BEIJING (XFN-ASIA) - China's healthcare industry has the potential to provide the best investment opportunities for global venture capital funds, Interfax news agency said, citing the head of a China-based venture capital firm.
'Comparatively speaking, it is easier for China's medical device manufacturers to attract venture capital, and there are already some who have managed to be listed on overseas stock exchanges. With lower costs, medical institutions will favor domestic-made products,' Interfax cited Bao Fan, CEO of China Renaissance Partners, as saying.
But he said investors needed to recognize the potential pitfalls in the country's drug sector.
'For pharmaceutical manufacturers, most of the domestic drug makers essentially lack innovation. If we look at those big-sized drug manufacturers, almost all of them produce generics. There might be some opportunities for investment, but in the long run, the return on investment is low,' the report said.
It added that traditional Chinese medicines and drug development would be good areas for venture capitalists to target.
'Interestingly, more and more multi-national pharmaceutical companies are outsourcing their clinical trials and some part of drug R&D to China because of the low costs involved and the rapid growth of China's market. This is another area that venture capital money can be used,' the report added.
It said drug distribution plays an important role in the healthcare industry, but it is not completely regulated. The major drug distributors are all Chinese, but operations are fragmented.
The report forecast merger and acquisitions among distributors, noting their profit margins are very low and the only way to increase profit will be for the smaller companies to merge.
The report said all venture capitalists are eyeing the healthcare services sector.
'We all believe there will be great demand for healthcare services in China. But this is also the most difficult and risky business for venture capital companies because the trend of healthcare reform is still unclear. There are still many unknowns but it might pay off to invest in specialized private hospitals or physical examination centers,' Interfax added.
andrew.pasek@xinhuafinance.com