TK Medical's Chief Executive Officer Charlie Yu, left, and Chairman Xing Zhou in their Guangzhou office holding a new product for the firm, a biopsy device that removes tissue samples from internal organs.

The company, with a heavy focus on plastic medical products, wants to become one of China’s first globally recognized medical device makers.

It’s an ambitious goal because selling medical products in the world market is a lot tougher than the TVs and electronics sectors China dominates, and executives admit one of their big challenges is that the country’s melamine-tainted milk powder and solvent-laced cough syrup have made hospitals around the world wary of buying “Made in China.”

But TK has gotten some early help: Last year it secured funding from one of China’s largest venture capital firms, Shenzhen Capital Group Co. Ltd., and it brought in a new chief executive officer, a Chinese-American with broad experience in the medical device industry in America and Asia.

Plastics News caught up with Charlie Yu, who became TK’s chief executive officer in September, to talk about how the 5-year-old company hopes to transform itself, and whether China can duplicate in medical devices -- where manufacturing mistakes can hurt or kill people -- what it has done in industries like toys and consumer electronics.

Yu, who previously ran the Asian operations for American medical device firms Cook Inc. in Bloomington, Indiana, and plastics-related Merit Medical Systems Inc. in South Jordan, Utah, said he was drawn to TK because the Guangzhou firm already had a strong mix of about 150 patents, developed from its relationships with doctors, and a solid research and development focus.

That research includes patents on some traditional plastic products made from polycarbonates and thermoplastic urethanes, such as laparoscopic surgery devices and a medical waste system for sterilizing fluids, helpful in combating communicable diseases like the H1N1 flu.

It also has patents in some higher-tech areas, like an artificial esophagus and miniscule miscrospheres that have drugs attached that can be delivered via a catheter directly to tumors, aneurysms or other diseased parts of the body.

From research & development to production

One of the immediate goals, Yu said, is to use those traditional products to generate sales, while it figures out how to sell or find partners for some of the higher-tech patents, most of which are used inside the body and would require a lot more resources for clinical trials and overseas government approvals than the small firm can muster.

“My goal here is to change over from [a research and development] company to a company that can bring in revenue and be more manufacturing- and sales-oriented,” Yu said.

Right now the company owns its own molds and other intellectual property but outsources its manufacturing, so TK is in the midst of a second round of raising capital with the goal of bringing much of that in-house, in a new plastic and metal alloy facility in Guangzhou.

The company projects expanding from its current 60 employees to about 350, in three years. TK does not aim to be large, but rather wants to operate at global standards and earn a reputation for quality and innovation, he said.

“The long-term goal for the company is we have a solid manufacturing base of plastics and alloys,” said Yu. “We have bits and pieces, but [our goal is] to have more comprehensive alloy and plastics manufacturing. That’s the manufacturing foundation. I want us to be very strong on the [research and development] side. The new facility will also have an innovation center.”

Yu cautions that it is hard to predict some things, such as its manufacturing footprint in its new Guangzhou factory, since it has only in the last year gotten CE Marking regulatory approval to begin exporting to Europe, starting with an organ retrieval bag and a trocar.

TK reports that its medical markets remain solid even in the downturn. The company broke even last year for the first time, and it is targeting a profit this year on expected sales of about 22 million yuan.

TK is expanding its sales channels: In early June it struck an agreement with a large Chinese retail pharmacy and hospital product distributor to both get its own products into China’s market and create a channel to bring in other imports, Yu said.

The company brought in venture capital for funding and for management expertise to help it commercialize its products, and is targeting an initial public offering, possibly in the Shenzhen stock market, in three years, said Xing Zhou, the chairman and one of the founders of the company.

The gap between Chinese and overseas medical production is closing, he said.

Handicap of ‘made in China’

A big hurdle, however, remains, and that is the negative reaction outside of China to Chinese-made medical devices, Yu said. That has prompted TK to develop a two-pronged strategy for manufacturing on its own and also licensing products to overseas firms, if it’s easier to open sales channels that way.

“There is this innate resistance from many doctors and companies in many countries to use Chinese-made medical devices, so I recognize that and it’s a reality we cannot run away from,” he said. “For the company to move forward we will have our own brand, but we will also look for some co-manufacturers that can use our [intellectual property] and our design and manufacture under their own name, so even though it may be exactly the same product, but manufactured in Korea or the U.S. or wherever, it may be better accepted.’

“I’m looking at both ways to move forward, because I recognize the global situation with the reputation of Chinese products,” he said.

But there are some advantages for the Chinese medical industry, he said.

The first is not a surprise: cost. TK thinks it can sell a trocar kit, with four trocars and needle, for the price some European firms would charge for a single trocar. As well, animal trials are cheaper in China, Yu said.

Beyond cost, though, China also has a potential research and development advantage with its huge population, Yu said.

It means doctors treat more patients, and that translates into knowledge gained for those doctors that companies like TK can then more easily tap for new products, he said.

“Many of the U.S. physicians who come over here, in their world, they are very experienced in, for example, liver work, but their volume in six months may be what one doctor here does in a couple of weeks,” Yu said. “That is why in some of the interesting diseases we are seeing now, the Asian doctors have more experience than the U.S. doctors.”

But there are challenges with the Chinese supply chain, such as sometimes getting the high-level of documentation of materials and transparency in manufacturing processes that global medical firms and governments around the world require in their medical devices.

There are also significant challenges with China’s factory-floor workforce, migrant laborers who come from more rural places to areas like Guangzhou without much formal education. They lack exposure to complex machinery or the kind of attention to quality and detail that is critical in medical manufacturing, and that means a lot more training, Yu said.

“It’s the same all over the developing world,” he said. “It takes time to raise the standards.”

Yu, who emigrated with his family from Taiwan to the United States as a child and was educated there, also admits to being motivated by his desire, as an ethnic Chinese who joined the global diaspora, to try to build in China the same kind of company he’s been part of in the West.

“Ethnic Chinese or ethnic Asians have found success in America,” he said. “Why can we not be successful from over here, from within China, to grow a company that can be successful globally?”

Yu compares China’s development in areas like medical manufacturing to Japan, which at one time also focused on lower-end products but now has a reputation for quality. He believes it’s “inevitable” that China will became a major player in medical device manufacturing, even if there are major hurdles for early adapters like TK.

“It hasn’t been done so it’s not easy,” he said. “If it were easy, everyone would have done it.”