The Changing Landscape of Private Equity's Focus on Healthcare – June 2014

by Chloe Wong

  • 20 Jun 2014
  • PE

Faced with a lengthy procedure of bringing new treatments to market and delays in reimbursing institutions for using new medical products, investors in the healthcare industry are calling on the US Government to do more to help smooth the process of bringing new medical innovations to market. Recently, the House Committee on Energy Commerce Subcommittee on Health in the US entertained a discussion with several venture capital firms and industry experts regarding the challenges of investing in the medical devices and biotechnology industries.  The conference called for more transparency from the national social insurance program, Medicare, which is the largest financier to the industry in the US. Also drawn to the attention of attendees was the comparison of the US to other countries where differing regulations mean the transition from the laboratory is smoother and more predictable, and perhaps therefore making economies outside the US more attractive for medical or biotechnological investments. 

According to Preqin’s Fund Manager Profiles online service, there are 2,095 firms worldwide that consider venture capital investments in the healthcare industry as part of a wider industry focus. The largest proportion (46%) of these are headquartered in the US, demonstrating the significant appetite for investment in the healthcare sector stemming from US-based private equity firms, compared to their European and Asian counterparts which make up 23% and 18% respectively of the 2,095 private equity firms. 

Since 2008, private equity funds that invest in the healthcare sector as part of a more diversified industry focus have raised just over $100bn from 691 funds. Firms based in the US have raised 59% of the total capital commitments since 2008, while in comparison, Europe and Asia-based managers combined have raised $36bn in the same time period, which equals 35% of the commitments dedicated to the industry. However, the evident rise of private equity opportunities in the healthcare industry in Asia should be noted, with Asia-based funds closed so far in the first six months of 2014 raising over double the amount of capital recorded in the whole of 2013. Healthcare is particularly a growing industry sector in China, where the State Council recently announced reforms relaxing their restrictions on the percentage of foreign ownership in medical joint ventures and collaborations, which should encourage investors and fund managers alike. Given the issues in the current US healthcare industry, will private equity investors be deterred from committing to US deals and turn to the growing number of opportunities emerging in the healthcare sectors overseas instead?

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