Last week, a Chinese publication quoted a Medtronic (NYSE:MDT) executive based in China as saying that M&A is a preferred route to augment the medical device company’s presence in the Asian nation.
Apparently the Minnesota device maker already has some candidates in mind when it comes to mergers and acquisitions, but the targets “must have a common vision and business philosophy”said Simon Li, president of Medtronic Greater China, to China Daily.
But Li reportedly declined to name any potential targets. And so did a Medtronic spokeswoman based in the U.S.
No surprises there.
However, that leaves room for some speculation. Which companies are promising?
First, the facts though. Medtronic already has a joint venture with Shandong Weigao, generally considered to be a leader in the medical device industry in the country. Through the joint venture, Medtronic markets spine and orthopedic products and has 51 percent interest in the joint venture with Weigao owning the other 49 percent. Medtronic also holds a 15 percent equity stake in the overall company as a whole, which Medtronic acquired through a payment of $221 million in 2007.
According to a Morgan Stanley document about emerging market opportunity in medical devices, Weigao operates in three divisions, excluding its joint venture with Medtronic. They are low-price consumables like syringes, needles, blood bags, infusion sets, dental and the like; dialyzers and dialysis machines through a joint venture with Nikkiso, a Japanese medical equipment firm; and drug-eluting stents through a joint venture with BioSensors, based in Singapore.
It’s not inconceivable that Medtronic can strike an agreement with Weigao to market its Resolute Integrity drug-eluting stent, the first stent that the U.S. Food and Drug Administration approved for diabetics in China. It’s no secret that with growing prosperity, diabetes has skyrocketed in China.
But aside from Weigao, Morgan Stanley analysts name another Chinese medical device maker on its top 10 companies globally that they are keeping a close watch on.
And that is Shinva Medical defined as a “growth play.” The company operates in four segments, which are:
- Medical equipment — sterilizers, radiotherapy equipment, digitaldiagnosis equipment, surgical instruments, disposable syringes,sterilization testing products
- Environmental protection equipment for medical use
- Pharmaceutical machinery
- Medical consumables — orthopedic implants and IVDs
Shinva’s three-year compound annual growth rate is 52 percent, most of which is organic growth, something that is likely to make any large U.S.-based medical device company swoon. Some of the positives, according to Morgan Stanley analysts, are its reputation and strong sales and distribution network, specifically among China’s far-flung county hospitals. (And, yes, there are negatives too — they include low investment in R&D that could hamper new product launch and diversified approach that may lead to a scattering of its management’s focus.)
Other promising companies in China areChina Resources Wandong Medical Equipment, based in Beijing, that markets diagnostic equipment such as X-ray, MRI machines and dental diagnostic and treatment equipment;Jiangsu Yuyue Medical Equipment, which also makes diagnostic and imaging equipment in addition to electronic blood pressure monitors, nebulizers and gynecological and obstetrical equipment.
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