Betting big on ‘healthy China’

Deregulation, industry consolidation and population pressure are driving capital into the country’s healthcare sector.

China’s healthcare market is expected to expand rapidly from $357 billion in 2011 to $1 trillion by 2020, according to McKinsey. By 2030 it is set to reach $2.3 trillion.

Private equity investors have begun to take notice of the multibillion-dollar opportunity. Since 2014, funds in the country have raised as much as $5.7 billion from LPs for a range of investments that include speciality clinics, healthcare devices, pharmaceuticals, precision medicine and genetics, according to PEI data.

In September, Fidelity International launched a $250 million China-dedicated healthcare fund via its investment arm Eight Roads Ventures. In the same month Kleiner Perkins Caufield & Byers spin-out Panacea Ventures set out to raise $150 million for early stage healthcare investments with China links. Similarly, OrbiMed Advisors, a New York-based private equity firm focused on the sector raised $551 million for OrbiMed Asia Partners III, which will back growth-stage product and services-oriented companies in China and India.

Specialist funds have increased in supply, Jie Gong, a Hong Kong based-partner at Pantheon, tells Private Equity International.

“We have seen a pick-up in healthcare funds in China this year [compared with the] last several years. The market is moving towards further specialisation, a reinforcement of what started about three years ago.”

James Bonsor, investor relations director at C-Bridge Capital, a Shanghai-based healthcare firm with $700 million of assets, notes that China’s wealthier and ageing population is driving the sector’s growth. “As most people reach their 50s and 60s that’s when they start consuming and thinking more about healthcare products, that’s a clear macro trend.”

Bonsor says favourable government policies are also encouraging private capital. In 2015 China’s food and drug regulator proposed major regulatory changes related to innovative drugs, accelerating the process of clinical trials and approvals. Data from international and multi-centre trials can now be used for drug registrations in the country.

Another driving force is the number of returnees with global experience and knowledge in clinical research and business development. “This group of Chinese professionals is highly entrepreneurial and come home armed with qualifications and experience, setting up their own businesses and lobbying the government for reforms,” Bonsor says.

Against this dynamic backdrop the government also rolled out ‘Healthy China 2030’ in 2015, which aims to build a healthier population through reform and innovation, equal emphasis on traditional Chinese medicine and western medicine, health services for all and putting prevention first.

In the last two years there has also been a rise in cross-border activity. Barriers are being removed so foreign healthcare can enter the country, and Chinese investors are increasingly entering the US and European markets to seek strategic alliances and to bring back cutting-edge products, services and business.

Notable transactions include the $3.2 billion privatisation of WuXi Pharmatech by a consortium of investors led by Hillhouse Capital and Ally Bridge Group, and Bain Capital’s $150 million acquisition of Asia Pacific Medical Group.

“China healthcare is going through a wave now, similar to TMT over the last five to 10 years,” Bonsor points out. “Ultimately the whole opportunity is still evolving – modern drugs are still limited, domestic companies lag behind in innovation and foreign players still dominate the high-end healthcare devices market.”