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China FDI Continues Flowing into Med-tech Companies in North America and Europe

Since the beginning of the 21st century, China investors have been seeking for opportunities in the western economies, especially the high value-added segments. Encouraged by China government, FDI in high-tech industries, including pharmaceutical and medical device, could provoke financial stimuli such as tax incentives, financial assistance and an overall reduction in the administrative regulation process. By the year of 2016, China investment in US healthcare segment has amounted to $3.9 billion across over 110 deals. The year 2016 alone saw 20 deals closed. Below we summarize a few impressive medical device investment cases made by China investors.

In late 2016, Chinese investor named Microport Scientific Corp. paid $15 million for common stock and convertible debt of Lombard Medical. Lombard is an Irvine, California-based manufacturer of endovascular stent grafts. This deal granted Microport the exclusive right to manufacture and distribute Lombard’s product in China mainland. In 2015, Microport acquired Wright Medical, based in Memphis, for $290 million and built up their own subsidiary, Microport Orthopedics, thanks to the intellectual properties from Wright.

Another China company named Huapont made a tremendous endorsement by closing a $6 million value deal with Histogen as the lead investor in the US company’s Series D funding. Histogen is known for developing hair loss treatment with embryonic stem cell technology. Like Microport, the China party Huapont obtained an exclusivity of marketing Histogen’s hair products in China mainland. In exchange, Histogen maintains manufacturing rights and could expect CFDA registration approval in the time of about one year.

Meanwhile, China’s leading biosensor technology company, Sinocare, completed the acquisition of PTS Diagnostics, based in Indiana, for $200 million last year. Sinocare also purchased Nipro Diagnostics in 2016 and renamed the company as Trividia Health. Both deals were highly strategic from the perspective of Sinocare diabetes care is part of the company’s business. PTS provides Sinocare with biometric testing devices for point of care activities, such as glucose monitoring while Trividia develops and manufactures diabetes-related devices as well.

Except for equity purchase and acquisition, China investors also establish joint ventures together with US bio-tech companies, such as to strengthen R&D power and accelerate the entry of advanced medical devices into China. In early autumn last year, Shanghai Fosun Pharmaceutical Group infused $100 million into California-based Intuitive Surgical. The joint venture is registered in China, aimed at developing and manufacturing medical robots for the early diagnosis and treatment of lung cancer.

Nowadays, US med-tech companies become increasingly privy to China investors. The money inflow from China makes up for the significantly decreasing US investment. By the end of 2016, American venture capital, private equity and other investing firms contributed to a record-low amount of only $3.5 billion into pharmaceutical and medical device companies. The IPOs issued by med-tech firms drops out as a result. China FDI turns up to be a welcome solution to less-interested US investors as they focus on IT and software again.

On the other hand, US companies must be aware of the risk of jeopardized intellectual property. Since China authorities limit FDI outflow to $5 million, some US med-tech firms agree to set up branches in China taking the advantage of China investment made in CNY. However, operations in China may give away the unique, sophisticated and state-of-the-art technologies and even cause copycats in competition with the original devices.

Another possible risk is the changing political environment. Since President Trump has threatened to enter a trade war with China, some Chinese investors already turn attention to opportunities Canada and Australia. Fortunately, most China decision makers still believe that investing in US is the best option where they could find the latest and highest healthcare technology. In 2016, Nanjing Sanpower Group Co. made a new record, transferred $280 million to Valeant Pharma and purchased a firm specialized in cancer treatment.