confidential american pacific medical group china’s new leader in providing premium medical...
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Confidential
American Pacific American Pacific Medical GroupMedical Group
China’s New Leader in Providing Premium Medical Services
Investor Presentation
September 2005
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APMG Mission Statement
“To be the premier healthcare service provider specializing in Neurosurgery, Oncology, and other
high-end procedures servicing the growing Chinese affluent middle class”
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What is APMG?
Headquartered in Beijing Founded in 1992 Superior Management Team Successful Portfolio of Medical Services Profitable for past 5 years Innovative and experienced international
management skills
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What is APMG?
Offers state of the art facilities and procedures APMG completed over 2600 gamma-knife (radiation
therapy for brain tumor) procedures in year 2004 – the Shanghai center performed more procedures than any other facility worldwide
Currently APMG operates two hospitals (Beijing and Shanghai) and 4 clinics
All facilities are profitable 85% of APMG patients are local Chinese
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APMG’s Diversified Healthcare Service Portfolio
Service Line Current Facilities
Radiation OncologyShanghai Gamma Hosp.*
Beijing Gamma Knife Ctr.
Shenyang G-Knife Ctr.
Neurosurgery and Rehabilitation
(Beijing) PuHua Neurosurgery and Rehabilitation Hospital
Outpatient/Podiatry Clinics
Beijing Outpatient Polyclinic (inc. Podiatry and Health Screening)
General Hospitals --
*Shanghai Gamma hospital consistently performs the largest number of gamma knife procedures in the world
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APMG Management Has Deep Local Experience
This team of medical veterans founded by prominent U.S. physicians has operated international standard healthcare delivery businesses in China for 10 years
APMG is entering a period of explosive expansion
• Management has guided APMG’s evolution from running a few small VIP units to an independent multi-specialty healthcare corporation
• The significant experience and expertise of these veteran managers will be a key factor in ensuring APMG’s success in this next critical growth phase
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Customer Acquisition : Through External and Internal Referrals
Customer referrals into APMG system driven by physicians who prefer to bring high-end patients to APMG facilities
• Physicians receive larger portion of medical service fees
• APMG facilities are upscale and located next to large academic facilities where these physicians practice
In-system referrals increase revenues without adding incremental cost and can utilize excess capacity
Co-location of future specialty centers within general hospital facilities will add to synergies
General CareHospital
PodiatryClinic
GeneralClinic
NeurosurgeryHospital
Radiation Oncology Treatment Center
Local ReferralLong Distance(or Local) Referral
Referral for use of PuHua surgical suites for Orthopedics
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The Value Proposition ?
A unique opportunity to participate at an early stage in the exponential growth of China’s Healthcare Sector
APMG has diversified high end services with national coverage
Superior portfolio of high margin and niche service products
Proven track record of execution Most importantly : a management team which
focuses on quality and especially on profit
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APMG is a mezzanine stage company with a history of achievements
Proven success in dealing with government authorities
Thorough knowledge of local customers (“Key to large-scale success lies with affluent Chinese customers”)
Extensive experience in establishment, acquisition and divestment of healthcare facilities
• Highly skilled due diligence capabilities• Ability to engage local officials and staff to
support new initiatives• Multiple successes in managing divestment of
healthcare facilities
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Deep Local Experience - Milestones
Success in dealing with government authorities
APMG has successfully secured permission for state insurance coverage of services provided at their facilities
APMG navigated local regulatory process to build several specialty hospitals de novo
Thorough knowledge of local customers
Over 85% of APMG customers are local affluent Chinese
Significant experience in repeated establishment, acquisition, and divestment of healthcare facilities
APMG evolution to current portfolio of clinics, centers, and hospitals has been driven using entirely in-house skills and management expertise
APMG has built and sold several facilities back to the government at a profit
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APMG’s Diversified Healthcare Service Portfolio
Service Line Current Facilities Future Facilities
Radiation OncologyShanghai Gamma Hosp.*
Beijing Gamma Knife Ctr.
Shenyang G-Knife Ctr.
PuHua RadOnc Ctr.
Guangzhou G-Knife Ctr.
Neurosurgery and Rehabilitation
(Beijing) PuHua Neurosurgery and Rehabilitation Hospital
PuHua Hospital Phase II
Outpatient/Podiatry Clinics
Beijing Outpatient Polyclinic (inc. Podiatry and Health Screening)
Clinics 2-8 in multiple cities
General Hospitals --Guangdong Hospital
Sichuan Hospital
*Shanghai Gamma hospital consistently performs the largest number of gamma knife procedures in the world
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Business model captures broad spectrum of consumers strong contribution to top and bottom line
Tot
al M
argi
n
Ave
rage
Cus
tom
er A
fflu
ence
Revenue (per facility) Specialization
Outpatient/Podiatry
RadiationOncology
PuHuaHospital
GeneralHospital General
Hospital
PuHuaHospital
RadiationOncology
Outpatient/Podiatry
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The Market Then :
Monolithic, bureaucratic, and primitive healthcare options
Highly regulated environment Unsophisticated medical consumers Less focus on quality outcomes Emphasis on basic services; high-end medical
solutions rare/nonexistent
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Significant Opportunities Now
Market Constrained
TightRegulation
LaggingHealthcare Spending
Few Upper/Middle Class
RegulatoryReform
IncreasingHealthcareSpending
GrowingAffluent Patient Base
Past Future
Expanding Market
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The Market Now :Healthcare Sector to Grow Substantially
Reach US $170bn by 2010; 8yr CAGR of 12% Driver: Previously inadequate spending reaching parity
with national growth Experts expect healthcare spending to outpace GDP
0
50
100
150
200
1990 1995 2000 2001 2002 2010E
0%
2%
4%
6%
8%
Health Expense %(Health Expense/GDP)
Source: TongRen Hospital
China Healthcare Spending
US
$B
illio
ns
4,090
2,339
1,741
587
310
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
U.S. Germany Japan Korea China
Source: Development Research Center of the State Council Network
US
Do
llars
/Ye
ar
Per Capita Healthcare Spending 2002-2004
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The Market Now :Unsatisfied Demand for High-End Medical Care
Demand fueled by quickly expanding upper and middle class socioeconomic groups• BNP Paribas forecasts that the number of middle class
families will grow to 100 million in 2010
Chinese medical consumers increasingly willing to pay for a superior medical experience• Improved process (shorter wait, better service/environment)• Improved outcomes (advanced treatments, new techniques)
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The Market Now :An Opening Regulatory Environment
Path for foreign-owned private healthcare facilities is now open• Before: Regulations unclear, generally only smaller facilities
possible, significant bureaucratic obstacles• Now: Regulations codified, government committed to
privatization, less red-tape (but still requires local expertise)Year 2000
“Temporary Measures for Management of Sino-Foreign Joint and Cooperative Medical Institutions”
Year 2005
Tentative opinion on healthcare reform
Foreign ownership of healthcare facilities will be by joint-venture, allowed up to 70% ownership
Minimum investment: US $2.4M
Expected to result in emphasis on privatization of state enterprise-owned public hospitals vs. government/health bureau-owned hospitals
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Growth Drivers : APMG is Positioned to Benefit from Deregulation In Multiple areas of the Healthcare Sector
PastMarket/ APMG
ChangesFuture
SpecialtyMedicine
Market Demand
ModerateGrowing affluence
Larger
APMG Presence
YesAPMG expansion
Increased Presence
GeneralMedicine
Market Demand
Large healthcareSpending
Larger
APMG Presence
NoAPMG hospital purchases
Yes
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New Technologies, New Opportunities
Radiation Oncology Neurosurgery/RehabilitationComing radiation oncology center willinclude “next generation” radiosurgery/radiotherapy device
Increased versatility Expanded patient mix
Accuray CyberKnife®
Varian Trilogy™
Elekta Synergy®
Stem cell therapy center for neurological disordersis in start-up process at PuHua Hospital
Favorable regulatory environment Significant advances made in China PuHua has infrastructure in place International stature
Stem cells are out of the laboratory- clinical indications include: spinal cord injury, traumatic brain injury, Parkinson’s disease, cerebral palsy, and stroke
Hospitals a springboard for further expansion: APMG general hospitals will provide established facilities with in-place infrastructure at which to co-locate future boutique specialty centers
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Competitive Landscape
SectorAPMG
CompetitorAPMG Specific Advantages
Healthcare Holding Company Chindex
Focus on local Chinese markets (both middle and upper class) instead of limited expat community; focus on medical services (not products); diversified general and specialty medical portfolio
Specialty
Centers
Radiation
Oncology
Shenzen –
AoHua
APMG Swedish-manufactured gamma knife is world gold standard- superior beam focus and less damage to healthy tissue compared to AMS domestic model
Neuro-
Surgery
Sanbo HospitalPuHua serves as private surgical center for all Tiantan faculty and associated patient streams- Sanbo limited to its own current medical staff drawing power
Other Neuro-Hospitals
More complementary than competitive- PuHua attracts premium patients with short wait times, top-level facilities, and better compensation for surgeons
PodiatryLocal
Orthopedics
PuHua clinicians trained by American podiatrists; orthopedics does not adequately address podiatric needs
Comprehensive / General
Hospitals
Local General
Hospitals
APMG target-hospitals already have significant patient flow. Maintaining and improving service levels while cutting costs will be a key challenge
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Management
Board of Directors have long-term operational and clinical experience on both sides of the Pacific
Management is a balanced mix of cross-functional expertise : 30 full time staff• Local on-the-ground experience working in both clinical
practice and medical/hospital management in China• Have business training and work experience in both China
and the West
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Core Management Team
Michael Choy, DPM, FACFS : Founder, Chairman, CEO: Michael has held these positions since incorporation of APMG in 1992. He is a Diplomate of the American Board of Podiatric Surgery and a Fellow of the American College of Foot and Ankle Surgery. Prior to starting APMG, he formed healthcare joint ventures including outpatient surgery centers, MRI imaging facilities, and medical arts buildings.
Chuk W. Kwan, MD : Co-founder, Director, Chief Medical Officer. Chuk is a Clinical Professor of Medicine at University of California, San Francisco and a board certified internist and cardiologist.
Andrew Chow : Group Financial Controller: 10 years with APMG. Andrew is a Fellow of the Chartered Association of Certified Accountants and an Associate of the Chartered Institute of Management Accountants.
Yan Z. Yong : SVP, Shanghai Gamma Knife Hospital : 12 years with APMG. Z. Yong
has over fifteen years experience managing Sino-Foreign joint ventures.
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Core Management Team (2)
He Ping, MD : SVP, PuHua Hospital and Clinics: 3 years with APMG. Ping was previously SVP at ChinaCare and president of Beijing Puren hospital.
Zhang Jing : VP, PuHua Hospital and Clinics: 9 years with APMG. Jing is the former executive administrator to the president of Beijing Tiantan Hospital.
Chase Chen, MD : VP, M&A: 8 years with APMG. Chase received his medical degree from Guangzhou Medical College and MBA from University of Western Sydney.
Sherwood Yang, MD : VP, PuHua Hospital: 3 years with APMG. Sherwood is a board certified general surgeon and a former VP at ChinaCare. He received his MBS in Finance from Massey University Auckland, NZ.
Fang Zhi Liang : VP, Beijing Gamma Knife Center: 8 years with APMG. Zhi Liang is the former vice president of a China-Hong Kong import & export corporation.
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Financial Highlights
APMG has been consistently profitable in high-margin business lines (firm cost controls plus value added services)
A healthy and conservative balance sheet• No Debt - Company has avoided debt financing, minimally
leveraged capital structure• Cash in the bank • Positive cash flow from operations
(Units USD000) 2002 2003 2004 2005E 2006E 2007E 2008E
Total revenue 8,268 7,497 8,496 10,232 29,282 49,118 57,427
Net profit before tax/minority interest
1,267 1,116 1,588 1,666 5,072 10,805 14,554
Margin 15.3% 14.9% 18.7% 16.3% 17.3% 22.0% 25.3%
APMG Earnings Summary
Source: APMG and ChinaVest estimates
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………so, why is the company sourcing new capital?
We seek $15-$20 Million in expansion capitalTo scale more quickly, expand market share, make strategic acquisitions and aggressively pursue our branding strategy
We seek credibility from financial markets through this Private Placement
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Planned Expenditures
Service LineExpenditure
(USD)Use of Funds
Radiation Oncology$5,500,000
Next 1-1.5yrs
Start-up/capital equipment costs of PuHua Radiation Oncology Center
Acquire Guangzhou Gamma Knife Ctr.
Neurosurgery and Rehabilitation
$3,000,000
Next 1.5yrsBuilding and startup costs of PuHua Hospital Phase II
Outpatient/Podiatry Clinics
$3,500,000
Next 0.5-2yrsBuilding and startup costs of Clinics 2-8 in multiple cities
General Hospitals$9,000,000
Next 1yr
Acquire General Hospital in Guangdong
Acquire General Hospital in Sichuan