everbright’s michael fu on lifetech acquisition and future growth
in may, china everbright limited [cel; hkg:165] acquired a 22.4% stake in lifetech scientific [hkg:1302], a manufacturer of implantable medical devices, from dublin, ireland-based medtronic [nyse:mdt] via its healthcare fund, and became lifetech’s single largest shareholder.
fu feng, head of cel healthcare fund who led negotiations with medtronic, explains the 10-month process and his expectations regarding lifetech’s growth in the future.
access profiler to see a full list of fu's deals and relationships.
fu has known lifetech for almost eight/nine years, and had been closely following the company’s development, including technology, business development and the implantable device market as a whole. when medtronic mandated goldman sachs as the exclusive advisor as it was seeking an exit from lifetech last year, there were over 10 potential suitors that joined the first-round bidding process, including citic capital, hillhouse and pingan, among others.
the sellside eventually shortlisted three to four bidders including cel, from which point fu and his team held dedicated negotiations with medtronic, showing their outlook about lifetech and understanding of the industry. in may, the state-owned financial services company announced that an agreement has been reached for cel to acquire medtronic’s entire holding in lifetech.
post-deal, medtronic will maintain an ongoing exclusive partnership with lifetech in the production and sale of cardiac pacemakers in china. the products obtained approval from china food and drug administration (cfda) last year, and are priced at cny 20,000-cny 30,000 for a basic model, and up to usd 10,000 for the most high-end model, fu said.
medtronic is interested in cel’s industry experience and resources and will look for opportunities to expand collaboration with lifetech in the future, according to chris eso, vice president of corporate development at medtronic, quoted in the press release at the time of deal announcement.
competitive edge
cel healthcare fund highlights two points in their investment decision-making, which are innovation and consolidation, said fu. lifetech is a pioneer in both fields and is currently invests over 16% of its annual revenue in related research and development (r&d) on implantable devices, he added.
one of its major products, left atrial appendage (laa) closure device lambre, an implantable device that reduces the risk of blood clots that cause strokes in patients with non-valvular atrial fibrillation (af), has obtained approval from both cfda and european economic area's (eea) ce marking and is also seeking entry into the us market, fu explained.
major competing products include boston scientific's [nyse: bsx] watchman and st. jude medical's [nyse:stj] laa closure and occlusion devices. though lifetech is two to three years behind its competitors in product commercialization, the company already achieved significant sales growth of 506.9% during the first half of this year for lambre, posting sales of cny 17.6m as compared to cny 2.9m last year, according to its 2018 interim report.
growth
the company is also working on the r&d of the so-called bioresorbablestent (brs), which is a device inserted into a blood vessel to expand the vessel and prevent a blockage, fu said. traditionally, the device is made of metal mesh, which cannot be absorbed unless via additional surgical intervention.
newer brs products are based on a polymer that is absorbable but prone to inflammation and fractures and can also cause the formation of blood clots, fu explained. lifetech, on the other hand, is dedicated to the r&d of third-generation brs that is made from iron, which is more deliverable with greater strength and can be bio-absorbable within 12-36 months, he added.
unlike its competitors such as boston scientific that have baskets of such first-in-class products, lifetech still needs to focus more on diversifying its product pipeline. the company is therefore actively seeking for add-on/bolt-on investment opportunities both in china and overseas to grow and consolidate its domestic and international market shares, fu said, adding that lifetech’s congenital heart diseases occluders have obtained absolute market leadership in india.
the company posted an half-year profit of cny 67.3m in 2018, representing a 20% decline from the corresponding period of last year, according to its interim report. lifetech attributed the decrease to a reduced income from consulting services, increase in income tax and share-based payment expenses.
the fund
cel healthcare fund was set up in 2012. it raised cny 600m for its fund i and cny 1.2bn for fund ii and invested in a total of 13 targets. cel has completed full or partial exits from seven of these investments, fu said.
fu joined cel last year to lead the fundraise for the fund iii, which targets cny 1.5bn and announced its first close of cny 800m on 22 october, as announced. the fund iii is also a cny-denominated fund that focuses on investments in innovative drugs and cardiac implantation devices, with a lifetime of at least eight years, he added.
the fund iii has already made three investments. normally, it would seek an exit via an ipo for investments in private companies, or via a block trade and gradual stock sell-down for public portfolios, depending on the respective circumstances, fu said.
the fund iii will also focus on investments in innovative business models, including day surgery centers, which potentially could be a game changer in niche healthcare service sectors such as the dental care market, fu said.
michael fu’s profile:
fu is the managing director and head of everbright healthcare fund who is fully in charge of the healthcare fund. fu has over 13 years of experiences in investment, covering companies in early stage, growth stage and merger and acquisition stages. mr. fu worked as the head of healthcare investment departments at hillhouse capital, tpg capital, fountainvest partners etc.
fu led the privatization of wuxi apptec and the investments of daopeihospital, amcare, we doctor, junshi bioscience, qiming medical, citicpharmaceutical etc. fu also has 8 years of experience in the operation of a healthcare company. he was the national sales and marketing manager of sanjiu pharmaceutical co. ltd., leading a 500 person sales and marketing team. he was responsible for exclusive agency business with multinational pharmaceutical companies and the acquisition of wuxi pharmaceutical.
fu received his mba from the university of british columbia in canada and bachelor's degree of economics and international finance from east china normal university in shanghai. he is a cfa charter holder as well.
by dong cao in hong kong
