming an exporter of IVD products and is growing by acquisition. ERBA Diagnostics Mannheim GmbH, a subsidiary of Transasia, manufactures chemistry instruments and has recently acquired three other IVD companies. The first was Lachema Diagnostika of the Czech Republic, which has a subsidiary in Russia; the second was the U.S. company IVAX with its immunology focus; and on January 14, 2011, Transasia announced the 100% acquisition of Diasis Diagnostik Sistemler Ticaret Ve Sanayi AS of Turkey. Diasis focuses on chemistry, hematology, and urinalysis.
Both China and India are inspiring success stories, lifting millions of their citizens out of poverty, providing better healthcare, and positioning themselves to play major roles in the global IVD market in the future. The growth rates of the IVD markets in each country have been very impressive during the last 15 years. It is sometimes asked if this growth will slow down in the future. As long as the two main market drivers—increasing prosperity and urbanization—continue, strong growth in the Chinese and Indian IVD markets is expected for many years. Even after 15 years of growth, the two countries combined are spending only about one dollar per person per year on diagnostics. Compared to the $25-30 per person per year spent on diagnostics in developed countries, it is clear that the IVD markets in Chindia are nowhere near market saturation.
1. “Becoming Number One: China’s Economy Could Overtake America’s Within a Decade,” The Economist, September 24, 2011.
2. “The World in 2012,” The Economist. Available online at http://www.economist.com/theworldin/2012.
Carl McEvoy is a partner at McEvoy & Farmer (Seattle). He can be reached at email@example.com.