Here’s one way risk-averse investors can get into Chinese health care: private equity

PUBLISHED : Thursday, 08 February, 2018, 2:29pm
UPDATED : Thursday, 08 February, 2018, 11:25pm

Investors keen to back China’s health care companies before they get to IPO but wishing to avoid exposure to risky early-stage drug developers could consider “late stage” private equity funds, according to a senior executive at C-Bridge Capital.

“There are quite a few China-focused health care private equity firms but usually people only hear venture capital stories [of huge financial gains],” said managing director Sean Cao Wuxiong.

“Private equities are less exciting, if you invest 100 dollars, you may get back 300 to 400 dollars, but they are less risky.”

The Shanghai-based private equity firm, partly backed by a unit of Singapore’s sovereign fund manager Temasek Holdings, has over US$800 million of assets under its management and is one of the major players behind a surge in investment in China’s health care sector.

C-Bridge is a backer of prenatal genetic-testing services provider Berry Genomics – one of the largest rivals to state-backed genomics giant BGI – which listed last year via a reverse takeover deal with a Shenzhen-listed firm at a valuation of 4.3 billion yuan (US$683 million).

“[Our founders] saw huge growth opportunities in China’s health care industry, due to its ageing population, demand for better drugs, medical devices and services as people become wealthier and have more education,” Cao said.

Mainland China’s health care spending was forecast by management consultancy McKinsey to rise to US$1 trillion in 2020 from US$357 billion in 2011.

Beijing’s policy reforms in the past two years aimed at building a competitive and innovative pharmaceuticals industry that primarily engages in off-patent generic drugs production, has also helped draw investment.

Private equity investors are a major force funding that investment.

Private equity investments in China’s health care private equity investments have already amounted to US$439 million so far this year. The total last year was US$2 billion, up from US$686 million in 2016, according to AVCJ data.

“Judging from the volume of health-care-related investments that are flowing into China and the level of interest from private equity investors in this sector at present, the opportunities and deal activity in China’s health care industry are likely to remain strong in the foreseeable future,” said Steven Tran, a partner at international law firm Hogan Lovells.

C-Bridge primarily invests in “late stage” companies that have commercially proven projects in the pharmaceuticals, medical devices, diagnostics and health-care-services sectors.

“We don’t bet on unproven technology, we only invest in companies that already have products in or close to commercialisation and with a strong [management] team,” said Cao, who joined C-Bridge in late 2016.

“We only invest in biotech firms that already have at least one or more products having passed phase two clinical trials or are in phase three trials.”

Set up in 2014, C-Bridge, whose backers include Singapore-based Pavilion Capital – a private equity unit of Temasek – raised some US$200 million in that first year and US$400 million in May last year to set up two health care funds.

Cao declined to comment on a report in Private Equity International last week saying C-Bridge was aiming to raise US$650 million for its third health care fund by the end of June.

Its investees include Nanjing-based liver disease drugs developer Ascletis, whose chairman Wu Jinzi told the Post it was valued at 2 billion yuan in 2015 and would consider a potential listing in Hong Kong.

Hong Kong could see a slew of biotechnology listings later this year if the city’s stock exchange adopts proposed changes to listing rules to allow biotech firms without revenue and profit track record to float their shares.