Investors and Strategics Unpack China’s Complicated Market Potential For Medical Technology

25 Jan

By James Huang, Research Analyst, LSN

james-wpThis year, I had the fortune and pleasure to both organize and sit in on the China Medtech Panel at RESI JPM. The four panelists from Guoqian Venture Capital, Button Capital, Elite Capital, and Unistone Ventures all provided great information and many new insights into how the Chinese markets work. What most stood out to me was their elucidation of key differences between China and the US that many entrepreneurs fail to see, and their explanation of how life science startups can best situate themselves to deal with these differences.

1. China’s Markets Are Very Different from US Markets

According to our RESI panelists, one cannot assume that the market in China is the same as the market in the US or other Western countries. Many companies think that they’ll do great in China simply by running population metrics and not taking into account that China’s health system functions very differently compared to Western countries. China’s system has a different reimbursement process, China’s hospitals are all state-run and follow a different ruleset, and the government plays a large part in pricing. As a result, many digital health companies based in the US and Europe have no market in China, and many other device and therapeutics companies that assume they have a large market in China may not actually have that market.

The investors specifically talked about what they called “fake demand.” Basically, many companies will pitch to them that they have a large opportunity in China based off of research that they’ve done, but the investors say that often times, the demand that these companies claim to see is not accurate based on what they know at all. Part of the issue they say is that companies apply metrics from the US and Europe to China, assuming that many procedures and payment methods are all the same, when in fact a surgical procedure that’s done in the US might not be used at all in China.

2. Keys to Success in China for Foreign Companies

So how does a company correctly understand where they stand within Chinese markets? According to the panelists, the best way is to find a strong partner within China who can help them. The partner could be a strategic, an investor in China, etc. so long as they have roots in China and have experience working in China. Having someone native to China working as a partner is key since they’ll have experience with the system there and oftentimes, many strategic partners and investors have prior experience working with the government as well.

However, how does one identify these strong partners and access them? For manufacturing partners, many public Chinese medical device and therapeutic companies are constantly looking for innovative technologies to license to China. In fact, we’ve been seeing a trend where many Chinese pharmaceuticals and medical device manufacturers have started setting up offices and incubators within the US in order to identify more technologies to license back to China. Alongside Chinese investors, these groups have become more prevalent at conferences such as RESI. As the demand for innovative technologies increase, conferences like RESI will become better places to meet Chinese partners. After the USA, China is the second most represented country among investor profiles on the LSN Investor Platform, and we only expect that constituency to grow in the future. If you’re aiming to source an investor or partner from China, it’s important to use all the information sources and potential meeting points available to build a connection.

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