Which demographic does the U.S. and China have in common? An aging one. The population aged 60 or over is growing 3 percent annually, faster than any other age group, and is set to rise from 962 million in 2017 to 2.1 billion in 2050. With longer life expectancies, both the U.S. and China are facing a ticking clock to find effective ways to treat chronic diseases and improve health care. As a result, many in the health care industry are investing in research and development to jump on the business opportunities that lie ahead.
To dive deeper into China’s numbers, health care spending has jumped from $90.8 billion in 2004 to $590 billion in 2014—keeping pace at double-digit growth rates—and China is quickly becoming the country with the largest health care spending. Health care-focused private equity and venture capital investment deal volumes and total deal values increased by an average of 34-89 percent year-on-year between 2010 and 2016. China’s medical device market is the second largest in the world, and medtech revenue is expected to rise from $22 billion (2013), to over $55 billion (2020). The Chinese pharmaceutical market is also rapidly rising as it reached $145.4 billion in 2016, mostly from cardiovascular-related therapies, which held a 13.6 percent share of the market.
These numbers, combined with growth in China’s middle class, individual wealth, urbanization and an aging population, all point toward big business potential in the life science and health care markets.
The U.S. as a global leader in life sciences, coupled with China’s ambition to provide universal health care coverage, has invited new cross-border business developments. Chinese VCs are showing strong interest toward Western life science companies to establish joint ventures, purchase equity and partner in innovative processes.
One of these pioneering companies is SpectraCell Laboratories, Inc., a clinical laboratory that provides testing to assess a person’s nutritional risk factors and biomarkers, with the aim of detecting disease early, and guiding treatment options.
“We provide tests across the board such as cellular, micronutrient, cardiovascular, hormone and genetic testing,” says Dr. Adam Huang, President and CEO of SpectraCell. “Our main focus, though, is in micronutrient lab testing, which helps patients with preventative care.”
"Time is a value, and Chinese firms are willing to pay a premium for the amount of time invested in having a successful research and development model."
With chronic and non-communicable diseases increasing in China by 20-30 percent every year, SpectraCell is emphasizing the need for better nutritional testing and diagnostic tools for the population. “We believe that many diseases, from cardiovascular, to cancer, are related to lifestyle behaviors,” says Huang. “With our micronutrient tests, we’re able to provide long-term intracellular micronutrient status reports.” Why is this important? “Our data helps physicians better understand and ultimately provide better care to their patients,” says Huang.
Despite efforts in recent decades to control these diseases, they are still China’s biggest health threats and account for more than 80 percent of the nation’s annual deaths. According to the World Health Organization, however, about half of these chronic disease burdens can be prevented by modifying lifestyle behavior.
“There are concerns involving escalating tensions between the U.S. and China when it comes to business acquisitions, and the exchange of information and intellectual property in this space,” says Johnny Lee, managing director and chief administrative officer of U.S.-Greater China bridge banking at East West Bank. “Luckily, because we’re targeting small to middle market companies that are backed by private equity and venture capitalists, there haven’t been any outward challenges in cross-border collaboration.” Furthermore, Lee explains the value of cross-border collaboration and mergers. “Time is a value, and Chinese firms are willing to pay a premium for the amount of time invested in having a successful research and development model,” says Lee. “Merging with or acquiring medtech or biopharma companies in the U.S. may help Chinese firms compress the time required for research from, say, 5-10 years down to two years—and that’s where the value-add lies.”
While politics and the mass media speculate around trade wars and tariff increases, on the ground, many businesses continue to work beyond borders to create innovative solutions. “Collaboration is the best approach for both countries,” says Huang. “China holds immense business opportunities just in population size alone and is a great market for emerging biopharma and medtech companies.” He adds that “in the past, China needed a lot of technology and medical know-how, but today, China is transitioning into a more mature marketplace and becoming a pioneer in the high-tech, life science and med space. It’s becoming a viable competitor to the U.S., and I think that further cross-border collaboration will be healthy for these industries.”
Research developments in gene sequencing and stem cell technologies are areas in which China has begun to excel and about which Huang is most excited. “Gene editing will be big in the future, and it will be very exciting to see how this will change our existing understanding of human health,” he says.
When it comes to cross-border business, especially with China, businesses must be aware of the many regulations, policies and financial parameters associated. To add to the mix, many of the companies conducting research and development in China are pre-revenue companies, making it difficult for banks and credit providers to approve funding. “These companies are able to demonstrate to their investors that they’re making headway in their research, which allows for larger investment money and higher company valuation, even if they’re not making any money,” says Huang. “You see these companies at clinical phase one, and if they’re at phase two—even if their clinical product may not have been approved by the U.S. or the Chinese version of a federal drug administration—they’re considered a late-stage company.”
From a bank lending and credit perspective, these numbers make it harder for traditional lending institutions to justify providing a loan. Given its financial platforms in both the U.S. and China, East West Bank has been successful in supporting later-stage companies with cutting-edge technologies that are looking to launch. “It’s a win-win,” says Lee. “SpectraCell is establishing a cellular health profile by acquiring a facility here in the U.S., and they’ve demonstrated product effectiveness. Their end goal will be to tap into both the U.S. and Chinese markets.” To this end, Huang is also optimistic and adds, “We’re currently implementing new systems and infrastructures. Once we have a solid foundation with a good profit margin, we’re going to explore business opportunities in Europe.”
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