Next Phase Newsletter

By James Huang, Research Analyst, LSN

In my recent discussions with several investors located in China, I noticed a trend occurring in my conversations: many of them are considerably more interested in medical devices rather than therapeutics. As a result, I brought this trend up in conversation with a few of them and received a few illuminating responses:

• An investor told me that the medical devices market had grown in China by 20% in the past year and they anticipated that this trend would continue over the next few years. The investor therefore hopes to take advantage of this trend.
• The Chinese medical device market is currently much smaller than the therapeutics market, and an investor I spoke to said that they therefore believe that there is more potential growth in the medical device market.
• China’s government is putting money into innovative medical device startups; investors can potentially secure additional non-dilutive funding to go with their investments in medical device companies.

Due to these factors, the investors I spoke with were all interested in investing in medical device companies based in the US with technology that they believe would be applicable to China.

I decided to investigate this trend further, and uncovered the following data points:

• Medical Devices in China only account for 14% of the country’s local healthcare products market. In other developed nations, medical devices account for 42% of the overall healthcare products market. This suggests that China has considerable room to grow in the medical device side of the market, which reflects what I have heard from Chinese investors.
• China’s medical device market from 2015 to 2016 increased by $53.62 billion USD (a 20.1% increase) and this growth rate is expected to be maintained into 2017 as well.

• China’s healthcare industry growth from 2004-2014 was an astounding 492%, as compared to the global average healthcare industry growth of 60%. This growth is expected to continue as the government has put forward more initiatives to reform healthcare (13^th Five Year Plan for Medical and Healthcare System Reform).
• China only spends 5.5% of their GDFP on healthcare compared to the United States’ 17.1%
  • The total dollar amount of the discrepancy between healthcare spending in China and the US is $574 Billion in China vs. $3 Trillion in the US.
  • Given China’s large and aging population, China’s continuing development will cause this healthcare spending to increase, bringing a lot of potential growth in future years.
• Additionally, the CFDA (China’s healthcare regulatory body) has recently released a “Guidelines for the Preparation of Special Reports on the Application of Innovative Medical Devices” to encourage medical device innovation.
  • This and other initiatives by the Chinese government really emphasize their focus on medical devices in China and suggests that the government is willing to invest money to make these changes happen.

Given all these data points, it makes sense that China-based investors are seeking new medical device investment opportunities. However, given the large opportunity presented here, it seems curious as to why these investors aren’t looking within China to fill these needs. According to the investors, it’s simply because there aren’t enough new innovations coming out of China to fit the need. In fact, domestically made products account for less than one percent of the market value of the Chinese medical device industry. As a result of the lack of domestic innovation, Chinese investors are forced to look overseas for innovative technologies.

It’s clear that China has a large opportunity for growth within the medical device space and Chinese investors are interested in sourcing technologies from the US in order to fill the gap.  On the LSN Investor Platform, LSN Research tracks 99 China-based investors that have an interest in medical devices.  If you are a medical device entrepreneur, these investors should be on your radar.

Sources:

https://www.medicalplasticsnews.com/news/china-highlights-medical-device-industry-as-a-breakthrough-a/

https://www.export.gov/article?id=China-Medical-Devices

https://www.emergogroup.com/resources/market-china

https://www.pwccn.com/en/pharmaceuticals/pharm-china-ma-jun2016.pdf

https://chinameddevice.com/cfda-fast-track-innovation-medical-device/

http://www.chinadaily.com.cn/china/2017-06/05/content_29627481.htm

By Michael Quigley, VP of Investor Research, LSN

Healthcare payers and healthcare providers alike stand to gain significant increases in cost efficiency as a result of the successful implementation of new technologies into their workflows and into the lives of the patients they care for and insure. As such it is no surprise that many of these groups have begun investing into early stage technologies, either through their own corporate venture vehicles or by sponsoring external venture funds.

Beyond simply providing capital, these groups represent a tremendous value-adding resource for the companies that they invest in.  Based on our conversations and experience in reaching out to these groups on behalf of companies, they are almost exclusively investing with a strategic mandate, targeting technologies where they can be a customer or help drive adoption in a meaningful way. This leads to them primarily focusing on healthcare IT, tech-enabled services and, to a lesser extent, low-risk medical technologies.

An interesting parallel can be drawn between these payer and provider linked funds in the digital health space and large pharma groups for therapeutics. Both bring significant expertise to the table in their respective sector and invaluable development advice; lower the risk of customer acquisition (for healthcare IT companies) or M+A/exit risk for therapeutics if the technologies do work and they provide a significant level of validation in the technology for other investors looking to co-invest or participate in later rounds. To put it simply, if I was a digital health entrepreneur, these kinds of funds would be at the top of my list when fundraising.

At RESI Boston on Sept 26^th, the Payer & Provider Venture Funds Panel will feature 4 speakers from these funds, who will discuss the types and stages of technologies they are looking for, how they add value outside of capital, and where they see their space going in the next few years. Attendees of the session will hear from:

• Kristi Ebong, Director of Emerging Technology, Cedars-Sinai Accelerator Powered by Techstars
• Christiana DelloRusso, Partner, Providence Ventures
• Michael Thomas, Director, Inova Personalized Healthcare Accelerator
• Tom Hawes, Managing Director, Sandbox Industries

If you’d like to hear the advice of these investors, you can register for RESI now.

By Lucy Parkinson, Director of Research, LSN

RESI Boston is approaching, and partnering requests are flying back and forth between attendees. As this is the 14th RESI event, LSN has gathered a great deal of information and insight on the partnering process. We’ve seen how skilled entrepreneurs take steps to increase their partnering success. Based on our observations, here are a few keys to partnering success:

Numbers Are Key

A simple truth underlies a lot of our other insights: Entrepreneurs that send more requests get more meetings. However, those requests have to be directed at relevant investors. The below chart plots the relationship between the number of requests sent via RESI Partnering and the number of meetings booked. This makes it clear that your goal is to surface as many relevant investors at the partnering event as possible and provide them with a clear reason to meet with you.

Make A Target List

Many partnering events claim a high number of investor attendees, but what’s important is to find out which of those investors are potentially relevant for your opportunity. The RESI website includes a list of investors that are signed up to attend, and LSN’s Research team speaks to all those investors prior to the event in order to understand their investment interests and criteria. RESI attendees can therefore search RESI Partnering to get a complete view of the most relevant attending investors. At other events, the partnering system may not provide this information as consistently — you may need to do your homework on the attending investors. A search online for their portfolios and stated interests should reveal which are most relevant for you.

Log In Early and Often

As a partnering event approaches, investors will find many meeting requests in their system inbox. Some investors like to look at those requests as soon as they come in, and may fill up their schedule with interesting startups quite early. However, it’s more common for investors to select their meetings close to the event — and some investors only sign up for events at the last minute. There’s therefore an advantage to getting a set of requests out as soon as the system opens to catch the earlybirds; however, running regular searches to look for new attendees as the event approaches will allow you to identify new targets and increase your meeting count.

Don’t Limit Your Investor Universe

At RESI, we welcome a broad variety of investors, including venture capital firms, big pharma, family offices, venture philanthropy funds, angels, and many more. Any of these investors could potentially be a fit for your round. As we covered in last week’s Next Phase, some entrepreneurs make the mistake of focusing only on the top 25 big name VC funds. If one of these funds has an investment staff member at the event, it’s definitely worth shooting them an invite, but if you only send requests to attendees from these firms, you’re likely to lose a large part of the value of the event. Partnering events are a great opportunity to broaden your network; the most relevant firms represented at the event might be those you’ve never heard of or those who you hadn’t previously considered approaching for investment. Equally, don’t dismiss a firm because they’re based far from your headquarters; many international investors attend partnering events specifically because they want to broaden their exposure to overseas deal flow.

Write A Clear Intro Message and Profile

You’d be surprised how many CEOs send partnering requests with only a one-sentence message, or no message at all. Similarly, many may neglect to fill out their profiles, or forget to update their pre-loaded profiles from last year’s event. It’s important to keep in mind that the investor will have received a deluge of meeting requests, and if you don’t make your company’s relevance immediately clear, they will move on to the next request. Make sure that your message clearly describes what your company does and why it’s aligned with that particular investor’s interests, and be sure that if they click through to your profile they’ll have access to all the vital information needed to determine that you are a fit for their firm.

Follow Up On Your Requests

To maximize your partnering success, you should reach beyond the partnering system. For each investor on your target list at the event, try to find further contact info. Send an email or make a quick call to tell them what your company does and why you’re highly interested in meeting with them at the event. With so many messages to go through, an extra nudge may be necessary to direct the investor’s attention to your company. For RESI Boston, we’ve therefore created the new RESI Premier Partnering Plus Registration which provides investor contact info in order to help entrepreneurs follow up on their meeting requests.

RESI is approaching on September 26th – if you would like to put this advice to work and start filling out your meeting schedule, register now.