The Chinese government is planning to improve its health care system with $123 billion of stiff medicine, and private investors here are hoping their companies can get a dose.
Last week, China's State Council passed the medical reform plan, which will inject some 850 billion yuan ($124.3 billion) into the country's health care industry by 2011 for universal medical coverage, according to state media. For venture and growth capital investors, that money represents a huge opportunity and could spark more investment in life sciences and health care companies, lawyers and investors in China said.
"Most venture investors view this new trend as a positive development for the sector. It should serve as a catalyst to repair some of the inefficiencies in the system and bring forth much needed improvements," said Rocky Lee, partner and Asia head of the private equity and venture capital practice at DLA Piper. "More importantly, it should provide opportunities for the private sector to help supply innovation and technology to the medical and health care sector."
After the demise in the 1980s of the so-called "iron rice bowl" policy, which offered universal health care coverage, health care services atrophied as citizens were forced to fend for themselves or join with limited employer-sponsored health care programs. Rising medical costs mean millions of lower-income rural residents are not covered by insurance.
China's government is introducing massive spending around five areas, including the expansion of medical insurance coverage to include 90% of urban and rural populations by 2011; developing a medical supply system that includes drugs most needed by the population; improving medical services infrastructure; creating parity between urban and rural health services; and reforming public hospitals.
The development of new medical service systems includes the construction of 5,000 clinics at the township level, 2,000 hospitals at the county level, and 2,400 urban community clinics within three years.
For software companies, health care services providers and drug-makers, that spending equals a huge new opportunity.
"Domestic policies are driven by the government, and we see our role as investors as part of a private-public partnership that will help develop a new health care infrastructure over the next five to 10 years," said Nisa Leung, a partner with Qiming Ventures focused on life sciences and health care investing.
Specifically, Leung said, companies like Qiming portfolio company PharmaSky (Hangzhou) Pharmaceutical Network Technology Co. Ltd. would benefit as the government focuses on developing community clinic services. PharmaSky offers clinical services through a network that spans China, according to Qiming's Web site.
International Business Machines Corp.'s China division projects that the new health care reform package could mean at least $1.5 billion in spending on software and services for applications like electronic medical records and identification cards. Even before the health care reform initiative was announced, Chinese consulting firm CCID Consulting Co. Ltd. estimated that information technology spending in the health care industry would grow at a compound rate of 15.2%, to $2.15 billion by 2011 from $1.69 billion in 2008.
"At the end of the day people still need quality health care services, and this market will probably have very healthy growth this year," said Neil Shen, founding managing partner of Sequoia Capital China. "People's income has reached a level where attention to health care and awareness of improving health care has become quite a key topic."
So far this year, investors in China have backed four companies in China and Taiwan across the broad life sciences sector, according to VentureWire records.
Investments included $37 million for Taipei-based Taigen Biotechnology Co. Ltd., a vertically integrated pharmaceutical manufacturer developing treatments for cancer, infectious diseases and diabetes. Investors in the round included MPM Capital, Shingkong Life Insurance, Taiwan Sugar, Yao Hwa Glass and Yuen Foong Yu Group.
In Shenzhen, China, two companies - Shenzhen Beike Biotech Co. Ltd., a provider of stem cells for clinical applications, and Shenzhen Hybio Engineering Co. Ltd., which is developing protein therapeutic technologies - raised capital from Shenzhen Capital Group, records show.
Meanwhile, Shanghai-based contract research outsourcing and services provider Macrostat China Clinical Research Co. Ltd. was formed with a joint investment from Qiming Ventures and Tigermed Consulting Co. Ltd.
Even the venture investment arm of chip manufacturing giant Intel Corp. is getting into the life sciences arena, with a recent investment in Hangzhou, China-based asset management software and services company Zhejiang Enjoyor Technology Group and last year's October investment in Beijing-based health care management software developer Viewhigh Technologies Co. Ltd.
"The health care sector is something we feel excited about," said Intel Capital's managing director of the Asia Pacific region, Cadol Cheung.