Catch a plane tomorrow if you're looking for opportunity in the Year of the MonkeyChina's developing healthcare system is the final frontier of privatization, and SARS has jumpstarted the movement.
Panelists at the February 14 Asia Business Conference at Harvard Business School agreed that last spring's epidemic was a wake-up call for the Chinese government and has resulted in significant investment in healthcare providers and pharmaceutical companies.
Larger demographic trends are also driving demand for quality healthcare. Dan Zhang, head of clinical development at Sigma Tau Research, offered a snapshot of market realities. Per capita spending on healthcare is low due to China's large population, with wealth unevenly distributed between urban and rural populations. Major pharmas have entered China but there are no hospital chains yet, the delivery system for care is fragmented, and the private insurance market is just beginning to open up.
On the consumer side, twenty years of economic growth has created a wealth effect in China that puts high quality healthcare within reach of more and more people. Due to the one-child policy, the number of elderly Chinese has accelerated relative to the rest of the population, and lifestyle changesmore cars, more Big Macshave caused a jump in the rates of cardiovascular disease and diabetes.
SARS has given Chinese healthcare a push towards modernization and consolidation. |
James Li, Merck |
There are still undervalued assets in the Chinese healthcare market, Zhang continued. The concept of "managed care" is a growing trend, and expertise is needed in management and in creating IT applications. Value can also be realized by achieving economies of scale. The challenges for providers lie in navigating through vague government policies regulating for-profit organizations, and in an immature commercial health insurance market.
"SARS is a political disease," said Zhang. "It demonstrated that China could handle the epidemic in a satisfactory manner, but it also showed that the quality of its healthcare is not on par with social demand."
Pharmas, biotech, and lessons from SARS
China is currently the seventh largest pharmaceutical market in the world, said Merck's James Li; about 25 percent of pharmas in China are MNCs. By 2005 the pharma market is projected to be worth $14 billion; by 2010 it will jump to the fifth spot at $24 billion.
Right now the top ten companies hold less than 10 percent of market share; there are a dizzying 6,000 pharmas in China, if one includes companies that deal in traditional medicine and small, countryside providers. But Li predicted that approximately 3,600 companies would be closed, merged, or bought out by the end of the year.
At this stage there's very little product innovation in the pharma industry, Li continuedmost companies deal in generic or copy drugs. Biotech is in its infancy, with about 300 R&D centers located primarily in universities, but the industry is primed to grow quickly with significant investment in the wake of SARS. Other factors driving growth include industry consolidation, with state-backed M&As being used to build flagship pharmas.
"It's a tremendous opportunity," Li said. "SARS has given Chinese healthcare a push towards modernization and consolidation." Joan Kaufman, professor at Harvard's John F. Kennedy School of Government and lecturer in social medicine at Harvard Medical School, found worldwide lessons to take away from the SARS epidemic.
"Infectious diseases do not respect national boundaries," she said. "Global economic integration requires global health surveillance."
SARS has elevated the importance of the China Centers for Disease Control and Prevention, she said, and the country has demonstrated growing willingness to become more of a global citizen by working more closely with the World Health Organization. Kaufman said she hopes that much of what was learned during the SARS epidemic will be applied to AIDS, a growing problem in China.
Looking beyond SARS
"Is there a SARS bubble?" asked Yuanli Liu, an assistant professor of international health at Harvard's School of Public Health. He told the story of a friend working in the Chinese government who called one day asking for his help: Premier Wen Jiabao had requested a $2 billion business plan in two weeks, primarily for hospitals devoted to infectious diseases. Could he help?
"Unbelievable, right?" Liu said. "During times of crisis, people have to do extraordinary things."
While there was an undeniable burst of interest and investment in healthcare around the SARS crisis, China's major health issues, including cancer and cardiovascular disease, will require a more long-term commitment. In 2002, the mortality rate for cancer in rural China was 84 per 100,000; for cardiovascular disease, it was 70 per 100,000. Yet all infectious diseases combined resulted in only 0.35 deaths per 100,000.
China's aging population points to opportunities in long-term care and nursing homes, Liu said, and facilities that combine high-tech quality with interpersonal care and amenities will also do well.
Where are the big bucks to be made? Liu answered his own question: "It's the hospitals, stupid."