CEO SUMMARY: To fill the unmet demand for quality clinical laboratory testing in China, a partnership between pathologists at UCLA and Centre Testing International Corp. of Shenzen have built and will operate a lab facility in Shanghai. The new lab will open by late September and will initially provide core lab testing services to pharmaceutical companies, other similar clients, and for clinical trials. The lab will then develop and offer sophisticated molecular, genetic, and next-generation gene sequencing test services for cancer and other diseases.
LAST MONTH, A NEW CLINICAL LABORATORY PARTNERSHIP for Shanghai, China, was announced involving UCLA and Centre Testing International Corp. (CTI). The partners have built and will operate a 25,000square foot clinical lab facility in Shanghai.
This is a milestone development for the laboratory medicine profession in the United States. It brings together two credible partners for the purpose of providing state-of-the-art molecular, genetic, and clinical laboratory tests in the world’s most populous nation. (See TDR, April 28, 2014.)
UCLA, an internationally known brand in its own right, has a Chinese partner that is equally credible. CTI is a public company traded on the Shenzen stock exchange and generated revenues of US$124.7 million in 2013.
With headquarters in Shenzen, CTI provides product testing, inspection, certification, and consulting services to a wide variety of industries. It operates in China, Taiwan, Hong Kong, Singapore, the United Kingdom, Germany, and North America. CTI’s lab testing partnership with UCLA will be its first health-related business.
This is intended to be a for-profit business that performs high-quality, advanced diagnostic testing for physicians and patients in China. As such, this partnership is different from the handful of existing arrangements involving Chinese labs and academic centers in the United States.
At least three collaboration agreements exist between academic center labs in the United States and labs in China. One such agreement calls for Mayo Clinic to provide reference testing and similar services to Wuhan Kindstar Globalgene Technology, Inc. (2011).
An agreement to provide second-opinion pathology consultations and other support services was initiated between UPMC and KingMed Diagnostics (2011). A third collaboration also involves second-opinion pathology consultations and training. It was established between UCLA and Hangzhou’s Second Affiliated Hospital Zhejiang University (2010.)
THE DARK REPORT has conducted site visits to both the pathology department at UCLA and the clinical laboratory and pathology department of the Second Affiliated Hospital Zhejiang University (SAHZU) in Hangzhou. Detailed ebriefings about both site visits and how digital pathology is used to further this clinical collaboration were published in the July 16, 2012, and August 27, 2012, issues of THE DARK REPORT.
Robust Demand for Lab Tests
China’s fast-growing economy has created a robust demand for accurate, reliable clinical laboratory testing and anatomic pathology services. At the same time, the healthcare system in China has been challenged to modernize medical facilities and train adequate numbers of physicians to meet this demand.
In fact, it was this gap that pathologists at UCLA recognized as they worked with the pathologists at SAHZU. “In 2010, as we began working closely with the pathologists at the Second Affiliated Hospital, we observed two things,” stated Scott Binder, MD, Senior Vice Chair, Pathology and Laboratory Medicine at UCLA’s Geffen School of Medicine and Director of Pathology Laboratory Services for the UCLA Health System.
“First, their lab lacked the capability to do the more sophisticated tests that were often needed to make an accurate diagnosis,” he noted. “Second, because they lacked subspecialist pathology training—a common situation in China—they were unable to interpret the slides for many different types of cancers.
“The pathologists and the lab team at SAHZU were terrific, just as we found everywhere we went in China,” observed Binder. “Pathologists and laboratory scientists there are affable, bright, and interested in learning how to make an accurate diagnosis.
“They also are interested in establishing and maintaining close ties to labs here in the United States,” he added. “But, for the most part, pathologists in China don’t have the ability to start a new lab.
“That presented us with an opportunity to create such a laboratory resource in that country,” said Binder. “However, we recognized that we would have to find the right partner in China to fund this project. “
Our next step was to do what any lab developer would do,” he continued. “We hired a consultant to help us assess the business potential for a new lab company. Our choice was L.E.K. Consulting, a company that has extensive experience in China and has offices in the United States.
“L.E.K. did a market analysis and drafted a business plan for the proposed new laboratory company,” said Binder. “That analysis identified the risks and opportunities of the changing marketplace in China.
“In fact, L.E.K. showed that the market for our planned lab services had strong potential,” he stated. “Funding was the next step and I interviewed venture capital firms in Shanghai and in the United States.
“We also considered hiring senior staff, and one of the candidates we interviewed for another executive position happened to have experience developing labs in India and Brazil,” commented Binder. “Coincidentally, he had worked with CTI in the past and knew that CTI works with a variety of companies in different industries to ensure quality control so they can sell products worldwide.
“In certain respects, CTI is like the Underwriters’ Laboratory here in the United States,” he explained. “This individual introduced us and CTI turned out to be a terrific partner; one that has been an advantageous collaborator for us.
“Many of the staff at CTI have been trained at some of the best technical universities in the United States,” he pointed out. “As a result, they understand the need for precise and accurate medical testing. In fact, they had a clinical laboratory license already with a large academic medical center, but that medical center had recently decided not to pursue the lab project. That created an opening for us to step in and be CTI’s partner.”
According to Binder, the Regents of the University of California moved expeditiously to review the business plan and negotiate the joint venture with CTI.
“We expect the new lab facility in Shanghai will be licensed before the end of September,” said Binder. “The next step will be to perform a certain volume of tests to show government officials there is sufficient revenue to be viable. Then we can begin expanding the test menu and preparing for a CAP inspection.
Limited Capability to Start
“At start-up, the lab test menu will be primarily core lab functions, ranging from chemistry, hematology and some immunoassays to flow cytometry and IHC,” he said. “The more sophisticated molecular and cytogenetics testing and next-generation gene sequencing will be phased in over time.
“In the beginning, this lab facility will primarily serve pharmaceutical companies and other clients who need that kind of testing,” added Binder. “As volume from these sources ramps up, the emphasis of the lab will shift to molecular and cytogenetics testing for advanced cancer diagnostics.
“In fact, my goal for UCLA and the goal of our Chinese partners is to eventually create a joint diagnostic cancer center,” declared Binder. “There is strong interest in China in establishing joint diagnostic cancer centers.
“By that I mean we would offer interventional radiology and the radiologists and pathologists would work together to deliver an integrated diagnostic report,” he explained. “But this joint diagnostic center will only happen after the lab has established a full menu of advanced diagnostics for cancer and other diseases.”
Binder was optimistic about the success of the UCLA/CTI laboratory company because of one basic structural weakness that exists in lab medicine in China.
“The chief limiting factor for establishing high quality clinical laboratories in China that perform complex reference and esoteric testing is the shortage of trained medical technologists and anatomic pathologists,” observed Binder. “This is why there is such a huge unmet need for so many different kinds of testing.
“It is very difficult to find high-level trained technologists,” he said. “That’s why we send some of our techs to China and why we have some of their techs come to train here at UCLA. Before we can operate our proposed joint diagnostic centers in China, we must have the right number of properly-trained technologists.”
The increased demand for highly- skilled pathologists is a relatively new phenomenon in China. Binder explained that, “the reason for these shortages of pathologists and med techs in China is that, for many years, pathology has not been highly valued. Pathology has a low profile and it’s a low paid profession. Therefore, it doesn’t attract much interest among young people entering the medical profession.
“Dermatopathology in China is a good example,” he added. “We trained several dermatologists in this subspecialty over the course of a few months by having them work with me at UCLA. It was a challenge because they were unfamiliar with the pathology part of training that is common for pathologists in the United States.
“It’s similar in other areas of pathology,” he said. “There are not many hematopathologists, neuropathologists, or breast pathologists, for example. Because many more of these subspecialists are needed, we are bringing Chinese pathologists to UCLA for that training.
“It’s a similar situation with Chinese medical technologists,” added Binder. “They already know what to do in the core lab. What is needed is training in the more advanced techniques of molecular, cytogenetics, and gene sequencing. To do that, these techs must be trained on the job and that takes time, whether it is done here in the United States or in China.
“And that’s how all the steps to develop this lab have proceeded” he said. “Each part of the process takes time and effort because it is necessary to build trust. That’s the way to do business in China.
“On this point, one of the most significant reasons that this project got done was the work of Dr. Jianyu Rao and Dr. Jiaofi Huang here at UCLA. Both are Mandarin-speaking physicians who were motivated to get this clinical lab company started.
“At the same time, we have a number of Mandarin-speaking med techs working at UCLA,” noted Binder. “These individuals were anxious to go to China to work and visit family as well. Sending those techs to China was another way we could build trust.
“Of course when med techs come from China to get training here, they find a large and vibrant Chinese community. They’re welcome here and that’s another way we can build trust with our colleagues in China.”
Business Plan Shows Potential for Growth in China’s Clinical Laboratory Testing Market
IN CHINA, THE POPULATION is estimated at 1.39 billion, representing about 19.3% of the human race. In addition, this population is becoming more affluent, according to Scott Binder, M.D., Senior Vice Chair, Pathology and Laboratory Medicine at UCLA’s Geffen School of Medicine and Director of Pathology Laboratory Services for the UCLA Health System.
Before developing a new clinical laboratory company in Shanghai, UCLA contracted with L.E.K. Consulting to do a market analysis and draft a business plan. The analysis showed that the population was growing and aging and that there was a need for testing to support clinical trials.
“In addition, it showed that there is a huge incidence of cancer in China due to the high rate of smoking and because of environmental pollution,” noted Binder. “The report also showed that the Chinese middle class and upper middle class were rising.
“For many years, the upper classes in Chinese societies have gone to Hong Kong and Singapore for their healthcare,” he observed. “Now the middle class and the upper middle class—which number in the tens and hundreds of millions of people— have been educating themselves about the need to get the best health care.
“Now, these individuals know that they want high quality care and they do not want an incorrect diagnosis,” he said. “They also recognize that high quality pathology services produce accurate lab test results.
“Some people say the middle class is driving a healthcare revolution in China,” added Binder. “Consumers increasingly believe they deserve the best healthcare in their own cities and towns. They are no longer willing to travel thousands of miles for quality healthcare, and the government is responding to these demands.
“In its report, L.E.K. also pointed out that the Chinese are very aware of brands,” he noted. “In healthcare, for example, Chinese consumers associate quality with brand names such as UCLA, Stanford, and Harvard. Those names alone confer a certain degree of trust for the Chinese consumer.
“Conversely, the Chinese are not excited about clinical laboratory companies that focus on high volume testing,” observed Binder. “The names of public companies in the United States that focus on high-volume testing are not associated with quality in China. Therefore, middle class and upper middle class Chinese have no interest in those companies as a source for their clinical laboratory testing.”
Nine-Year Journey for UCLA to Develop a Lab In China
IT ACTUALLY TOOK NINE YEARS for pathologists at UCLA to develop the relationships and trust needed in China to create the new laboratory company that will open for business in Shanghai this fall.
In 2005, Scott Binder, M.D., Senior Vice Chair, Pathology and Laboratory Medicine at UCLA’s Geffen School of Medicine, made his first trip to China. “I was invited by the leading academic medical center in China to give a talk on skin pathology and then do a microscope session with some of the lab personnel there.
“While touring labs during this trip, it became apparent that most labs in China had adequate space, up-to-date instruments, and staff,” recalled Binder. “However, they were not doing much volume in esoteric testing.
“When asked why they weren’t doing larger volumes of these tests, they said they couldn’t get the processes to work well,” he continued. “On subsequent visits, it was clear that hospitals in China have tremendous patient volume, but their labs are relatively inactive because of the shortage of trained subspecialty pathologists and trained specialist technologists.
“When I returned to UCLA, I met with Jianyu Rao, M.D., Professor of Pathology and Laboratory Medicine. He speaks Mandarin Chinese and, because he partly trained there, he helped to make this project a success.
“One of the first problems we identified in China’s labs was the need for education and more training for the pathologists and clinical lab staff,” noted Binder. “That is why we began to send medical technologists from here to work in China and we had labs in China send pathologists and medical technologists to train here at UCLA.”