Home-grown CT fuels boom in China

August 11, 1993

In the international market for medical imaging equipment, Chinais a sleeping giant. The country possesses an enormous populationand a pronounced need for sophisticated medical devices, but importrestrictions and a shortage of hard currency have

In the international market for medical imaging equipment, Chinais a sleeping giant. The country possesses an enormous populationand a pronounced need for sophisticated medical devices, but importrestrictions and a shortage of hard currency have restrained itsappetite for foreign-made products.

There are signs that the giant is awakening, however. Medicalimaging companies are positioning themselves to take advantageof China's potential for growth.

One of those companies is Picker International. The Cleveland,OH-based vendor announced last month that it has finalized anagreement with the government of China to distribute and manufactureCT scanners in the country.

The Picker agreement calls for the export of 30 IQ T/C CT scannersto China this year. Under the terms of the deal, Picker will opena factory to manufacture scanner patient couches in the city ofHuizhou in Guangdong province. The Chinese-manufactured coucheswill be paired with gantries and computer consoles made in theU.S., with the scanner assembled in China. The Chinese factorywill begin manufacturing couches in October.

The agreement allows Picker to circumvent China's import quotaon CT scanners, which permits only 40 foreign-made CT units intothe country each year. The Chinese government gives Western companiesa way around the ban in order to acquire high technology and toavoid spending valuable hard currency on imported goods, accordingto Donald Hwong, president of Western Medical Equipment. The firmis an Irvine, CA-based import/export company that is 50% ownedby the Chinese government.

"Because the government doesn't want to spend foreigncurrency, it encourages companies to set up joint ventures inChina as long as a certain percentage of the parts are manufacturedin China," Hwong said. "Picker will be able to enterthe Chinese market with more volume and will be able to buy cheaperparts by manufacturing them in China. It's a win-win situation."

Western Medical Equipment acted as a matchmaker in the deal,pairing Picker with a Chinese government agency, the Chinese Academyof Sciences.

The deal is typical of those being struck in China: Foreignmedical companies must either go through official channels orhave their products marketed by brokers familiar with the Byzantineworkings of the private hospital equipment purchasing system.

"You don't really sell by features or benefits of products,because the hospitals know so little," Hwong said. "They'vebeen blocked off from the Western world for the last 40 years,so they have no idea how big GE or Siemens or Picker is. Salesin China are dependent on whom you know and how accurate yourinformation is, not on product features and benefits."

Picker estimates that the deal will be worth $10 to $15 millionover the next two years. But the real payoff will come down theroad, as China begins gearing up its medical equipment purchasing.

China's population stands at over one billion; the countryhas 9000 major regional hospitals and some 50,000 smaller ones.There are, however, only about 500 CT scanners and a handful ofMRI units in the country, according to Hwong. Companies like Pickerthat have experience in China will reap the rewards of their earlyentry into the market as hospitals begin filling out their radiologydepartments, according to Chris Peabody, vice president of internationaloperations for Picker.

"It is an enormous population, and there are enormousneeds," Peabody said. "Provided their politicians permit,I think the market will continue to grow and will be very importantfor the entire (medical imaging) industry."

THE PICKER AGREEMENT IS ONLY THE LATEST between the Chinese governmentand foreign medical imaging vendors. GE has had a CT manufacturingagreement with the Chinese government since 1991 (SCAN 5/22/91),and Shimadzu and Siemens market CT scanners in the country aswell.

China also has an embryonic MRI industry. Analogics of theU.S. has been producing 0.15-tesla MRI units through a joint venturewith the Chinese government since 1988 (SCAN 12/14/88). Shimadzualso plans to begin assembling and selling MRI scanners in China.

In addition, Bennett X-ray has been selling x-ray and mammographyequipment in the country, according to Scott Matovich, directorof international sales and marketing. Bennett does not manufacturein China, but the company is exploring that option.

In part, the boom in demand for medical imaging equipment isbeing fueled by free market reforms that have created a moneyedclass with the ability to pay for better quality health care.

"In the last two years hospitals have wanted to get CTscanners because they can profit from them," Hwong said."But the problem for hospitals is how to get them in, sincethe trading department only allocates 40 scanners every year.Therefore, GE, Siemens and Picker locally manufacture scannersbecause there is no quota on this stuff."

Even the official quotas are being loosened up, however. Insome cases the Chinese government has waived the quota for privatehospitals, allowing them to purchase scanners with no local parts,according to Tim Rocco, director of the Asia and Pacific regionfor Picker. In addition, last month the government for the firsttime set an official exchange rate between foreign and Chinesecurrency.

"China is a real-time situation, in that it's openingup almost month by month. The quotas and the amount of governmentcontrol over imports is lessening," Rocco said. "It'ssafe to say that they've liberalized their import policies significantlyin the last 12 months, and they continue to be liberalized."

Companies interested in entering the Chinese market shouldmove cautiously, however. Good market research is key, but personalcontacts are just as important, according to Bennett's Matovich.

"(The market) takes a lot of time to develop," Matovichsaid. "Unless you're ready to pay the initial price up frontand do your homework and investment, you're not going to reapany of the rewards. It's not a quick market. The people in Chinaare very careful about whom they work with and the products theywant to work with, and you have to develop a good rapport."

BRIEFLY NOTED

  • Sonus Pharmaceuticals last month signed a manufacturingand distribution agreement with Abbott Laboratories for its EchoGenline of ultrasound contrast agents. Costa Mesa, CA-based Sonus,founded by Omniscan inventor Dr. Stephen C. Quay, is developingintravascular ultrasound contrast agents using proprietary phase-shiftcolloid compounds (SCAN 5/5/93). The products are in preclinicaltesting.

The agreement with Abbott calls for a cooperative pharmaceuticaldevelopment process during clinical trials and a manufacturingand supply arrangement following Food and Drug Administrationapproval of Sonus products.

  • Neoprobe of Columbus, OH has signed a series of licensingagreements to acquire rights to radiolabeled monoclonal antibodiesand peptides to be used in the company's gamma-ray-detecting probetechnology. Neoprobe's radioimmunoguided surgery (RIGS) tumordetection system is designed to give oncological surgeons informationabout the extent and location of malignant tissue (SCAN 2/24/93).

Dow Chemical has given Neoprobe exclusive global rights tothe monoclonal antibody CC49, which is labeled with iodine-125and is used in Neoprobe's RIGScan CR49 product. RIGScan CR49 isin phase three clinical trials.

In addition, NeoRx licensed its monoclonal antibody NR-LU-10for use in a RIGS surgical application to target prostate andother solid-tumor cancers, including lung cancer.

Neoprobe also inked a deal with Biomeasure for exclusive worldrights to the firm's radiolabeled somatostatin octapeptide. Neoprobehas begun clinical evaluation of the peptide for use in patientswith neuroendocrine and endocrine tumors. Patients undergo surgerywithin 90 minutes of injection with the peptide. Other targetingagents can take days to accumulate at the cancer site, the companysaid. Neoprobe intends to file an investigational new drug (IND)application with the FDA to begin clinical evaluation of the peptide.

  • Squibb Diagnostics and Medical Imaging Centers of America(MICA) will cooperate in a joint clinical evaluation program ofcontrast-enhanced MRI. MICA scanners will evaluate the increaseddiagnostic information that can be obtained with Squibb's ProHancenonionic contrast agent, according to the companies. ProHancewas approved by the FDA in November and is the only MRI contrastagent to have FDA approval for doses higher than the standard0.1 mmol/kg.