From growth capital, to some of the largest global private equity (PE) and infrastructure funds, to sovereign wealth funds, private capital of all forms has been increasingly deployed in Asian healthcare assets.
PE investment in Asia Pacific healthcare assets has had a steep growth trajectory since the start of COVID-19. In 2021, 179 Asia Pacific healthcare buyouts and investments were completed, almost 2.5 times the 68 completed in 2019 and more than twice the pre-COVID high of 88 deals in 2018 [1]. Aggregate deal value also surged to US$17.8bn. [2]
Investor confidence and underlying market strength in the Asian healthcare sector stems from the convergence of:
- fundamental changes in the Asian demographic and macroeconomic environment
- healthcare industries revolutionised by new technology-enabled goods and services
- government regulations that support growth and shifts in government willingness to legalise and support changing models of care
- and of course, COVID-19.
These changes have transformed how healthcare is delivered in Asia.
Some of these changes are not unique to Asia, nor do they impact each country and region within Asia to the same extent. However, in the Asian economic and demographic landscape they combine, reinforce and accelerate each other to drive the healthcare industry to create more decentralised, scalable and tech-driven healthcare, generating opportunities for all forms of private capital. Emerging trends, future concepts and care models which were struggling to gain acceptance, have become mainstream, and in some cases the default model of care, in an inconceivably short period of time.
The evolving landscape
Macroeconomic and demographic undercurrents drive demand for good healthcare
It hardly needs saying that the economies of Southeast Asia and India continue to grow and mature. Rising incomes correlate with greater demand for better quality (and often private) healthcare services. Asian citizens want services of a similar quality to those in more developed countries, in which they have often studied or lived.
With increased incomes also comes increases in non-communicable diseases associated with ‘western’ lifestyles and urbanisation such as cardiovascular disease and diabetes. This unfortunately leaves many South-East Asian countries and India with a prevalence of infectious diseases (such as dengue) and non-communicable diseases. A number of South-East Asian countries and India are also seeing more accidents and injuries resulting from cultural and social shifts such as increases in driving.
The rising healthcare demand is further heightened by the fact that those aged over 65 are quickly forming a larger proportion of the overall population across Southeast Asia (especially in the more populous nations Indonesia, Vietnam, Thailand and the Philippines), China and India. According to World Health Organisation data, the proportion of people aged 60 or above in ASEAN nations was 9.8% in 2017 and will increase to 13.7% in 2030 and 20.3% by 2050.
This all culminates in rapidly increasing demands for quality healthcare. Healthcare spend across India and Asia is increasing faster than economic growth.
Governments dominate but funds fall short – and new regulations are luring private investors
Governments remain the largest single funders in Asian markets accounting for two-thirds of all health expenditures. Health expenditures are growing significantly faster than GDP across Asia-Pacific [3]. This underscores why it is essential for Asian governments to manage their healthcare expenditure whilst still finding a way to service the healthcare needs of their populations.
Even though governments across Southeast Asia are allocating more public expenditure in absolute dollar terms to healthcare, the available funding still falls well short of, and will continue to fall well short of, meeting public needs, both from a quantity / scope of coverage perspective and from a quality perspective.
This inevitably results in a need for private investment to fill the gap, particularly in specialist and remote care. Governments in the region are responding with regulations generally supporting private health facilities which has helped spur private capital deals such as:
- Navis Capital Partners’ purchase of a majority stake in Aurelius Healthcare, a private hospital group in Malaysia, and
- NewQuest Capital Partners’ acquisition of a stake in Cloudnine, an obstetrics and paediatrics-focused private hospital chain in India.
Consumer behaviour and expectation shifts are forcing improvements in outcomes
Rising incomes and more discretionary income have resulted in increased consumerism in Asian healthcare markets and a willingness to spend on healthcare for better customer experience and whole health outcomes.
COVID-19 greatly increased health and healthcare awareness at the individual consumer level (including for preventative and diagnostic services), as well as exposure to, and reliance on, health technology, fuelling increased patient expectations and greater demands for value, convenience and information from healthcare providers. These market forces have driven healthcare providers to become more consumer-centric and in turn, fuelled investment activity in businesses focused on delivering consumer-centric digital healthcare.
The direction of healthcare
Digital health and the use of technology to service regionally dispersed millions
Like so many industries, digital technologies and tools are completely transforming both what is possible in healthcare and how healthcare is delivered.
As one of the backbones of the healthcare system globally, investments in hospitals and physical health infrastructure will continue to rise. However, traditional labour-intensive care delivery models which require a patient’s physical presence at a healthcare facility cannot meet Asia’s rising health needs. The 10 ASEAN countries alone have an estimated population of over 668 million dispersed over a large geography, with much of the population in remote and rural areas. This alone makes digital healthcare, as well as remote diagnostic services and patient monitoring, highly attractive if not imperative. Asia is also home to half the world’s internet users and leads digital innovation worldwide in multiple sectors.
It is no surprise then that, as of 2020, Asia comprised 44% of global venture capital / PE investments in digital health[4].
Across Asia, an increasing number of hospitals are looking to establish internet models to manage patients before and after their visit and reduce the historical prevalence of patients self-referring to acute care hospitals for conditions that could be treated more efficiently and at lower cost outside of the hospital setting.
- The online model has been overwhelmingly adopted in China, with a proliferation of so-called ‘internet hospitals’ emerging. The term internet hospital is somewhat imprecise. In general, it is an internet medical platform combining online and offline access for medical institutions to provide a variety of medical services directly to patients ranging from online health consultation and management to online diagnosis and treatment and health management. Approximately 70% of the internet hospitals are established by physical hospitals and governments, and the remainder by the largest corporate players, such as Alibaba, Tencent, and Ping An. [5] More than 1600 ‘internet hospitals’ were established by June 2021. [6]
- Singapore has adopted this model in a far more modest way in its public healthcare system, with its HealthHub application serving as a single comprehensive digital service for all Singaporeans to book appointments, order medications and complete other health administration.
Technology companies enter the healthcare space – bringing innovative products and services
Tencent, a Chinese multinational technology and entertainment conglomerate which counts Sequoia Capital as one of its largest investors and created WeChat, shows how digital healthcare companies are diversifying across a multitude of digital pathway platforms from mainstream digital tech beginnings. Tencent launched a doctor education program within WeChat to increase doctor digital engagement and training, and then went on to partner with the Chinese Medical Doctor Association to build a WeChat app for continuing education.
WeChat now also directly offers patients medical administration services such as booking medical appointments, paying hospital bills, purchasing medicines and doctor consults.
In August this year, Tencent became the first Chinese internet technology company to obtain registration from the Chinese government for a medical device for a machine which uses deep learning AI algorithms to provide clinically assisted triage recommendations for neurological conditions. Tencent has also launched a robot-like telemedicine device. Whilst the device currently only facilitates more common computer functions such as a speech-to-text service (that enables automatic generation of onscreen subtitles for hearing-impaired patients and video and internet-based conferencing) and search functionality for telemedicine, there are plans to develop the robot so that it can perform basic medical testing and monitoring using machine learning and “computer vision" to read vital signs, hand gestures and facial expressions.
Digital consumer health technologies, like these lead to greater autonomy for patients, cost savings as patients can move out of monitored care facilities and overall greater efficiencies. Whilst other significant healthcare technologies such as robotic surgeries, continue to develop beyond what was thought possible a couple of decades ago, the rate of change has been slower than in consumer healthcare technologies. We are still some way off seeing autonomous robots using AI technology performing surgeries (and possibly even longer off seeing governments legislate for, and fund, those robots).
Decentralisation of services and changing government attitudes – telemedicine and specialist medical facilities bring merger & investment opportunities
COVID-19 has accelerated the decentralisation of healthcare away from bricks-and-mortar hospitals which provide the full suite of healthcare services to home telemedicine and specialist medical facilities. A McKinsey report predicts that the digital healthcare market in Asia could grow from US$37.4 billion in 2020 to over US$100 billion in 2025, with telemedicine followed by e-pharmacies being forecast as the biggest drivers of growth. [7]
Telehealth was considered experimental pre-pandemic but is now normalised in most Asian countries. COVID-19 has made many Asian patients reluctant to enter a hospital if it is not clinically necessary, and also shown that very often hospitals treatments are not necessary.
- Countries with limited healthcare resources: Fully digital telemedicine services are exploding into markets where traditional physical care is inadequate and there are almost always long delays (eg China and India) and experiencing significant growth in other immature markets and / or geographic challenges with large remote populations, such as Indonesia.
- Developed healthcare markets: In other developed economies with a stronger healthcare sector, which are not facing the same critical shortages of physical healthcare services (eg Singapore), there is evidence that many patients continue to favour physical services as their primary touchpoint. In these cases, telemedicine is not holistically replacing customary medical pathways but rather facilitating hybrid integrated treatment models involving both physical and online elements, including initial telemedicine consultations to provide preliminary medical guidance and better direct patients for further review and treatment.
Government attitudes and funding models were also obstacles to telemedicine before COVID-19, but one that quickly shifted.
- In Singapore, China and Thailand, telemedicine is broadly permitted, albeit in China the initial diagnosis is (at least according to the law) required to be in an in-person consultation.
- In Malaysia, doctors may treat existing patients by way of telemedicine.
- Indonesia and the Philippines currently have ‘temporary’ COVID-19 regulations which permit a broad range of telemedicine services - query if these laws will be rolled forward or ultimately made permanent.
- Taiwan and Vietnam remain the only Southeast Asian outliers limiting telemedicine – in the case of Taiwan, limiting telemedicine to specified geographically remote areas.
- In India the government led the world in government-led telemedicine services with its national telemedicine system called eSanjeevani.
- India and China also lead the world in the growth rates of e-pharmacy services. Similar to the position in relation to telemedicine, e-pharmacy is broadly permitted across Asia and India with the exception of Vietnam (where there is a lack of clarity on the position) and Taiwan. India has recently proposed new legislation which will seek to better manage its highly unregulated and burgeoning clinical trials and e-pharmacy industries. Currently reliant on pre-independence and pre-internet legislation from 1940, the draft law would for the first time prohibit Indian clinical trials and clinical investigations of drugs and medical devices without permission from the central licensing authority.
Bain Global Healthcare Private Equity & M&A Report 2022, citing data from Dealogic and AVCJ
Bain Global Healthcare Private Equity & M&A Report 2022
Data as at 2018 / 2010-2018 as per “Health expenditure" and "Trends in health expenditure and GDP per capita vary across countries: Average annual growth of health expenditure and GDP per capita 2010‑18", in Society at a Glance: Asia/Pacific 2022, OECD Publishing
McKinsey & Company, The future of healthcare in Asia: Digital health ecosystems
McKinsey & Company, The future of healthcare in Asia: Digital health ecosystems
National Health Commission of the PRC
McKinsey & Company, The future of healthcare in Asia: Digital health ecosystems
eSanjeevani was the first of its kind: an online telemedicine service offered by a national government to its citizens. eSanjeevani has two models – one bringing doctors together, another connecting them with patients:
- ‘eSanjeevani AB-HWC’ is a doctor-to-doctor hub-and-spoke model enabling virtual connection between a local community doctor and a doctor or specialist at a tertiary hospital.
- ‘eSanjeevani OPD’ model facilitating the full suite of medical services by doctors direct to patients. It is more comprehensive in the scope of services it provides than commercial telemedicine models in other countries.
Decentralisation of healthcare away from comprehensive physical hospitals has also resulted in a growing separation between specialist treatment facilities and ancillary healthcare functions on the one hand, and core hospital operations focused on inpatient care on the other hand.
- Treating patients that do not require inpatient care and monitoring in a hospital is comparatively costly when the required care can more cheaply provided in specialist medical facilities and day hospitals.
- Asian patients are also proactively seeking out specialist facilities, both because of the emerging reticence to long hospital stays described above and because they are demanding high quality post-acute care for chronic diseases, such as diabetes and cancer.
The move away from hospitals extends to ancillary healthcare functions. Demand for diagnostic imaging services and pathology services has increased significantly post COVID-19. These services require biological samples and other clinical information which in turn, are increasingly collected through remote facilities.
The growth of dedicated specialist treatment facilities and ancillary healthcare functions brings unique opportunities for private capital investors who can
- easily deploy the scale of capital needed to establish and grow medical facilities dedicated to a particular medical speciality,
- create opportunities for medical specialists to grow their practices and revenues within an institutional framework, freed from the time-consuming administrative burdens of operating a medical business, and
- consolidate smaller specialist medical facilities. Indeed, this pattern of growth and consolidation retraces the steps of Australia and other more mature markets where private capital investors have established and grown many successful specialised medical businesses such as Virtus, Icon Cancer Care and Abano dental.
Drug development and manufacture
COVID-19 highlighted significant opportunities in drug development, commercialisation and manufacture, especially development which benefits from government support (which also increased in response to COVID-19). According to a Bain report, biopharma deals in the Asia-Pacific (including Australia) totalled US$8.7bn in 2021, only slightly down on the peak in 2020 of US$8.9bn [8].
Widespread lockdowns, global supply-chain paralysis and ever-increasing supply and labour cost pressures during the pandemic, which have only accelerated in the current high inflation environment and in the face of the Russia-Ukraine war, have also brought intense focus on the ability to source and manufacture pharmaceuticals.
Many healthcare companies globally are deliberately diversifying their supply chains. With the majority of the active pharmaceutical ingredients in the world historically coming from China, global pharma companies are hunting for a critical second source, especially in India. This has seen a number of Indian pharmaceutical companies graduate from growth capital to global private equity capital. For example:
- In 2020, KKR bought a controlling stake in Indian pharmaceutical formulations manufacturer J. B. Chemicals & Pharmaceuticals Ltd.
- In 2021, Advent International bought a controlling stake in ZCL Chemicals, an Indian manufacturer of active pharmaceutical ingredients and advanced intermediates.
Please note that we have used external resources to contribute to the article.
