Selling Into, Raising Capital From, or Looking for Partners in China?

If you are looking to sell into, raise capital from, or identify partners for your healthcare business in China, then you owe it to yourself to add OneMedPlace’s China Forum to your list of future conferences to attend.  In a market as dynamic as China, with the sort of volatility one must expect when working in an emerging economy, having the opportunity to learn from industry leaders in the Venture Capital, Private Equity and general healthcare market has to be a priority.  Fortunately, OneMedPlace has made that easy for you to do.

A couple of key themes came out from Monday’s session:  first, the impact of the Anhui Model not just on pharmaceuticals, but on medical devices as well.  The former has been well documented, with in 2011 mandated by the National Development Reform Commission (NDRC).  The first round hit 162 drugs that suffered, on average according to James Huang from Kleiner Perkins Caufield & Byers, a 21% price cut and the second round focusing on antibiotics and endocrine drugs, resulting in on average a 14% price reduction.  As Huang put it on Monday, this is going to ultimately be a model that is deployed nation wide in China and will impact not just pharma, but medical devices and diagnostics as well.

The second key theme was a rightful acknowledgement of the good job by the Chinese government in getting as much done in the healthcare space in as little time.  Yes, the panelists all noted that healthcare access and quality is uneven across the country, but the last round of insurance reform increased the coverage to 95% of the Chinese populace, a major improvement and one that, as Huang noted, took them just three years to accomplish.  As he asked, “can you imagine something like that getting done in three years in the United States?”  Admittedly, this expanded coverage is part of what is lubricating the aggressive price reductions evidenced by the Anhui Model; but if you are in China’s place, what really are your other options?  The China trade has always been big volumes for low margins, and healthcare was never going to be exempt from this for long.

In this same positive vein, a third key theme was the role of the Chinese government as a potential partner and even investor in your healthcare business.  Vickey Chen, a Partner and Fund Manager at the China Healthcare Partnership from Martin Currie China stated that over the past three years, because of healthcare reform growing as a national priority, the country has grown its investment from its originally planned total of 850 billion RMB to over 1.13 trillion RMB.  This emphasis on healthcare spending and the priority of biotech, life sciences and pharms is not going away either.  According to Chen, in the country’s most recent 5 Year Plan, five of the nine strategic sectors are related to healthcare.

For companies who are seeking out potential government-sponsored investment partners in China, the view was largely that this was something that would likely occur over time if you offered something innovative.  As , the Founder and CEO of Beigene said, “it is naïve to think that money [from the Chinese government] comes foolishly or easily.  Money comes only at this point with reason or with relationship.”  David Sun, the Deputy Director and CTO of (CMC) made the point of showing that China’s governmental sponsorship should also be obvious from investments like those in CMC, a 30 square kilometer government planned city specialized in the biotech and pharma areas.

The fourth and final key theme from Monday’s OneMedPlace China Forum was the changing role of the Chinese capital market for companies looking to raise capital.  Huang with Kleiner Perkins noted that “on the public side, valuations are under pressure.  Chinese [healthcare] companies with good cash flow might get de-listed in the US and re-listed in China [in 2012].”  According to him, P/E ratios for these companies when they de-list in China range from 2-3; in China, upon re-listing they are between 15-20.  As he said, this is a significant arbitrage opportunity.  Yanning Yi, the Managing Director of Life Science & Healthcare Investment Banking from Canaccord Genuity, Asia said that on average, “in China the IPO P/E for these companies is 50, which is actually down from 70.”  His point:  it’s a tough time to buy a Chinese company if you think M&A is the right tactic for opening China to your business.

Overall, the tenor of Monday’s panels was one balanced between notes of concern (the role of China’s government in elevating the Anhui model, the efficacy of the country’s public insurance) and promise (the increasing availability of services through expanded coverage, the top-line growth generated by multinationals and emerging enterprises in China).  I highly recommend getting plugged in with OneMedPlace’s next China Forum if you are looking to sell into, raise capital from, or identify partners within the Chinese healthcare market.

UPDATE:  My column on the event and some of the key trends to watch with more detail over at Asia Times here.