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  • People are living longer, the prevalence of age-related degenerative disc disease is increasing and sufferers are more and more turning to spinal implant surgery as a solution
  • As this significantly raises the burden on over-stretched healthcare systems, so is spine surgery increasingly becoming a key target for cost reduction within healthcare systems
  • This intensifies the pressure on manufacturers to innovate and make spinal implants more cost effective

Can 3D printing and the use of new alloys reduce the high costs of producing and marketing spinal implants?
 
On January 8th 2019 surgeons at Joseph Spinea specialist surgery centre based in Tampa Bay Florida, were the first in the US to implant a 3D printed interbody fusion device, which was produced  by Osseus Fusion SystemsThe company uses its proprietary 3D printing technology, also known as additive manufacturing,  to build spinal implants from titanium material that is optimized for bone fusion and biological fixation. In August 2018, a suite of Osseus’s devices received clearance from the US Food and Drug Administration (FDA) for a  range of heights and lordotic (inward spinal curvature) angles, which make them adaptable for a variety of patient anatomies. The interbody fusion devices work by being packed with biomaterials and bone grafts and inserted in between two vertebrae, where they fuse with the spine and work to prevent back pain.
 
In this Commentary
 
This Commentary explores whether 3D printing and the use of new alloys could be an appropriate strategy to help spine companies reduce  their production and sales costs and enhance their market positions. Our suggestions here complement a strategy, described in a previous Commentary, for MedTech companies to develop and implement digital strategies to enhance their go-to-market activities, strengthen the value propositions of products and services and streamline internal processes. The reasons spine companies might consider both strategies are because spinal implant markets, which are segmented  by type of surgery, product and geography, are experiencing significant competitive, regulatory, pricing and technological challenges as well as mounting consumer pressure for improved outcomes; and the business model, which served as an accelerator of their financial success over the past decade is unlikely to be effective over the next decade.
 
3D printing
3D printing is a process, which creates a three-dimensional (3D) object by building successive layers of raw material. Each new layer is attached to the previous one until the object is complete. In the healthcare industry, 3D printing is used in a wide range of applications, such as producing dental crowns and bridges; developing prototypes; and manufacturing surgical guides and hearing aid devices. Increasingly, 3D printing is being used for the production of spinal implants.

 
Spine surgery increasing significantly
 
An estimated US$90bn is spent each year in the US on the diagnosis and management of low back pain (LBP). LBP, caused by age related degenerative disc disease, is one of the most common and widespread public health challenges facing the industrialized world. It is estimated that the condition affects over 80% of the global population and inflicts a heavy and escalating burden on healthcare systems. Also, LBP affects  economies more generally in terms of lost production due to absenteeism, early retirement and the psychosocial impact caused by the withdrawal of otherwise active people from their daily activities. According to the American Association of Neurological Surgeons, more than 65m Americans suffer from LBP annually and the Chicago Institute of Neurosurgery and Neuroresearch suggests that by the age of fifty, 85% of the US population is likely to show evidence of disc degeneration. It is estimated that 10% of all cases of LBP will develop chronic back pain, which is one of the main reasons for people to seek surgical solutions and this significantly raises the burden on over-stretched healthcare systems.
 
Findings of a study published in the March 2019 edition of Spine, entitled, “Trends in Lumbar Fusion Procedure Rates and Associated Hospital Costs for Degenerative Spinal Diseases in the United States 2004 to 2015”, report that the rate of elective lumbar fusion surgeries in the US has increased substantially over the past decade. Such trends are indicative of most advanced industrial societies, which  are changing and ageing, primarily driven by improvements in life expectancy and by a decrease in fertility. This results in people living longer, reaching older ages and having fewer children later in life. Over the next decade, these market drivers are expected to make spine surgery a key target for cost reduction within healthcare systems and this, in turn, is likely to increase pressure on manufacturers of spinal implants to make spine surgery more cost effective.

 

The first surgery using a 3D printed spinal implant
 
The first surgery to implant a 3D printed interbody fusion device was carried out in China in August 2014, when surgeon Liu Zhongjun from Peking University Hospital successfully implanted an artificial 3D printed vertebra into a 12-year-old bone cancer patient to help him walk again. Liu first removed a tumour located in the second vertebra of the boy's neck before replacing it with the 3D printed implant between the first and third vertebrae to allow him to lift his head. “The customized 3D printed technology made the disc replacement stronger and more convenient than normal procedures”, said Liu.

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Age of the aged and low back pain
 
In July 2017, a team of doctors, led by Xiao Jianru, Professor of Orthopaedic Surgery at Shanghai Changzheng Hospital, China, treated a 28-year-old woman with a massive, rare neck tumour, by giving her a 3D printed spine. The patient had to have six consecutive cervical vertebrae replaced because they had been affected by the cancer, which was challenging to treat with chemotherapy. Cervical vertebrae, seven in total, which form your spine column in the neck are the most delicate bones in your body. The patient was discharged from the hospital after the operation. Reports suggest that she was able to walk, but had some difficulties turning her head.
 
First US company to receive FDA approval for 3D printed spinal implants
 
The first US  company to receive a 510(k) FDA approval for a 3D printed spinal implant was 4WEB Medical, in 2012. The company was founded in 2008 and since then has become a leader in 3D printed implant technology. Following FDA clearance, the company launched its proprietary and patented Truss Implant platform, which features a unique open architecture that allows for up to 75% of the implant to be filled with graft material and includes an anterior spine Truss System, a cervical spine Truss System, an osteotomy Truss System and a posterior spine Truss System. In April 2018,  at the annual meeting of the International Society for the Advancement of Spine Surgery (ISASS) 4Web announced that it has surpassed 30,000 implants worldwide of its proprietary Truss Implant Technology.
 
There is a plethora of established MedTech companies entering the 3D printing spinal implant market, which include Stryker, K2M, DePuy Synthes, Camber Spine, CoreLink, Medicrea, Renovis, NuVasive and Zimmer Biomet. With Stryker’s acquisition of K2M and DePuy Synthes’ acquisition of Emerging Implant Technologies GmbH (EIT), both in September 2018, the market for 3D printed spinal implants is positioned to grow rapidly over the next few years.
 
Increasing FDA approvals for 3D printed spinal implants
 
Significantly, spinal implants have become one of the most common cases of the FDA-cleared 3D printed medical devices. For instance, in 2018 Zimmer Biomet received FDA clearance for the company’s first 3D printed titanium spinal implantEIT received FDA approval in 2018 for its 3D printed multilevel cervical cage, which can treat multiple injuries in both the middle and top parts of the spine. Centinel Spine Inc, a US company based in Pennsylvania, which develops, manufactures and markets spinal devices used to treat degenerative disc disease, also received FDA clearance in 2018 for its 3D printed spinal implants called FLX devices, which are titanium fusion implants that work to stabilize vertebrae from the front of the spine in order to increase the healing process for patients.

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MedTech must digitize to remain relevant

 
3D printing medical devices market
 
The 3D printing medical devices market is projected to grow at a CAGR of 17.5% and reach US$2bn by 2022. Currently, the market is dominated by North America, followed by Europe, Asia Pacific and the rest of the world. Over the next decade, the Asia Pacific 3D printing medical devices market is expected to grow at the highest CAGR. Emerging markets are attractive for spine companies as they have large patient populations, which are growing fast, rising government healthcare expenditure, vast and rapidly increasing middle classes, rising income levels and rising obesity cases.
One example is India, with a middle class about twice the size of the US population, an economy growing at a rate of 7% year-on-year and a pro-business Prime Minister who has established himself as the country’s most formidable politician in decades and is committed to increasing healthcare spending. According to the World Bank’s March 2018 India Development Update the GDP of India had surpassed that of France and was on track to overtake the UK economy to make India the 5th largest economy in the world. Significantly, India’s GDP per capita has reached US$2,000, which is generally recognised by economists as a “tipping point”: when a country’s economic prospects improve, peoples’ confidence increases, and investment momentum remains at a desirable level for a long period. For instance, when the GDP per capita of China and South Korea reached US$2,000 their respective economies witnessed more than a decade of high growth with an average growth rate of about 10%. India appears to be on the cusp of something similar.
 
3D printing's competitive advantages
 
3D printing, although in its infancy, has the capacity to manufacture products of any complexity anywhere, at any time, which gives it a significant competitive-advantage over traditional manufacturing. Further, 3D printing is cheaper and quicker than traditional production methods because there is less machine, material, labour and inventory costs and less materials' waste. Complex designs can be created as a computer added design (CAD) model and then transformed into a reality in just a few hours. By contrast, traditional manufacturing methods can take weeks or even months to go from the design stage to a prototype and then onto the production process. Also, 3D printing is cost-effective in low production quantities and more environmentally friendly as the place of manufacture can be the same as the place of the product’s application.

The benefits of 3D printing specifically for spinal surgery include; (i) implants can be shaped to custom-fit patients, (ii) porosity and pore size can be personalized to a specific patient’s bone quality, which may improve integration. But perhaps the most significant potential advantage is bioprinting, where cells, growth factors and biomaterials are used to create living tissue.

 
Thinking beyond traditional metals used for spinal implants
 
Some spine companies are complementing their 3D printing endeavours by experimenting with new and stronger alloys. For the past two decades metals used for spinal implants have been mostly composed of cobalt chrome, titanium and stainless steel. The physical properties of these have prevented producers to reduce the size of spinal implants. But this is changing with the introduction of new alloys such as molybdenum-rhenium (MoRe), which is stronger than the traditional metals used for spine implants and has the potential to use less metal to achieve stronger, more durable constructs, while allowing for smaller sized products.

Already, MoRe is used for stents in cardiology and findings of a small animal study presented at the 2018 North American Spine Society meeting in Los Angeles suggested that MoRe is significantly more hydrophilic (having strong affinity to water) and therefore friendlier to bone when compared with cobalt chrome, titanium and stainless steel. This suggests MoRe might provide smaller rods with smaller pedicle screw heads, which decrease the prevalence of protruding, painful hardware in patients with wasting of the body due to severe chronic illness. Further, smaller spinal implants would be beneficial in minimally invasive spine surgery.

Another added benefit of MoRe is that it potentially decreases biofilm formations, which are typically caused by chronic medical device-related infections and allergenicity when compared to the traditional metals used in spine surgery. Bacteria are tougher to kill when they attach to the surface of a spinal implant, even before they form a biofilm. Research findings published in the December 2018 edition of Heliyon draws attention to the prevalence of the  antibiotic-resistant nature of bacterial biofilm infections on implantable medical devices and describes current state-of-the-art therapeutic approaches for preventing and treating biofilms. As the range of materials for spinal implants with improved biocompatibility, biodegradability and load bearing properties increase, so are biofilm infections expected to decrease.

 
Takeaways
 
Spine surgery is positioned to become a key target for cost reduction within healthcare systems over the next decade. This is because low back pain, caused by age related degenerative disc disease, is a common condition affecting most individuals at some point in their lives and increasingly people are turning to surgical solutions. As a consequence, we can expect increased pressure on stakeholders, including spinal implant manufacturers, to innovate to make spine surgery more cost effective. 3D printing and the use of new alloys, while in their infancy, are possible strategies to reduce the costs of producing spinal implants while improving patient outcomes.
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  • Two Boston Consulting Group studies say MedTech innovation productivity is in decline
  • A history of strong growth and healthy margins render MedTechs slow to change their outdated business model
  • The MedTech sector is rapidly shifting from production to solutions
  • The dynamics of MedTechs' customer supply chain is changing significantly and MedTech manufacturers are no longer in control
  • Consolidation among buyers - hospitals and group purchasing organisations (GPO) - adds downward pressure on prices
  • Independent distributors have assumed marketing, customer support and education roles
  • GPOs have raised their fees and are struggling to change their model based on aggregate volume
  • Digitally savvy new entrants are reinventing how healthcare providers and suppliers work together
  • Amazon’s B2B Health Services is positioned to disrupt MedTechs, GPOs and distributors 
  • MedTech manufacturers need to enhance their digitization strategies to remain relevant
 
MedTech must digitize to remain relevant
 
MedTech companies need to accelerate their digital strategies and integrate digital solutions into their principal business plans if they are to maintain and enhance their position in an increasingly solution orientated healthcare ecosystem. With growing focus on healthcare value and outcomes and continued cost pressures, MedTechs need to get the most from their current portfolios to drive profitability. An area where significant improvements might be made in the short term is in MedTechs' customer facing supply chains. To achieve this, manufacturing companies need to make digitization and advanced analytics a central plank of their strategies.
 
In this Commentary
 
This Commentary describes the necessity for MedTechs to enhance their digitization strategies, which are increasingly relevant, as MedTech companies shift from production to solution orientated entities. In a previous Commentary we argued that MedTechs history of strong growth and healthy margins make them slow to change and implement digital strategies. Here we suggest that the business model, which served to accelerate MedTechs' financial success over the past decade is becoming less effective and device manufacturers need not only to generate value from the sale of their product offerings, but also from data their devices produce so they can create high quality affordable healthcare solutions. This we argue will require MedTechs developing  innovative strategies associated with significantly increasing their use of digital technology to enhance go-to-market activities, strengthen value propositions of products and services and streamline internal processes.
 
MedTechs operate with an outdated commercial model
 
Our discussion of digitization draws on two international benchmarking studies undertaken by the Boston Consulting Group (BCG). The first,  published in July 2013 and entitled, “Fixing the MedTech Commercial  Model: Still Deploying ‘Milkmen’ in a Megastore World” suggests that the high gross margins that MedTech companies enjoy, particularly in the US, hide unsustainable high costs and underdeveloped commercial skills. According to BCG the average MedTech company’s selling, general and administrative (SG&A) expenses - measured as a percentage of the cost of goods sold -  is 3.5 times higher than the average comparable technology company. The study concludes that MedTechs' outdated business model, dubbed the “milkman”, will have to change for companies to survive. 
 
BCG’s follow-up 2017 study
 
In 2017 BCG published a follow-up study entitled, “Moving Beyond the ‘Milkman’ Model in MedTech”, which surveyed some 6,000 employees and benchmarked financial and organizational data from 100 MedTech companies worldwide, including nine of the 10 largest companies in the sector. The study suggested that although there continued to be downward pressure on device prices, changes in buying processes and shrinking gross margins, few MedTech companies “have taken the bold moves required to create a leaner commercial model”.
 
According to the BCG’s 2017 study, “Overall, innovation productivity [in the MedTech sector] is in decline. In some product categories, low-cost competitors - including those from emerging markets - have grown rapidly and taken market share from established competitors. At the same time, purchasers are becoming more insistent on real-world evidence that premium medical devices create value by improving patient outcomes and reducing the total costs of care”. The growth and spread of value-based healthcare has shifted the basis of competition beyond products, “toward more comprehensive value propositions and solutions that address the entire patient pathway”. In this environment, MedTechs have no choice but to use data to deliver improved outcomes and a better customer experience for patients, healthcare providers and payers.
 
MedTech distributors increasing their market power and influence
 
Although supply chain costs tend to be MedTechs' second-highest expense after labour, companies  have been reluctant to employ digital strategies to reduce expenses and increase efficiencies. As a consequence, their customer supply chains tend to be labour intensive relationship driven with little effective sharing of data between different territories and sales teams. Customer relations are disaggregated with only modest attention paid to patients and payors and insufficient emphasis on systematically collecting, storing and analysing  data to support value outcomes.   
As MedTech manufacturers have been slow to develop strong and effective data strategies, so MedTech distributors have increased their bargaining power through M&As and internationalisation. Some distributors have even assumed marketing, customer support and education roles, while others have launched their own brands. MedTechs' response to these changes has been to increase their direct sales representatives. However, consolidation among buyers - hospitals and GPOs -  and the extra downward pressure this puts on prices, is likely to make it increasingly costly for MedTechs to sustain large permanent sales forces. 

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Advantages of distributors but no way to accurately measure sales performance

Notwithstanding, the distributor model is still common with MedTechs and has been successful in many markets for a long time. Independent distributors are often used when producers have small product portfolios. In smaller markets, distributors are employed primarily to gain economies of scale as they can combine portfolios of multiple companies to create a critical mass opportunity and  obtain better and faster access to markets.
 
MedTechs have a history of investing in sales force effectiveness (SFE) typically to increase the productivity of sales representatives. Sales leaders have some indication that this pays-off through incremental revenue growth and profits, but they struggle to assess the true performance of such investments not least because SFE includes a broad range of activities and also it is almost impossible to obtain comparative competitor data.
 
Changing nature of GPOs
 
GPOs also have changed. Originally, they were designed in the early 20th century to bring value to hospitals and healthcare systems by aggregating demand and negotiating lower prices among suppliers. Recently however they have raised their fees, invested in data repositories and analytics and have been driving their models and market position beyond contracting to more holistic management of the supply chain dynamics. Notwithstanding, many GPOs are struggling to change their model based on aggregate volume and are losing purchasing volume amid increasing competition and shifting preferences.
 
New entrants
The changing nature of MedTechs' customer supply chain and purchasers increasingly becoming concerned about inflated GPOs' prices have provided an opportunity for data savvy new entrants such as OpenMarketsThe companyprovides healthcare supply chain software that stabilizes the equipment valuation and cost reduction and aims to reinvent how healthcare providers and suppliers work together to improve the way healthcare equipment is bought and sold. OpenMarkets’ enhanced data management systems allow providers to better understand what they need to buy and when. The company represents over 4,000 healthcare facilities and more that 125 equipment suppliers; and provides a platform for over 32,000 products, which on average sell for about 12% less than comparable offerings. In addition, OpenMarkets promotes cost efficiency and price transparency as well as stronger collaboration between providers and suppliers.
 
Amazon’s B2B Health Services
 
But potentially the biggest threat to MedTech manufacturers, GPOs and distributors  is Amazon’s B2B Health Services, which is putting even more pressure on MedTechs to rethink their traditional business models and to work differently with healthcare providers and consumers. With a supply chain in place, a history of disrupting established sectors from publishing to food and a US$966bn market cap, Amazon is well positioned to disrupt healthcare supply chain practices, including contracting. In its first year Amazon’s B2B purchasing venture generated more than US$1bn and introduced three business verticals: healthcare, education and government. Already, hundreds of thousands of medical products are available on Amazon Business, from hand sanitizers to biopsy forceps. According to Chris Holt, Amazon’s B2B Health Services program leader, “there is a needed shift from an old, inefficient supply chain model that runs on physical contracts with distributors and manufacturers to Amazon's marketplace model”.

If you look at the way a hospital system or a medical device company cuts purchase orders, identifies suppliers, shops for products, or negotiates terms and conditions, much of that has been constrained by what their information systems can do. I think that has really boxed in the way that companies’ function. Modern business and the millennials coming into the workplace, can’t operate in the old way,” says Holt.

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Is the digital transformation of MedTech companies a choice or a necessity?


Millennials are used to going to Amazon and quickly finding anything they need; even the most obscure items. According to Holt, “A real example is somebody who wants to find peanut butter that is gluten-free, non-GMO, organic, crunchy and in a certain size. And they want to find it in three to five clicks. That’s the mentality of millennial buyers at home, and they want to be able to do the same things at work. . . . The shift from offline traditional methods to online purchasing is very significant. It is our belief that the online channel is going to be the primary marketplace for even the most premium of medical devices in the future. That trend is already proven by data. So, we’ve created a dedicated team within Amazon Business to enable medical product suppliers to be visible and participate in that channel.
MedTechs fight back
 
According to the two BCG reports, MedTech companies can fight back by using digital technologies to strengthen and improve their go-to-market activities. This, according to BCG, would enhance MedTechs' connectivity with their customers and help them to learn more about their needs. Indeed, employing digitization to improve customer-facing activities could help standardise order, payment and after-sales service behaviour by defining and standardizing terms and conditions. This could provide the basis to help MedTechs increase their access to a range of customers - clinicians, institutions, insurers and patients - and assist them to tailor their engagements to the personal preferences of providers and purchasers. This could provide customers with access to product and service information at anytime, anywhere and could form the basis to implement broader digitalized distribution management improvements, which focus on value-based affordable healthcare in the face of escalating healthcare costs and variable patient outcomes.
 
Predictive models
 
Many companies use predictive-modelling tools to forecast demand and geo-analytics to speed delivery and reduce inventories. Online platforms provide customers with an easy way to order products and services, transparently follow their shipping status and return products when necessary. Barcodes and radio-frequency identification (RFID) chips, which use electromagnetic fields to automatically identify and track tags that contain electronically stored information attached to products, help customers track orders, request replenishments and manage consignment stock.
 
Back-office improvements
 
Further, the 2017 BCG study suggests that MedTechs only have made limited progress in improving their back-office operations. Many manufacturers  have more employees in their back offices than they do in their customer-facing functions and fail to leverage economies of scale. There is a significant opportunity for MedTechs to employ digital strategies to enhance the management of their back-office functions, including centralizing certain activities that are currently conducted in multiple individual countries.
 
Takeaway
 
For the past decade MedTech manufactures have been slow to transform their strategies and business models and still have been commercially successful. Some MedTech companies are incorporating digital capabilities into their products by connecting them to the Internet of Things (IoT), which potentially facilitate continuous disease monitoring and management. Notwithstanding, such efforts tend to be isolated endeavours - “one-offs” - and are not fully integrated into companies’ main strategies. This could run the risk of MedTech executives kidding themselves that they are embracing digitization while underinvesting in digital technologies. The two BCG studies represent a significant warning since digitization is positioned to bring a step-change to the MedTech sector, which potentially could wound successful manufacturers if they do not change.
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Will China become a world leader in health life sciences and usurp the US?
 
After World War II, the US captured the global lead from Europe in life sciences thanks to the large American domestic market, its strong network of university research laboratories, competent regulation, effective pricing regimens and generous federal R&D funding.
 
America’s leadership in life sciences is slipping
 
Over the past two decades, as China has systematically upgraded its economy from low-grade to high-grade production, it has come to realize the significance of the health life sciences and Beijing has become determined to win a larger share of the industry’s activity. During this time America’s leadership position in the life sciences industry has slipped.
 
  • Will China usurp the US and become a world leader in health life sciences?
  • What could the erosion of the life sciences industry mean for the US economy?
  • What can American life sciences corporations do to reduce or slow their market slippage?
 
Health life sciences
 
Health life sciences refers to the application of biology and technology to improve healthcare. It includes biopharmaceuticals, medical technology, genomics, diagnostics and digital health and is one of the future growth industries positioned to radically change the delivery of healthcare, substantially reduce the morbidity and mortality of a range of chronic and incurable diseases and save healthcare systems billions. The life sciences industry plays a key role in supporting the economies of the US and China as well as other nations and helps them to compete internationally. The sector requires a complex ecosystem, which integrates high-tech research, large, long-term investments of capital in the face of significant technological, market and regulatory risks, skilled labour, specific manufacturing skills, intellectual property (IP) protection and policy support. According to a 2019 Deloitte’s report on health life sciences the global market size of the industry is projected to grow from US$7.7trn in 2017 to US$10trn by 2022.
 
Reason’s for America’s slippage
 
America’s slippage in its life sciences industry is due to:
  • Increased fair competition from a number of nations, including the UK, and increased unfair competition from China who aggressively steals US IP to piggyback on American life-sciences innovations in order to benefit from enhanced therapies without having to pay their fair share for the costly R&D. China then uses its government’s monopsony power as a purchaser of life sciences offerings to limit the prices of US and other international firms
  • Recent US Administrations’ lukewarm support for the industry. Federal biomedical research funding has been cut in real terms. Reimbursement policies are changing to a value-based approach and pricing policies have tightened. Such policies create uncertainty regarding the government’s willingness to pay for future treatments and the research necessary to discover and bring them to market. The US is also falling behind in providing innovative tax incentives for the industry
  • American life sciences corporations’ reluctance and inability to adapt their strategies and business models to changing international markets.
 
Permanent economic damage
 
The Chinese competitive threat is real and significant. It is important for the US to maintain a competitive life-sciences sector since it generates high-skilled, high-paying jobs and its product offerings are sold throughout the world and the industry is a key component of the US traded economy. A weaker American competitive position in the life sciences could mean a lower value for the dollar, a larger trade deficit, plant closures and job losses. China and other nations, which are gaining global market share at the expense of the US, could cause significant damage to the American life-sciences industry.
 
Creating a health life sciences industry is challenging enough, recreating one after it has lost significant market share is even more challenging, if not impossible. We suggest that to reduce to possibility of this happening US life sciences corporations might consider changing the mindsets of their leaders and demonstrate a greater willingness to learn from and engage with Chinese start-ups, especially those in adjacent industries with AI and machine learning capabilities and experience. The cost of doing this will be to give up some IP, which might be worth doing given the potential financial benefits from such a strategy.

 
A “bullish” American perspective
 
The generally accepted Western perspective is that the US excels at visionary research and moon-shot projects and will always be the incubator for big ideas. The reasons for this include: (i) American education is open, encourages individuality and rewards curiosity and its universities have consistently produced vast numbers of innovative discoveries in the life sciences, (ii) American scientists have been awarded the majority of Nobel prizes in physiology/medicine, physics and chemistry, and (iii)  America is the richest nation in the world. This suggests that there are no apparent reasons why the US should not continue as a world leader in health life sciences.

By contrast, China has stolen and copied America’s intellectual property (IP) for years and is a smaller economy fraught with politico-economic challenges. Although China’s economic growth has lifted hundreds of millions of people out of poverty, China remains a developing country with significant numbers of people still living below the nation’s official poverty level. Beijing has challenges balancing population growth with the country’s natural resources, growing income inequality and a substantial rise in pollution throughout the country. Further, China’s educational system is conformists and not geared to producing scientists known for making breakthrough discoveries. This is borne-out by the fact that China only has been awarded two Nobel prizes for the sciences: one for physiology and medicine in 2015 and another for physics in 2009.

 
Copiers rather than inventors
 
Over the past four decades Chinese scientists, with the tacit support of Beijing, have aggressively and unethically stolen Western technologies and scientific knowhow. According to findings of a 2017 research report from the US Intellectual Property (IP) Commission entitled The Theft of American Intellectual Propertythe magnitude of "Chinese theft of American IP currently costs between US$225bn and US$600bn annually."

America’s response to China’s IP theft has been to adopt the moral high-ground, dismiss China as an unscrupulous nation not worthy of investment and focus on commercialising its discoveries with “single bullet” product offerings and marketing them in wealthy regions of the world, predominantly North America, Europe and Japan. Over the past decade, this strategy has been supported by a US Bull market in equities, which started in 2009, outpaced economic growth in most developed nations and led to a significant degree of satisfaction among C-suites and boards of directors of US life sciences corporations, which did not perceive any need to adjust their strategies and business models despite some market slippage and changing market conditions.

 
Confucian values support conformism rather than discovery
 
Although China has benefitted economically from the theft of American IP, the American view tends to be that China is unlikely to become a world leader in the life sciences because the nation has not produced a cadre of innovative scientists and its education system is unlikely to do so in the near to medium term. Chinese education encourages students to follow rather than to question. Indeed, Confucian values remain a significant influence on Chinese education and play an important role in forming the Chinese character, behaviour and way of living. Confucianism aims to create harmony through adherence to three core values: (i) filial piety and respect for your parents and elders, (ii)  humaneness, the care and concern for other human beings, and (iii) respect for ritual. According to Confucian principles, “a good scholar will make an official”. Thus, some of China’s best scientists leave their laboratories for administrative positions.
 
Further, Chinese universities tend to bind students to their professors who expect unquestioning loyalty. Scepticism towards generally accepted scientific theories is discouraged, especially when they are held by senior academics. Also, China unlike the US, does not tolerate “failure”, and this incentivises Chinese scientists to conduct “safe” research that yields quick and “achievable” outcomes. All these factors conspire to discourage high risk creative scientific activity and encourages safer, “copycat” research endeavours.
 
The strength of the US$ and the US economy
 
America’s global leadership in the life sciences is supported by the fact that the US is the world’s richest and most powerful nation. In nominal terms (i.e., without adjustment for local purchasing power) the US and China have GDPs of US$19trn and US$12trn respectively and  populations of 326m and 1.4bn. Further, the US has an “unrivalled” global trading position: the US dollar is the strongest currency in the world and dominates the overwhelming percentage of all international trade settlements: 70% of all world trade transactions are in US$, 20% in €’s and the rest in Asian currencies, particularly the Japanese ¥ and increasingly the Chinese ¥. Also, US dollar holdings make up the largest share of foreign exchange reserves and the effect of this is to maintain the high value of the US$ compared with other currencies and provide US corporations with significant profits, US citizens with cheap imports and the US government with the ability to refinance its debts at low interest rates.
 
An Asian context
 
We suggest that it is increasingly important for American health life science professionals to get a better understanding of China and Asia. The Asian perspective described here is drawn from three recent books: The New Silk Roads: The Present and Future of the World by Peter Frankopan, The Future is Asian by Parag Khanna and AI Super-Powers: China, Silicon Valley and the New World Order published in late 2018 by Kai-Fu Lee.  

Crudely put: the 19th century was British, the 20th century American and the 21st century is expected to be Asian. The era of breakthrough scientific discoveries and stealing American IP is over, and we have entered an “age of implementation”, which favours tenacious market driven Chinese firms. “Asians will determine their own future; and as they collectively assert their interests around the world, they will determine ours as well”, says Khanna. This is starkly different to American prognosticators who assume that the world will be made in the American image, sharing American values and economics.
Asian view of the US$

Some observers suggest that there are chips appearing in the giant US edifice of international trade described above. The current US Administration’s policies have triggered and intensified discussions in Europe and Asia about America’s dominant global economic position and suggest that the US$ might be starting to weaken against a basket of currencies as China, Russia, Iran, Turkey and other nations, choose to use local currencies for some international trade transactions, which they then convert into gold. Further, central banks are tightening their monetary policies and adjusting their bond purchasing strategies. A common US view is that such trading activities are so small relative to global US$ transactions they will neither weaken the US$ nor dent America’s pre-eminent global trading position.
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Can Western companies engage with and benefit from China?
Notwithstanding, replacing the US$ with the Chinese ¥ seems to be part of Beijing’s long-term strategy, as Beijing encourages its trading partners to accept the ¥ as payment for Chinese exports. China’s recent trading agreements with Canada and Qatar for instance have been based upon local currencies rather than the US$. China, which is the biggest importer of oil, is preparing to launch a crude oil futures contract denominated in Chinese ¥ and convertible into gold. European, Asian and Middle Eastern countries have embarked on domestic programs to exclude the US$ from international trade transactions. Also, oil exporting countries are increasingly able to choose which currencies they wish to trade in. At the same time, oil-producing countries no longer seem so interested in turning their revenues into “petrodollars. For the past decade, President Putin of Russia has been calling for the international community to re-evaluate the US$ as the international reserve currency. All this and more suggests that increasingly, emerging economies may transition from their undivided dependence on the US$ for international trade settlement to a multipolar monetary arrangement. Whilst small relative to the full extent of global trade, it is instructive to view these changes within a broader Asian context.
 
The US has had little exposure to China and Asia
 
One outcome of America’s pre-eminent global economic position and the financial success of American life sciences companies is that corporate leaders and health professionals tend to have little or no in-depth exposure to Chinese and Asian culture and markets. For example, few Fortune 500 senior executives have worked in China; few American life sciences corporations have sought in-depth briefings of Asian markets and few US students and scientists have studied or carried out research in China. Instead, American life science corporate leaders tend to be US-centric; they condemn China for its IP theft and recommend not to invest in China because a condition of doing so is that you are obliged to part with some of your IP.
 
Asia a potential economic powerhouse
 
This distancing has resulted in life science professionals “misdiagnosing” China in a number of ways, which we will discuss. One misdiagnosis is to conflate China with Asia. Asia is comprised of 48 countries. East Asia includes China, Japan and North and South Korea. South Asia includes India, Pakistan and Bangladesh. South East Asia includes Indonesia, Malaysia, Philippines, Singapore and Thailand. These three sub-regions link 5bn people through trade, finance, infrastructure and diplomatic networks, which together represent 40% of the world’s GDP. China has taken a lead in building new infrastructure across Asia - the new Silk Roads - but will not necessarily lead this vast region alone. Rather, as Khanna reminds us, “Asia is rapidly returning to the centuries-old patterns of commercial and cultural exchanges, which thrived long before European colonialism and American dominance”.
 
The difference between IP theft and imitating ‘what works

Market driven Chinese start-ups, supported by the government, are expected to transform China into a world leader in health life sciences by 2030. The thing to understand about China is that it is not just a few start-ups that steal and copy American IP but thousands, which then aggressively compete. This entails cutting prices, improving and adapting their product offerings, developing leaner operations and aligning their strategies and business models to the demands of different markets. The vast scale of this activity has led to a unique cadre of über agile Chinese entrepreneurs, who imitate successful business models and then engage in value added culture-specific product development processes. This has led to Chinese companies becoming exemplary “market driven” implementors. By contrast American companies tend to be “mission driven” and operate a “single bullet” business model and are either slow or reluctant to adapt to the demands of different markets. This results in US discoveries being exploited in Asia by Chinese rather than American companies. We suggest that there are significant benefits to be derived from American life sciences companies developing joint ventures with market driven Chinese start-ups even if it means surrendering some IP.
 
As a postscript, it is worth pointing out that the first Chinese patent was only granted in 1985 and recently, after decades of widespread theft, IP protection in China has improved at lightning speed. As Chinese companies issue more patents, the keener they are to protect them. According to the World Intellectual Property Organization in 2017 China accounted for 44% of the world’s patent filings, twice as many as America.

 
US inventions exploited in Asia by Chinese start-ups
 
An illustration of a disruptive life science technology invented in the US but exploited faster and more extensively in China is CRISPR-Cas9 (an acronym for Clustered Regularly Interspaced Short Palindromic Repeats), which is generally considered to be the most important invention in the history of biology.  The initial discovery was made in 2012 by a collaboration between Jennifer Doudna, at the University of California, Berkeley, USA and French scientist Emmanuelle Charpentier. Applications of CRISPR technology are essentially as infinite as the forms of life itself. Since its discovery, modified versions of the technology by Chinese scientists have found a widespread use to engineer genomes and to activate or to repress the expression of genes and launch numerous clinical studies to test CRISPR-Cas9 in humans.
 
Virtuous circle
 
Notwithstanding, transforming CRISPR genomic editing technologies into medical therapies requires mountains of data and advanced AI capabilities. China has both. The more genomic data you have the more efficacious clinical outcomes are likely to be. The better your clinical outcomes the more data you can collect. The more data you collect the more talent you attract. The more talent you attract the better the clinical outcomes. China is better positioned than America to benefit from this virtuous circle. China’s less than stringent regulation with regards to privacy and storing personal data gives it a distinct competitive advantage over American and Western life sciences companies. China also has more efficient means than any Western nation for collecting and processing vast amounts of personal data.
 
Collecting personal data

Any casual visitor to China will tell you that one of the striking differences with Western nations is that the Chinese economy is cashless and card-less. Citizens pay for everything and indeed organise their entire lives with a mobile app called WeChat, a multi-purpose messaging, social media and mobile payment app developed by TencentWeChat was first released in 2011 and by 2018 it was one of the world's largest standalone mobile apps, with nearly 1bn daily users who every day send about 38bn messages. Not only is WeChat China's biggest social network it is also where people turn to book a taxi, hotel or a flight, order food, make a doctor’s appointment, file police reports, do their banking or find a date and has become an integral part of the daily life of every Chinese citizen. State-run media and government agencies also have official WeChat accounts, where they can directly communicate with users. Further, an initiative is underway to integrate WeChat with China’s electronic ID system. It may be hard for people outside of China to grasp just how influential WeChat has become. There is nothing in any other country that is comparable to WeChat, which captures an unprecedented amount of data on citizens that no other company elsewhere in the world can match. This represents a significant competitive advantage. Applying AI and machine learning technologies to such vast data sets provide better and deeper insights and patterns. These vast and escalating data sets, and advanced AI capabilities for manipulating  them, give China a significant competitive advantage in the high growth life sciences industry, which  increasingly has become digital.
 
 Processing personal data
 
AI is another example of  a technology invented in the West and implemented much faster in China. The “watershed” moment for China was in 2017, when AlphaGo became the first computer program to defeat a world champion at the ancient Chinese game of Go. Since then, China has been gripped by “AI fever”.

Until recently AI machines were not much better than trained professionals at spotting anomalies and mutations in assays and data. This changed in early-2,000 with the ubiquitous spread of mobile telephony and the confluence of vast data sets and the development of neural networks, which made the onerous task of “teaching” a computer rules redundant. Neural networks allow computers to approximate the activities of the human brain. So, instead of teaching a computer rules, you simply feed it with vast amounts of data and neural networking and deep learning technologies identify anomalies and mutations in seconds with exquisite accuracy.

The Beijing Genetics Institute

An illustration of the scale and seriousness of China’s intent to become a world-leader in life sciences and to eclipse similar initiatives by the US is the 2016 launch of a US$9bn-15-year national initiative to develop technologies for interpreting genomic and healthcare data. This national endeavour followed the launch in 1999 of the Beijing Genomics Institute (BGI), which today is a recognised global leader in next generation genetic sequencing. In 2010, BGI received US$1.5bn from the China Development Bank, recruited 4,000 scientists and established branches in the US and Europe. In 2016 BGI created the China National GeneBank (CNGB) on a 47,500sq.m site in Shenzhen, which benefits from BGI’s high-throughput sequencing and bio-informatics capacities. CNGB officially opened in July 2018 and is the largest gene bank of its kind in the world. Dozens of refrigerators can store samples at temperatures as low as minus 200 degrees Celsius, while researchers have access to 150 domestically developed desktop gene sequencing machines and a US$20m Revolocity machine, known as a “super­sequencer”. The Gene Bank enables the development of novel healthcare therapies that address large, fast growing and underserved global markets and to further our understanding of genomic mechanisms of life. Not only has CNGB amassed millions of bio-samples it has storage capacity for 20 petabytes (20m gigabytes) of data, which are expected to increase to 500 petabytes in the near future. The CNGB represents the new generation of a genetic resource repository, bioinformatics database, knowledge database and a tool library, “to systematically store, read, understand, write, and apply genetic data,” says Mei Yonghong, its Director.

US life sciences benefit by engaging with Chinese companies

Lee, in his book about AI, suggests that it is not so much Beijing’s policies that keep American firms out of the Chinese markets, but American corporate mindsets, which misdiagnose Chinese markets, do not adapt to local conditions and fail to understand the commercial potential of Chinese start-ups and consequently get squeezed out of the Chinese market.

This is what happened as Google failed to Baidu, Uber failed to DiDi, Twitter failed to Weibo, eBay failed to TaoBao, and Groupon failed to Meituan-Dianping. We briefly describe the demise of Groupon and point to lessons, which can be learned from it.
 
Lessons from Groupon’s failure in China

Groupon failed to adapt its core offering when group discounts in China faded in popularity and as a consequence it rapidly lost market share. Meituan, founded in 2010 as a Chinese copy of Groupon, quickly adapted to changing market conditions by extending its offerings to include cinema tickets, domestic tourism and more importantly, “online-to-offline” (O2O) services such as food and grocery delivery, which were growing rapidly.
 
In October 2015, Meituan merged with Dianping, another Chinese copy of Groupon, to become Meituan-Dianping the world's largest online and on-demand booking and delivery platform. The company has become what is known as a transactional super app, which amalgamates lifestyle services that connect hundreds of millions of customers to local businesses. It has over 180m monthly active users and 600m registered users and services up to 10m daily orders and deliveries. In the first half of 2018 Meituan-Dianping facilitated 27.7bn transactions (worth US$33.8bn) for more than 350m people in 2,800 cities. That is 1,783 enabled services every second of every day, with each customer using the company’s services an average of three times a week. Meituan-Dianping IPO’d in 2018 on the Hong Kong stock exchange and raised US$4.2bn with a market cap of US$43bn.
 
Efficiency also drives innovation. Meituan-Dianping’s Smart Dispatch System, introduced in 2015, schedules which of its 600,000 motorbike riders will deliver the millions of food orders it fulfils daily. It now calculates 2.9bn route plans every hour to optimize a rider’s ability to pick up and drop off up to 10 orders at once in the shortest time and distance. Since Smart Dispatch launched, it has reduced average delivery time by more than 30% and riders complete 30 orders a day, up from 20, increasing their income. In 2019, the American business magazine Fast Company ranked Meituan-Dianping as the most innovative company in the world.
 
Takeaways
 
Although Meituan-Dianping and other companies we mention may not be well known in the West and are not in the health life sciences industry, they are engaged in highly complex digital operations disguised as simple transactions, which enhance the real-world experiences of hundreds of millions of consumers and millions of merchants. To achieve this the companies have amassed vast amounts of data and have perfected AI and machine learning technologies, which make millions of exquisitely accurate  decisions every hour, 24-7, 365 days a year. Such AI competences are central to the advancement of health life sciences. American life science professionals might muse on the adage: “make your greatest enemy your best friend” and consider trading some of their IP to joint venture with fast growing agile Chinese data companies in a strategy to restore and enhance their market positions.
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Is the digital transformation of MedTech companies a choice or a necessity?
 
Will 2019 see medical technology (MedTech) companies begin to digitally transform their strategies and business models to improve their commercial prospects?
 
We describe some of the changing market conditions that drive such transformations. We also briefly report the findings of two research papers on corporate digital transformations published in recent editions of the Harvard Business Review. These suggest that there are two “must haves” if company transformations are to be successful: leadership with the appropriate mindset and access to talented data scientists.
 
A bull market encouraging a business-as-usual mindset
 
MedTech is a large growing industrial sector (see below), which has benefitted significantly from the bull market in equities over the past decade but is one of the least equipped to prosper over the next decade in a radically changing healthcare ecosystem and a more uncertain global economy.

For the past decade equity markets have outperformed global economic growth and protected a conservative, production-orientated business-as-usual mindset in MedTech C-suites and boards of directors. This has made organizations either slow or reluctant to transform their strategies and business models, which define how they create and capture value. As we enter 2019 the protection that the MedTech industry enjoyed for years has been weakened by more uncertain markets, the tightening of monetary policy, slower global economic growth and disruptive technological change.

In this new and rapidly evolving environment MedTech markets are expected to continue growing but at a slower rate, operating margins are expected to decline as unit prices erode and companies will no longer be able to earn premium margins by business-as-usual strategies. Building a prosperous organization in a more uneven future is an important challenge facing MedTech leaders and will require a significant shift in their mindset and the talent they engage and develop.  
 

Medical technology

MedTech represents a significant sector of global healthcare, which has been relatively stable for decades. It has a market size of some US$430bn and has consistently experienced high margins and significant sales growth. For example, over the past decade the sector has grown at an annual compound growth rate of about 5%, with operating margins between 23% and 25%. The sector includes most medical devices, which prevent, diagnose and treat diseases. The most well-known include in vitro diagnostics, medical imaging equipment, dialysis machines, orthopaedic implants and pacemakers. The US and Western Europe are established centres for the sector, but trends suggest that China and India will grow in significance over the next decade. The sector is dominated by about 10 giant companies, which account for nearly 40% of the global market in sales revenues. All MedTech companies have significant R&D programs and the global spend on R&D is expected to grow from US$27bn in 2017 to US$34bn by 2022. An indication of how far developments in medical technology have come is robot-assisted surgery, which employs artificial intelligence (AI) for more precise and efficacious procedures. Robot-assisted surgery is expected to become a US$13bn global market by 2025. In the US the repeal of the medical device excise tax was not included in the recent tax reform. The industry believes the tax has a negative impact on innovation, and the rate of R&D spending by US MedTech companies is expected to fall by 0.5% over the next five years.
 
Resistance to change

For the past decade a substantial proportion of MedTech companies either have resisted or been slow to transform their strategies and business models despite increasing pressure from rapidly evolving technologies, changing reimbursement and regulatory environments and a chorus of Industry observers calling for MedTech companies to become less product-centric and more solutions orientated. This reluctance to change can be explained by a bull market in equities, which began in March 2009, outperformed economic growth, delivered some of the best risk-adjusted returns in modern market history and encouraged a conservative mindset among corporate leaders, who were reluctant to change and developed a “if it’s not broken why fix it” mindset.

Because the MedTech sector has been stable for years, established players have been able to compete successfully across the device spectrum, applying common business models and processes without much need for differentiation. MedTech’s strategy has been to market high priced sophisticated product offerings in a few wealthy regions of the world; mainly the US, Western Europe and Japan, which although representing only 13% of the world’s population account for more than 86% of the global MedTech market share (US: 42%, Europe: 33%, Japan: 11%). It seems reasonable to assume that in the future, as markets become more turbulent and uncertain, this undifferentiated strategy and business model will need to transform into ones that are far more distinctive and proprietary.

 
M&A has been MedTech’s principal response to market headwinds

MedTech’s principal adjustment to market headwinds over the past decade has been to increase its M&A activity rather than transform its strategies and business models. M&A’s increased companies scale and leverage, drove stronger financial performance, allowed companies to obtain a broader portfolio of product offerings and increased their international footprints. Some recent high-profile examples of M&A activity in the sector include Abbott’s acquisition of St. Jude’s Medical in January 2017, which led to Abbott holding some 20% of the US$40bn global cardiovascular market. Johnson & Johnson’s US$4bn buyout of Abbott Medical Optics Inc in February 2017, and the “mother of all M&A activity” was Becton Dickinson’s 2017 acquisition of C.R. Bard for US$24bn, which is expected to generate annual revenues of US$15bn.

According to a January 2018 McKinsey report between 2011 and 2016, 60% of the growth of the 30 largest MedTech companies was due to M&A’s, and between 2006 and 2016, only 20% of 54 pure-play publicly traded MedTech companies, “mostly relied on organic growth”. 
As MedTech leaders return to their desks in early 2019 after the worst December in stock market recent memory, they might begin to reflect on their past all-consuming M&A activity, which resulted in bigger but not necessarily better companies. After such a prolonged period of M&A’s, there is likely to be a period of portfolio optimization. Divestitures and spin-outs allow companies to capture additional value by improving capital efficiency, reducing operational complexity and reallocating capital to higher-growth businesses as the industry invests more in R&D to develop innovative product offerings that demonstrate value in an increasing volatile era and increasing price pressures. But divestitures are not necessarily changing strategies and business models, so MedTech’s vulnerabilities remain.
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Who should lead MedTech?



The IoT and healthcare


 
Black December 2018 for equities
 
It is too early to say whether “Black December 2018” represents the end of the longest equity market bull-run in recent history, but it is worth noting that on Friday 21st December the Nasdaq composite index closed at 6,332.99, which was a drop of 21.9% from an all-time high of 8,109.69 on August 29th. The generally accepted definition of a bear market is a drop of at least 20% from a recent peak. World markets followed Wall Street. Japan’s Topix Index fell to its lowest level for 18 months and the pan European Stoxx 600 Index hit a two-year low. However, seasoned market observers suggest that although the average bull market tends to last for about 10 years, it does not simply die of old age, and the December 2018 market behaviour is consistent with a “maturing cycle” in which there is still room for stocks to grow. This note of optimism could encourage a continuation of a “business-as-usual” mindset in MedTech C-suites and boards of directors.
 
Anaemic economic growth forecasted

The outlook for the global economy in 2019 does not bring any comfort. In October 2018 the International Monetary Fund lowered its forecast for global economic growth for 2019, from 3.9% to 3.7%; citing rising trade protectionism and instability in emerging markets. In September 2018 the Organisation for Economic Cooperation and Development (OEDC) suggested that economic expansion may have peaked and projected global growth in 2019 to settle at 3.7%, “marginally below pre-crisis norms with downside risks intensifying.” The OECD also warned that the recovery since the 2008 recession had been slow and only possible with an exceptional degree of stimulus from central banks. And such support is ceasing.
 
Tightening of monetary policy

Global monetary policy is tightening as central banks retreat from their long-standing market support. After four years of quantitative easing (QE) the European Central Bank (ECB) has ended both its money printing program and its €2.6trn bond purchasing program. The Bank has done this just as the Eurozone growth is cooling and Europe seems to be destined for a slow relative decline, which raises concerns about the sustainability of the single currency area. Notwithstanding, some observers suggests that for the next few years capital can be reasonably safely deployed in the beer-drinking nations of northern Europe, but not in the wine-drinking countries of southern Europe; especially France and Italy, two countries at the centre of the Eurozone’s current challenges. France’s budget deficit exceeds that permitted by the EU and in the latter part of 2018 the nation’s anti-government gilets jaunes demonstrators led to President Macron promising more welfare spending than the nation can afford. This could suggest that France is on the cusp of an Italian-style debt crisis. Although these economic trends have been telegraphed for some time, after nearly a decade of a bull market and low interest rates, there seems to be some complacency in the equity markets about the risks from higher rates and elevated corporate debt. But this sentiment is expected to change in 2019.
 
Transformation is no longer a choice

This more uncertain global economic outlook, heightened US-China tensions, tighter monetary policy and a maturing global business cycle together with significantly changed and evolving healthcare ecosystems suggest that transformation of MedTech strategies and business models is no longer a choice but a necessity if they are to maintain and increase their market positions over the next decade.
 
A challenge for many MedTech companies is that they still work on dated and inappropriate systems or hierarchical processes, and too few leaders and board members fully comprehend the speed and potential impact of advanced digital technologies. Those organization with some appreciation of this are already looking to adjacent sectors for talent and knowhow that could help them evolve their strategies and business models. But such partnerships might not be as efficacious as expected. We explain why below.
 
Digital transformations

Let us turn now to consider digital transformations. Data scientists and machine learning engineers are critical to any digital transformation. One significant challenge for companies contemplating such change is talent shortage, which disproportionately affects companies not use to dealing with such talent. Data scientists are aware of their scarcity value and they tend not to work in IT silos of traditional hierarchical organizations but prefer working for giant tech companies in devolved networked teams, focusing on projects that interest them.

Companies that fail to engage talented data scientists will be at a disadvantage in any digital transformation. Mindful of such challenges some MedTech companies are beginning to partner with start-ups and smaller digitally orientated companies. But this is not necessarily an answer because talent shortage also affects start-ups. The answer lies in understanding how giant tech companies recruit talented individuals. Companies like Google and Facebook are more interested in “tech savvy” individuals and less interested in formal qualifications. They tend to catch such talent with attractive internships when they are seniors in high school and juniors at university. These companies understand digital technology and have seen enough interns that they can correlate their performance on coding tests and technical interviews with their raw ability and potential rather than relying on formal qualifications as a proxy for skill.
 
A new and more dynamic leadership mindsets

Future MedTech leaders will not only need to have a deep knowledge of disruptive digital technologies and AI systems, but will need to have the mindset of an “inclusive networked architect” with an ability to create and develop learning organizations around diverse technologies with dispersed talent. Traditional hierarchical production mindsets, which have benefitted from business-as-usual for the past decade are unlikely to be as effective in an environment which is experiencing the impact of a significant and rapid shift in technological innovation. Sensors, big data analytics, AI, real-world evidence (RWE), robotic and cognitive automation are converging with MedTech and encouraging companies to pivot from being product developers to solution providers. This requires leaders with mindsets that reward value instead of volume and are agile enough to meet increasing customer expectations, whether those customers are payers, providers or patients.

Without leaders with informed, forward-thinking mindsets, enthused about new models of organizational structures, culture and rewards that provide greater autonomy to talented teams and individuals, MedTech companies could remain at a disadvantage in competing with other technology companies for similar talent and expertise. Future MedTech leaders must understand how work is being redefined and the implications of this for talented individuals and devolved networked teams. It seems reasonable to assume that future MedTech leaders will be generalists: executives with more than one specialism with an ability to breakdown silos and bridge knowledge gaps across organizations and develop new models of organizational structure, culture, and rewards.
 
Successes and failures of digital transformations

We have focused on digital transformation of traditional companies as a means for them to prosper in radically changing market conditions. Although there has been a number of successful corporate digital transformations there has also been a significant number of failures. Understanding why some succeed and some fail is important.
 
Successful digital transformations

One notable successful digital transformation is Honeywell, a Fortune 100 diversified technology and manufacturing company, which overcame threats from market changes and disruptive digital technologies by transforming its strategies and business models. In 2016, Honeywell’s Process Solutions Division, a pioneer in automated control systems and services for the  oil, gas, chemical and mining industries, set up a new digital transformation unit to assist its customers to harness advantages from the Internet of Things (IoT) by increasing their connectivity to an ever-growing number of devices, sensors and people in order to improve the safety, reliability and efficiency of their operations.

The Unit’s primary focus is on outcomes, such as reducing costs and enabling faster and smarter business decisions. Honeywell’s IoT platform called Sentience, is considered a toolkit to collect, store and process data from connected assets, offering services to analyse these data and generate insights from them to enable data-based, value-added services. Unlike similar platforms developed by Siemens and General Electric (GE), Honeywell does not sell their platform as an app, but markets data-based services predicated on its platform, which enable its customers to optimize the performance of their connected assets and improve overall production efficiency. Other corporations that have set up similar transformation units to harness the benefits of disruptive technologies include Hitachi, Hewlett-Packard, SAP and UPS.

Failed digital transformations

Perhaps the biggest digital transformational failure is General Electric (GE). In 2011, the then CEO Jeff Immelt became an advocate for the company’s digital transformation. GE created and developed a significant portfolio of digital capabilities including a new platform for the IoTs, which collected and processed data used to enhance sales processes and supplier relationships. Immelt suggested that GE had become a “digital industrial company”. The company’s new digital technology reported outcomes of a number of indices, which over time improved and attracted a significant amount of positive press. Notwithstanding, activist investors were not so enamoured, GE’s stock price languished, Immelt was replaced and the company’s digital ambitions came to a grinding halt. Other notable corporates, which tried and failed to harness the commercial benefits from disruptive technologies include Lego, Nike, Procter & Gamble and Burberry.  

Digitally transformed companies outperform those that resist change

Notwithstanding, research findings published in the January 2017 edition of the Harvard Business Review suggest that digitally transformed companies outperform those that lag behind. Findings were derived from 344 US public companies drawn from manufacturing, consumer packaging, financial services and retail industries with median revenues of some US$3.4bn. Conclusions suggest that digitally transformed companies reported better gross margins, enhanced earnings and increased net income compared to similar companies, which lagged behind in digital change. “Digital technology changes the way an organization can create value: digital value creation stems from new, network-centric ways your business connects with partners and customers offering new business combinations,” say the authors of the study. Critically, the mindset of leaders is significantly linked to successful digital transitions. According to the study’s authors, “Our research indicates that these leaders approach the digital opportunity with a different strategic mindset and execute on the opportunity with a different operating model.”

Reasons for failing to transform

According to a paper published in the March 2018 edition of the Harvard Business Review there are four reasons why digital transformations fail.
  • Leaders’ narrow understanding of “digital”, which is not just technology but a blend of talented people, organizational culture, appropriate machines and effective business processes
  • Poor economic conditions and depressed demand for product offerings
  • Bad timing. It is important that your market sector is prepared for the changes your company is proposing
  • Paying insufficient attention to legacy business. “The allure of digital can become all-consuming, causing executives to pay too much attention to the new and not enough to the old”. 
 
Takeaways
 
Business history has shown that large and established companies, which fail to respond to disruptive technologies in a timely and appropriate fashion can fail and disappear. Notable examples include America Online, Barnes & Noble, Borders, Compaq, HMV, Kodak, Netscape, Nokia, Pan Am, Polaroid, Radio Shack, Tower Records, Toys R Us and Xerox. MedTech leaders might be mindful of Charles Darwin’s hypothesis, which he describes in his book, On the Origin of Species published in 1859. Darwin suggests that “in the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment”. Such a statement would not be out of place in a modern boardroom. It suggests that all industrial sectors need to develop to keep abreast of innovations and evolving trends. The main difference is that Darwin’s natural selection processes take millions of years, while significant changes that effect commercial businesses can take a matter of months.
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  • Experienced Western healthcare professionals have little knowledge of WeDoctor a Chinese internet healthcare start-up positioned to have a significant impact on global healthcare systems over the next decade
  • Founded in 2010 and backed by Tencent, a US$0.5trn Chinese conglomerate, WeDoctor has grown rapidly to become an influential US$6bn enterprise
  • WeDoctor bundles services AI and big data strategies into smart devices to help unclog China’s fragmented and complex healthcare system and increases citizens’ access to affordable quality healthcare
  • WeDoctor has expanded its franchise outside of China and has global ambitions to become the “Amazon of healthcare
  • Is WeDoctor an exemplar for Western healthcare providers?
 
WeDoctor’s impact on global healthcare

The speed and scoop of technological change is forcing traditional healthcare providers to move beyond the comfort of their production models, embrace services and develop smart devices, which support customer-centric, value-based, data driven strategies. To illustrate this shift, we describe a Chinese internet healthcare start-up WeDoctor, which is having an impact on re-engineering China’s overly bureaucratic, fragmented and complex healthcare system and is positioned to influence the delivery of value-based healthcare services globally in the next decade.
 
In this Commentary

This Commentary describes WeDoctor and some of its recent activities to expand its influence and market share. Three things of note:

  • The partnerships that WeDoctor has developed with payers and providers, which are different to conventional transaction-based contracts
  • WeDoctor’s pragmatic approach to evolving technologies, which differentiates it from Western technology companies entering healthcare markets
  • WeDoctor might be considered as an exemplar and its strategy copied by Western companies. Because most giant Western technology companies are banned in China, local firms have stopped copying Western counterparts and innovate. This has resulted in many Chinese apps and services being better than their Western rivals. For example, Huawei’s mobiles outperform Apple’s, and China is ahead on 5G, mobile money and artificial intelligence. In 2016 the US technology publication Wired ran a cover story entitled: “It’s Time to Copy China”.
Smart Clinics

Imagine going to your primary care physician and, within a 15-minute consultation, receiving up to eleven tests, which include analysing your blood and urine, taking your blood pressure and measuring the electrical activity of your heart; and all the tests being delivered by a small portable all-in-one diagnostic device weighing just 5 kilos (11Ibs) and situated on the table of your doctor’s consulting room.

Imagine further that your test results are returned in minutes rather than days or even weeks and uploaded to your cloud-based electronic medical record to be reviewed in real time by your doctor. Simultaneously, your data are anonymously merged with similar information collected from millions of other patients and stored in a cloud file embedded with AI, in the forms of machine learning and cognitive computing, which complement and enhance the capabilities of your doctor. Your physician plays a key role in interpreting your test results and providing you with a diagnosis and treatment options as well as giving you an essential human touch of reassurance and guidance. Notwithstanding, as soon as you leave your doctor’s office, your mobile phone will suggest smart ways to monitor and manage your condition remotely. Information about your condition will appear on your social media feeds, you will also receive prompts for treatments, alerts about health supplements and suggestions about appropriate insurance policies. Currently, no amount of money can buy such a service in advanced wealthy Western economies, but it is a lead device of WeDoctor, which is available in rural China and in other emerging countries. According to Frost and Sullivana consultancy, the China market alone for remote diagnostics is currently estimated to be US$2bn and projected to grow to US$28bn in 10 years. WeDoctor’s  near-term goal is to capture a significant share of this market and help re-engineer China’s healthcare system by nudging individuals with the right piece of information at the time to maintain their health. This makes the device valuable to patients, healthcare providers and payers.

 
Reverse innovation
 
It seems reasonable to assume that, in addition to being useful in China and other emerging countries, WeDoctor’s all-in-one diagnostic device is well positioned to help enhance primary care practice in developed Western nations by a process of ‘reverse innovation’. This refers to a strategy where a product offering, which is specifically developed for emerging countries is subsequently successfully marketed in developed wealthy nations. It is particularly relevant to healthcare systems, which are universally challenged to deliver high quality outcomes with increasingly scarce resources. The strategy was formalized in a paper entitled, ‘How GE is Disrupting Itself’, which was published in the October 2009 edition of the Harvard Business Review (HBR), and subsequently expanded into a book published in 2018 entitled, ‘Reverse Innovation in Healthcare: How to make value-based delivery work’.
 
In the early 2000s, General Electric (GE) took an affordable, high quality portable ultrasound device, which it had developed for the Chinese market and successfully marketed it in the US and elsewhere. GE found that ‘affordability’ and ‘portability’ were universally valued healthcare factors. Jeffrey Immelt, then chairman and CEO of GE and one of the authors of the 2009 HBR paper, challenged other multinationals, “to see innovation opportunities in emerging markets in a new light. Reverse innovation was more widespread than Immelt first thought and over the past decade the strategy has become a significant part in the armoury of many multinational corporations. Although the strategy is relevant for value-based healthcare,it is rarely practiced by Western healthcare providers.
 
The starting point for reverse innovation healthcare strategies is emerging markets where the rapid growth in the demand for quality healthcare outstrips the development of resources and infrastructure. This creates significant opportunities for Western companies with smart solutions to common healthcare challenges. Similar to GE’s portable ultrasound device, WeDoctor’s smart all-in-one diagnostic device, in time, could be marketed in developed regions of the world where healthcare systems are struggling to improve patient outcomes while reducing costs.
 
WeDoctor’s pragmatism

WeDoctor, founded by Liao Jieyuan an AI specialist, is backed by Tencentwhich is one of the world’s largest technology and internet companies with a market cap of US$0.5trn and a mission to enhance the quality of life through the development and global distribution of emerging technologies. WeDoctor has a market cap of US$6bn, an established network in China of some 240,000 doctors, 2,700 large premier hospitals, over 15,000 pharmacies in 30 of China’s 34 provinces and about 160m platform users and joins a growing contingent of technology companies with a mission to change the healthcare industry, which to-date has resisted online disruption.
 
Notwithstanding, there is a significant difference between giant Western technology companies who have entered healthcare markets and WeDoctor. While the former have tended to invest heavily in aspirational projects such as unravelling the medical mysteries of anti-ageing, and AI systems to replace clinicians, WeDoctor has been more pragmatic and focused on making money by unclogging bottlenecks in the Chinese US$1trn healthcare market. Although Liao is an AI expert and WeDoctor is a significant user of AI, Liao believes, “AI won’t replace doctors, but will become an important tool for doctors to help improve their efficiency and accuracy”. WeDoctor has a practical mission: to enhance access to quality medical resources, improve patient outcomes and reduce costs. Indeed, Liao founded WeDoctor simply to help people book physician appointments, which is challenging in China. Chinese primary care practices are underused due to the poor distribution of resources, a lack of reputable practitioners and the nation’s relatively low number of doctors per capita. Further, waiting times to see a hospital specialist are long and patients reportedly have to pay significant amounts of money to middlemen to secure appointments.
 
AI healthcare systems are more challenged in the West than in China
 
In 2017, the Chinese central government released a plan to become the world leader in AI by 2030, aiming to surpass its rivals technologically and build a domestic industry worth almost $150 bn. WeDoctor and other Chinese healthcare providers are mindful that AI is a transformative technology for healthcare partly because of its ability to recognise patterns in vast amounts of data and to detect and quantify biomarkers in non-solid biological materials. Jamie Susskind, in his book Future Politicspublished in 2018, suggests that doctors consulting both medical and legal big data banks in support of diagnoses and treatments, will become as commonplace as  consulting standard images such as MRIs or X-rays. And if such data banks are not consulted it will be considered negligent.  
 
WeDoctor’s AI systems hold out the prospect of delivering rapid diagnoses, efficient triage, enhanced monitoring of diseases, improvements in personalized care and making medicine safer. Notwithstanding, a limiting factor in the use of AI systems in healthcare generally is neither investment nor the technology, but the ability to amass vast amounts of reliable personal and genomic data. This is a bigger challenge in the West than in China. More robust privacy legislation, higher levels of security and broader-based ethical concerns in the West are substantial obstacles. A significant advantage of WeDoctor is the freedom in China to collect, store, analyse and use patient, personal and genomic data on an unparalleled scale. China has yet to establish laws to protect such personal information and is systematically building health profiles on its 1.4bn citizens, which, together with Beijing’s commitment to AI, will provide scientists in China a significant advantage to lead and dominate life sciences over the next decade.
WeDoctor is one of several similar start-ups
 
WeDoctor is just one of several recent Chinese online start-ups employing evolving technologies to improve China’s healthcare system. Another is Good Doctor, which is an offshoot of the Ping An Insurance Group, a financial giant with a US$181bn market cap, annual revenues of US$142b and 343,000 employees. Both start-ups compete to build smart clinics in rural China.
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WeDoctor endeavours to extend its franchise

In addition to its smart diagnostic device, WeDoctor has leveraged Tencent’s substantial expertise and resources in mobile, AI and cloud-based technology to develop a significant customer-focused retail prowess and is rapidly developing a range of services for healthcare providers and manufacturers of medical devices. This positions the company well to have a significant near-term impact on Asia’s healthcare systems. In 2018 alone, WeDoctor has strengthened and extended its franchise by entering into a number of partnerships with a range of healthcare stakeholders, which include insurance companies, specialist in the procurement and distribution of medical devises and also investment companies interested in improving the physical infrastructure of southeast Asian healthcare systems. We describe some of these partnerships, which enable WeDoctor to consolidate and expand its market position both in China and internationally and suggest that Western healthcare providers should be considering similar partnerships to help them make the product to service shift.
 
WeDoctor and the AIA insurance group

In May 2018, WeDoctor formed a strategic alliance with the AIA Group, which is the largest public listed pan-Asian life insurance group with customers in China and across the Asia-Pacific region. WeDoctor and AIA are aligned in their ambition to partner with consumers in China and across southeast Asia to provide innovative quality healthcare and wellness offerings and financial protection solutions. The partnership provides WeDoctor with preferred access to AIA’s customer base and thereby strengthens and enlarges its networks and strategies to deliver affordable, digitally-enabled personalised healthcare offerings. AIA becomes WeDoctor’s preferred provider of life and health insurance solutions and gains access to its 160m registered users. According to Liao the partnership, “leverages AIA’s long history and extensive operations across the Asia-Pacific region . . . and is crucial to meeting the diversified life and health insurance requirements of our growing user base as we look to anticipate users’ needs, through our platform’s expanding functionality and our mission to transform healthcare through technology. This partnership not only helps us to cement our position as the premier technology-enabled healthcare solutions platform in China but also supports us as we expand our international presence in the years to come”.  
 
WeDoctor and China’s IVF market

Also, in May 2018, WeDoctor made a strategic investment in Reproductive Healthcare,a new in-vitro fertilisation (IVF) group, which was formed by a merger between two of Hong Kong’s largest and most reputable IVF practices. This was WeDoctor’s first investment outside of Mainland China and represents a significant milestone for the implementation of its international strategy. The new company provides a comprehensive range of IVF services, which include intra-uterine insemination, frozen-thawed embryo transfer and egg freezing services for China and the Asian region. The new company’s established frozen embryo services benefit from findings of a paper published in the January 2018 edition of the New England Journal of Medicine, which suggest that pregnancy and live birth rates are similar among women who use fresh or frozen embryos.
 
WeDoctor and its expanded international IVF market
 
In August 2018 WeDoctor, entered into an agreement with the Mason Group and Aldworth Management to acquire an 89.9% stake in Genea, Australia's leading provider of integrated advanced assisted reproductive technology (ART) services. Headquartered in Sydney, Genea has over 400 employees and is a leading international fertility group with a 30-year track record and a significant presence in New Zealand and Thailand as well as Australia. The company offers a comprehensive range of ART services, including IVF, egg and embryo freezing, genetic testing, sperm banking, day surgeries and pathology. Genea has developed proprietary technologies, including culture media and embryo transfer catheters, which are used in more than 600 clinics across 60 countries and is the only ART platform, with both services and technology, in the industry worldwide. The agreement strengthens both WeDoctor’s international strategy and its ability to increase its share of China’s US$2bn and fast-growing IVF market. WeDoctor also is targeting a bigger share of the outbound Chinese IVF medical tourism market, which in 2017, grew approximately 40% year-over-year to approximately US$151m. According to Grand View Research, the global IVF market in 2017 was valued at about US$15bn and is expected to grow at a CAGR of around 10%.
 
WeDoctor is China's first smart medical supply chain solutions and procurement company
 
In July 2018, WeDoctor entered into a joint venture (JV) with IDS Medical Systems Group (idsMED Group), to form idsMED WeDoctor China Ltd. This is China's first smart medical supply chain solutions and procurement company and is positioned to transform China’s fragmented, multi-layered and relationship-driven medical device distribution systems.
 
idsMED is a leading Asian medical supply chain solutions company specialising in the distribution of medical devices and consumables, clinical education and hospital design and planning. It represents over 200 global MedTech companies and has extensive Asia Pacific distribution networks with access to over 10,000 healthcare institutions. The company has 1,600 employees, including 700 experienced field sales, product and clinical specialists and 300 professional bio-medical engineers providing installation and maintenance services.
 
The JV, owned 51% by WeDoctor and 49% by idsMED Group leverages the respective companies’ strengths, innovative resources and networks to procure medical devices and services centrally by connecting global manufacturers directly to China’s hospitals and healthcare providers. The JV will further enhance WeDoctor’s value proposition by managing and optimizing China’s entire medical supply chain, which until now has been fragmented, overly bureaucratic and complicated. In addition, idsMED WeDoctor will set up medical education and training academies throughout China to deliver and promote medical devices and clinical education as well as accredited medical training courses for doctors and nurses.
 
WeDoctor & Fullerton
 
In September 2018 WeDoctor entered into a strategic partnership with Fullerton Health a Singapore-headquartered healthcare service provider. The alliance is, “In line with WeDoctor’s international growth strategy and will extend our reach and facilitate our development in Asia,” said Jeff Chen, WeDoctor’s Chief Strategy Officer. The JV provides WeDoctor access to Fullerton Health’s 500 healthcare facilities and its network of over 8,000 healthcare providers across eight Asian pacific markets. Fullerton Health benefits from WeDoctor’s footprint in China and broadens its patients’ access to online healthcare consultations. In the near term, both companies aim to broaden their reach in the corporate healthcare service market by opening onsite medical centres for businesses across China. In addition, the partnership plans to create about 100 primary care and specialist outpatient facilities.
 
Takeaways

Healthcare has become digital and global and long ago, the geo-political axis of the world has moved East. To remain competitive, Western healthcare providers must increase their knowledge and understanding of initiatives in China and southeast Asia, be prepared to transform their strategies and business models and engage in partnerships with a range of healthcare stakeholders, complementary enterprises and start-ups in emerging nations.
 
Two of China’s largest healthcare challenges are the uneven distribution of its services and its vast and escalating costs. The nation has an underserved primary care sector and the most qualified and experienced doctors are concentrated in a few premier mega-city hospitals, which account for 8% of the total number of medical centres but handle 50% of the nation’s outpatient visits. These challenges are not unique to China but experienced by healthcare systems throughout the world.

WeDoctor is an exemplar of how such universal healthcare challenges might be improved by a combination of evolving smart technologies and strategic partnerships with a range of healthcare stakeholders. As MedTech companies continue to transform their business models to increase customer-centricity, the types of partners they need to engage will only expand. In a rapidly moving market, keeping abreast of these potential collaborators is critical.

Another takeaway is that WeDoctor does not use AI and big data technologies to resolve the mysteries of medicine, but to increase access to healthcare, improve diagnoses, enhance patient outcomes and lower costs. The company also is increasing the effectiveness and efficiency of healthcare providers by simplifying and centralizing procurement processes of medical devices and pharmaceuticals.
 
Once WeDoctor has helped to improve China’s healthcare infrastructure, the nation would have amassed the world’s largest personal, medical and genomic data base of its citizens. WeDoctor will then be well positioned to turn its formidable AI prowess to accelerating R&D in lifesciences, improving the accuracy of early diagnoses, enhancing the monitoring of devastating life-threatening diseases and improving personalized care.
 
WeDoctor is an exemplar for Western MedTech companies.
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  • Life-changing eating disorders are increasing, and their causes are assumed to be more about emotional and psychological challenges than food
  • For 60 years the global fashion industry has encouraged teenage girls and young women to emulate an unrealistic ‘thin ideal’ body image
  • As social media became the principal means for young people to communicate and receive information, so billions of fashion advertising dollars migrated to social media to propagate the ‘thin ideal’  
  • Although nearly a third of the world’s population participate in social media and a significant proportion are “extreme” daily users, the mechanisms of social media and their effect on young peoples’ mental health are not fully understood
  • Notwithstanding, there is a growing body of evidence suggesting that the more time people spend on social media the greater is their likelihood of developing mental ill-health and eating disorder

Is social media an accelerant for life-threatening eating disorders?
 
A May 2018 Brooking’s Institute research paper suggested that social media has become a significant mechanism for spreading and reinforcing misinformation - fake news - which can influence and disrupt democratic political processes and thereby are a threat to 21st century democracy.  Similarly, we contend that misinformation about body images, diets, lifestyles and beauty distributed on social media could be an accelerant for teenage and adolescent girls to engage in life-changing disordered patterns of eating to achieve an unrealistic body image.
 
A September 2018 report by Sky News UK suggested that entities, which actually promote eating disorders and unhealthy and dangerous attitudes towards food and body image were not picked-up by Instagram, an online photo-sharing app with 1bn active monthly users. Daniel Magson, vice chair of Anorexia & Bulimia Care, a charity, suggested that Instagram is "not a safe space” because it hosts communities, which promote, “the best ways to injure or self-harm,” and recommend “the best places to dine with private toilets for afterwards”.
 
A 2017 survey of 1,500 14 to 24 year-olds in the UK carried out by the Royal Society for Public Health (RSPH) rated Instagram the worst social media site for young people’s mental health, and suggested that, "social media may be fuelling a mental health crisis" in young people. Shirley Cramer, the CEO of the RSPH, said: "It's interesting to see Instagram and Snapchat (another photo sharing app with 191m active daily users) ranking as the worst for mental health and wellbeing; both platforms are very image-focused.Instagram is addressing the issue and recently announced that it is doubling the number of people working across safety and security teams for Facebook and Instagram to 20,000 by the end of 2018, which includes a team of 7,500 content reviewers (Facebook acquired Instagram in 2012 for US$1bn, 18 months after its launch).
 
In this Commentary

This Commentary:
1. Describes common eating disorders
2. Provides a brief analysis of the incidence, distribution and determinants of eating disorders
3. Explains the genesis of the ‘thin ideal’ and how it has become an unrealistic body image, which the fashion industry encourages young people to emulate
4. Provides a short historical description of Western social media and notes that although it has rapidly become a global phenomenon the mechanisms that drive it are not widely understood
5. Explains some of the hidden mechanisms how social media may affect a user’s perceptions of themselves and influence their behaviour
6. Provides a brief selective summary of the growing body of research, which reports “extreme” use of social media by teenager girls and young women and the rise in incidence rates of mental ill-health and eating disorders in this cohort
7. Describes how the fashion industry was quick to realise the significance of social media as a cost-effective means to influence the opinions and purchasing behaviour of teenage girls and young women and shifted billions of marketing dollars away from traditional content providers to social media platforms to promote the ‘thin ideal’
8. Suggests that longitudinal studies are necessary in order to increase our understanding of the association between multifaceted eating disorders and social media
9. Concludes that social media was a communications revolution that promised to increase interactions and flows of information and knowhow between millions of dispersed people and lower cultural, religious and regional divides. On one level it achieved this. But as social media developed and was better understood, so it was realized that social media could also be used as an agent for misinformation – fake news - and to encourage discordant behaviour. And therefore, social media could become an accelerant for mental ill health and life-threatening eating disorders.
 
1
Eating disorders
 
Almost everyone worries about their weight occasionally. Abnormal eating disorders are when individuals take such concerns to extremes and obsessively focus on their weight, body shape and food and this can threaten their health, emotions and their ability to function in important areas of life. The most common eating disorders are: (i) anorexia nervosa, which is a serious, potentially life-threatening illness where individuals often equate thinness with self-worth; think they are fat even when they are dangerously thin, and restrict eating to the point of starvation, which leads to extreme weight loss and a low body mass index (BMI) 2, (a BMI of between 18.5 kg/m2 and 24.9 kg/m2 is considered a healthy range for young women); (ii) bulimia nervosa: is when individuals eat excessive amounts of food, then purge, which may include self-induced vomiting, abuse of laxatives, diuretics, diet pills, appetite suppressants or other stimulants; and (iii) binge eating, which is when individuals regularly eat too much food (binge) and feel a lack of control over their eating, but they do not purge. Two further eating disorders, which are growing in significance, but as yet, are not officially recognised as medical conditions are orthorexia and drunkorexia. The former is when individuals want to live healthier lives by eating well, but then get so obsessed with “healthy” food that they become unwell and socially isolated. The latter is a condition where individuals use extreme weight control methods as a means to compensate for planned binge drinking.

 
2
Epistemology

Before 2000 the overall incidence rates of eating disorders were relatively stable for a few decades. But following the introduction and spread of social media there was a hike in the incidence rates, especially among Western teenage girls. However, it is not altogether clear whether this is due to an increase in eating disorders or the result of more effective diagnoses and a greater awareness of the conditions.

The US National Eating Disorder Association, estimates that there are some 70m people worldwide with eating disorders and about 30m in the US. A 2017 US National Institutes of Health report suggests that between 2001 and 2003 the lifetime prevalence of anorexia nervosa in American adults was 0.6%, and 3-times higher among females (0.9%) than males (0.3%). The prevalence of bulimia nervosa was 0.3%; 5-times higher among females (0.5%) than males (0.1%), and the overall prevalence of binge eating was 1.2% and twice as high among females (1.6%) than males (0.8%).

A 2013 report from the UK’s Joint Commissioning Panel for Mental Health suggested that there are over 1.6m people in Britain with eating disorders, but this is likely to be an underestimate since a significant proportion of people with such disorders do not seek help. The UK’s Department of Health suggests that a more likely figure is about 4m. Information provided by The Priory, a private hospital group specialising in mental health, suggests that 1% of all women aged between 15 and 30 in the UK are affected with anorexia nervosa, 40% of people with eating disorders suffer from bulimia, and the people most affected with eating disorders are females between 11 and 25.
 
The exact causes of eating disorders are not well established, but a significant body of opinion suggests that they are not about food, but more to do with unhealthy and sometimes life-threatening ways to cope with emotional problems. In parallel with these psychological explanations there is research to suggest that eating disorders have either genetic or biological causes associated with 2-way communications between the gut and the brain through both nerve connections and biochemical signals. A recurring theme shared by people with all types of eating disorders is an expressed or implied dissatisfaction with their body image and their aspiration to achieve the “thin ideal”, which is a concept that has been propagated by the fashion industry for the past 60 years.

 

3
The thin ideal
 
Over time what has generally been accepted as a beautiful body has changed. In recent history, the biggest change occurred in the I960s when thinness and the absence of a figure became a body image propagated by the global fashion industry as an ideal for teenage girls and young women to emulate. This was personified by Lesley Lawson, an English model known as “Twiggy”, who had a slim androgynous look and a body mass index (BMI) of 15 kg/m2, (a BMI under 18.5 kg/m2 is considered malnourished). Twiggy replaced the notion of a beautiful woman as full-figured and gave birth to the “thin ideal”.  In the 1970s diet pills and amphetamines became widely used to suppress appetite in order to cultivate the thin ideal. The 1980s was the decade of the supermodel when the thin ideal became even thinner, and about the same time anorexia nervosa began to receive mainstream medical attention. Notwithstanding, in the 1990s the ideal body for young women became an extremely thin look with big breasts, and by the end of the 90s the fashion industry propagated a “heroin chic” look, which was characterised by a skeletal body, emaciated features, androgyny, red lips and dark circles under the eyes. Thus, for the past six decades the body shape of the “most admired” models, which fashion advertising encouraged young girls to emulate, has remained consistently slimmer than that of the average western woman. However, at the end of the 1960s there was a “hippie” era when, for a relatively short period, a more full-figured look returned, and more recently there have been movements towards a more realistic standard of beauty. Notwithstanding, the thin ideal persists and continues to affect teenage girls and young women who emulate this unrealistic body image and become preoccupied with their weight and size, which some control by various unhealthy means and this results in anxiety, negative body image and dieting to below their natural body weight.
 
4
Social media

Over the past decade, as social media has become the primary means by which young people communicate, share and receive information, so the fashion industry has increasingly used social media to propagate the thin ideal. Social media is comprised of a collective of websites and applications, which enable users to create and distribute content and to interact and collaborate with friendship groups. Social media’s power and influence is significantly related to the number of users, its penetration and the regularity of usage. By the end of 2019 it is projected that there will be around 2.77bn social media users worldwide and 3bn by 2021, which equates to about a third of the world’s population. Social media’s global penetration is increasing: in 2017, 71% of internet users were social media users. Recent studies - see section 6 below - suggest that there is an increasing proportion of “extreme users” who spend up to 8 hours a day on social media.
 

A brief history of social media

Here we provide a brief and partial history of Western social media platforms. Social media started in 1997 with Six Degrees, which was an online platform that enabled users to upload their profile and share it with friends. MySpace followed in 2003 and was acquired 2 years later by News Corporation for US$0.58bn. At its peak in 2008, MySpace was the world’s most visited social media site with 76m unique monthly visitors. LinkedIn, a business and employment networking platform was also founded in 2003 and today has some 0.5bn registered members in 200 countries, 106m of whom are active. Facebook launched in 2004, has become the world’s most widely used social media platform with some 2.23bn active monthly users. 76% of Facebook users are female. In 2012 it was estimated that 83m Facebook accounts were bogus, (for relevance see discussion on ‘social bots’ in section 5 below). YouTube founded in 2005, is a global video sharing platform featuring a wide variety of user generated and corporate media content and is now the world’s 3rd most visited site after Google, the world’s most used search engine. Every minute some 400 hours of video are uploaded onto YouTube, each day people watch 1bn hours of videos, more than half are watched on a mobile device and the average viewing session lasts 40 minutes. Reddit, founded in 2005, is a social media forum where content is socially curated and promoted by users through voting. It was acquired by Condé Nast in 2006 for an undisclosed amount between US$10 and US$20m but is now independent. As of February 2018, Reddit had 542m active monthly visitors. Twitter, an online news and social networking site launched in 2006 has some 328m monthly active users. Tumblr, founded in 2007 and acquired in 2013 by Yahoo! for US$1.1bn, is a microblogging and social networking website. As of 2017, Tumblr had almost 738m unique visitors globally and generated over 148bn posts. Instagram a photo and video-sharing social media network was founded in 2010, acquired by Facebook in 2017 for US$1bn, and has 1bn monthly active users. Snapchat, a multimedia messaging app launched in 2011 has some 188m active daily users sharing over 400m photographs every day. Facebook, Instagram and Snapchat are the most popular social media sites.
 
5
Hidden mechanisms that drive social media

Human biases
Social media encourages users to constantly compare and judge their bodies with that of the thin ideal of “friends” and “celebrities” they follow. Cyberbullies and body shamers, can relatively easily use social media to infiltrate an individual’s private space and daily life. They may then constantly post information, which can affect that individual feeling inadequate about themselves and their body image. Social media postings can be 'shared', 're-tweeted', 'liked', copied and end up 'going viral'.  Where a posting is defamatory, the damage done can be significant.  Cyberbullying is a form of wilful and repeated harm, which is inflicted through the use of social media and is often directed at a user’s body image and appearance. Shamers are people who use social media to publicly mock or criticize someone for a particular aspect of their appearance or behaviour and makes them feel either humiliated or ashamed.

Females under 25, are predisposed to perceive what they see on social media as reality despite the fact that many images could have been altered and information might be fake. Social media differs from traditional mediabecause it is a distributor of content and not a publisher. This means that social media platforms are not regulated in the same way as traditional media outlets, which suggests that misinformation can be spread unimpeded. Individuals tend to pay more attention to information that supports their previously held beliefs and are more prone to share such information even if it is false. Further, individuals have different tolerance levels towards the ambiguity of information and have an innate desire to minimize uncertainty. Social media provides a means to do this. Users can use the “like”, sharing and friendship functions to give precedence to information that accords with users’ perceptions of self, body image and beauty etc. This tends to narrow the scope of information, which individuals receive, and therefore users of social media are often unaware of competing perspectives. Thus, social media can have the effect of segregating people into virtual communities of likeminded individuals, which makes them potential targets of specific marketing endeavours seeking to influence their behaviour.

Social media and Al
The behaviour of social media users is also influenced by deep learning algorithms. Originally social media used artificial intelligence (AI) to forward information chronologically. Now algorithms are taught to identify information, which already has significant engagement among friendship groups and then to distribute that information to millions of like-minded users, who, in turn share it with their friendship groups, which then is identified again by algorithms and distributed even further and so on and so forth. This creates a significant ‘cycle of influence’, which can be used to effectively spread messages and body images to people predisposed to such information and is a gift to marketers who can use such mechanisms to influence peoples’ beliefs and behaviours at zero cost. Marketing firm Tribe Dynamics has developed a metric called “Earned Media Value” (EMV), which measures the marketing revenues saved through such social media promotional endeavours. It seems reasonable to suggest that such cycles of influence could transform social media platforms into agents for establishing and confirming user biases towards body images, diets and lifestyles just as fake news can influence peoples’ political beliefs and behaviours.
  
Social bots
Bots are automated software applications. Social bots, with fake identities, control social media accounts and trick legitimate users that they are real human beings and they then automatically generate and spread images and information at a much higher rate than any human. This can significantly affect users’ opinions and behaviours. Although illegal, social bots are provided as a service by marketing companies. Celebrities use them to boost their social media images and make them appear to have many more followers than they actually do; and this can legitimize them being social influencers.  Social bots are most common on Twitter, but they are also used on other social media platforms. For instance, as mentioned above, Facebook is reported to have some 83m fake accounts. What differentiates social bots from other forms of malware is the fact that they specifically exploit social media’s trust factor to join networks and friendship groups so that they can influence users’ opinions and behaviours. Social media platforms are beginning to employ neural networks to identify social bots and close them down, but still they persist.
 
Users’ naivety
A significant proportion of social media users do not understand the hidden mechanisms used to influence an individual’s opinions and behaviours. While most social media users understand that not all information they find online is truthful, a  2018  study by the UK government’s telecommunications regulator Ofcom suggests that 10% of social media users do not think about whether the “factual” information they find is truthful, and 23% do not make any checks on the trustworthiness of the content on social media. Although 54% are aware of how search engines are mainly funded, 18% give an incorrect response, and almost 28% do not know. Only 48% of search engine users are able correctly to identify advertising on Google, despite it being identified by a box with the word “Ad” in it, and just under 18% think that if something has been listed by a search engine it must contain accurate and unbiased information, although this figure has decreased since 2016, when 21% thought so.
 
6
The evidence

Extremeusers
It is well-established that teenagers and young adults spend a significant amount of time on social media and increasingly less time with traditional media such as TV, magazines and newspapers. According to Statista, in 2017, the average daily usage of social media worldwide amounted to 135 minutes, up from 126 minutes in 2016. Teenagers and young adults in the US and UK spend an average of 170 and 180 minutes a day respectively on social media. The 2018 Ofcom report, mentioned above, suggests that 6% of British children between 12 and 15 are “extreme users” of social media and spend up to 8 hours a day online at weekends, and this could negatively affect their mental health. Findings further suggest that during the week 1% of this cohort spends more than 8 hours a day on social media, 4% more than 6 hours and 11% between 4 and 8 hours. The report concludes that social media use in the UK is almost universal: 98% of 16 to 24-year-olds use social media as do 96% of those between 25 and 54.

Eating disorders
A 2011 study by researchers from the University of HaifaIsrael, examined 248 young women between 12 to 19 and found that more exposure to social media contributed to higher rates of eating disorders and related concerns. Specifically, the more time they spent on social media, the more likely they were to struggle with “…bulimia, anorexia, physical dissatisfaction, negative physical self-image, negative approach to eating and more of an urge to be on a weight-loss diet.”

Mental ill health
A  July 2015 paper published in Cyberpsychology Behavior and Social Networking, suggests a significant correlation between time spent on social media and experiences of high levels of psychological distress and suicidal ideation. Findings show that students with poor mental health spend longer on social media. An association between time spent on social media and mental ill-health is also suggested in a 2015 US study by the non-profit group Common Sense MediaBased on a national sample of more than 2,600 young people aged between 8 and 18, findings suggest that teenagers are spending more than 9 hours a day using social media; and children between 8 and 12 nearly 6 hours a day; and that time spent on social media impacts their mental health.

A 2015 report from the UK’s Office for National Statistics suggests that children who spend more than 3 hours a day on social media are twice as likely to report ‘high’ or ‘very high’ scores for mental ill-health. These findings accord with a 2017 study undertaken by Emily Frith for the OECD entitled Social Media and Children’s Mental Health. Frith’s findings suggest that there is a significant correlation between time spent on social media and mental ill-health: 37% of British 15-year-olds are “extreme social media users” spending at least 6 hours a day online and this may have damaging mental health consequences. Further, 18% of extreme social media users in the UK were more likely to report being bullied, which is a contributory factor of mental ill-health.

Cyberbullying and eating disorders
A 2018 UK all party parliamentary inquiry into social media and cyberbullying found that cyberbullying is, “distinct and potent, particularly due to its potential to be relentless". . .and there is an, “association between the time children spend on social media and their emotional well-being . . . . . Children and young people who are currently experiencing a mental health problem are more than three times more likely to have been bullied online in the last year.” The Inquiry also suggests that, “There is a connection between intensive social media use and mental ill-health - 38% of young people reported that social media has a negative impact on how they feel about themselves, compared to 23% who reported that it has a positive impact. This was exacerbated for girls, with 46% of girls stating that social media had a negative impact on their self-esteem.” A 2015 report by the US National Eating Disorders Association found that, “65% of people with eating disorders say bullying contributed to their condition”.

 
7
The global fashion industry’s advertising dollars
 
The global fashion industry has a market value of about US$3trn, and employs some 116m people. In recent years, as traditional media declined and social media became the principal way people consumed and shared content, so marketing revenues shifted from traditional content providers to social media. This migration is aided by the increase popularization of mobile telephony and the increasing availability and affordability of mobile internet. eMarketer, a consultancy, estimates that in 2018 US marketers will spend some US$48bn on digital display ads. Social advertising in all formats is gaining traction and will be among the key drivers of digital advertising growth in the next five years. Social advertising revenue is expected to reach US$31bn by 2021, up from US$16bn in 2016.
 
8
More research needed

We have described some research, which documents the “extreme” use of social media by teenagers and young adults and the rise in incidence rates of mental ill-health and eating disorders. Also, we have described some studies that suggest a significant association between the two variables. Notwithstanding, establishing significance between complex eating disorders and social media remains challenging despite the fact that the incidence levels of eating disorders increased during the period of rapid social media growth. Challenges to establishing significance include: (i) a relative lack of deep understanding of social media and the global fashion industry, (ii) a relative lack of consistent data for long-term time series studies, (iii) the fact that over the past few decades the diagnostic criteria of eating disorders have changed, and (iv) research methods and access to patient mental health data have also changed.

We also have shown that the concept of the thin ideal has been propagated by a media driven celebrity culture over the past 60 years. We describe some of the “hidden” mechanisms and techniques used by social media to spread specific messages in order to influence users’ opinions and behaviours. These, together with: (i) the rapid spread and “extreme” usage of social media and (ii) the fact that billions of marketing dollars have shifted away from traditional media to social networks in order to influence opinions and behaviours, is evidence to suggest that social media could have a significant influence on impressionable young girls’ perceptions about themselves, their body images and encourage them to engage in disorderly eating to reduce their body weight to an unhealthy level.
 
9
Takeaways
 
Social media is a communications revolution, which promised unprecedented connectivity and the free flow of ideas and knowhow, which transcends cultural and geographic boundaries and brings greater choice and enhanced freedom to billions of people. There is no better illustration of its power and influence than the Arab Springin 2010 when social media was used to instigate the overthrow of numerous dictatorships in various regions of the world. For a short time afterwards, social media appeared to be the gateway to a new era for democracy and freedom of choice. However, none of the spontaneous uprisings fuelled by social media resulted in any discernible long-term benefits. As social media grew so did peoples’ knowledge and understanding of the phenomenon, and so grew concerns that social media could be a two-edged sword with the capacity to damage and harm as well as do good. Social media might well be an accelerant for life-changing eating disorders, but it still has to be proven.
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  • CRISPR-Cas9 genome editing technology discovered in 2012 has revolutionized biological science and brought hope to millions of people born with incurable inherited killer diseases
  • In July 2018 the UK’s Nuffield Council on Bioethics endorsed the technology to make changes at the cell level in the human body that are heritable
  • This alarms bioethicists because there is no universally agreed regulation for CRISPR and the technology is cheap, easy-to-use and accessible and the line between “therapy” and “enhancement” is blurred
  • CRISPR was invented in the West but is rapidly being transformed into therapies in China where regulation is less than stringent
  • Will genome editing be used to enhance off-springs that satisfy parents’ preferences for children with specific characteristics?
 
 
CRISPR-Cas9 genome editing a 2-edged sword 
 

The genie is out of the bottle!
 
On the 17th July 2018 the UK’s Nuffield Council on Bioethics published a report entitled, Genome Editing and Human Reproduction: Social and Ethical Issues, which concluded that germline editing, a process by which every cell in the human body could be altered in such a way that the change is heritable, is “morally permissibly” under certain circumstances. The Council was referring to developments of an invention made in 2012 by scientists Jennifer Doudna, and Emmanuelle Charpentier. They discovered how to exploit an oddity in the immune system of bacteria to edit genes, which resulted in CRISPR-Cas9, (an acronym for Clustered Regularly Interspaced Short Palindromic Repeats), which is generally considered the most important invention in the history of biology. Since its discovery, modified versions of the technology have found a widespread use to engineer genomes and to activate or to repress the expression of genes. Clinical studies testing CRISPR-Cas9 in humans are underway.

 
In this Commentary

In this Commentary we: (i) describe CRISPR-Cas9 and indicate how it has impacted medicine, biotechnology and agriculture, but suggest that it is most famous for its potential to modify human embryos to provide therapies for inherited killer diseases for which there are no known cures, (ii) suggest that although the technology is gaining regulatory support for its use in humans, there is no universal regulatory agreement. Some countries remain opposed to using CRISPR to edit human embryos while in China regulations is less than stringent. This patchy and loose state of affairs raise concerns among bioethicists, (iii) describe a non-profit agency that has significantly increased the accessibility of the technology, which has helped to democratise CRISPR, but also makes it easier for less stringently controlled laboratories to acquire it, (iv) briefly describe the Chinese scientists first use of the technology in humans and some of the unintended consequences which resulted. We provide examples of research that followed and briefly describe the US-China race to transform CRISPR into viable therapies, and suggest that China, helped by laxed regulation, is winning the race, (v) suggest that these factors, plus the fact CRISPR blurs the distinction between ‘therapy’ and ‘enhancement’, seems to convince bioethicists that the technology at some point in the future will be used to create ‘designer babies’, (vi) conclude by noting that for millennia people have been using radical and painful methods to modify their own and their children’s bodies and this seems to suggest that in time, germline editing will be perceived as a logical extension of these customs and practices, the genie is out the bottle and customize children are likely to become the norm.
 
CRISPR-Cas9

CRISPR is a mechanism deployed by bacteria to identify the DNA of invading viruses and is used by scientists to target a specific gene. Cas-9 is an enzyme, which acts like a pair of molecular scissors to cut out a piece of DNA and, if need be, replace it with a new gene. The process is faster, cheaper and easier to use than traditional genetic modification and has been likened to editing a Word document on a computer. Thus, gene editing has been taken away from highly skilled and tightly regulated molecular biologists and made more widely available. This not only democratizes science but also heightens ethical concerns.
 
CRISPR technologies impact medicine biotechnology and agriculture
 
Since the breakthrough was made in 2012, CRISPR-Cas9 has quickly development into a powerful, cheap and accessible tool in genetics. The technology is programmable, efficient, precise and scalable and has driven significant advances across medicine, biotechnology and agriculture throughout the world. As the world’s population and average temperatures increase, the demand for larger, more nutritious harvests and climate-adaptable crops will grow. The application of CRISPR technology to agriculture allows for an efficient and accurate mode of genetic manipulation to meet these increasing needs. The technology also has been used in the fight against malaria. According to a 2018 World Health Organization report, in 2016 there were 216m cases of malaria worldwide and 445,000 deaths from the disease. Malaria is spread by the female Anopheles-gambiae mosquito, which is one of 3,500 species of mosquitoes. Scientists have used CRISPR technology to edit the genes of this specific type of mosquito to avoid the malaria causing parasite. In a study carried out at Imperial College London and published in the September 2018 edition of Nature Biotechnology researchers succeeded in destroying a population of trapped Anopheles mosquitoes by using CRISPR  technology to genetically alter cells  to spread a genetic modification that blocks female reproduction so, over time, the malaria spreading Anopheles mosquitoes die out. The research demonstrates how a specific CRISPR application can propagate a particular suite of genes throughout an entire population or species and empower scientists in the war against diseases. “It provides hope in the fight against a disease that has plagued mankind for centuries,” says Andrea Crisanti, lead author of the Imperial study.
 
But the one application, which has made CRISPR famous is the modification of the human genome, which promises to cure some of the world’s deadliest diseases for which there are no known therapies. There are some 10,000 genetic diseases of which less than 6% have approved treatments.
 
Regulatory support
 
CRISPR genome editing technologies have been gaining regulatory acceptance for their use in humans and an increasing number of scientists in the US, UK and China have reached conclusions similar to those of the Nuffield Council, and suggest that if germline editing is shown to be safe and there are no medical alternatives, it should be permitted to prevent children being born with fatal diseases. In 2017, the UK’s Human Fertilization and Embryology Authority approved an application to use genome editing, which allows scientists to change an organism’s DNA in research on human embryos. Also, in 2017 a report from the US National Academy of Sciences (NAS) stated that clinical trials for editing-out heritable diseases could be permitted in the future for serious conditions under stringent oversight. At the same time as the Nuffield Council published its findings, - July 2018 - the US Food and Drug Administration (FDA) Commissioner Scott Gottlieb announced a new regulatory framework for genome editing for rare diseases. The following month, - August 2018 - the FDA along with the US National Institutes of Health (NIH) issued joint guidelines for a new streamlined process for assessing the safety of gene-therapy human clinical studies.  And in an August 2018 New England Journal of Medicine editorial Gottlieb and NIH Director Francis Collins argue that, “there is no longer sufficient evidence to claim that the risks of gene therapy are entirely unique and unpredictable - or that the field still requires special oversight that falls outside our existing framework for ensuring safety.”
 
No international regulatory framework for CRISPR triggers concerns
 
Despite increasing support for genome editing, to-date no internationally agreed regulatory framework exists that addresses the ensuing scientific, socio-ethical and legal challenges CRISPR technologies pose for regenerative and personalised medicine. Regulation is on a country-by-country basis and most nations struggle to assess whether gene editing may or may not be different from classical genetic engineering. Several nations remain opposed to the use of the technology in humans. The most contentious issue is human germline editing.

In Canada human germline editing is a criminal offence and sanctions range from fines of US$400,000 and up to ten years imprisonment. However, there is mounting pressure from Canadian scientists to change the law. France restricts genome editing research and supports the Oviedo Convention, which is the first multilateral binding instrument entirely devoted to bio-law. It came into force in 1999, backed by the Council for Europe and aims to prohibit the misuse of innovations in biomedicine. The treaty states that, “An intervention seeking to modify the human genome may only be undertaken for preventive, diagnostic, or therapeutic purposes and only if its aim is not to introduce any modification in the genome of any descendants”. In Germany germline editing is constrained by its 1990 Embryo Protection Actwhich prohibits the generation and use of embryos for basic research, and also prohibits the harvesting of embryonic cells. South Korea’s Bioethics and Biosafety Act prohibits genetic experimentation, which modifies human embryos. Western observers suggest that regulation in China is “thin and tends to be at the provincial and hospital levels. It has been reported that Chinese hospital review boards have approved clinical studies involving gene-editing and cancer patients without fully understanding the nature and power of the technology.
The “dark-side” of CRISPR technology

Weak regulation raises concerns about the level of ethical conduct in clinical studies and the potential dangers this holds for future therapies. Cognisant of CRISPR’s powerful capabilities, its relative cheapness and accessibility, (see below) James Clapper, the former US Director of National Intelligence describes CRISPR-Cas9 gene editing in the 2016 and 2017 Agency’s Worldwide Threat Assessment reports submitted to the US Congress as, “a potential weapon for mass destruction”. Jennifer Doudna, one of the inventors of CRISPR-Cas9 says that there are things which you would not want the technology used for and, “most of the public does not appreciate what is coming”. These sentiments resonate with bioethicists concerned about the absence of stringent universal regulation and the technology getting into the “wrong hands” and resulting in “designer babies”, an escalation of societal inequalities and increased safety and biosecurity issues.
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The global competition to translate genomic data into personal medical therapies

PART 1
 

and

PART 2
 
 
Democratizing the CRISPR technology
 
Notwithstanding, many scientists view the ease of access to CRISPR technologies as a significant driver of cutting-edge research and the speed at which therapies for life-threatening diseases will enter clinics. The organization most responsible for CRISPR’s widespread accessibility is Addgenea self-sustaining, non-profit plasmid repository, which facilitates the exchange of genetic material between laboratories throughout the world. (A plasmid is a small DNA molecule within a cell that is physically separated from a chromosomal DNA. It can replicate independently and is used in the laboratory manipulation of genes). It is free for scientists to deposit plasmids in Addgene and a nominal fee is charged for requests. This allows for maintenance and growth of the repository without reliance on grants or external funding. Founded in 2004, Addgene has significantly reduced the frustration scientists experience sharing plasmids with one another. The organization has developed into an important one-stop-shop for depositing, storing, and distributing plasmids globally and this has significantly enabled the democratization of CRISPR technologies. More than 6,300 CRISPR-related plasmids have been developed by over 330 academic laboratories throughout the world and deposited with Addgene. Since 2013, the organization has distributed over 100,000 CRISPR plasmids to some 3,400 laboratories in more than 75 countries. 
 
Mixed results when CRISPR was first used in humans
 
CRISPR technology was first used in humans in China, when a group of scientists led by Junjiu Huang from Sun Yat-sen University in Guangzhou, attempted to modify the gene responsible for β-thalassemia, a potentially fatal blood disorder. Although the genomes of human embryos edited by the scientists could not be developed into a foetus, the researchers had difficulties publishing their findings because of ethical concerns. After being rejected by the journals Science and Nature their paper was published in 2015 in the journal Protein & Cell. The work triggered an international debate, but the research had a low success rate: only 4 of the 54 embryos that survived the technique carried the repaired genes. Huang and his colleagues identified two challenges. One was unintended genetic modifications - off target effects - when CRISPR either changes a gene scientist did not want changed or it fails to change a gene that they did. The second was that embryos, which did not get edited correctly mixed with those that did and became what is referred to as a “mosaic”.  
 
New study discovers the deletion of thousands of DNA bases
 
Initially, these anomalies were thought to be minimal and improvements to the technique were thought to be able to reduce them so that they were virtually undetectable. Indeed, since 2015 the science of human genome editing has advanced significantly and there has been an explosion of research. In 2017 alone, there were some 3,500 research papers published on CRISPR technologies but concerns about CRISPR’s accuracy remain. During the past three years of intense research CRISPR-Cas9 became popularly perceived as a technique that can edit genetic code to correct defects inside individual cells and prevent and heal many intractable illnesses. Notwithstanding, also there has been a growing concern among scientists that because Cas9 enzymes reprogram the DNA of a cell, which is the fundamental building block for the development of an organism, the technique, if inaccurate, may cause more harm than good. Recent research supports this view. A study published in the July 2018 edition of  the journal Nature Biotechnology discovered deletions of thousands of DNA bases, including at spots far from the edit. Some of the deletions can silence genes that should be active and activate genes that should be silent, including cancer-causing genes. This suggests that previous methods for detecting off-target mutations may have underestimated their true scale and therefore the potential for unintended consequences when using CRISPR technologies might be higher than originally thought. This finding poses a significant challenge for developing policy associated with CRISPR because you do not know what off-target effects will occur in humans until you use the technology.
 
Who is developing CRISPR-Cas9 therapies?
 
Notwithstanding, CRISPR–Cas9 is fast entering mainstream R&D and is perceived as a principal technology for treating diseases with a genetic basis and is increasingly playing a significant role in drug discovery. Scientists use the technology to either activate or inhibit genes and can determine the genes and proteins that cause or prevent specific diseases and thereby identify targets for potential therapies. Notwithstanding, drug development is a long and expensive process: it can take more than a decade and cost some US$2bn for researchers to move from the discovery of a target molecule to the production of a clinically approved therapy.  So, it could be some time before the first drugs using CRISPR–Cas9 gene editing make it to the clinics. Notwithstanding, a lot has been achieved in a relatively short time.
 
Research examples

UK examples of research using CRISPR technology include scientists from the Huntington’s Disease Centre at University College London’s Institute of Neurology, who in 2017 completed the first human genetic engineering study, which targeted the cause of Huntington’s disease and successfully lowered the level of the harmful huntingtin protein that irreversibly damages the brains of patients suffering from this incurable degenerative condition.  In another study using CRISPR technology and published in a 2017 edition of the New England Journal of Medicineresearchers from Barts Health NHS Trust and Queen Mary University London  made a significant step towards finding a cure for haemophilia A, a rare incurable life threatening-blood disorder, which is caused by the failure to produce certain proteins required for blood clotting. 
 
Human clinical studies
 
Although CRISPR has proved its worth as a research tool, its use as a therapeutic is still uncertain. This is partly because the technology is so new there is a dearth of data upon which to base clinical evaluations. Notwithstanding, since Chinese scientists first used CRISPR to edit a human embryo's genome, new and more accurate variants of CRISPR have been developed. At about the same time - 2015 - that Huang published his findings using CRISPR for the first time in humans, two children with Acute Lymphoblastic Leukaemia, an incurable cancer, were treated at Great Ormond Street Hospital (GOSH) in London with a version of CRISPR called CAR-T cell therapy. This entails extracting blood cells from patients, then using CRISPR technologies to edit the T cells outside the body - ex vivo gene therapy - in order to transform the cells into enhanced cancer fighters before reintroducing them back into the patient’s blood stream. The treatment proved to be such a success that in 2018 CAR-T cell therapy was made available on the NHS. A US clinical study using the same technique started in August 2018 for people with Acute Lymphoblastic Leukaemia
 
Over the past three years scientists in China have used newer versions of CRISPR to genetically engineer cells of at least 86 cancer and HIV patients. These cases form part of eleven human clinical studies using CRISPR-Cas9 technologies, ten of which are being undertaken in China. Another development of CRISPR is ‘base-editing’, which chemically modifies rather than cuts DNA. An August 2018 edition of the journal Molecular Therapy, describes how scientists in China used  base editing, to remodel the DNA of human embryos to treat patients with the Marfan syndrome, which is a relatively common inherited connective tissue disorder with significant morbidity and mortality. A further milestone for the technology was reported 2018 when a study, led by Zheng Hu of the First Affiliated Hospital, Sun Yat-Sen University, Guangzhou, Guangdong, China, was the first to edit human cells while inside the body in an attempt to eliminate the human papilloma virus, which is the main cause of cervical cancer.
 
Company activity and clinical studies
 
Since the first publications in 2012 showcasing CRISPR-Cas9 as a gene editing tool, a number of companies have been set up to leverage the technology to develop innovative therapies. For example,  Editas Medicine, was founded in 2013 by Feng Zhang, Jennifer Doudna, David Liu, George Church, and J.Keith Joung. However, just a few weeks after the company’s formation, Doudna stopped all involvement with Editas after Zhang was granted a number of CRISPR patents and issues concerning intellectual property began to appear. In October 2018 Editas filed an Investigational New Drug (IND) application with the US Food and Drug Administration (FDA) for a clinical study of a CRISPR genome editing medicine called EDIT-101 for the treatment of Leber Congenital Amaurosis type 10 (LCA10). This is a serious eye disorder that affects the retina, which is the specialized tissue at the back of the eye that detects light and colour. People with LCA10 typically have severe visual impairment from infancy.

In 2018 the European Patent Office granted Cellectis, a French biopharmaceutical company, the first patent to use CRISPR technology in human T cells.The patent will protect the application of CRISPR gene editing for T cell research until 2034, meaning every other company employing similar systems will need a license from Cellectis. Also, in 2018 CRISPR Therapeutics, co-founded by Emmanuelle Charpentier began a clinical study using CRISPR genome editing technologies and a similar ex vivo approach to target the blood disorder β-thalassemia. As yet no CRISPR therapies have reached the clinic.
 
US-China competition
 
There is intense and growing scientific competition between the US and China. Although CRISPR was invented in the West, it is more rapidly being transformed in China into therapies that can be used in clinics. An article in a January 2018 edition of the Wall Street Journal suggests that regulation governing genome editing of human embryos in China is much less stringent than in the West where researchers have to pass muster with hospital review boards, ethics committees and government agencies before receiving approval. In China it is not unusual simply for hospital committees to give such permissions. According to Carl June, director of translational research at the Abramson Cancer CenterUniversity of Pennsylvania and well-known for his research into T-cell therapies for the treatment of cancer, “We are at a dangerous point in losing our lead in biomedicine. It is hard to know what the ideal is between moving quickly and making sure patients are safe”. Western scientists believe that the less that stringent regulation in China gives Chinese researchers a significant competitive advantage in the race to get CRISPR therapies into clinics and bioethicists believe that loose regulation will result in unintended consequences that will harm patients and lead to “designer babies”, which could set-back the field for everyone.
 
Blurred line between therapy and enhancement
 
What makes regulation challenging is that CRISPR technologies blur the distinction between “therapy” and “enhancement”. Indeed, the 2018 Nuffield Council report referred to at the beginning of this Commentary suggests that such a distinction between therapy and enhancement cannot be expected to hold. Thus, it seems reasonable to assume that sometime in the future, CRISPR technologies, which are cheap, easy to use and accessible could be used to genetically enhance off-springs. In the first instance this solely might be focused on eradicating life-threatening diseases, but in the longer term it seems probable, especially in the absence of any universally agreed and tightly administered regulations, that genome editing will be used to create off-springs, which satisfy parents’ preferences for children with specific characteristics. Further, CRISPR technology is becoming popular among DIY scientists and biohackers – people who experiment on themselves - which exacerbates the concerns of bioethicists.
 
People have been radically altering bodies for millennia
 
Another reason to believe that germline editing will be used for ‘cosmetic’ enhancements rather than medical therapies is that for millennia people have used radical techniques to modify their own and their children’s bodies for cosmetic rather than therapeutic purposes. Here we illustrate the point with a few examples.
 
From the Song dynasties, which ruled China between 960 and 1279 until the early 20th century, the Chinese practiced the custom of breaking their first daughter’s toes and tightly binding them under the soles of their feet in order to stunt growth so that when the girl grew up she would walk diffidently, which was perceived as attractive. In England during the Victorian era between the mid 19th and the beginning of the 20th century, women, to make themselves attractive to men, corseted their bodies so tightly to create twelve-inch waists that their internal organs were redistributed with potentially dangerous consequences. Girls as young as 4 from the Kayan tribe of Myanmar use heavy brass coils to elongate their necks; a painful tradition dating back to the 11th century. The brass coils, that weigh an average of 10 kilos, deform their collar bones and neck and shoulder muscles. The Mursi tribe in Africa cut the lower lips of girls and insert plates to stretch the lips up to 12 cm in diameter.
 
In the 1970s and 1980s elective cosmetic surgical procedures gained popularity among wealthy people on the East and West coasts of America in order to enhance their appearance. The trend soon became global through the explosion of mass media. According to the International Society of Aesthetic Plastic Surgery in 2017 there was a 9% overall annual increase in surgical and nonsurgical cosmetic procedures globally. The US was the leader, accounting for 17.9% of all procedures. The top five countries were the US, Brazil, Japan, Italy and Mexico, which together accounted for 41.4% of all cosmetic surgical procedures worldwide. Russia, India, Turkey, Germany and France completed the top ten countries. In 2017, 400,000 American women elected to have breasts augmentation surgery; a 41% increase since 2000. About 1m rhinoplasties are carried out each year, with high volumes in Brazil and Mexico. The International Society of Aesthetic Plastic Surgery also reported that in 2016 surgeons in South Korea carried out the most cosmetic surgical procedures per capita: 20 per 1,000 people. V-shaped chins, with minimal jaw or cheekbone, round skulls, lifted lip corners, petite lips and slight puffiness under the eyes have been popular surgeries in South Korea, but recently the demand for such procedures has decreased while simpler and less invasive surgeries have increased. The Society also reported that labiaplasty showed the biggest (45%) increase since 2015. Lower body lift procedures increased by 29%, while upper body lift, breast augmentation using fat transfer, and buttock lifts increased by some 20%.

Such examples suggest that body enhancements, using a range of techniques, have been practiced in many cultures throughout the world for millennia. Thus, it seems reasonable to assume that in the absence of stringent regulation CRISPR will be perceived by some as just another enhancement technique.
 
Takeaways

The discovery of CRISPR Cas9 has revolutionized the way we think about developing therapies for the world’s deadliest diseases. This powerful technology has significant advantages over traditional medical technologies; it is cheap, easy-to-use and accessible, and these factors have helped to drive CRISPR’s global acceptance and use as a tool for new and innovative therapies. Over the past three years CRISPR R&D and clinical studies have developed at a pace and bring huge promise and significant hope to millions of people living with conditions with high rates of morbidity and mortality. Notwithstanding, bioethicists warn that with the absence of stringent universally agreed regulation, all these advantages could easily pivot into significant disadvantages and lead to parents enhancing the genetic composition of their children to make them taller, more intelligent etc. This could be a small step away from reigniting the ‘Charles Galton movement’. Galton was an English scholar and cousin of Charles Darwin. He lived during the Victorian era and died in 1911. Among other things, Galton studied anthropology and sociology and suggested that the elevated social position and heightened intelligence of the English upper classes and the criminality and lack of intelligence of the English under classes were all inherited traits and the result of superior and inferior genetic make-up respectively. According to Galton societies could be improved by selective breeding. Bioethicists are concerned that CRISPR technologies could be used for a 21st century version of Galtonism.
 
The genie is truly out of the bottle.
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  • ‘Base editing’ is a more efficient version of CRISPR Cas-9 technology
  • CRISPR Cas-9 is a ground-breaking gene editing technology that was discovered in 2012
  • CRISPR Cas-9 operates like molecular scissors to cut and remove mutant strands of DNA and creates space for functioning genes to be inserted
  • CRISPR technologies raise hope for new therapies to replace traditional medicines and provide a one-time procedure to cure devastating inherited disorders that have no cure or few treatment options
  • Recent studies suggest that CRISPR Cas-9 is not as accurate as initially thought and can introduce thousands of unintended ‘off-target’ mutations into the genome
  • Base editing significantly reduces ‘off-target’ mutations because it does not cut the DNA but uses a chemical process to convert just one letter (base) of DNA into another
  • 66% of genetic illnesses involve mutations where there is a change in a single letter of DNA
  • A significant challenge for base editing is in the delivery of the technique
 
Base-editing next-generation genome editor with delivery challenges

Since the first human genome was sequenced in 2003 there has been a revolution in human genomics, which has transformed the way we think about diseases and their causes and has paved the way for the development of therapies that target both the illness and the patient. It has also led to the introduction of the genome-editing tool CRISPR Cas-9 in 2012. This transformed gene editing from a devilishly difficult task to an easy and inexpensive “day-to-day” laboratory technology, which allows scientists to cut-out and change sections of DNA at specific sites in an organism or cell. CRISPR technology revolutionized genetic research and raised hope that it could provide a powerful therapeutic tool for millions of people living with inherited debilitating diseases for which there are either no cures or few treatment options. Recently, next-generation gene-editing technologies have been developed, which have reignited the hope that gene therapies could eventually replace traditional medicines and be used by physicians in clinics as a one-time procedure to cure some of the most devastating inherited disorders. Notwithstanding, scientists have cautioned that the therapeutic use of CRISPR technologies have significant technical, safety, regulatory, ethical and delivery obstacles to overcome before they can be used as therapies.
 
In this Commentary
 
This Commentary describes a new and expanded gene editing technology called base editing or chemical surgery, which compliments CRISPR Cas-9, but instead of cutting strands of DNA it provides a more accurate and predictable means to rewrite single letters (bases) of DNA and RNA. This enables scientists to make more targeted and precise alterations to DNA and RNA with less unintended consequences, referred to as “off-target” effects.  Base editing has significant therapeutic potential for thousands of human disorders known to be caused by a single genetic error and range from sickle-cell anaemia to metabolic disorders to cystic fibrosis, which currently lack options. The new base editing techniques are described in three research papers, which appeared in scientific journals in late 2017. One was published in the November 2017 edition of the journal ‘Protein and Cell’, another in the October 2017 edition of the ‘Nature’ and a third in the October 2017 edition of the journal ‘Science’. Research reported in these papers represents an important advance in our ability to alter single letters (bases) in peoples’ DNA and RNA. Notwithstanding, scientists caution that before base editing techniques become standard clinical practice the technology will require more research, extensive clinical studies and significant advances in delivery methods.
 
CRISPR and intellectual property battles

Base editing is a development of CRISPR Cas-9 technology, which was developed by a group of researchers from University College Berkeley, the Max-Plank Institute, Harvard University and The Massachusetts Institute of Technology (MIT) and others. The Broad Institute, a non-profit disease research facility established jointly by Harvard University and MIT, obtained the basic US patents on CRISPR Cas-9 in February 2017 after a heated patent dispute between two of the technology’s originators. On one side Jennifer Doudna of University College Berkeley and Emmanuelle Charpentier of the Max-Planck Institute in Berlin. On the other side Feng Zhang of the Broad Institute. While the Broad Institute has been considered the winning party in the US, the European intellectual property landscape is a different story.  Due to technical errors associated with listed CRISPR inventions and claimed priority dates, the European patents filed by the Broad Institute have been revoked

The Broad Institute is expected to appeal the decision and the gene-editing intellectual property battles continue. Notwithstanding, this has not slowed the development and commercialization of the technology.
 
Technologies to edit the genetic code and some ethical challenges

CRISPR Cas-9, discovered in 2012, is a particularly versatile and inexpensive gene editing technology. Since its discovery it has been used extensively by scientists throughout the world in an attempt to further their understanding of the role played by genes in disease. The technology works by slicing through the two strands of bases that spiral to create DNA’s famous double-helix and is especially useful when the goal is to insert or delete DNA bases. CRISPR acts like a genetic GSP: a guide molecule made of RNA that allows a specific site of interest on the DNA double helix to be targeted. The RNA molecule is attached to a bacterial enzyme called Cas-9 that works like a pair of “molecular scissors”, which can cut out strands of DNA at an exact point. This allows scientists to target and remove faulty genetic material and create space for functioning genes to be inserted in a similar way a word processor allows you to correct and enhance documents. Although CRISPR Cas-9 is increasingly being used in studies of genetic disorders, it has been challenging for the technology to fix a point mutation, caused by a change in a single DNA letter in a given gene. Further the technology’s cutting mechanism can result in “off-target” activity, which either can make changes to a gene you do not want changed or fail to change a gene that you do. This represents a significant challenge for scientists, and a major concern for the technology’s therapeutic applications.

For example, research published in the July 2018 edition of  the journal Nature Biotechnology discovered unintended deletions of thousands of DNA bases, including at spots far from the edit. Another study reported in the May 2017 edition the journal Nature Methods found that CRISPR Cas-9 introduced hundreds of unintended mutations into the genome. And a third study published in December 2017 in the Proceedings of the US National Academy of Sciences suggested that genetic variation between patients may affect the efficacy and safety of CRISPR-based treatments enough to warrant custom treatments. In addition to these technical concerns, ethical concerns about the technique also have been raised. In the March 2015 edition of the journal Nature, Michael Werner, the executive director of the Washington DC based Alliance for Regenerative Medicine suggested that ethical and safety issues should put germline editing research (a process by which every cell in the human body could be altered in such a way that the change is heritable) off limits because, “It’s still a little premature to say that we’ve resolved all these safety issues now,” says Werner. Notwithstanding, in July 2018 the UK’s Nuffield Council on Bioethics suggested that germline editing is “morally permissibly” under certain circumstances.
 
CRISPR triggers intense commercial activity

Despite safety and ethical concerns about CRISPR, genome editing has rapidly become a large fast-growing global market. In late 2012, Charpentier  suggested to a few colleagues, including Doudna, Zhang and George Church, professor of genetics at Harvard University Medical School who is credited with developing the first direct genomic sequencing method in 1984, that they should start a company to accelerate the gene editing technology into clinics.  They did not, but later the same scientists and others started separate genome editing companies. Four have become publicly traded companies and have successfully raised billions. For example, in 2013 Charpentier founded Crispr TherapeuticsBased in Switzerland, the company has become a US$2bn Nasdaq traded company. The other three, all based in the US are: Editas Medicine, which has a market cap of US$1.3bn and was founded by Zhang, Church and David Liu, Professor of Chemistry at Harvard University, a core member of the Broad Institute, and the first to describe base editing in research published in the May 2016 edition of the journal NatureDoudna is  a founding member of Intellia Therapeutics, which today has a market cap of US$1bn,  and Juno Therapeutics, which has a market cap of US$10bn was founded in 2013 through a collaboration of the Fred Hutchinson Cancer Research CenterMemorial Sloan-Kettering Cancer Center and the Seattle Children’s Research Institute.

Since their inceptions, big pharma companies have been competing to invest in them. In January 2018 Celgene, which already owned 9.7% of Juno agreed to acquire the rest of its stock for US$9bn in cash in order to gain access to Juno's pipeline of CAR-T cancer drugs. This technology entails extracting blood cells from patients, then using CRISPR to edit T cells (immune cells) outside the body - ex vivo gene therapy - in order to transform the cells into enhanced cancer fighters before reintroducing them back into the patient’s blood stream. Earlier Bayer, a German pharmaceutical company, acquired a US$35m equity stake in Crispr Therapeutics, which it increased in January 2018. In 2016 Bayer invested US$335m over 5-years in a joint venture with Crispr Therapeutics called Casebia, with the intention to discover, develop and commercialize new breakthrough therapeutics to cure blood disorders, blindness, and congenital heart disease. Casebia also expects to develop new delivery mechanisms for CRISPR technologies, which will be critical to future drugs meant to target cells in the human body. Crispr Therapeutics retains a 50% interest in the joint venture, and also gains access to Bayer’s state-of-the-art delivery technologies and protein engineering knowhow.
According to market analysis the global genome editing market is expected to grow at a CAGR of 14.5% to reach US$6.3bn by 2022. Market drivers include rising government funding and the growth in the number of genomic projects, high and increasing prevalence of debilitating and often fatal diseases, technological advancements, increasing production of genetically modified crops, and growing application areas of genomics.
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Tens of thousands of devastating diseases are the result of a single minute error in one letter the human genome
 
While big pharma competes to commercialize CRISPR Cas-9 technologies, scientists compete to develop ever-more versatile and efficient versions of the technology. One result of the competition among scientists is “base editing”, which is predicated upon the same basic mechanism as the standard CRISPR technology but differs because it does not require the DNA to be physically cut. Instead, base editing uses a chemical process to directly convert a single base (letter) of DNA to another without deleting and inserting random bases in the process.  Think of base editing as similar to changing one letter in a vast WORD document. The technique allows scientists to edit the body’s genes one letter at a time with exquisite precision.  Base editing rewrites single errors in the genetic code instead of cutting and replacing whole strands of DNA. The technique is not a replacement for CRISPR, but a complementary technology for altering the genome in an attempt to correct disease. Converting one letter to another may not sound significant until you consider that there are billions of letters in the human genome, and tens of thousands of diseases can be traced to a single minute error in just one letter in the human genome. Indeed, of more than 50,000 genetic changes currently known to be associated with disease in humans, 32,000 are caused by the simple substitution of one base letter for another. Base editing is significantly more efficient than standard CRISPR systems at making single base substitutions.
 
DNA molecules as a sequence of letters

Your genes are an instruction manual for your body. Hidden inside every cell in your body is a chemical called DNA. Genes are short sections of DNA, which are the biological templates your body uses to make the structural proteins and enzymes needed to build and maintain your tissues and organs. Genes influence how you look on the outside and how you function on the inside. The DNA that makes up all genomes is composed of four related chemicals called nucleic acids: (i) adenine ‘A’, (ii) guanine ’G’, (iii) cytosine ‘C’, and (iv) thymine ‘T’.  A sequence of DNA is a string of these nucleic acids (also called “bases” or “base pairs”). These bases connect in a specific way: ‘A’ always pairs with ‘T’, and ‘C’ always pairs with ‘G’. The letters represent the “alphabet” scientists use to write genetic code. The principal biological function of a base is to bond nucleic acids together. Nucleic acids are complex organic substances present in living cells, especially DNA or RNA. There are some 24,000 genes in the human genome, which are bundled into 23 pairs of chromosomes all coiled up in the nucleus of every one of your cells. There are about 37trn cells in the human body. Only about 1.5% of your genetic code, or genome, is made up of your genes. Another 10% regulates your genes to ensure that they turn on and off in the right cells at the right time.
 
The November 2017 Protein and Cell study

In the April 2015 edition of the journal Protein and Cell, scientists led by Junjiu Huang from Sun Yat-sen University in Guangzhou, China, reported research where he and his colleagues used CRISPR Cas-9 to correct abnormal β-thalassemia genes in human embryos without much success. Researchers suggested, “our work highlights the pressing need to further improve the fidelity and specificity of the CRISPR Cas-9 platform, a prerequisite for any clinical applications of CRISPR Cas-9-mediated editing”. In the November 2017 edition of Protein and Cell Huang and colleagues demonstrated that they had enhanced the fidelity of CRISPR and used the new base editing technique for the first time in human embryos to repair a faulty gene that gives rise to β-thalassemia. They suggested that, “their study demonstrated the feasibility of curing genetic disease in human somatic cells and embryos by a base editor system”.
 

Β-thalassemia

Β-thalassemia is a serious blood disorder, common in China and southeast Asia, which can be caused by a single mutation in the DNA code. The disorder reduces the production of haemoglobin, which is an iron-containing protein in red blood cells that carries oxygen to cells throughout the body. Without treatment, patients with a severe type of β-thalassemia, usually die before age 5. Correcting this mutation in human embryos may cure people with the disorder and also prevent the disease being passed on to future generations.

Innovative approach

Humans carry two copies of every gene, and in many cases both versions have to be “healthy” to avoid disease. Because it is challenging for researchers to find a lot of embryos, which all have a rare double mutation, Huang’s team created a batch of cloned embryos, then took skin cells from patients with β-thalassemia, removed their DNA-containing nuclei, and introduced them into donor eggs that had their own nuclei removed. The eggs then developed into early stage embryos, which carried the β-thalassemia mutation. Despite the study’s success to effectively edit the embryos and repair the mutations it was only about 20% efficient. Huang noted that the base editing technique he and his colleagues used was not uniform across all cells in the embryos, and their endeavours only sometimes repaired one faulty gene instead of 2. This created what is called “mosaic embryos”, which have both normal and mutant cells and result in a patchwork of cells with different genetic make-up and is potentially dangerous. 

Huang concluded that more research is required to improve the safety of the study’s base editing approach. Notwithstanding, scientists believe Huang’s research represents a significant advance, and that base editing techniques hold out the potential to treat and prevent a number of serious and debilitating inherited human diseases, which are more common than some people realise. For example, 1 in 25 children are born with some genetic disorder, which includes β-thalassemia, cystic fibrosis, genetic blindness, sickle cell anaemia, muscular dystrophy, and Tay-Sachs disease.

 
The October 2017 Nature study

In October 2017, David Liu, and colleagues from the Broad Institute published a paper describing their latest and improved base editing research in the journal Nature. Liu's group genetically transformed base pairs at a target position in the genome of living cells with more than 50% efficiency, with virtually no detectable ‘off-target’ effects such as random insertions, deletions, translocations, or other base-to-base conversions. The work of Liu and his team is significant because it, “introduced point mutations more efficiently and cleanly, and with less off-target genome modification than a current Cas-9 nuclease-based method, and can install disease-correcting or disease-suppressing mutations in human cells”. This clears the path for scientists to use base editing to address many more single-letter mutations than was previously possible. “What we’ve developed is a base editor, a molecular machine, that is a programmable, irreversible, efficient, and an extremely clean way to correct mutations in the genome of living cells,” says Liu.
 
Delivery is the challenge

Notwithstanding, Liu suggests that the status of base editing is like Amazon without UPS, its principal delivery agent, “Creating a machine that makes the genetic change you need to treat a disease is an important step forward, but it’s only one part of what’s needed to treat a patient. We still have to deliver that machine”, says Liu, and further, “We have to test its safety, we have to assess its beneficial effects in animals and patients and weigh them against any side-effects. We need to do many more things. But having the machine is a good start.” Liu is hopeful that base editing of DNA and RNA could be used as complementary approaches for a “broad set of potential therapeutic applications.” He and his colleagues are exploring base editing to fix blood and neurological disorders as well as hereditary deafness and blindness.
 
The October 2017 Science study and the advantages of editing RNA
 
In a paper published in the October 2017 edition of the journal Science, Feng Zhang, of the Broad Institute who is one of the original architects of CRISPR, and senior author describes a variant of base editing, which acts on RNA in human cells instead of DNA. RNA acts as a temporary genetic messenger within cells and naturally degrades in the body. This means that editing RNA instead of DNA does not result in a permanent change to a person’s genome, and therefore has significant potential as a tool for both research and disease treatment. Zhang’s base editing technique makes a temporary correction of a disease-causing mutation without permanent alteration to the genome. According to Zhang, editing DNA is, “permanent and very difficult to reverse, which poses a safety concern, while editing RNA is not.” Zhang’s approach is a potentially safer option when it comes to gene-fixing therapeutics, although any treatment using the technique would need to be administered repeatedly. But Zhang believes repetition could be an advantage because it allows for a therapy to be “upgraded” as scientific knowledge increases and provides a better understanding of specific disease states. The system can change single RNA nucleotides in mammalian cells in a programmable and precise fashion and has the ability to reverse disease-causing mutations at the RNA level, as well as other potential therapeutic and basic science applications.
 
Zhang and colleagues made one RNA-editing enzyme into a programmable gene-editing tool. “There are 12 possible base changes you can do,” says Omar Abudayyeh, a researcher at the Broad Institute and one of the paper’s authors. Having edited one, “we’re now thinking about the ways to do the other eleven.” By operating on RNA, Zhang and his colleagues avoid ‘off-target’ effects. “With RNA, you have to think about ‘off-targets’ a little differently.” says Abudayyeh. “If some of the RNA gets edited incorrectly the cell will have at least some amount of the right protein. If things go really wrong, the edit is reversible. You can always remove the system and the RNA will eventually degrade and recycle and revert back to normal,” says Abudayyeh. Liu and his team call their new creation REPAIR. They tested it on human cells growing in dishes and edited up to about 27% of the RNAs of two genes. The researchers did not find any ’off-target’ effects and suggest, “REPAIR presents a promising RNA editing platform with broad applicability for research, therapeutics, and biotechnology.”
 
Delivery challenges

Liu and other medical researchers have stressed the significant challenges associated with delivering CRISPR technologies, which have yet to be resolved before gene editing techniques become viable therapies. The conundrum researchers face is that your body’s biological barriers, which protect you from diseases are the same barriers that create significant obstacles for the delivery of genetic editors. Let us explain. Your DNA is like Fort Knox gold in that it is extremely well protected. For a harmful agent to access your DNA it first has to get under your skin and into your bloodstream. It then has to travel through your bloodstream without being detected by your immune system, which is comprised of networks of cells, tissues, and organs that work together to protect your body. One of the important cells involved in your immune system are white blood cells, also called leukocytes, which come in two basic types that combine to seek out and destroy disease-causing agents. Assuming the harmful agent successfully gets past all these biological barriers, it then has to penetrate your cell membrane and find a way to the nucleus of the cell. These biological defences help to keep you healthy by preventing harmful agents penetrating and transforming your cells into disease-making entities. But, they are the same obstacles that prevent scientists getting gene editors to the right place at the right time in the right quantity. Although delivery technologies are improving, Crispr Therapeutics, Editas Medicine, and Intellia Therapeutics, as well as, Casebia are all investing in delivery mechanisms, which remain significant challenges to overcome before gene editing becomes a regular therapy.  This is not only a concern for private companies, but also for the public sector. In January 2018 the US National Institutes of Health announced it will be awarding US$190m in research grants over the next six years, in part to “remove barriers that slow the adoption of genome editing for treating patients”.
 
Takeaways

Researchers have made substantial scientific advances in embryo gene editing technologies, which have significant potential for next-generation therapeutics. Base editing, described in this Commentary, is one advance, which has the potential to provide effective therapies for a range of disorders known to be caused by the mutation of a single letter in a gene, which currently have either little or no means of a cure. This is important because about 66% of genetic illnesses in humans involve mutations where there is a change in a single letter (or base). Notwithstanding, before such technologies become regular therapies in clinics there are major technical challenges, which need to be overcome in the delivery mechanism for these gene editors.
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  • China will not challenge the economic supremacy of the US in the near to medium term
  • But with a GDP of US$14trn growing at 6.9% a year China is a substantial economy and a significant trading partner of the US
  • China is replacing imported high-tech products with domestic ones and incentivizing Chinese companies to dominate high value global industries
  • China’s large and increasing supply of appropriately qualified human capital gives it a competitive edge
  • Beijing’s US$8trn-30-year Belt and Road (B&R) strategy aims to make China the centre of a new world order in which knowledge-based Chinese companies dominate high-value global markets
  • China is challenged by substantial debt and significant credit it has extended to economically weak nations
  • Notwithstanding, Western companies seeking growth outside their current wealthy markets need to develop constructive trading relationships with China
  • Lack of understanding and cultural differences are barriers to productive West-East trading relations
 
Can Western companies engage with and benefit from China?
 
Previously we described how Beijing had offered Western companies a ‘poisoned challis’: either localize your value chain and help China achieve its goals to dominate key industries globally or be progressively squeezed out of markets. Washington responded by levying punitive tariffs on products manufactured in China and marketed in the US in an attempt to force Beijing to change. China hit back, cross fire ensued, more US tariffs were levied, markets became nervous and a ‘flight for liquidity’ seems a possibility. This is when equity players become nervous about uncertainties in markets and move their investments into more liquid securities in order to increase their ability to sell their positions at a moment’s notice. To some observers the current trade conflict between the world’s two largest trading nations must seem like Stanley Kramer’s 1952 epic ‘High Noon” movie. The difference being the 2018 showdown could affect the lives of billions and threaten the global economy. The fact that the world can be brought to such a position in such a short time is partly due to a profound lack of understanding and cultural differences between Washington and Beijing and vice versa. The differences manifest themselves as: (i) competition versus harmony, (ii) short-termism versus long-termism, (iii) tactics versus strategy and (iv) nationalism versus globalism. These differences pervade organizations, institutions and mindsets in the respective regions.
 
In this Commentary

This Commentary is divided it into 3 parts.
  • Part 1: China’s penetration of emerging markets discusses the implications of China’s stated aim to become a major global high-end, knowledge-based economy and describes how, for the past three decades, the nation has been preparing for this by systematically upgrading its human capital. From a perceived position of strength Beijing suggested to Western companies seeking or increasing their franchises in China that unless they are prepared to localize their value chains, not only will they be squeezed out of the China market, but they will also encounter challenges in other large emerging markets as China’s presence and influence in these markets increase. This is significant because the world’s emerging economies are the growth frontiers of many high-tech industries. 
  • Part 2: China’s economic rise and its strategic objectives briefly describes China’s phenomenal transformation from a centrally managed economy to the world’s second largest economic power and a significant commercial partner of the US. We provide glimpses of some aspects of China’s recent history in order to convey the scale of its industrial reforms and its well-resourced, central government-backed long-term strategies to establish China as a world leader in knowledge-based high-value industries. We describe China’s planned slowdown of its economy and how Beijing is systematically upgrading its human capital. Indicative of China’s increasing trading prowess are its new technology companies. We describe three, which are likely to have a significant global impact in the next 5 years. We conclude part 2 with a description of the Pearl River Delta, China’s high tech production hub, in order to provide further insights into China’s achievements, the nature and scale of its projects to upgrade its economy and the thinking that drives China’s economic transformation. 
  • Part 3: China’s ‘Belts and Road’ (B&R) initiative. B&R is a bold neo colonialistinitiative to build a 21st century ‘Silk Road’ of infrastructure and trade-links between China and Eurasia. This is expected to stimulate trade, economic growth and domestic employment in some of the least developed regions of the world, which have suffered from post-colonial decline and are neglected by the West. Beijing expects that the B&R project will position China at the centre of a newly formed global trading network. We review some of the concerns raised by the R&D initiative including China's increasing exposure as a principal creditor to economically weak nations. This, together with China's mounting debt, presents Western companies with a dilemma: China is too big to be ignored but its structural weaknesses could be damaging.   

 

Part 1
 
 China’s penetration of emerging markets
 
 
Made in China 2025 (MIC25) incentivizes Chinese enterprises to develop their competences and capacities in order to respond to the pivotal needs of global customers to reduce costs while maintaining value by providing affordable quality product offerings.  It also encourages Chinese companies to become ‘global champions’ and help China establish itself as a dominant international force in knowledge-based technologies of the future. As a result, Chinese companies are successfully taking share of key segments in emerging markets. So, Beijing’s industrial strategies not only increase the challenges for Western companies in China, but also provide potential barriers for them to penetrate and increase their franchises in other large emerging markets such India and Brazil, which are the future growth frontiers.
 
China’s investment in human capital

Beijing’s well-resourced strategies to transition China from a manufacturing-based economy to a high-end, innovation-driven, knowledge-based economy could not be achieved without a significant supply of relevant human capital. It is instructive that for the past three decades China has been systematically upgrading its human capital, while Western nations have not been doing so at a similar pace.
 
According to the World Economic ForumChina has committed massive resources to education and training. In 2016 China was building the equivalent of one university a week and graduated 4.7m citizens, while in the US 568,000 students graduated. In 2017, there were 2,914 colleges and universities in China with over 20m students. The US had 4,140 with over 17m students enrolled. Significantly, between 2002 and 2014 the number of students graduating in science and engineering in China quadrupled. In 2013, 40% of all Chinese graduates completed a degree in science, technology, engineering or mathematics (STEM), whilst in the US only 20% of its graduates did so. In addition to China producing more STEM graduates than either the US or Europe, which are vital for high-tech knowledge-based industries of the future, the gap between the top Chinese and US and European graduates is widening. Projections suggest that by 2030 the number of 25 to 34-year-old graduates in China will increase by a further 300%, compared with an expected rise of around 30% in the US and Europe. This represents a substantial shift in the world's population of graduates, which was once dominated by the US, and gives China a potential competitive edge in high-tech growth industries of the future.
 
Further, US students struggle to afford university fees. Many American colleges and universities are struggling financially and as a consequence actively recruiting foreign students. In recent years, the number of Chinese students admitted to US universities has increased significantly. In 2017 for instance, some 350,000 Chinese students were recruited. Most graduates return to China with quality degrees. European countries have put a brake on expanding their universities by either not making public investments in them or restricting universities to raise money themselves.
 
Shanghai students are world’s best in maths, reading and science

Supporting this competitive edge is China’s world-beating performance of its 15 and 16-year-olds. According to an internationally recognised test, Shanghai school children are the best in the world at mathematics, reading and science. Every three years 0.5m students aged 15 and 16 from 72 countries representing 80% of the global economy sit a 2-hour examination to assess their comparative abilities in these three subjects. The examination, called the Program for International Student Assessment (PISA), is administered and published triennially by the Organisation for Economic Co-operation and Development (OECD). When the 2009 and 2012 PISA  scores were released they created a sensation, suggesting that students in Shanghai have significantly better mathematics, reading and science capabilities than comparable students in any other country.  Although these scores have been contested, and the most recent test scores suggest Shanghai students have slipped down the rankings, in the 2012 tests Shanghai students performed so well in mathematics that the report compared their scores to the equivalent of nearly three years of schooling above most countries.
 

Human capital strategies challenged by aging populations
Human capital strategies in China, the US and Western Europe are all challenged by aging populations. According to the United Nations, China’s population is ageing more rapidly than any country in recent history. America’s 65-and-over population is projected to nearly double over the next three decades, rising from 48m to 88m by 2050. The UK’s population also is getting older with 18% aged 65-and-over and 2.4% aged 85-and-over. In 2014, 20% of Western Europeans were 65 years or older and by 2030 25% will be that age demographic.
 
Taking share of high-value MedTech markets
 
Many Western MedTech companies are late-bloomers in emerging markets. This can partly be explained by the two decades of economic growth the industry experienced from developed markets and the continued buoyancy of the US stock market.  Thus, Western MedTech companies have felt little pressure to adjust their strategies and business models and venture into territories committed to “affordable (low priced) medical devices”. Beijing seems determined to take advantage of this and Chinese companies are increasing their share of large fast growing and underserved emerging markets by: (i) increasing their innovative go-to-market strategies and (ii) making sure they “localize” their product offerings. We briefly describe these two strategies.
 
Innovative go-to-market approaches

According to OEDC data, between 2000 and 2016 China doubled its R&D investment to 2% of GDP, which is more than the EU but less than America. In 2016, the US spent 2.7% of its GDP on R&D, which is more than any country. Individual Chinese domestic companies are also increasing their investments in R&D as part of their growth strategies. For instance, over the past decade, Mindray, China’s largest MedTech company has spent more than 10% of its annual revenues - currently US$1.7bn - on R&D. The company has a large R&D team of over 1,400 located in 2 centres: 1 in Mahwah, China and another in Seattle, USA. BGI, China’s largest manufacturer of next-generation gene-sequencing equipment, devotes more than 33% of its revenues to R&D, double that of its US competitor Illumina. In aggregate, however, Chinese companies are a long way behind their Western counterparts when it comes to R&D spending.
 

Supercomputers
High-tech companies require supercomputers to assist with their R&D and innovative strategies. These are powerful and sophisticated machines with enormous processing power, which can support medical and scientific R&D. According to an internationally recognised ranking, which has been conducted biannually by leading scientists since 1993, China leads the world with its installed-base of supercomputers. China has 206 and  America has 124. In 2000 China had none. The most recent rankings show that the US has regained the top performance position from China with an IBM-system-backed supercomputer now running at the US Department of Energy’s Oak Ridge National Laboratory. 
 

Increasing number of Chinese patents
Although the US maintains a lead in scientific breakthroughs and their industrial applications, innovation is increasing in China. The number of invention patent applications received by China in 2016 was 1.3m, which was more than the combined total from the US (605,571), Japan (318,381), South Korea (208,830), and the EU (159,358). Patents from these five countries accounted for 84% of the world total in 2016. 
 

Increasing share of high-tech markets
Emboldened by enhanced processing power, increased patents, greater R&D capacity and improved capabilities, Chinese MedTech companies are increasingly represented across a broad spectrum of high-end medical technologies and have made significant inroads into emerging markets. Some manufacture Class III product offerings such as orthopaedic implants and are beginning to compete in medium-level technology markets in Brazil, India, Japan and the UK. For instance, SHINVA markets its linear accelerators globally. Sinocare is #6 in the global market for blood glucose monitoring devices. In 2008 Mindray paid US$200m to acquire the patient monitoring business of US company Datascope, making it the third-largest player by sales in the global market for such devices. Also, Mindray has increased its share of the ultrasound imaging market to 10%, behind GE and Phillips. MicroPort broke onto the world stage in early 2014 when it acquired Wright Medical’s orthopaedic implant business for US$290m. In 2015 China overtook Germany to become Japan’s second largest supplier of MRI devices, behind the US, and Biosensors International is among the largest suppliers of drug-eluting stents in France, Germany, Italy, Spain and the UK.
 
Localized product offerings in India
 
Mindray, which positions itself as a world-class MedTech solutions company, has established a significant presence in India where it has built local operations, tailored its line of affordable high-quality patient monitoring, ultrasound and in vitro diagnostic devices to address India’s unmet needs, hired local engineers and operators and built a local marketing and sales team, which provides a 24-7 customer service. Mindray has understood that many of the factors, which drive China’s MedTech market growth are mirrored in India and other rapidly growing emerging markets that share a similarly high disease burden, aging demographics and a desire to reduce healthcare costs.
 
Mindray was one of China’s earliest MedTech companies to list in New York in 2006. However, the company felt its shares were undervalued and privatized in 2016 in a deal, which valued the company at US$3.3bn. A funding round shortly after its delisting valued Mindray at US$8.5bn. The company employs over 8,000 and its 2017 revenues were US$1.7bn.
 
India’s MedTech market
 
The attraction of India to MedTech companies is easy to understand. India’s MedTech market is the 5th largest in the world and could rival that of Japan and Germany in size by 2022 if it continues its 17% annual growth. Although India mainly has been an out-of-pocket healthcare market this is changing. In September 2018, the Indian government launched one of the world’s largest publicly funded health insurance schemes, which will provide some 0.5bn poor people with health cover of US$7,000 per year (a sizable sum in India) for free treatment of serious ailments. India’s medical device markets, like those of China’s, will benefit from this, but also from the country’s large and growing middle class with relatively high disposable incomes in an economy growing at around 7 to 7.5% annually.
 
In 2016 India’s middle class was estimated to be 267m - 83% of the total population of the US - and projected to increase to 547m by 2025. Further, India has a large and growing incidence of lifetime chronic diseases, which expands the need for medical devices. Between 2009 and 2016, China emerged as India’s 3rd largest supplier of medical devices (behind the US and Germany) and is currently India’s leading provider of CT scanners, representing 50% of the US$69m that India spent on imports of these high-tech devices during 2016. India’s orthopaedic devices market is estimated to be around US$375m and is projected to grow at about 20% each year for the next decade to reach US$2.5bn by 2030. In contrast the global orthopaedics industry is estimated to grow at 5% annually.

China is positioned to increase its share of MedTech markets in India and other emerging countries. This suggests that unless Western companies are prepared to transform their strategies and change their business models similar to what Medtronic and GE Healthcare have done, they will not only be squeezed out of the China market but shall encounter challenges to penetrate and increase their franchises in other large emerging MedTech markets. This is significant because the world’s emerging economies are the growth frontiers of the MedTech industry.



Part 2

China’s economic rise and strategic objectives: background

 
How long can China sustain its rise?”. We broach this question in the next two parts of this Commentary. Here in Part 2, we describe some relevant aspects of China’s recent commercial history, its success in producing high tech global companies and we also provide a glimpse of its urban communities for creating and developing companies of the future.

It was not until the early 1980s, after the death of Mao Zedong in 1976, that China started to dismantle its centrally planned economy and began implementing its free market reforms and opened its economy to foreign trade and investment. Shortly afterwards China: (i) became the world’s fastest growing market-based economy with real annual GDP growth averaging 9.5% through 2017, (ii) lifted 800m citizens out of poverty and (iii) overtook Japan to become the world's second largest economy. By 2010 China had become a significant commercial partner of the US and is now America’s largest merchandise trading partner, its biggest source of imports and America’s third largest export market. Also, China holds US$1.7trn of US Treasury securities, which help fund the federal debt and keep US interest rates low. It is worth noting that China has a long history dating back more than 2,000 years BC. In more recent times, Adam Smith the father of modern capitalism, described China in The Wealth of Nations (1776) as a country which is, “one of the most fertile, best cultivated, most industrious, most prosperous and most urbanized countries in the world”.

 
Avoiding a middle-income trap
 
Over the past decade China’s economy has matured and Beijing has managed a planned slowdown of its growth rate to what it calls the “new-normal”. In 2017 China’s GDP was 6.9% and is projected to fall to 5.6% by 2022. The orchestrated slowdown is less based on fixed investment and exports and more on private consumption of China’s large and growing middle class, enhanced services and innovation. A previous Commentary described Beijing’s Made in China 2025 (MIC25) initiative and other policies, which prioritised innovation and the systematic upgrading of its domestic industries whilst decreasing its reliance on foreign technology. This is essential for China to avoid a ‘middle income trap’, which happens when nations achieve a certain level of economic growth, but then begin to experience diminishing returns because they are unable to restructure their economies to embrace new sources of growth.
 
Baidu, Alibaba and Tencent: BAT

An example of China’s ability to upgrade its economy and avoid a middle-income trap is its new technology companies, which are positioned to have significant global roles in the next five years. We briefly describe three: Baidu, Alibaba and Tencent: collectively referred to as BAT. Baidu, is a Chinese language Internet search provider incorporated in 2000, which has grown to  become the world’s 8th largest internet company by revenue. It has a market cap of US$80bn, annual revenues US$13bn and has the world’s largest Internet user population of about 800m. Alibaba, was founded in 2000 as a business-to-business (B2B) portal connecting Chinese manufacturers to overseas buyers. Today, the company is a multinational conglomerate with a market cap in excess of US$500bn and annual revenues of US$13bn. It is the world’s largest e-commerce company in terms of gross merchandise volume (GMV). For the fiscal year ended March 31, 2017, Alibaba had a GMV of US$0.43trn and 454m annual active buyers on its marketplaces. Alibaba’s long-term vision is to become a global company providing solutions to real world problems and using e-commerce to help globalization by making trade more inclusive. The company expects GMV to reach US$1trn by 2020, and to serve 2bn consumers(one-third of the world’s total population)and to support the profitable operation of 10m businesses on its platforms by 2036. Alibaba is sometimes referred to as the "Amazon of China," but the company’s founder Jack Ma suggests there are differences. "Amazon is more like an empire: everything they control themselves. Our philosophy is be an ecosystem”, says Ma. Tencentfounded in 1998, has become a multinational investment holding corporation with a market cap of US$556bn, annual revenues of US$22bn and specializes in various internet-related services, entertainment, AI and technology.  
 
The Pearl River Delta
 
Tencent has its HQs in Shenzhen, a megacity in the Pearl River Delta, which is China’s hub for high tech production. We briefly describe the delta to further show the progress China has made in transforming its economy. In the early 1980s the Pearl River Delta was primarily an agricultural area and Shenzhen was an unassuming town of about 30,000 (now 13m). The delta witnessed the most rapid urban expansion in human history to become the world’s largest urban area in both size and population by 2015, with more inhabitants than Argentina, Australia or Canada. Today the Pearl River Delta has a population of 120m and a GDP of US$1.5trn - growing at 12% per year - which is greater than that of Indonesia and equal to 9.1% of China’s output.
 
Land, sea and air infrastructure serving the delta is state of the art. For example, the delta has six airports; three of which are international air hubs. In 2016, the passenger traffic of Baiyun Airport in Guangzhou (population 15m) surpassed 60m and the volume of freight it handled was over 2m tonnes. In the same year passenger traffic at Shenzhen (population 13m) airport was in excess of 42m and the volume of freight it handled was over 1m tonnes.  This compares favourably with JFK and Newark Liberty airports. In 2017 both airports set records with more than 59m and 43m passengers respectively
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Part of the delta’s infrastructure is the new Hong Kong-Zhuhai-Macau Bridge, which spans 34 miles (55klm), crosses the waters of the Pearl River and connects Hong Kong with Macao. It is the longest sea-crossing bridge ever built and has a section that runs for seven kilometres in a submarine tunnel that passes four artificial islands. Its construction cost US$16bn, which is part of a US$30bn plan announced in 2009 to develop an infrastructure network to connect the nine cities in the delta so that collectively they would become the largest contiguous urban region in the world, which was achieved in 2015.  One of the infrastructure goals is to reduce travel time between the nine cities and Hong Kong and Macao to one hour from any which way.
 
The Pearl River Delta is the most southern of three major Chinese coastal growth areas. In the middle is the Yangtze River Delta region, which includes Shanghai with a population of 130m and a GDP of US$2trn. To the north is the Beijing-Tianjin-Bohai corridor, covering 10 cities and has a population of 100m and a GDP of US$1.3trn. These three urban clusters account for 21% of China’s population and about 40% of its GDP.



Part 3

 China’s Belt and Road initiative

 
It is not only important to understand the changes in China within the context of its recent history, MIC25 and Beijing’s restructuring of its healthcare sector, but also against the backdrop of China’s ambitious Belt and Road” (B&R) initiative. Unveiled by President Xi Jinping in September 2013, it has become the centre of Beijing’s ambitions for a new world order predicated upon a modern-day Silk Road connecting China by land and sea to Southeast Asia, Central Asia, the Middle East, Europe and Africa. It is a bold model of economic development, which Xi has called, “the project of the century”. The initiative is supported by the new Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund. Some estimates suggest that Beijing has already invested US$900bn in the project. Overall, it is expected to cost US$8trn and take three decades to complete. At its core are 6 economic corridors, which connect 65 countries, about 65% of the world’s population, involve some 40% of global trade and 33% of global GDP.
 
Belt and Road’s 6 economic corridors
  1. The Eurasia-Land-Bridge economic corridor is developing rail transportation between China and Europe through Kazakhstan, Russia and Belarus
  2. The China-Mongolia-Russia economic corridor aims to develop trade between China and Mongolia by modernizing transport, telecommunication and energy networks to make Mongolia a hub between China and Russia
  3. The China-Central Asia-West Asia economic corridor connects the Chinese province of Xinjiang to the Mediterranean Sea, through Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Iran and Turkey 
  4. The China-Indochina-Peninsula economic corridor aims to strengthen cooperation among states of the Greater Mekong sub-region and support trade between China and the 10 nations of the Association of Southeast Asian Nations (ASEAN) that are already bound by a free trade agreement since 2010 to facilitate economic growth
  5. The China-Pakistan economic corridor connects Kashgar in the Chinese province of Xinjiang to the port of Gwadar in Pakistan and includes the construction of railways, highways, optical fibre networks, and the creation of an international airport in Gwadar as well as the establishment of special economic zones
  6. The Bangladesh-China-India-Myanmar economic corridor links Kunming to Kolkata (Calcutta) via Mandalay and Dhaka to strengthen connections between China and various economic centres of the Gulf of Bengal in order to increase interregional trade by reducing non-tariff barriers.
China’s neo-colonial strategy
 
China’s B&R initiative is based upon an interpretation of colonialism, which is significantly different to Western  interpretations. While Western nations struggle with a sense of guilt associated with their past colonial rule and feel responsible for the abject economic failure, widespread poverty and erosion of governance in post-colonial independent states, Beijing believes that there are lessons to be learned from colonialism, which are relevant today and necessary prerequisites to stimulate trade, economic growth and domestic employment. Beijing’s B&R initiative is best understood as a neo colonial strategy to strengthen China’s slowing economy, enhance its industrial capabilities and improve its geopolitical standing by driving economic growth in some of the least developed regions of the world, which are neglected by the West.
 
The lessons of Singapore
 
China’s neo-colonialist policies are influenced by Singapore, an island city-state located in Southeast Asia off southern Malaysia. The country gained independence from Malaysia in 1965 and has become a global financial centre with a multicultural population and a multi-party parliamentary representative democracy with a President as head of state and a Prime Minister as the head of government. Although China is 14,000-times bigger than Singapore, has 1bn more citizens and its GDP is US$14trn compared to Singapore’s US$300bn; China views Singapore as an object lesson of political stability and prosperity predicated upon aspects of its colonial legacy, which Beijing believes can be replicated in under-developed regions of the world. These include basic infrastructure, improved administration, widened employment opportunities, female rights, expanded education, improved public healthcare, taxation, access to capital, independent judiciary, and national identity. Such factors China views as benefits of colonialism and necessary prerequisites for trade, economic growth and prosperity. Singapore has a colonial history, but today is a rich country with a GDP per capita of US$55,235, (higher than that of the US: US$53,128) and where Asian culture is intact and Western knowhow is harnessed for economic growth and prosperity for its citizens and is where China would like to be in the future.
 
The AIIB comparable to other development banks
 
In 2013, when Xi Jinping first proposed creating the Asian Infrastructure Investment Bank (AIIB), Washington was against it and campaigned rigorously to persuade potential donor countries not to participate. The US expressed concerns that the AIIB would undermine the World Bank, and the Asian Development Bank (ADB), which operate in Asia and lend to China. Washington also believed that the AIIB would unfairly benefit Chinese companies and argued that China would not adhere to international banking standards of transparency and accountability. Today, the AIIB is up and running as a medium-sized regional development bank with capital of US$100bn and lending at around US$4bn. It is broadly comparable with other development banks and Washington’s concerns appear unfounded.
 
Systematically migrating low-tech manufacturing to low-cost locations
 
An important role of the AIIB is to assist the B&R initiative to open up and create new markets for Chinese goods and services, to stimulate exports and to provide low-wage locations, to which China can migrate its light manufacturing industries. Beijing no longer sees its country’s economy as competitive on the basis of low wages. China’s labour costs are rising faster than gains in productivity and cost estimates of outsourcing production to China will soon be equal to the cost of manufacturing in the US and Western Europe. China is adjusting to rising real wages in its domestic markets by systematically migrating its low-tech industries to less-common low-wage production operations in new locations in Africa such as Ethiopia.

A rationale for this strategy is provided in a 2017 paper from the Center for Global Development, which suggests that “Ethiopia could become the new China” as, “the cost of Ethiopian industrial labour is about 25% that of China today”. This suggests that migrating Chinese low-tech manufacturers might leap-frog middle and lower-middle income developing countries in favour of the poorest countries such as Ethiopia, which is included in China’s B&R initiative. African countries view B&R as a platform to promote global cooperation based on win-win strategies. Speaking at a conference in June 2018 in Addis Ababa, Tan Jian, the Chinese ambassador to Ethiopia said, "We are working closely with Ethiopia in advancing the Belt and Road Initiative. Ethiopia is a very important partner in this regard. We have been doing a lot of projects here in Ethiopia: infrastructure, policy dialogue, trade, financing and people-to-people exchanges.” At the same conference Afework Kassu, Ethiopia's Minister of Foreign Affairs, said, “the Belt and Road initiative is an advantage for African countries for infrastructure development and for economic growth”.
 
Concerns about China’s neo colonialism and debt management
 
Despite these good words, China's B&R initiative is not free of criticism mostly from Western nations and international institutions, which suggest Beijing’s motivation is a retrograde strategy that employs globalization to service its domestic economy, and many of the concerns are about China’s potential economic predominance.
 
A March 2018 Center for Global Development (CGD) paper suggests that because China’s record of international debt financing is not good, and the B&R initiative follows China’s past practices for infrastructure financing, which entail lending to sovereign borrowers, then the initiative runs the risk of creating debt distress in some borrower nations. The paper identifies 8 of the 68 B&R borrower countries as “particularly at risk of debt distress”. Pakistan is the largest country at high risk with the development of its Gwadar deep-sea port, which is part of the B&R China-Pakistan Economic Corridor. China is financing about 80% of this endeavour, which is estimated to cost US$62bn.  Other countries mentioned in the CGD paper to be at high-risk of debt distress from the R&D initiative include Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan. The concern is that these at-risk nations could be left with significant debt ‘overhangs’, which could impede their ability to make essential future public investments and thereby challenge their economic growth more generally. Recently, public concerns from within China have been raised over the costs of the initiative. There is also concern that debt problems will create “an unfavourable degree of dependency” on China as a creditor. Several US Senators have expressed similar concerns and suggest that potential defaults could have a deleterious economic impact more generally. In addition to B&R loans, which have been questioned, it has been rumoured that Beijing has lent Venezuela US$60bn and also extended significant credit to Argentina. Venezuela is in economic meltdown and Argentina has applied to the IMF for a bailout
 
China’s mounting debt
 
China’s increasing exposure as a significant creditor to economically weak developing nations is compounded by its mounting debt and triggers concerns about China’s future stability. A popular Washington view, endorsed by President Trump’s chief economic adviser Larry Kudlow, is that China’s mounting debt and slowing growth mean that its “economy is going south”, and the recent imposition of tariffs on Chinese exports to the US will accelerate the nation’s demise. However, there is a view that Washington’s imposition of punitive tariffs is an over-reaction because the Chinese economy is nowhere as strong as that of the US economy. Notwithstanding, China is an important trading partner for the US and American companies should find a way to engage with China.
 
Since the 2008 financial crisis, China’s debt has been a concern in Beijing because it was a driver of the country’s economic growth. In 2016, Vice-Premier Liu He, President Xi’s top economic adviser, conscious of the potential national security risks of China’s mounting debt, took steps to de-risk the country’s financial sector. More recently, Liu has accelerated infrastructure investment and taken steps to avoid a banking crisis by ensuring that the renminbi does not fall too rapidly against the US dollar. Over the past 5 months the renminbi has weakened about 10% against the US$ and could weaken further if the currency becomes politicized. Despite Liu’s efforts to reign-in and control China’s debt, which some estimates put at about  260% of GDP, it is not altogether clear how successful these efforts will be especially if China’s debt challenges are considered in conjunction with its loose credit conditions.
 
Changing world economic order

Putting aside these concerns, it is instructive to note that a 2017 study by Price Waterhouse Coopers (PwC), suggests, ceteris paribus, that within the next decade China’s economy will be bigger than America’s and within the next three decades India’s economy will overtake that of the US. The study argues that the US will rank 3rd in the world and in 4th place could be Indonesia. The study suggests that China will have an economy of US$59trn, while India’s will be around US$44trn and America’s will total $34trn. Significantly, Japan (US$6.7trn), Germany (US$6.1trn), the UK ($5.3trn) and France (US$4.7trn), key markets for Western MedTech companies, are expected to fall respectively to 8th, 9th, 10th and 12th in the list. They are expected to be replaced by Indonesia (US$10.5trn), Brazil (US$7.5trn), Russia (US$7.1trn), and Mexico (US$6.8trn), which climb to 4th, 5th 6th and 7th positions respectively. This signals some significant economic shifts likely to take place over the next two to three decades and underlines the importance of emerging economies in the medium-term strategic plans of Western companies.
 
Takeaways
 
The world is on the cusp of some significant  economic changes and the two nations most likely to affect those changes are the US and China. Beijing’s policies and global aspirations are helping China to step into a leadership void created by Washington’s current rejection of multilateralism. However, it is still not altogether clear whether China will be able to sustain this new position, and the uncertainty this causes presents a significant strategic dilemma for Western companies seeking growth outside their current markets in the developed world. China is too big to be ignored by Western companies, but China’s conditions for engagement are onerous and its long-term stability remains in doubt.
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