Chindex and Fosun Finalize Medical Device Distribution JV

| About: Chindex International, (CHDX)
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Chindex International (NSDQ: CHDX) and Fosun Pharma have formally created their previously announced JV, an entity dedicated to marketing and distributing medical devices in China. As a secondary objective, the JV will also engage in R&D and manufacturing of medical devices. Chindex will contribute its Medical Products division to the JV, and Fosun will add much of its medical products distribution business after it secures regulatory approval for the transfer.

Fosun will own 51% of the JV, and Chindex will claim the remaining 49%. As part of the transaction, Fosun will purchase 1,057,425 shares of Chindex common stock at $15.00 per share. This is the second tranche of a 2 million share investment made by Fosun, which ups its ownership in Chindex to 25%.

At the time the JV was originally announced, in June 2010, the price of Chindex was $11.43, and the purchase price of $15 represented a 31% premium. Now, Chindex is trading at $18.05, giving Fosun a tidy profit on its investments.

Fosun has segregated the assets it will contribute to the JV, pending approval, which the JV will manage under an entrustment agreement. Fosun said it will contribute its medical products division to the JV, except for clinical diagnostic products. It does, however, include dental products and consumables, surgical consumables including sutures and needles, and disposable transfusion supplies.

The JV will also market, distribute and service the products currently under contract to Chindex, which are color ultrasound systems, mammography, aesthetic lasers and surgical robotic systems from Siemens AG, Hologic, Candela, Cutera and Intuitive Surgical respectively.

After the transaction, Chindex will be left with its United Family Healthcare division, a network of private primary care hospitals and affiliated ambulatory clinics in China. It has facilities in Beijing, Shanghai and Guangzhou and is negotiating to begin operations in Chengdu, Hangzhou, Qingdao and Dalian.

With the formation of the JV, Chindex will no longer consolidate the financial results of the Medical Products division in is financial statements. The company said the transaction will have the effect of smoothing out the volatility of its quarterly earnings.

Fosun International (HK: 0656), the parent to Fosun Pharma, owns 49% of Sinopharm Holdings, one of China’s two major drug and device distribution companies. Sinopharm completed a $1 billion IPO in Hong Kong in 2009.

Disclosure: none.