Your firm is limited to one sector. Is there enough opportunity in Indian healthcare?
As of 2012, India’s healthcare industry alone was worth $58 billion and in the past five years (2007 to 2012) it has grown at a cumulative annual growth rate of 9 percent. And yet, in India there are less than two beds for every 1000 people, whereas in China there are almost five, in the US there are close to eight beds. So healthcare in India is severely underserved and to upgrade India’s healthcare infrastructure to the level of even China requires billions of dollars.
The government has pretty much retreated from making investments in healthcare in India and that gap has to be filled by the private sector. Along with the healthcare industry expansion, you can expect a piggy-back effect for diagnostics and med-tech. And if you look at the Indian pharma industry as of 2012, it was around $31 billion and has been growing at about 12 percent CAGR since 2007.
How critical is operational expertise when investing in the healthcare sector?
The importance of domain expertise and industry experience may not be critical in most sectors, but in certain select sectors, like pharmaceuticals, healthcare services, medical devices, domain expertise does help because inherently these sectors are very complex.
In India there are less than two beds for every 1000 people, whereas in China there are almost five, in the US there are close to eight beds. So healthcare in India is severely underserved and to upgrade India’s healthcare infrastructure to the level of even China requires billions of dollars
Hari Buggana, managing director, InvAscent
For example, there are regulatory considerations, technical knowledge and awareness of the science behind some of these products and technologies, which play a big role in decision-making.
We have two doctors on the team – Dr Jayasuriya is an MD from Harvard medical school and has seven years of experience, not only in healthcare services but also in the pharmaceutical industry. She was a vice-president at Roche in their product development division. Then we have Dr Shenoy who is also a medical doctor; he served in the Indian army and practiced medicine on the front line. Lastly, we have a couple of chemical engineers, including myself.
In addition, on an exclusive basis we have a bunch of senior retired professionals CEOs, CFOs and scientists from the pharmaceutical and healthcare services industry.
What are the specific challenges you face when investing in this sector?
The challenges around healthcare in India are more around finding a business model that is capital efficient. One can spend a lot of money building a 200-bed hospital and offer certain services, but the return of capital employed may not be as attractive because of the capital expenditure that was incurred and the combination of services.
So we’ve backed super-specialty networks, which require less capex and can be located closer to where the healthcare services are required – like smaller towns, smaller cities, and they are able to serve more people.
For example, you could spend millions of dollars and build a massive hospital in a big city like Mumbai or take the same millions and create a network of super-specialty ophthalmology centres; only the complicated cases are treated at the hub, and simpler cases can be treated through a series of satellite centres. So it is a much more efficient way of using capital.