In this presentation to some of the United States largest medical device manufacturers; many whom were eager to enter this seemingly insatiable market, we demonstrated some of the key risks and corresponding potential rewards of this awakening giant. Specifically we highlighted; * The size and structure of the market * Key growth drivers, including government-directed initiatives from the healthcare reform and the 12th Five Year Plan * Companies in the market – international and domestic and the lessons learned from their efforts to expand geographically beyond the Tier 1-2 coastal hubs * The immense economic and healthcare infrastructure differences across China, and how that impacts the companies’ go-to-market decisions and the surgeon and patient product preferences * Some key operational and regulatory constraints and considerations in what is often an opaque operating environment * Some of the strategies embedded firms are utilising as they move "Westward"

1. Copyright © 2009 by Monitor Company Group, L.P.
No part of this publication may be reproduced— without the permission of Monitor Company Group, L.P.
This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.
COMPANY CONFIDENTIAL
SAN FRANCISCO SÃO PAULO SEOUL SINGAPORE TOKYO TORONTO ZURICHSHANGHAI
BEIJING CHICAGO HONG KONGCAMBRIDGE DELHI DUBAI JOHANNESBURG
PARISLOS ANGELES MADRID MUMBAI MUNICH NEW YORKMOSCOWLONDON
The China Medical Device Market:
Risks & Rewards
November 4th, 2009,
Boston, Massachusetts
John Gregg,
Associate Principal Greater Chna & Head Monitor Emerging Markets Group
Monitor Company Group

2. 2
CAGR%
(2002-09)
26.5
Note: * At price to dealers, including both equipment and consumables
Source: Goldman Sachs, UBS, Monitor analysis
8.8
7.1
5.4
4.1
2.9
2.4
1.7 2.0
6
4
2
0
8
042002 03 0907 080605
China medical device market
Historical market value*
(2002-09)
Billions of US dollars
10
China medical device market overview
200
150
100
China medical device market
Projected market value*
(2006-11F)
Index to 100 = $8.8B (2006)
250
11F10F09F082007
Case #3 20%
Case #1 25%
Case #2 24%
CAGR%
(2006-11F)
Analyst reports
Like nearly all markets in China, medical devices have seen
explosive growth over the past decade; this trajectory is
expected to continue

3. 3
Source: Espicom Business Intelligence, DeviceLink.com
Other
2%
13%
20%
39%
27%
China medical device market overview
90
80
China’s medical device market,
by product segmentation
(2008)
Percent
100
70
60
50
40
30
20
10
0
Dental products
Orthopedic and
implantable products
Consumables
Diagnostic imaging
• Cardiovascular
-
-
ECG
Heart lung machines
• Pulmonary
-
-
Incubators
Ventilators
• Dental implants
• Pacemakers
• Stents
• Catheters
• Syringes
• X-ray machines
• MRI
The diagnostic imaging segment remains the largest, with
strong growth coming from implantable devices

4. 4
Impact on
growthDriver
Changing
patient population
Access
to care
Economic growth
Commentary
• The patient base is expanding due to:
- an aging population, as the population aged 50+ is expected to
increase from 21% in 2005 to 32% in 2020
- increasing incidence / prevalence rates brought by changing
lifestyles, e.g., prevalence rate of cancer in urban China increased
from 25% to 33% since 2003
• Access to care in China is fueled by:
- expanded insurance coverage
- public & private healthcare investment
- urban population growth
• China is one of the world’s fastest growing major economies
- China has achieved GDP growth of ~9% p.a. for the past 20+ years
Source: Monitor Analysis
China medical device market overview
Underlying market growth is attributable to an aging population, increasing
rates of disease incidence and prevalence, and rapid increases in wealth

5. 5
Rank Company
2009 revenue
(Worldwide)
2009 revenue
(China)
Year of China
entry
1 J&JMedical $23.1B $500M 1994
2 GEHealthcare $17.4B $700M 1991
5 Medtronic $13.5B $300M 1989
6 BaxterInternational $12.3B $200M 1988
7 PhilipsHealthcare $10.7B $1.1B** Unclear^
8 Covidien $8.9B $65M* Unclear^
10 AbbottLaboratories $7.2B Unclear^ 1995
Rank Company
2008 revenue
(US$M)
Employees LaunchYear
1 MindrayMedical 547 5,500 1991
2 ShandongWeigao 200 9,800 1988
3 Microport 61* 650 1998
4 YueyueMedical 59 1200 1999
5 LepuMedical 58 500 1999
Note: *2008/09 revenue; **Includes other key emerging markets; ^Unreported entrance date / revenue from
China Source: Medical Product Outsourcing, Monitor interviews and analysis
China medical device market overview
Many of the world’s largest companies are building a substantial
presence; there are also some up and coming Chinese players

6. 6
High-end equipment is mostly imported to
China, while domestic manufacturers
produce most mass-market equipment
Imports are growing slower than the overall
market as foreign suppliers are increasingly
establishing a local Chinese presence
Going forward, these foreign suppliers are
expected to meet unique challenges:
-
-
-
Price caps on imported products
Process and technology regulations on
sales of high-end medical devices
Healthcare reforms limiting expenditure
on foreign-produced devices
However, the market is expected to see
growing demands for high-end technology
- Top quality technologies to deal with
“developed nation diseases” like
diabetes and heart disease
Source: General Administration of Customs, China Now: Medical Products, Monitor analysis
3.8
2.5
1
6
5
4
3
2
China medical device market overview
China medical devices trade (2001-2008)
Billions of US dollars
5.3
0.6
4.3 0.2
4.3
Consumables
Medical dressing
Exports
8.4
6.9
5.3
4.1
3.2
0
6
4
2
0
12
10
8
05 06
2.3
0.2
3.6
08
11.1
1.9
3.1
072003 04
Imports
3.7
3.1
Chinese medical
device imports are
mostly high-value
medical technology
Healthcare products
Dental supplies
Medical technology
Chinese medical
device exports are
mostly low-value
disposable products
Higher value devices have historically been dominated by foreign imports
although now that is changing due to both market and non-market forces

7. 7
Source: Espicom, Global Data, DeviceLink, Monitor analysis
10
2
3
456
7
889
18
20
China medical device market overview
Medical device markets*, by
country (2008)
Billions of US dollars
15
100
20
10
5
0
Mexico ChinaIndiaSwitz-
erland
Brazil Canada SpainItalyUKJapan GermanyFranceU.S.
100
Population 304M 127M 82M 62M 61M 60M 192M 33M 46M 8M 1.1B 106M 1.3B
Per capita,
Market size
$329 $157 $223 $139 $138 $138 $34 $173 $107 $513 $3 $18 $6
However, against countries with mature markets, China’s
medical device market is still undeveloped considering its
population

8. 8
Source: State Council, The Economic Observer Online, Monitor. analysis
By 2013, China is expected to cover 90% of the rural and urban
population with basic insurance coverage through increased subsidies,
driving demand for lower-end medical services
China plans to create a system to drive demand for medicines included in
the Essential Drug List, to be purchased through open tender and unified
distribution channels
China aims to increase investment in lower level medical infrastructure to
upgrade ~13K medical institutions by 2011, expanding basic care for the
wider population
Efforts are expected to increase rural area public health services to equal
existing level of service in urban areas; expansion of basic programs and
major projects will be driven by change in grassroots medical institutions
Reforms to the administration, operation and supervision of public
hospitals are expected, which will including transforming some public
hospitals into privately-owned institutions
Increase medical
insurance coverage
Build a basic
medicine system
Upgrade grassroots
medical institutions
Equalize services in
rural & urban areas
Public hospital
reform programs
China medical device market overview
China has just announced major new reforms designed to
dramatically expand healthcare access

9. 9
Key Implications
Top hospitals will continue to handle
advanced procedures; remain a main
customer of advanced devices
Initial demand for basic medical
devices from development of a larger
base of lower tier hospitals
Ongoing demand for consumable
devices at country level institutions
due to increasing patient base
However, future regulations and
government funding support may have
adverse impact on foreign suppliers
Source: State Council, UBS, Monitor. analysis
Repositioning of medical institutions
This major infrastructure expansion will drive signify
cant growth in the medical device market
Companies focus efforts
selling to top hospitals
Utilization of different
levels of medical services
2020
Top
hospitals
Mid-scale
hospitals
Community
health centers
Rural healthcare system
Future system:
Initial treatment in
rural or community level
2008
Top
hospitals
Lower level
hospitals
Grassroots
medical
institutions
Current system:
Patients treated in
crowded top hospitals

10. 10
China medical device market overview
Complexity of market
Huge socioeconomic diversity of China’s population & healthcare infrastructure
Wide variations in awareness and adoption rates
Wide variations in insurance coverage and ability to pay
Operational challenges
Intellectual property protection: active management is required
Changing procurement, pricing, and regulatory policies
1
2
3
4
5
To be successful in the Chinese medical device market, companies
need to be mindful of the following points

11. 11
Tier 1 cities
Tier 2 cities
Tier 3 cities
0
10
20
50
40
30
1000 2,000 2,500 3,000 3,500 4,000 5,500 7,000
Overall, existing resources are highly concentrated in the more developed cities,
which has implications for suppliers’ sales and marketing efforts
Number of 3A hospitals vs. Urban resident disposable Income, by City
(2008)
Lanzhou
Chongqing
Chengdu
Guangzhou
Jinan
Shenzhen
DongguanWenzhou
Hangzhou
Nanjing
Harbin
Xi’an
Shenyang
Tianjin
Wuhan
Beijing
Shanghai
Annual urban resident per capita disposable income
(2008, US$)
Source: China Healthcare Yearbook 2009, China Statistics Yearbook, Monitor analysis
1 China medical device market overviewSocioeconomic diversity
Tier 1
Tier 2
Tier 3

12. 12
Future growth will also be highly impacted by a variance in socioeconomic
development, which creates significant discrepancies in disease awareness
Source: China Healthcare Yearbook 2009, China Statistics Yearbook, Monitor analysis
Suppliers’ educational efforts, especially for physicians, has been and continues to be vital in
expanding disease awareness and thus the addressable markets
Average of
Tier 3 cities
Average of
Tier 2 cities
Average of
Tier 1 cities
YYY diagnosis rates,
by city tier
(2009E)
Percent
100
80
60
40
20
0
Average of
Tier 3 cities
Average of
Tier 2 cities
Average of
Tier 1 cities
XXX diagnosis rates,
by city tier
(2009E)
Percent
10
8
6
4
2
0
2 China medical device market overviewAwareness & adoption rates

13. 13
Differences in physician and patient education drives varying adoption rates
of medical devices across product categories and city tiers
Development stages,
select medical devices
Source: Monitor Interviews and analysis
Introduction
stage
Expansion
stage
Mature
stage
Device
adoption
in China
0
10
20
30
Tier 3
City
Tier 2
City
Tier 1
City
Device penetration rates,
by city tier
Percent
40
Introduction-Expansion
stage products
Mature stage products
Device development stage
Professional medical education by suppliers could accelerate adoption curves for newer products
2 China medical device market overviewAwareness & adoption rates
Mature products
include various
catheters,
needles, etc.
Newer products
include various
stents, ports, etc.

14. 14
Imbalanced income levels and a complex medical insurance system have
also created varying degrees of affordability, constraining market
development of some high value medical devices
Drug reimbursement rate of Basic Medical
Insurance* for outpatients
(2008)
Percent
80604020 1000
Jinhua
Nantong
Jinan
Shanghai
Beijing
Hangzhou
Suzhou
Tier 1
cities
Tier 2
cities
Tier 3
cities
Not reimbursed
Not reimbursed
Not reimbursed
Annual per capita medical spending,
urban residents by province
(2008)
Per capita annual
medical spending
>US$550
US$300-450
US$200-300
<US$150
City-specific insurance programs differ widely in device coverage and reimbursement rates, as
well as annual reimbursement caps
Note: * The main insurance program in China covering urban employees
3 Insurance coverage & ability to pay3 China medical device market overview

15. 15
IP protection in China remains an issue compared to some more developed
countries, who offer IP protection comparable to the West
3.2
5.4
5.8
6.26.3
0
5
4
3
2
1
6
ChinaHong
Kong
Singapore Australia New
Zealand
Strength of IP protection, by country*
(2008-2009)
Country score
7
4
China medical device market overview
IP protection & trade secrets
Trade secrets are protected by China’s
Unfair Competition Law (1993),
prohibiting all who engage in
commercial operations from falsely
obtaining technology
Technology owners also have rights
under various IP laws and the Civil
Law, whereas technology contracts are
required to contain confidentiality
provisions
The New Employment Contract Law
(2008) also allows confidentiality
provisions for trade secrets and
intellectual property
China has made improvements, particularly in urban areas, although enforcement can still be a
concern, especially in developing countries
Note: *Scores based on responses from executive survey. Executives from 130 countries were asked to rate IP
environment in their country on a scale from 1 (weak / not enforced) to 7 (strong / enforced)

16. 16
China’s Patent Law was revised through the Third Amendment (October
2006), impacting how companies will compete for patents
Ongoing challenges
Historically, China maintained loosely monitored
patent laws, as patent infringement and
counterfeiting was a commonplace occurrence
In 2001, when China joined the World Trade
Organization, it appeared to be an initial step
towards correcting the structure supporting
intellectual property rights to spur additional
investment in high value products
However, despite best effort appearances, the
Patent Law language remains far from clear,
allowing for future potential for ambiguous rulings
Additionally, there also remains continued
potential for local protectionist biases within
regions of China, which might result in push back
against central legislative efforts
Source: China Business Review, Jones Day Commentary, Medical Device Network, Monitor analysis
China medical device market overview4 Patent Law specifics
Despite recent changes to China’s Patent Law, foreign-based suppliers should use proper
caution and diligence in developing strategies based on patent protection
Key changes in China’s Patent Law
Patent invalidation will be tougher to prove, as
the law will allow for public use evidence outside
of China to be applicable (i.e., “absolute novelty”)
Patent litigation will be tougher to enforce as
“international exhaustion” clauses will allow for
legal importation of products outside of China,
regardless of any remaining domestic patents
Going forward, the law’s language will also allow
for the government to force compulsory licenses
(e.g., during public health crises)
Finally, revised rules on the patent application*
process (i.e., order of domestic vs. foreign patent
application submissions) will force companies
with local R&D centers to ensure their strategy
does not invalidate their patent applications

17. 17
Market entry strategies must be driven by careful planning, due diligence,
and contracting, plus ongoing operational monitoring
4
China medical device market overview
IP protection & trade secrets
on key personnel, Chinese
partners, and reputation of
local area
• Evaluate the property or
assets being included as
contributions by local
Chinese partners
Planning &
due diligence
• Separate functions within
local operation so that no
single person has all the
technology
Contracting
• Specify payment or
performance terms, scope
of grant, and provisions for
audits
• Conduct background checks • Include non-compete
covenants for partner and
key personnel, complete
with specific compensation
for covenants
Ongoing
monitoring
• Ensure proper security
protocols in place for lab
work, data, and trade
secrets
• Consider installation of
firewalls, surveillance
equipment, or onsite
representatives
• Conduct training on
professional ethics,
confidentiality, and security
measures

18. 18
Finally, the industry faces additional hurdles in tendering, pricing,
technological restrictions, and other regulatory challenges
Price controls
NDRC* is reviewing regulations to further
reduce the mark-up caps on implantable
devices, forcing prices below the competitive
price rates required for foreign suppliers
This would result in suppliers of imports
having less flexibility to achieve adequate
margins to cover the cost of distribution
Regulatory challenges
NDRC is looking to expand a policy requiring
direct sales for all medical devices in China
The introduction of this policy would heighten
competitive barriers for foreign suppliers, who
would be forced to make significant
investments in domestic direct sales networks
China medical device market overview
5 Regulations & policies
high-value medical devices
This process can result in biases towards
established or favored medical devices, and
can deter physicians from proactively
educating themselves on new equipment
Central tendering
In 2006, the Ministry of Health (MOH) created
a mandate to strengthen central control of
medical device sourcing for state-owned non-
profit hospitals
MOH is planning to establish a formal
evaluation and selection system for medical
devices, by applying qualification standards
Technological restrictions
The MOH also requires approval from the
government before hospitals can purchase
Note: * NDRC: National Development and Reform Commission
Source: China Business Review, Ministry of Health, SFDA, Goldman Sachs, Monitor. interviews and analysis

19. Thank You
Questions?
John Gregg
Director & Head Monitor Emerging Markets Group
Monitor Company Group Shanghai
john.gregg@monitor.com
33