Venture capital market

Here’s why this health care venture investor can keep calm amid buzz around biotech IPOs in Hong Kong  

Backing by parent Fidelity International allows Eight Roads to take long-term approach to investments and resist pressures to take profit and distribute returns regularly

PUBLISHED : Monday, 07 May, 2018, 7:33am
UPDATED : Monday, 07 May, 2018, 7:33am

While initial public offerings by technology unicorns – start-ups valued at more than US$1 billion – such as Ping An Healthcare and Technology have attracted hoards of retail investors looking for a quick profit, venture capitalists such as Rebecca Lin Rui have kept a cool head.

This despite the prospect of upcoming IPOs offering her company, Eight Roads Ventures, an opportunity to exit its investments at a handsome profit. Eight Roads is a proprietary investment unit of fund management company Fidelity International that has backed internet companies such as Asiainfo and Alibaba Group Holding, which owns the South China Morning Post

Following a listing reform introduced last week, Hong Kong now allows flotations by companies whose founders and key managers want to retain control through dual-class share structures, as well as biotechnology companies that do not have any revenue.

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This has paved the way for many companies, which would not have otherwise listed in Hong Kong, to appear on the radars of local investors, who are mostly unfamiliar with biotechnology companies. 

“Globally, the investment enthusiasm for Chinese biotech firms is unprecedentedly high,” Lin, who leads Eight Roads’ China health care venture investments, told the Post in an interview. “For us, I’ll ask if there is really good science and good entrepreneurs to build world-class companies.” 

The enthusiasm for biotechnology was supported by a sweeping industry reform in China aimed at making it internationally competitive. The industry regulator, China Food and Drugs Administration, has published dozens of policy circulars in the past 18 months to simplify and speed up the clinical trials of new drugs and their commercialisation approvals, as well as to incentivise new and generic drugs development. 

But this all should also be backed by sound fundamentals, said Lin, who is a partner at Eight Roads. “There is too much attention on quick exits and IPOs,” she said. “We are not too concerned about the hype … we only focus on early stage start-ups and our focus is on value creation together with the companies.” 

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A major reason why Eight Roads has been able to take a long-term approach with its investments is the fact that all of the money it invests belongs to its parent, Fidelity International, freeing it from external investors’ pressure to take profit and distribute returns regularly. 

Eight Roads first invested in China’s health care sector as early as 1995, when it bought into Pharmanex, a manufacturer of “nutraceuticals” – foods with medicinal benefits, such as vitamins and minerals. Since then, it has ploughed more than US$480 million into 33 companies in China’s health care sector. 

“Eight Roads probably has the biggest exposure to China’s health care sector as a single investor,” Lin said, declining to reveal the current market value of its portfolio and its strategy for exiting investments.

China had very few dedicated health care institutional investors before 2005, and health care-only funds only emerged about three years ago, which included a US$250 million fund set up by Eight Roads last September. The company plans to invest about 40 per cent of the sum in innovative drug development, 40 per cent in health care services and information technology, with the remainder for medical technology such as diagnostic devices. 

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We are not too concerned about the hype … we only focus on early stage start-ups and our focus is on value creation together with the companies
Rebecca Lin Rui, partner, Eight Roads Ventures

Eight Roads’ investees span the entire supply chain of the health care sector, from drug developers such as listing hopefuls Innovent Biologics and diabetes-focused Hua Medicine, through to medical devices makers and oncological clinical data platform operator Medbanks. 

The company even funded the construction of Delta Health, a hospital in Shanghai specialising in cardiovascular surgeries and care.

This diversification has allowed Eight Roads to help its investees form strategic business partnerships. 

Focusing on its role of founding investor in most of its investees, Lin said Eight Roads’ investment journey has been “quite challenging but rewarding”, as it has helped them attract talent, find investors and strike strategic cooperation deals with partners. 

Lin did not disclose the returns track record of Eight Roads, only saying it was “far higher than industry returns”. 

For a venture capital and private equity investment made in 2015 in the health care sector globally excluding the US, the average return was 25 per cent by the end of September last year, according to data collated by Cambridge Associates.