Immersing in Chinese Healthcare Companies

After an epic day of sightseeing, we checked out of our hotel and headed to our last office visit in Beijing: DIH Technologies (“DIH”).

The pre-arrival bus discussion focused on how the scope, size, and geographic reach of DIH was not clear via publicly available information. The group was intrigued by how a company could focus on pharma and physical rehab innovation.

However, once we poured into DIH’s massive boardroom, our doubts were quickly squashed. The presenters explained the various rehabilitation machines and the separate pharmacy delivery machinery (the “Pharma Division” was more of a pill dispensing robotic division). We learned that DIH is indeed a global company with offices in Boston, Switzerland, and Hong Kong.

As with many growth stage healthcare companies, DIH referenced innovative use cases for artificial intelligence (“AI”) in combination with their currently available machinery. Typically, I roll my eyes when a company dedicates a significant amount of a company introduction to AI; while it has the capacity to be revolutionary, the revolution is not happening yet. However, there was something different about DIH. Maybe it was the numerous use cases or the multiple video clip examples, but it felt as if DIH’s AI revolution was just around the corner while most companies were barely ready to start. DIH believes that rehabilitation from injury should be a full body experience facilitated by their 360-degree full screen. AI puts the patient in the real world and has them perform tasks in a controlled environment (typically wearing a harness to avoid falling).

We left the boardroom  and wrapped up our visit with a quick show room tour of the various machines. Traditional Chinese Medicine (“TCM”) cares greatly about how the body interacts with the environment and this is a focus of DIH. Rehabilitation has always been a focus of TCM and it appears DIH will have a place in the rehabilitation ecosystem for many years to come.

Before boarding the bullet train to our next destination, we scattered around the train station for traditional train station food, Pizza Hut and McDonalds. After a clean, smooth, and enjoyable ride (a.k.a., the anti-Amtrak) we arrived in Shanghai. With no group dinner planned, we split up to dine at various locations and get a good night sleep before a packed day filled with three company visits.

The first stop was Shanghai Pharmaceuticals Holding Co Ltd (“SPH”), China’s number two pharmaceutical company. Many of us tangentially knew about SPH, roughly an $8 billion market cap, but walked away with a detailed understanding of how a Shanghai/HK dually listed publicly traded company that is 33.6% owned by the State operates in China. Regardless of the minority ownership, the State controls the board and thus, controls the company. The State, specifically the mayor of Shanghai’s office, must approve purchases above 300 million RMB. Regardless of this intertwinement of government and industry, SPH appears to be a successful pharmaceutical R&D, manufacturing, and distribution company. SPH might have the word “Shanghai” in its title, but it is a global firm with offices in San Diego and Philadelphia. Many pharma companies are global companies with headquarters in a certain location and domiciled in a certain country, but have a global culture, SPH clearly hopes to mimic such a model.

After a quick lunch, we headed to Lily Asia Ventures (“LAV”), one of the biggest early stage biotech-focused VC firms in China. Founded in 2008 as the corporate venture arm of Eli Lilly, it is now completely independent of its former pharma parent. There were rumblings that the Chazen group was feeling the angst of “case withdrawal” after a week away from school; fortunately LAV understood the needs of a business school audience and prepared three case studies to present. LAV did a phenomenal job at walking the group through actual investment theses without losing the group in deep scientific details. After learning about the biotech investing side in China, it was time to visit the Chinese arm of one of America’s innovative biotech companies.

Fosun Pharma (“Fosun”) is an integrated healthcare company with pharmaceutical, distribution, device, and aesthetic divisions. We met with the CEO of FosunKite, Fuson’s joint venture with Kite Pharma, part of Gilead Sciences after its August 2017 acquisition for $12 billion. Kite’s Yescarta is approved in the US; FosunKite is diligently working for CFDA approval. We learned the similarities and differences of the Chinese regulatory body. The CEO described how FosunKite is not merely a Yescarta in-licensed company, but also they are an R&D enterprise leveraging the intellectual talent of the Chinese universities and organizations. The group debated the cost of Yescarta, specifically where cost reduction could occur, and whether the Chinese market would react differently than the US market if a similar $375k list price is published. FosunKite provided a strong understanding of how an American biotechnology can symbiotically partner with a Chinese healthcare conglomerate. Based on what the Chazen group witnessed, many US companies would want to form similar ventures as FosunKite.

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