EqualOcean interviewed Sun Wei, Partner at HosenCare Brothers, and got a glance at the company's PE investment prospects.
EqualOcean conducted an interview with Sun Wei, Partner at HosenCare Brothers, on June 2, 2019.
Dr Sun has over 15 years of experience in entrepreneurship, venture financing, and healthcare. He was an investor at Hosen Capital, leading its investments in technology and health-related areas. Before that, Dr Sun worked with Booz & Co., helping Fortune 500 and leading Chinese companies to grow in China and overseas. He also had many years of product management and startup experience in the US, where he worked with Morningstar as well as served as founding members of two technological startups. He has received his PhD in Biomedical Engineering from the University of Rochester.
HosenCare Brothers, also known as HosenCare Investment Management, is a healthcare-focused private equity investment firm spun off from Hosen Capital and New Hope Group's healthcare investment team and historically sponsored by New Hope Group.
Based in Beijing, HosenCare Brothers has been operating since 2017.
Here are the key takeaways from the interview:
“Some of the small AI-driven diagnostic companies’ in China do not have long term prospects, they may be dissolving due to the technical and regulatory challenges,” thinks Sun Wei.
“There is a possibility that CFDA might not be issuing any license for Medical AI commercialization for a long while more,” says Dr Sun.
HosenCare Brothers controls the largest brain hospital of East China, Shanghai Blue Cross Brain Hospital.
HosenCare Brothers focuses on early-stage investments in China's healthcare scene.
EqualOcean: On which verticals HosenCare Brothers invests?
Dr Sun: On a broader term, we invest in a 3×3 dimensional model: on one dimension, we invest in public healthcare, Medicare and private healthcare areas. On the other dimension, we invest in health tech, data-driven businesses and private service models.
We invest in any technology that we think is going to improve China’s healthcare industry for a better, and this how I define Public healthcare. On top of that, we stress a lot on Medicare, or "医保" as we call it in Chinese. China’s Medicare or Healthcare Insurance sector is simply primitive and inefficient which will be regulated by the government for better. We are closely following and actively engaging in those data-driven healthcare insurance companies to seize this very critical industry. It is critical because the rest of the Healthcare industry is tied to Medicare.
In Private Healthcare, we invest in private hospitals. In fact, we control the largest brain hospital in East China.
EqualOcean: HosenCare Brothers seems distant to invest in Medical-AI. Why is this the case?
Dr Sun: When we say AI in China, the first industry that comes to mind is Security; because China's security industry is huge and it is driven by high-tech and AI. China could bring about giants in AI, including, among others, Hikvision, SenseTime and Face++. Not to mention that I am talking based on the valuation, but in fact, valuation is a weak indicator, doesn’t count at all and most of the time is a bubble. My point is, those Medical AI companies could not even come with a scalable company yet, and it seems hard to me.
First of all, Medicare does not cover AI-centered products and services, which is a huge problem that these companies have to overcome. This will not be a snap process but will likely to be a lengthy and painful policy transformation. On top of that, even medicare covers those services, CFDA might not be giving license for commercialization to them. As of now, no company could obtain the commercialization license for AI products in China. But ridiculously, most of the Medical AI companies in China are so optimistic and sure that they will have the license soon; which is a great illusion. CFDA is a very slow, meticulous and careful organization, and they don’t need to take any risk. Thus, this commercialization process may last more than anybody expects. Finally, and most importantly, it is hard for them to overcome the high technical barriers. Their business is dependent on the data labeling and the more medical image they process, the better their algorithm becomes. Therefore, their business is dependent on the hardware and MI devices’ outcome.
There are natural competitors for them as well, such as United Imaging and Siemens. They create those images. (Laughing)
EqualOcean: Please elaborate on your portfolio performance and investment decision-making scenarios.
Dr Sun: For the early-stage investments, we focus on the management team and their plan. For the late stage investments, we seek for the liquidation possibilities; for a late-stage investment, we are looking for chances of liquidation within around two years.
So far, we have invested in 17 companies and yet in only one case, we have liquidated our investment, which was the case I wanted to prove that I can liquidate. (Smiling) We have some late-stage investments such as Blue Cross Brain Hospital which can recover its cost in three years. We want to invest in more hospitals like that. For the early stage investments, we have a data-driven clothing company Body+ which provides several solutions and create values in healthcare, security, military, and several other areas. The companies I've just mentioned represent some of best-performing companies in my portfolio.
Currently, we have 18 employees in which 10 of them are Investment Analysts, and we're steadily expanding our operational capacity.