Price reform impacting medtech industry in Asia Pacific region

MedTech News: After a successful reform in driving significant price reductions through drug procurement, the Chinese government has been focussing on the next stage of the reform targeted at high-value medical devices, demonstrating the government’s ambition in having local medtech companies taking up the lion’s share of the market by 2030.

The Volume-based Procurement (VBP) policy aims to achieve a lower price through large-volume procurement.

According to KPMG, in 2021 the Chinese government set out to purchase 1.07 million coronary stents of which the amount constituted nearly 70% of the total consumed coronary stents in 2019. Ten varieties of coronary stents from eight companies won the bidding, including Boston Scientific and Medtronic and six Chinese companies. The average winning price of the respective products under this program showed more than 90% reduction compared with their previous market prices. Orthopaedic implants and ophthalmic materials had a reduction in price of about 60%.

Zimmer CEO Bryan Hanson recently commented that China is an important market for the company where its Asia-Pacific knee business is bigger than its three main competitors’ ex-U.S. units. “That gives you some sense for our market share inside of Asia-Pacific and inside of China,” Hanson told investors.

Stryker is less exposed as products accounting for less than 1% of its total revenues are impacted by the Chinese tenders, according to the company. With Preston Wells, VP of investor relations at Stryker, saying “about 80% price reduction from the end market sale is going to be taking place across the entire industry,” Stryker is monitoring the situation.

Smith & Nephew noted the impact of the VBP earlier in the year. “The inventories have been reduced…to the tune of about $20 million to $30 million for us,” Smith & Nephew CEO Roland Diggelmann said.

In a recent publication from European Centre for International Political Economy (ECIPE), the authors wrote “Europe should consider a case at the World Trade Organisation (WTO) against China’s policies which reduce European market presence for medical devices. Once agreed, a new International Procurement Initiative might be a useful instrument to wield pressure against the Chinese government to agree to free and fair competition.

“Europe can also negotiate with China – for instance in the framework of the Comprehensive Agreement on Investment (CAI) or through the new initiative on trade and health that Europe proposed to the Ottawa Group in 2020. These responses should focus both on remedying China’s current policy for growing its domestic medical technology industry by distorting its market and setting out the core policies and rules that should guide the future market for medical technologies.”