China plays pivotal role in diagnostics provider Ortho’s future, says its global chief

The company expects China sales to grow by 20pc annually against an estimated 14pc increase in the mainland’s IVD market

PUBLISHED : Monday, 07 May, 2018, 9:04am
UPDATED : Monday, 07 May, 2018, 9:03am

Global in-vitro diagnostics services and products provider Ortho Clinical Diagnostics plans to build Chinese manufacturing capacity and enter deals with local peers to maintain a 20 per cent sales growth in mainland China, according to its global chief.

The New Jersey-headquartered company was banking on the mainland, its “No. 1 growth country”, to play a pivotal role in its strategic expansion, be it involving an acquisition or a public offering, or remaining a privately-held firm, said Martin Madaus, Ortho’s chairman and chief executive in an interview this week in Shanghai.

Madaus said the company was expected to ramp up its revenue by 20 per cent annually in mainland, or five times its global average growth pace.

China’s in-vitro diagnostics (IVD) market is projected to grow at a compound rate of more than 14 per cent by 2021 according to market research firm Technavio. The growth is driven by the increased incidences of chronic and infectious diseases and growing health consciousness among a growing middle class and affluent population.

Ortho was brought by private equity firm Carlyle Group from Johnson & Johnson in 2014 for US$4 billion. Reuters reported in November that Carlyle was exploring a sale or initial public offering for Ortho that could value the firm at more than US$7 billion.

“US is our base and it has been the historical strength of Ortho Clinical Diagnostics,” Madaus said. “But we feel that China will be equal in the next five or six years, not in sales yet, but in terms of importance.”

The mainland and Hong Kong accounted for 15 per cent of the company’s US$1.8 billion in global sales last year, while the US market made up for nearly half of that total.

Ortho currently imports and sells diagnostics devices and automation solutions, as well as blood typing and testing products mainly to big hospitals and blood banks in major mainland cities through its Shanghai-based subsidiary.

But we feel that China will be equal in the next five or six years, not in sales yet, but in terms of importance
Martin Madaus

“We are very bullish on China, it’s a good climate,” he said, noting that China’s health care reform has provided impetus for smaller hospitals to shore up diagnostics demand.

To capture that demand, Ortho is considering setting up manufacturing facilities in the mainland within the next five years. It is also in talks to sign deals with two Chinese peers within this year to distribute its products to more smaller hospitals in China.

The company teamed up with Shanghai-listed Wuhan Thalys Medical Technology in April, 2017 to distribute its products and better penetrate into the local market, according to an earlier stock exchange filing by Thalys.

Winning over smaller hospitals, analysts said, remained a challenge for global diagnostics companies as these institutions are very price conscious.

Ortho is one of the world’s top 10 vitro diagnostics companies, among bigger rivals like Roche Diagnostics, Siemens, Danaher, Abbott Laboratories, and Thermo Fisher Scientific, according to data provider Statista.

In vitro diagnostics (IVD) are tests done on samples such as blood to detect diseases or other conditions and monitor a person’s overall health to help cure, treat, or prevent diseases.

The global IVD market was valued at US$64 billion in 2017 and is projected to reach US$88 billion by 2023, rising at a compound annual rate of 5.2 per cent during the period, according to market research firm Marketsandmarkets.