By Ames Gross, President and Founder of Pacific Bridge Medical
This article was also published on MedTech Intelligence.
Between 2000 and 2016, Chinese companies invested nearly $110 billion in the United States, according to the research firm, Rhodium Group. More than 40% of the investment occurred in 2016 alone. The U.S. healthcare industry has also benefited from Chinese foreign direct investment (FDI). In the past 16 years, there have been more than 110 deals valued at $3.9 billion between Chinese investors and U.S. healthcare companies, including more than 20 in 2016.
There are several reasons for the high amounts of Chinese investment in U.S. companies, particularly medical device companies. Overall, the Chinese government encourages outbound investment. The Chinese government first began offering tax incentives and financial assistance for companies investing abroad in the 1990s and later introduced their official “go global” policy in the early 2000s. The Chinese government continues to promote outbound FDI using various financial incentives and reducing regulations to ease the administrative process.
Chinese companies and investment firms have turned their attention to Western medical device companies due to growth in China’s healthcare industry. Government reforms have led to increased investment in all areas of healthcare, from hospitals to medical devices. Additionally, with improvements in healthcare services, the demand for newer and better devices and medical technology has also increased.
Medtech companies based in the United States have also begun to actively seek out Chinese partners due to inadequate domestic funding. While the stock market has been “hot” since President Trump’s victory, the number of medtech companies successfully going IPO has diminished. According to Silicon Valley Bank (SVB), U.S. venture capital (VC), private equity and medtech firms invested approximately $4 billion in medical device companies in 2016, the lowest amount in four years. SVB forecasts investments in medical device companies in 2017 to drop to $3.5 billion, as investors shift their focus to the software and IT industries. As a result, Chinese investors provide a good opportunity for U.S. medtech companies suffering from the lack of VC funding.
In the past few years, there have been many instances of Chinese healthcare companies and investment firms acquiring, investing in and forming joint ventures with medical device companies based in the United States, as well as Canada and Europe.
In late 2016, Microport Scientific Corp. (China) invested $15 million in common stock and convertible debt in Lombard Medical (Irvine, CA), an endovascular stent graft manufacturer. In exchange, Microport Scientific will retain exclusive marketing rights of Lombard Medical’s products in China, as well as a technology license to manufacture products in China. The deal also included a supply chain agreement and exclusive marketing rights in Brazil. Microport Scientific previously acquired Wright Medical’s (Memphis) OrthoRecon business for $290 million, creating a new subsidiary called Microport Orthopedics in 2015.
Sinocare, a biosensor technology company based in China, acquired PTS Diagnostics (Indianapolis) in mid-2016 for $200 million. PTS Diagnostics manufactures point-of-care biometric testing devices, such as glucose monitoring devices. Sinocare, which focuses on diabetes management, also acquired Trividia Health (Fort Lauderdale, FL), another manufacturer of diabetes-related medical devices.
In September 2016, Shanghai Fosun Pharmaceutical Group (China) and Intuitive Surgical (Sunnyvale, CA) established a $100 million joint venture to research and develop robotic-assisted medical devices for the early diagnosis and treatment of lung cancer. Intuitive Surgical, which produces robotic-assisted technologies for surgery, has worked with Fosun Pharma in the past. Chindex, a Fosun Pharma subsidiary, has been Intuitive Surgical’s da Vinci Surgical systems distributor since 2011. Their new joint venture will be registered in China, where the research and development will occur, as well as the device manufacturing.
Vivo Capital is a global healthcare investment firm based in Palo Alto, California with offices in both China and Taiwan. Vivo Capital and ZQ Capital, a Chinese advisory and investment firm, acquired 100% of the shares in Angiotech Pharmaceutical (Canada) for an undisclosed amount. Vivo Capital and ZQ Capital were joined by two Hong-Kong based investment entities as well. Angiotech Pharmaceuticals manufactures surgical instruments, including the Quill Knotless Tissue-Closure Device.
Wuxi Ventures, the venture capital firm of Wuxi Pharmatech, a Chinese research and development services company, also targets investments in U.S. and Chinese healthcare companies. In 2015, Wuxi Ventures led the $42 million round of equity financing for Ivenix (Amesbury, MA). Wuxi Ventures was joined by several investing partners, including Cardinal Partners and Fidelity Biosciences. Ivenix is an infusion therapy company, developing a new device for drug dosage regimens.
Having personally witnessed the huge growth in Japanese overseas investment in the 1980s, one can equate this Chinese investment of today as a similar phenomenon. While back then the Japanese were excited by trophy properties and golf courses, the Chinese preferred new technologies, including medical, where the market opportunity for growth in China was huge. There is no doubt that China’s healthcare market will continue to grow for the foreseeable future. New medical technologies that can be acquired in the West and taken back to China are of particular interest.