Health

Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

Fosun International Ltd., the Chinese conglomerate that models itself on Berkshire Hathaway Inc., can be congratulated for bringing the first Israeli company to market in Hong Kong. 

It looks to have done well on Sisram Medical Ltd. In April 2013, Shanghai Fosun Pharmaceutical Group Co., a unit of Fosun International, bought Israel's Alma Lasers Ltd. for about $220 million. Alma, known these days as Sisram Medical, is now being taken public at a valuation of $500 million, and the stock is expected to start trading Tuesday.

But Fosun hasn't milked many synergies from Sisram, despite its extensive hospital and distribution networks.

You'd imagine women in China -- anywhere, for that matter -- might jump at internationally manufactured medical devices that promise to contour the body and tighten the skin. Yet Sisram's sales on the mainland haven't accelerated at a great pace.

Medical Emergency
Fosun hasn't exactly set Sisram's sales on fire in China
Source: Company filings

It's partly because Sisram's products are primarily distributed via third-party operators, rather than through Fosun Pharma's own logistics arm Chindex Medical Ltd. Prior to Sisram's IPO, Chindex had a 36 percent stake in the company. Why not offer it a bit more of a helping hand?

It's also unclear from Sisram's prospectus whether the company has any substantial proprietary technology. South Korea's Lutronic Corp., which also makes aesthetic medical devices, has lost a third of its market value this year because of investor concern over its lack of intellectual property.

Thanks to scarcity value, Sisram should be worth a lot more in China. Healthcare stocks have a weighting of only 2 percent in the MSCI China Index, versus 26 percent for the MSCI Israel Index. This partially explains why retail investors have rushed Sisram shares as foreign institutional money managers sat on the sidelines.

Over the past five years, Fosun Pharma has done 26 deals totaling $3.1 billion, expanding beyond its core generic drug business and into hospitals, medical devices and biosimilar drugs.

Buying Spree
Fosun Pharmaceutical has done 26 deals and spent $3.1 billion over the past five years
Source: Bloomberg

To push through its biggest-ever purchase, of India's Gland Pharma Ltd., Fosun has scaled back its proposed stake to smooth political tensions.

Fosun has said it wants to leverage Gland to push into the overseas generic drug industry. But one can't help wondering why Fosun, which has already invested in next-generation biosimilar drug manufacturing, wants to buy a sub-scale producer when the entire industry is attracting heightened scrutiny from the U.S. Food and Drug Administration.

Perhaps, again, it comes back to valuation. Indian drugmakers from Dr. Reddy's Laboratories Ltd. to Lupin Ltd. have tumbled this year even as the country's benchmark Sensex has reached record highs. 

To be sure, there's nothing wrong with Fosun behaving like a private-equity firm and snapping up assets on the cheap. But to become a first-rank player like Berkshire Hathaway, which holds investments for the long term and generates significant value for shareholders, it needs to show it can bring a bit more to the operating table.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shuli Ren in Hong Kong at sren38@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net