Full article reprinted from PharmAsia News - September 2, 2008
Find out how increased competition and pricing pressures for medical devices led to lower profits for Shanghai Medical Technology's second quarter.
Full article reprinted from PharmAsia News - September 2, 2008
SHANGHAI - Increased competition and pricing pressures for medical devices led to lower profits for Shanghai Medical Technology's second quarter ended June 30, the company announced Aug. 21.
Net revenues for the second quarter increased 24.2 percent to $9.8 million compared to $7.9 million last year. Net income decreased by 4.7 percent to $1.6 million, compared to $1.7 million in the second quarter of 2007.
The slight decrease in gross margins was due to increasing competition, which caused pricing pressure, especially at the larger hospitals, according to the company.
"Growth was derived from an increase in sales volume throughout the Shanghai area, as the company added new customers including hospitals and clinics, and patients covered by government reimbursement plans," Ted Haberfield, a spokesman from U.S.-based HC International, which represents Shanghai Medical Technology, told PharmAsia News.
"Hemodialysis equipment and related disposables together generated a majority of net sales for the second quarter of 2008, while disposables comprised approximately 50 percent of net sales," Haberfield added.
Shanghai Medical uses more than 20 distributors to reach Eastern China and has partnered with the largest global provider of blood dialysis and diagnostic equipment, Fresenius, to ensure that it meets the growing demand for Chinese dialysis products, said Haberfield.
Currently, the company owns 20 percent of a domestic manufacturer of disposable supplies for hemodialysis, and it plans to expand its production of both equipment and supplies, according to Haberfield.
"In addition to our current channels, we intend to launch a chain of diagnostic and treatment centers in the PRC similar to those found in America and other Western nations," he said.
"We believe that this vertical integration coupled with geographic expansion against the background of the rapid expansion of China's middle class and the new national health care program can provide a solid foundation for the expansion of our business."
"In China, there are approximately 6,800 hospitals and clinics of which 2,500 have patients that receive HD treatment, or one for every 192,000 people in China," Haberfield said. "Compare this to 4,500 locations, or one for every 67,000 people in the U.S."
"The total number of patients needing treatment is expected to surpass 350,000 by 2010, which creates a total addressable product market of more than $1 billion," he added.
Currently, the average price per HD treatment is $50 per patient, with each patient averaging one treatment per week.
Roughly 50 to 60 percent of the cost comes from the product and the remainder for servicing.
"As China's economy grows, there is a strong motivation to spread the treatment centers from the heavily populated Eastern cities to a far wider area of the country to allow for treatments to be more readily available," he said. "The national government has adopted a national health insurance program similar to Medicare and Medicaid in the U.S., which is being implemented over the 2007-2010 period, and is substantially increasing the [number of] people who can afford HD treatment."
China's Ministry of Health recently announced that RMB 2.7 billion ($392.9 million) would be allocated in 2009 for purchasing medical devices to build a rural health care infrastructure (PharmAsia News, Aug. 18, 2008).
Shanghai Medical, according to Haberfield, will build a nationwide service center network for HD services, drugs and related medical devices.
"China is the third-largest medical device market in the world, after the United States and Japan," he said. "Within five to seven years, China is projected to surpass Japan and become the second-largest medical device market in the world."
"In 2007, the Chinese market for medical equipment and supplies was estimated at $3.7 billion," he added.
According to a recent report from China's Association for Medical Devices Industry, the device market is expected to increase by 15 percent each year until 2010 (PharmAsia News, May 9, 2008).
"Most of the publicly listed medical device companies in China are relatively in the low-end segment," Wang Xi, an analyst with Shanghai-based Industrial Securities, told PharmAsia News. "In China low-end equipment demand grows faster."
- Ying Huang
PharmAsia News covers drugs, biotech and devices in the Pacific Rim. PharmAsia News brings you the news and analysis you need to succeed in the competitive global marketplace. Sign up for 30-day, risk-free trial of PharmAsia News online or call 1-800-332-2181.
