PAIN MANAGEMENT CLINICSA DEMOGRAPHY-BASED BUSINESS OPPORTUNITY IN CHINAEASTASN217: Health & Healthcare Systems in East AsiaGroup Project based on Judith Banister Talk “China and India: Demographic and Economic Transformations in Progress”Oct. 16, 2008Leon ChenSteven Yuan Rachel Zimet

Attractive Economic Landscape China has evolved from country with vast

resources to a thriving economic marketplace Increasing access to education and literacy Migration from agricultural economy to

manufacturing and services Steadily increasing income per capita Reduction in poverty levels

Coupled with an enormous population, China is the most attractive market for goods and services

Economic Environment for Healthcare Population demographics favor

increased healthcare consumption Higher life expectancy: up to 74 years

EXPECTATION OF LIFE AT BIRTH (yrs)Judith Bannister China and India: Demographic and Economic Transformations in Progress; 2008

Economic Environment for Healthcare Declining infant mortality rate: down to

21% Declining >5 mortality rate

CIA World Factbook; January 1, 2008

Urbanization and Healthcare

Increasing urbanization concentrates healthcare needs* Over 180 cities in China with population > 1M 45% in urban environments; Annual growth

rate 4.7%

*Judith Bannister China and India: Demographic and Economic Transformations in Progress; 2008

Concentrated Healthcare Needs Urbanization and high population density

provides an attractive infrastructure for healthcare delivery

Clinics and hospitals can serve large markets

Local demographics and environmental conditions can generate niches of healthcare needs Opportunity to offer specialized care in

concentrated markets with the greatest needThere is a significant opportunity for

healthcare delivery based businesses in urban China

Target Aging/Labor Population China has growing aging population

Vast majority of population under 50

*Judith Bannister China and India: Demographic and Economic Transformations in Progress; 2008

Aging Chinese Poorly Educated

*Judith Bannister China and India: Demographic and Economic Transformations in Progress; 2008

Aging Blue Collar Population

A majority of the aging population in China is working in industrial and manufacturing sectors.

Combined with the increasing age group of this workforce, we anticipate a significant market for healthcare needs related to this population.

*Judith Bannister China and India: Demographic and Economic Transformations in Progress; 2008

Chronic Pain: Emerging Unmet Need

Studies have correlated prevalence of rheumatic and osteoporotic pain with environmental factors Education (Dionne et al. J Epidemiol. Comm.

Health 2001 Occupation (Dubois et al. Spine Journal 2008) Age (Zeng et al. J Rheumatology 2005)

Given the demographics of the aging population in urban China, pain management is likely to be a growing medical unmet need.

Summary of Opportunity

The Chinese economic environment is well suited for businesses focused on healthcare services Increasing income per capita Concentration of population in urban

environments Demographic trends suggest pain

management will be a significant clinical problem Large aging population Largely uneducated and blue collar laborers

We intend to develop pain management outpatient clinics to treat this emerging

clinical need

Service Delivery Model

For profit outpatient clinics treating acute and chronic pain

Offer both western therapy and Traditional Chinese Medicine (TCM) Full range of services to cater to patient

preferences Breadth provides w broad range of treatment

options High quality service to develop strong

patient doctor relationships Pain a recurrent problem – never cured Market reliability and brand via word of mouth

Targeting Patient Populations Focus on pain problems highly

associated with manufacturing working population

May want to create partnerships with local factories for reduced cost Emphasize lost productivity due to ailments

Treat more common ailments within this group

Promote word of mouth marketing

High Margin/Lower Cost Services Focus on simple treatments and therapy

Refer severe orthopedic or surgical cases to hospitals

No expensive imaging, scans done in clinic Affordable, recurrent pain management

e.g. orthopedic steroid injections, acupuncture Prescriptions

Model of repeat high volume business as opposed to prohibitively expensive one time treatment.

Provider Network

Chain clinics

Large cities & manufacturing bases

Current/retired employees of manufacturing companies

Senior people

Commercial insurance coverage FFS for individual patients Pain mgmt DRG package with

manufacturers

Network features Rationale

Scale in branding and marketing

Higher income and more concentrated population

Large manufacturing workforce

Increasingly aging society

Easier to start with commercial insurance

Geographic focus

Format

Targets

Payment

Current Regulatory Environment Wholly foreign-owned medical institution are NOT

allowed in China Regulations on establishing Chinese-foreign equity and

contractual joint venture medical institutions Chinese and foreign parties should have direct or indirect

experience in investment and management of medical and health undertakings

Total investment should be no less than 20M RMB (~$US3M) Chinese partner should hold an equity share of no less than

30% Period of the joint venture or cooperation should not exceed 20

years A Chinese partner making its investment in the form of state

assets must obtain approval from relevant departments. The result of an evaluation may be used as the basis of the pricing of the state assets to be invested

Diagnosis expenses (就诊费用 ) are NOT covered by social medical insurance

Source: Invest China website http://investchina.org.cn/market/zhuanti/415997.htm

Favorable Regulatory Trends

New medical reform plan creates favorable regulatory environment Covers entire urban senior population Encourages commercial health insurance Welcomes private healthcare investment

(incl. foreign investment) Allows HCPs to provide services in

multiple hospitals

Source: China National Development and Reform Commission website http://shs.ndrc.gov.cn/yg/qwll/t20081014_240214.htm (Chinese)

Current pain management in China

Drugs Western drugs Traditional Chinese

Medicines (TCMs)

Rehabilitation Acupuncture Physical massage Psychological

treatment

Surgeries

Issues

Limited drug variety Most only available through

prescription

Very limited large hospitals offer pain relief rehab service

Small scale clinics hard to build trust among patients

Not yet widely accepted by patients

Our Competitive Advantages Integrated pain management

Provides one-stop solutions to chronic pain patients

Hard to be copied by new local entrants Reliable and trustworthy image

“foreign investment”, “US management”, etc. Scale in marketing and service

Therapists provide service to multiple clinics Can be covered by insurance (most private

clinics cannot)

Financials - Assumptions

Key Revenue AssumptionsKey Revenue Assumptions

Per Clinic

initial staff (5 doctors, 15 nurses, 5 techs, 3 admin)

$US (000s) to set-up clinic building

$US (000s) for initial equipment purchases

23

330

234

Key Cost AssumptionsKey Cost Assumptions

Market

largest cities in Chinapain patients in those

citiespenetration of

market

318.8M2-4%

Patient Visits

$US / visit / monthmargin on

prescriptionspatients / day /

doctor

1215%45

Financials - Revenue

Strong revenue potential in this business As initial clinics reach capacity & market penetration

levels off, open new facilities 31 clinics in steady state operations (starting Year 9)

Revenues, Entire Business

13

6

12

20

30

42

52

60

66

-

10

20

30

40

50

60

70

0 1 2 3 4 5 6 7 8 9

Mill

ion

s

Year

$US

Financials – Cost, Profit & Cash Individual clinic

costs consistently below revenues (immediate profit)

Business recovers initial US$3MM JV investment by EOY1

Cumulative Cash Burn, Entire Business

(3)

3

6

10

14

19

23

27

11

(5)

-

5

10

15

20

25

30

0 1 2 3 4 5 6 7 8 9

Mill

ion

s

Year

$US

Profit = Revenue - Costs

1.3

0.9 1.0 1.1 1.2 1.31.5

1.71.9

2.1

0.10.6

0.70.8

0.80.9

1.0

1.1

1.2

1.3

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0 1 2 3 4 5 6 7 8 9

Mill

ion

sYear

$US

Profits

Costs

Revenue1.4

2.5

2.02.2

1.91.7

1.5

2.8

3.1

3.4

Pain Clinic Investment Opportunity Offering $4MM of equity for strategic

investors 8 blocks of $500K each $4.2MM pre-money valuation

Expect 10x multiple in than 10 years Almost $5MM for each investment block IRR of almost 30%

Invest with us to take advantage of the growing opportunity in the Chinese pain

management field!