Tapping healthcare opportunity in Asia via private equity

ASIA' S historically underinvested and overstretched healthcare systems are transforming to meet demand from growing and wealthier populations. Therefore, Asia' s healthcare market is growing at double-digit percentage rates, outpacing single-digit growth globally. By 2024, Asia' s healthcare market size will reach US$4.2 trillion, larger than the current US and European markets combined.

Public healthcare financing falls short of plugging the annual US$60 billion funding gap. Asian governments, aware of budget constraints, are welcoming more private-sector involvement. Today, of every 10 new hospital beds built in Asia, seven are funded by the private sector.

The depth and efficiency of private capital are now essential forces in improving healthcare quality and enabling innovation in the region. Opportunities have emerged for investors to not only secure superior returns, but also create sustainable and affordable healthcare for Asia.

For example, chronic diseases associated with more affluent lifestyles are increasingly common. Yet, most Asians today pay out of their pockets for healthcare, as insurance coverage is still low and universal healthcare, where present, is largely underfunded. As a result, onerous healthcare costs have left many in financial ruin.

 

 

However, innovative and scalable business models can substantially lower costs without compromising on quality. The Asian Institute of Gastroenterology in India is one such example. With a focus on economies of scale and process efficiency, the gastric sciences hospital sees over 150,000 patients yearly, offering highly affordable healthcare with a level of quality comparable to prestigious institutions in the US. All this is anchored on its 700-bed hospital in Hyderabad, developed through a partnership with Quadria Capital, an independent healthcare private equity fund in Asia.

 

 

In Indonesia, Quadria Capital has helped SOHO Global Health to become one of the very few domestic pharmaceutical companies compliant with international standards such as US FCPA and UK ABAC. This has spurred the growth of an in-licensing platform that brings critical, life-saving drugs to low- and middle-income patients across Indonesia at a fraction of the cost compared to developed markets.

Exceptional growth in the healthcare sector has not gone unnoticed in Asia. Market capitalisations of healthcare stocks have grown by 4.4 times in emerging Asia and 3.8 times in developed Asia over the last 10 years. Some of the biggest publicly-listed firms in the Asian healthcare sector are trading at high earnings multiples, lifting valuation expectations for private firms. The healthcare private equity sector is thus enjoying significant inflows.

VALUE PROPOSITION

Private deal volumes surged from 61 in 2017 to 88 in 2018, while disclosed value more than doubled from US$7.2 billion to US$15.8 billion. Deals ranged from seed funding investments to privatisations of large public entities.

Private equity investing is often longer-term and illiquid. Capital calls make it challenging for investors to manage cash flows. Still, investors recognise that private equity is where the sweet spot lies in capturing healthcare opportunities in Asia.

However, it takes more than just money to capture these opportunities. Expertise, network and experience also matter.

Many market-leading healthcare companies with exceptional growth and an impactful value proposition are privately held. They span sectors like healthcare delivery, life sciences and associated healthcare services. These market leaders tend to be cash-rich and are not looking for pure financing deals. Rather, they are looking for strategic partners with a combination of operational and commercial healthcare expertise and international networks that can enable them to innovate further and access new markets.

Only a handful of Asian healthcare private equity managers can help them. They tend to be managers who have created value through identifying and investing in successful market leaders and, by doing so, have developed an ecosystem of proprietary relationships. In turn, this ecosystem has become a source of more exclusive investment opportunities.

With the right partners, investors can capture the transformational growth in Asian healthcare, showcasing how private equity and innovation can come together to benefit the public good.