Last year, one of the more interesting general China healthcare conferences I had the pleasure of attending was the OneMed Forum in San Francisco. The panels and guest speakers brought a unique perspective on how the life science industries are being challenged to grow within China, design strategies for executing inside the country given China’s own competing priorities related to developing a domestic life science industry, and even those US and European companies who have found China a necessary place to raise capital from. This year, OneMed is again hosting a specialized China track as part of their January 7-9th conference.
Among the topics that last year’s conference discussed was what to make of the Anhui Model and whether it had the potential to impact medical devices and diagnostics. The fear that this blind bid and tender protocol illustrated if not in specific technique in the more general means by which provincial leaders will do what they have to in order to expand healthcare access while controlling costs remains one of the most important questions the life science industry in China needs to see further clarified.
This year’s China Forum III will go from the general observations about what is going on in China’s healthcare industry to actual case studies. According to OneMed’s site, the analysis will “focus on the specifics of structuring and executing a joint venture by looking at two case studies involving Western healthcare company providing technology and with the Chinese partner providing the capital and distribution. One theoretical approach considered:
- Chinese Investors take minority position in US company and majority position of newly formed Chinese company (NewCo).
- US company receives equity investment in exchange for technology provided to NewCo.
- US company receives minority investment position new NewCo and ongoing royalty stream for ongoing consulting services.
- NewCo executive/investors take role in US company.
The approach provides what both parties seek. In the case of US, capital to grow its US market, royalties or sales an expanded market in china. Chinese partner gains technology and expertise to grow and a minority position in US company.
We will consider the financial, regulatory and tax implications, as well as legal structures for creating a new operating company jointly owned by Chinese investors, Chinese operators and US companies. We will examine the currency, Tax, Financial, immigration issues for all involved.”
I had the pleasure of exploring then upcoming China Forum with OneMed’s CEO recently. Brett added, “The difference this year is that we are drilling down into specific case studies of how companies are actually executing and structuring JV relationships in China where the fundamental components are western technology, Chinese capital and access to the Chinese market.” Brett wants the conversation to focus on the tactical matters revolving around the question of “what structures work.”
Because most market access and capital raising activities in China are inter-related (i.e. you are unlikely to raise capital from China from an investor who does not also want exclusivity of your technology for the China market), the right structure is not something you can afford to back into. Brett noted that the questions the forum will explore include “If I give away my China rights, does that diminish the value of my company down the road? Does this make a potential acquirer less interested down the road? That can be structured to be avoided with claw-backs, more importantly that is secondary to growing your business to a place where someone wants to buy it. The other issues are IP rights: am I creating a competitor that is going to market these products in global markets?” Brett admitted, “We are still early enough where we are just starting to see these deals work.”
Raising capital in China is still as much an art as a hard skill; however, forums like OneMed China provide attendees with an opportunity to engage those who are practicing in the field as lawyers as well as company leaders who are already seeing the strengths and weaknesses of various structures and approaches. Until better boundaries are drawn around best practices, staying plugged in through forums like OneMed’s upcoming conference remain the best way of staying engaged in the dynamically changing field of raising capital from and developing market access strategies within the China market. I am looking forward to attending this conference and hope to see many AsiaHealthcareBlog readers in attendance as well.
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