If you think HealthXCapital’s $25 million fund is a mere drop compared to larger vehicles targeting the Asian healthcare space – it is. Healthcare is awash with capital.
Sample this: Healthcare-focused private equity firm, Quadria Capital is raising $700 million for its second fund for emerging Asia. Singapore-based Altair Capital is targeting a $150 million maiden ASEAN fund covering healthcare, among other investments. China VCs like Quan Capital and Long Hill Capital are raising up to $300 million for their healthcare funds. Biotech and pharmas rule the exits with players like Wuxi AppTech and Tencent’s WeDoctor on track to launch HK IPOs worth over $1 billion.
But HealthXCapital is differentiating itself by occupying a space that no else is now. The Singapore-based healthcare fund is side-stepping the cash burners like genomics and biopharma to focus on devices, diagnostics and digital health. Why? Because disruption in emerging Asia doesn’t need to come in a big bang with fireworks.
HealthXCapital partner Seemant Jauhari said: “Someone asked me recently – are you interested in process efficiencies in hospitals? Of course we are. But have we taken care of the basic needs of people standing in queues? Or having people dispense pharmacy medicines in time? Improvisation will come later. The mature markets are trying to improvise and perfect processes, but we are still struggling with basic healthcare delivery and quality.”
That’s where the opportunity is for HealthXCapital. Jauhari stresses that he is looking for companies that target two key areas – accessibility and affordability. They are the same issues plaguing most of emerging Asia today.
According to World Bank statistics, healthcare expenditure in Southeast Asia and India stands at 4.7 per cent of GDP, compared to 9.9 per cent in Europe and 17.9 per cent in the US. The region also faces challenges in underdeveloped infrastructure, lack of affordable treatment, proactive healthcare and opaque data management.
Although Jauhari declined to share when he expects this fund to be fully deployed, he said, there is “definitely scope” for another fund. He added that deal flows are healthy and currently “in the hundreds”.
How did HealthXCapital come about, and what does this fund aim to do?
There is a huge gap between brick-and-mortar infrastructure, resources, and the demands of Asia’s healthcare system today. There aren’t enough doctors and hospitals to provide quality healthcare to all. The way we deliver healthcare is also very reactive. When you end up in hospital is when you end up in an adverse situation.
Another point is data. The health data which flows between all these transactions is very opaque. In some places, it’s electronically recorded, other times it’s just paper. The management of all those records, and process of creating patterns from them is very difficult.
That’s why technology is extremely important to disruption. What we need is a way that you can take healthcare to the people, not people to healthcare. We need to break that mindset of healthcare coming only from a brick-and mortar hospital or clinic. With technology, we can now bring healthcare closer to people. Take for instance, point-of-care diagnostics or monitoring patients in a critical condition. These can be served through consultations from doctors who may be sitting thousands of kilometres away. All of this can be done at a fraction of the cost. That’s what disruption looks like in my mind.
You’re an Asian focused fund. But is there really an Asian focus to all this? It sounds to me that healthcare needs are pretty universal whether it’s Asia, the US or Europe.
The problems in this region are quite different from problems in the West. You have to create good outcomes and quality. If you look at emerging markets, access to healthcare is practically not there for a large mass of people. You also have the affordability bit of it. There are lots of people who can’t afford high quality healthcare. We need to find solutions that sit in-between, without compromising on quality while delivering in an accessible and cost-efficient way.
The American healthcare system is a fairly expensive way of doing it. Everything is insured. In India, there are about 20 to 25 per cent who are insured. The rest will have to pay out of their own pocket. That means that in order to get yourself medically treated, you have to be prepared to spend.
I believe there are special situations where you can make healthcare more accessible and affordable. That’s why we are looking at technologies that are high on innovation and impact potential.
But not everyone finds healthcare to be affordable in the US. There are many in the US who are uninsured simply because the cost of insurance is so high. What’s the key difference then?
Yes, but here in emerging markets, it’s basic healthcare we’re struggling to deliver.
Someone asked me recently – are you interested in process efficiencies in hospitals? Of course we are. But have we taken care of the basic needs of people standing in queues? Or having people dispense pharmacy medicines in time? Are we making sure that the quality of outcomes is at a global standard?
I think improvisation will come later. The mature markets are trying to improvise and perfect processes, but we are still struggling with basic healthcare delivery and quality.
And that’s where the gap is.
It’s huge. Take the villages in Indonesia and India. There are women who don’t do pap smear checks because there aren’t any labs or mammograms. Today’s technology allows you to do screenings with portable devices backed by artificial intelligence. Even in a poorly equipped area, you can upload your findings onto the cloud, get someone sitting far away to look at it and come back with a red flagging mechanism saying you need to go for further consultation at the nearest hospital. This is one example of making a screening possible before it turns into a cancer that is too late to treat.
One of our first investments was a point-of-care diagnostic. It addresses both access and affordability. Within three minutes, you can get a result on your sugar and lipids levels directly at the point of care. If something is wrong, you get a follow up consultation by the doctor right there and then.
In the past, clinics will have to send samples to an external lab to get this done. Today, all this can be done during the same time and visit, which makes so much more sense for a small clinic. You don’t have to make repeat visits to search around for the health problem.
What about areas like bio-med and drug discovery? Any interest to get into those areas?
We look at diagnostics, devices and digital health and that’s a fairly wide canvas. We’re not looking into pharmaceuticals, genomics, genetics and biotech. Our fund is still early. It’s also due to our competence which is around devices, diagnostics and digital health.
And for you to want to launch a healthcare focused fund now, you must be seeing enough deals. When did you start seeing this shift?
It’s been building for the last decade I would say, but it is reaching a tipping point of sorts right now because of the global connectivity. There is a faster emergence of startups in healthcare and if you see that’s been leading to a critical mass. I think this is the right time to cultivate that and harness the opportunity to give a few of these startups a chance to become impactful and successful commercially.
How many deals are you looking at currently?
We have a very deep pipeline. It’s in the hundreds. We will be able to invest in about 10 to 12 companies and do some follow-on rounds. The fund tenure will be 5 to 7 years.
We’re going in early, post-proof of concept, Series A. Our ticket sizes will be $500,000 going up to $3 million, but our sweet spot will be $500,000 to $2 million.
We’ve closed almost three deals. Two are public. One isn’t yet, but will be public in the next month or two. If we’re lucky, we should have four deals by the end of this year.
How quickly do you foresee yourself deploying this completely?
I can’t time it, but I definitely think there’s scope to do another fund.
Where do you see most of your deal flows coming from?
It’s an Asia fund so we’re looking at deals in South and Southeast Asia. We will opportunistically look elsewhere if we think that the companies are extremely applicable to Asia.
How do you plan to deploy your capital?
Our criteria for picking out startups is number one – it should be high on innovation and high on impact. Two, it should be applicable to emerging Asia and cover core aspects of accessibility and affordability. Three, they should be clinically validated by our partner networks. Lastly, it should also have proven some kind of monetisation model. We’re looking at companies which have crossed a certain level of rigour.
In other words, you won’t be looking at pre-series A companies then?
Our sweet spot is Series A. We may opportunistically be looking at pre-Series A as well. I would look at a company with trickles of revenue as well but has proven themselves to be able to monetise. Those companies really need help and that’s not there in emerging Asia.
The healthcare sector comes across as being fragmented across multiple stakeholders such as governments, private healthcare providers, research institutes and insurers. Is it correct to say that you want to be able to bring everyone together?
Yes, connecting the dots is a big problem in this sector. Synergies flow when you connect these dots. I do feel insurers have a larger role to play here. We can be that glue that can bring this system together for the benefit of the startup.
What about the philanthropic foundations? Do you work with any of them in Asia?
We do, but we are not at liberty to mention who and what we do with them.
When you talk about this funding gap in healthcare – is this a result of a fragmented ecosystem that’s not enabling this expenditure? Or is this a function of poor governance? What is the real reason?
I think its a multitude of factors. One is the paying capacity of the individual itself. In developing countries, you don’t go unless you are adversely affected by an event. As a result, the share of expenditure on healthcare is still very minimal. You will go to a movie, but you won’t go to a doctor.
The second is – infrastructure. How many beds do you have versus the number of patients you have. We woefully fall short in that metric. That asymmetry of resources and infrastructure will always be there. It’s always going to be playing catch up, and we’re not creating enough hospitals. If we create enough hospitals, we are not going to have enough doctors, because the gaps are so huge and the needs are growing so fast.
How will you measure success for your companies? You mentioned a lot on ‘impact’ which I imagine will mean the number of people reached or using a device. Do you have a metric or form of measurement?
I think first and foremost we’re investors, so we look at the financials and the commercial success of the startup. In my opinion, commercial success for any startup will not happen unless you’re closing the loop with the patient. If you’re creating impact, we will immediately know whether this will be adopted through our clinical evaluation. This is the kind of foresight we get because of our domain experience and partner network. If we don’t see that, the commercial model may fail. There may be early adopters for an idea, but it may peter out along the way and this happens very often to a lot of startups we see. Many of the health-tech startups we see can’t foresee this pattern or whether their idea will be adopted by doctors.
How patient does capital have to be in the healthcare sector?
There are different types. If you look at digital health which includes software, data and analytics, that has a slightly shorter gestation time. Diagnostics takes slightly more time, 2 to 3 years. Medical devices will take 5 to 8 years and more, depending on what you’re trying to solve. Then you have the drugs space, which will take 12 years and above. This is how the system is. We are looking at the first three.
If you look at med-tech alone, there are two kinds. One is more capital intensive, which will cover CT scans. The other is the one we’re focusing on – smaller, connected devices which will take healthcare closer to people. These are connected devices, not dumb devices. This is where data comes in, where it can be predictive as well. Once we close the loop by giving it to doctors to make a diagnosis, outcomes can improve for patients.
It has to be very scalable as well.
That’s the thing. Closing the dots in the ecosystem is one thing, but closing the dots in terms of deployment is another. We’ve learned it the hard way. We’ve seen lots of great ideas come in, and lots of excitement around them, But we have to look very closely at how it places itself in the clinical pathway, and whether it will be adopted, as well as how it adds value to what people are already doing.
Is getting government buy-in a challenge for you as well? They are a significant stakeholder for your sector and healthcare is an important public need.
To be honest, I think they have every right to be cautious. You don’t want some optimal innovation coming in, getting rolled out to the masses and not be that impactful which then adds to cost. If there’s a chance of an adverse event happening to a human being, we have to be that much more careful. It’s a life that we’re impacting. That’s why this sector needs more people who are knowledgeable and aware of what’s happening in this sector.