J&J Boosts Medical-Device Business in China as Sales Increase

May 22, 2014 3:03 pm ET

May 22 (Bloomberg) -- Johnson & Johnson, the world’s biggest health-care products company, is bolstering its medical device presence in China as some companies struggle with government rules in one of the world’s fastest growing markets.

J&J built a manufacturing plant in Suzhou and conducted clinical trials with the plates and screws for broken bones that it produced, said Michel Orsinger, worldwide chairman of J&J’s global orthopedics group. The devices will be introduced this year as local products, generating higher reimbursement from the government, he said.

J&J, already the largest health-care company in China, is building on a 28-year history in the country. Device sales grew 18 percent in China to $1.4 billion in 2013, said Chief Financial Officer Dominic Caruso. J&J hasn’t experienced issues such as the indictment of a GlaxoSmithKline Plc executive in a bribery probe and the fines leveled against infant formula companies for price fixing.

“More and more we realize the importance of becoming a local player,” Orsinger said in an interview. “The Chinese market is about one-third composed of imported products and two- thirds driven by local products. Both markets are growing fast, but the local market is growing faster.”

The company also streamlined local efforts with Jesse Wu, the chairman of J&J’s China operations, as the main point of contact for government activities, recruiting and relationships with partners.

Early Investors

“China is important to every medical-device company given the number of people and the size of the market opportunity,” Glenn Novarro, an analyst with RBC Capital Markets in New York, said in an interview. “J&J is one of the early investors in China and its paying off. They are ahead of the curve.”

The growing middle class and government investment is creating opportunities for the New Brunswick, New Jersey-based company’s diabetes and vision businesses, said Ashley McEvoy, J&J’s group chairman for those areas. One-quarter of world’s diabetics live in China, and rising incomes are allowing them greater access to medical care to treat the disease, she said.

The company announced today an exclusive agreement with Nova Biomedical Corp. to sell J&J’s StatStrip, a blood glucose testing system, to hospitals in China.

“It’s unfortunate that a lot of Western habits are being taken up in China, and incidence of diabetes is going up,” McEvoy said. About 60 percent of care occurs in the hospital and many companies want to partner with J&J, she said.

The Chinese government agreed this year to cover vision care and correction including contact lenses for those younger than 18, McEvoy said in an interview. Ninety percent of people in China are myopic, a problem that worsens with age, she said. The $250 million market is growing 15 percent to 18 percent a year, she said.

“My personal vision is to innovate more out of China, taking advantage of new thinking within R&D to develop simpler, easier to use and more affordable products,” Orsinger said. “And we want to launch them not only in China but to bring them into western countries, a reverse innovation.”