One of the great truisms in healthcare is that it is a lot cheaper to prevent disease than to treat it. Asia's healthcare sector has taken this to heart, deploying innovative strategies that are transforming the industry and creating new investment opportunities.
Spanning the development spectrum, Asia’s healthcare sector, perhaps more than any other in the world, is stratified. Developed markets, such as Japan, Korea and Australia, are dealing with issues similar to those in Europe and the United States – namely, managing ballooning healthcare expenditure while building and maintaining profitability. In middle-income countries like China, Malaysia and Thailand, and emerging markets like India, Philippines and other Southeast Asian countries, the challenges lie in improving access to and enhancing the quality of affordable healthcare.
Despite the fundamental differences between these markets, they face a common challenge – price pressure. Corporations at every stage from hospital operators, clinics and diagnostics labs; to makers of drugs and medical devices; and, service providers like clinical research organizations - are striving to control rising costs per patient, which they recognize is unsustainable. These efforts, in turn, point to a promising future for Asia’s healthcare sector.
Thinking outside the box
There are a number of ways in which the industry as a whole, and particularly its representatives in Asia, are working toward building high-quality, cost-effective healthcare systems.
Japan is leading the charge in incorporating technology such as robotics in its elderly care sector – one of the fastest growing medical sectors in the country - by providing anthropomorphic robot companions to retirees, among other resources. One Japanese company is slated to bring a robot surgeon to market in 2020.
Elsewhere, countries like Singapore and Thailand - and to an extent Malaysia – have become well-known destinations for medical tourism, providing high-quality care at reasonable cost, and the industry is projected to be worth as much as US$14 billion by 2022. This relatively new sector is witnessing growing demand from around the world and, in turn, attracting significant investment.
India supplies the world with low-cost generic drugs – 40% of all medicine dispensed in the US is either made in India or have an ingredient that is made in India – and the country’s drug makers are looking to further expand their capabilities by acquiring assets around the world. At the same time, the country’s government is working to provide universal coverage to its population.
In China, which is the world’s second-largest market for pharmaceuticals after the US, the evolution of innovation in the country’s healthcare ecosystem is one of the most notable developments in the past two decades. Having achieved near 100% universal healthcare coverage and with the knowledge that newer medicines are better, China has sought to enhance its drug development know-how over the years, learning from the US and Europe, and investing in building a life sciences sector on par with the developed world. And it’s done so by ramping up R&D expenditure, building a strong IP regime, and providing tax breaks and incentives to pull in talent and investment.
Data comes to the fore
Data is undoubtedly going to play a big role in the next three to five years, with governments and the private sector alike looking to use analytics to gain a clearer picture of overall healthcare trends as well as understand patients in order to optimize their care.
A big hurdle, however, will be answering questions about who actually owns the massive amounts of data that are being collected by healthcare providers, governments, technology companies, and how it should be used. But one thing is clear - everybody's interested in it. Simply put, there’s been a huge shift in what represents value and data is the new currency. To use the music industry as an analogy, the money used to be in making the music player but now it’s in the streaming rights for the song.
Recognizing this trend, technology companies such as Tencent and Alibaba are deploying large amounts of capital into developing this area of their businesses. And, as investments flow in to power rapid technological advancements, they provide healthcare systems in Asia’s emerging markets the opportunity to leapfrog stages of development, similar to the region’s telecoms sector, which skipped the landline to go straight to mobile.
Investment opportunities abound
In China, roughly US$120 billion has been raised by funds to invest in healthcare and life sciences, with about half of that amount yet to be deployed. This represents major opportunities as seen in the growing interest from Chinese investors in markets like Japan, Australia and elsewhere across Asia.
And as the trade war rumbles on, China, which was the source of nearly 40% of all venture capital into US life sciences companies, is increasingly looking to tap into other regions. For instance, Chinese companies’ acquisition of US assets in the first half of 2018 was 80% lower than in the same period in 2017. Meanwhile, Chinese investments into Europe grew nearly 40%. This means significant opportunities for Asia, as Beijing moves to scale up its healthcare sector to the next level and Japanese companies display interest in investing in the sector.
In Hong Kong, one of Asia’s preeminent finance hubs, investment opportunities received a boost when HKEX, the city’s stock exchange, decided in April 2018 to allow pre-revenue and pre-profit biotech companies to list. What this means in the long run is yet to be determined, but the numbers are highly promising so far.
A case in point is the public offering of Viva Biotech, a R&D service provider, in May 2019 that was oversubscribed about 107 times. Earlier in the year, yet another firm, CanSino Biologics had a star turn with its IPO, attracting orders over 90 times what was on offer. For the years from 2015 to 2017, the volume of Hong Kong-based healthcare IPOs, in dollar terms, was between US$1-2 billion a year. Last year, that doubled to about US$4billion. And, by September 2019, Hong Kong, the second-largest fundraising center globally for biotech companies, had already raised over US$3billion from 9 biotech listings on HKEX.
Across Asia, companies are also looking to mergers and acquisitions as a way to achieve scale, rationalize costs, and enhance margins and purchasing power. While between US$300-400 billion dollars in M&A is transacted in healthcare globally, Asia accounts for only about 15-20% of these transactions, a figure ripe for improvement.
Although the ability to invest at scale in healthcare in Asia is still moderate the region’s strengths are clear. The healthcare sector in middle-income markets like Malaysia or Thailand is growing annually at up to 7-8%, while the sector’s growth in the region’s emerging markets could potentially hit 15-20%.
Overall, Asia’s vibrant healthcare sector presents a high-growth environment and, especially because of its diversity and the paradigm shifts made possible by technology and innovation, offers vast potential and a variety of opportunities for the astute investor.
BMI Research (2019E to 2024E healthcare expenditure CAGR)
Head of Healthcare Investment Banking, Asia ex-Japan
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