The rise of Chinese medtech in the new geopolitical context

Last week, I had the chance to attend and speak at the Device China 2019 conference gathering leading Chinese Medical Device companies and investors. There were a couple of interesting presentations testifying how fast the Chinese Medical Device industry is evolving. Everything was in Chinese with no translation which was a great practice for my medical Mandarin! Let me share some of my notes from those 2 days in Suzhou.

I should start with the talk of Mr. Zhu Ching, Managing Partner at 6Dimensions, and key organizer of the event. According to his presentation, the China Medical Device industry has grown by 30% in 2018 over 2017 and is planned to grow at similar rate in 2019. The overall environment for investors in Chinese Medical Device companies is exciting with the number of both IPOs and M&A that doubled in 2018 compared to 2017.

However, in the context of the trade war, cross-border M&As are slowing down and Mr. Zhu noticed that the investments that in the past years were going from China to the United States are now mostly going from China to China, taking advantage of the recent Chinese healthcare policy reforms and fueling Chinese domestic innovative companies.

This was confirmed by Mrs. Wang Li from Hongshi Capital who detailed all the Medical Device M&A transactions in China from 2015 and 2018. The overall number of transactions during that period is stable, around 200, and the total dollar value is growing up to US$10.9B in 2018. But when you look with a lower granularity, you notice a sharp decline in in-bound investments (investment of foreign enterprises into Chinese medical device companies), and not much change in out-bound investments (investment of Chinese companies in oversea medical device companies). 2019 is planned to have a similar profile.

Several panelists discussed whether we should expect a “capital winter” in China, especially with the exacerbation of the geopolitical context and the slowing-down of the Chinese economy. Opinions were diverging between those on one hand who think that one should not worry as long as the industry keeps developing quality science and innovative medical devices that answer a real need, and those on the other hand who hope that a “capital squeeze” will help lower current valuations that have reached record heights and clean the industry.

My presentation was questioning why the vast majority of the Chinese investments in international medical device companies had been going to the US over the past years and not to Europe. Based on recent studies and data analytics, I demonstrated that (1) Europe has a level of science in Medical Devices almost on par with the US, (2) medical device company valuations are significantly lower in Europe compared to the US, and (3) operational and personnel costs are significantly lower in Europe compared to the US. So why Chinese companies are not taking a serious look at Europe to scout innovative medical device technologies and to commercialize their own technologies? Is it because of the geographical and cultural fragmentation of the European continent? Or is it because European companies have misperceptions about Chinese companies? The second part of my presentation highlighted some of the latest Medical Device innovation trends in Europe and included examples of 4 remarkable medical robot companies and 4 innovative structural heart device companies.

On the topic of medical robots, I have been quite captivated by the talk of Prof. Wang Tianmiao from Beihang Research Institute. He gave an outlook of the current and forthcoming developments in medical robotics in China. Although I had heard about this Chinese orthopedic robot called Tianzhihang last year, I was surprised to hear that it had already been used in more than 4,700 surgical operations at more than 30 hospitals. I also discovered a new Chinese neurosurgical robot called Remebot that has already performed more than 10,000 clinical cases, including remotely-performed cases using telecommunication! Prof. Wang did not talk just about Chinese orthopedics and neurosurgical robots, he also talked about laparoscopic robots, vascular intervention robots, capsule robots and even robots to facilitate the implantation of 3D-printed artificial organs. China currently counts 40 domestic companies in robotics, including surgical robots, rehabilitation robots, auxiliary robots and service robots. He concluded his talk highlighting the importance of the integration of robotics with artificial intelligence to develop new medicine through data accumulation and machine learning over all the healthcare cycles from diagnostic to treatment and rehabilitation. Fascinating!

Prof. Bai from Jiaotong University listed some of the key areas of research on which his biomedical engineering department is working on : molecular diagnosis, treatment technologies from macro to micro, the fusion of AI and medical devices, exploration of cognitive brain and neuroscience. Nothing mesmerizing you would think as every technology-advanced country is currently working on those topics but I found interesting is how Chinese universities are now embracing this multi-disciplinary “fusion” approach to build new technologies and talents following the path of the bio design philosophy of Stanford University.

Overall, it felt special to be in Suzhou last week testimonyijng how much the Chinese medical device ecosystem has grown in just one year. This country keeps surprising me everyday!