Updated: Mar 23, 2021
Healthcare investment: Recession-resistant and superior historical returns
Specialization has become the trend, as the market for deals becomes more competitive every day. Specialized funds provide investors with an aggregated pool of industry experts in the specific sector, which means better returns, assets and networks. In the current market, about half of sector-specific funds are dedicated to healthcare and technology. In addition to their superior growth and returns, healthcare sector is the most attractive to LPs especially in times when fears of an economic downturn are prompting investors to look for cover. Healthcare offers the holy trinity of strong growth, recession resistance and superior historical returns. In the current cycle, healthcare PEs have returned $2.5 for every $1 of invested capital on a gross pooled basis (as indicated by the figure,) which outperformed every other sector including technology.
Outlook for healthcare landscape in China, 2020
Boost in healthcare spending and momentum: from 2019 - 23, global healthcare spending is expected to increase at a more robust compound annual growth rate (CAGR) of 5%, up from 2.7% in 2014 - 18. Many regions are expected to see average spending growth accelerate in the forecast period, with the largest annual increases in the Middle East/Africa (7.4%) and in Asia (7.1%).
Healthcare systems in financial distress: healthcare systems around the world are encountering financial problems, and China’s national healthcare system is of no exception. China’s medical insurance fund’s expenditure growth has exceeded income growth in 2018, as it is burdened by the slowing economy and the increasing elderly population. This financial distress is only exacerbated by the COVID-19 crisis, as people are facing more health risks at the moment. This issue is urgently demanding solutions from both private and public sectors.
Chinese consumers: Chinese consumers are becoming more discerning and value-conscious; they expect personalization, convenience, and quality in their healthcare services and purchases. Private healthcare firms around the world will see a window of opportunity, as these consumers, many of which are emerging middle class, will demand more services outside of the national healthcare system can offer and be more willing to spend on personalized and high-quality solutions. In the face of COVID-19 crisis, the overall health-awareness and willingness to spend are expected to increase over the next few years.
Regulatory landscape changes: to mitigate the financial distress of healthcare system, China’s State Council has carried out certain policies including a centralized drug procurement program in 2019, which will reduce the cost of drugs in medical insurance. This program will allow the state to purchase drugs in bulk, which in turn reduces the unit cost of each prescription. We expect similar programs to be rolled out in the near future.
Key takeaway: What does this mean for you and us?
China has the largest emerging middle class with an unprecedented need for better healthcare solutions; meanwhile, the Chinese government is working closely with the private sector to provide its citizens with a healthier life. This changing landscape poses great opportunities for our investors, and we at Bridge Point Capital are dedicated to understanding and analyzing these trends:
As we expect government programs similar to the aforementioned drug procurement program but dedicated to MedTech would emerge in the near future, this poses a great window of opportunity for MedTech companies in our portfolio to commercialize in China(as figure 4.2 shows the market potential for MedTech in China.) Programs like this mean stable and large purchase orders of equipment from the government. Although the price margin will slightly shrink, it nevertheless is more profitable because the contract will potentially serve a client base of 1.4 billion people.
Our focus on tech-savvy healthcare solutions is also in coherence with China’s promoting of an “Internet Plus” concept within the country’s healthcare sector, as nearly 100% of tertiary hospitals and around 80% of primary and secondary hospitals have health information systems, and they are generating real-world data for multiple government health care reform policies such as Diagnosis Related Group (DRG) payments and drug efficiency expansion. Our portfolio companies’ advanced technology, when combined with the expertise of commercialization in China we offer at Bride Point, is expected to garner momentum and interest in the Chinese market and to eventually realize gratifying returns for our investors.
In this changing landscape, our firm is dedicated to analyzing and utilizing the pattern and is equipped with experts in healthcare industry and on China to capture these opportunities that could provide our investors with historical returns on investments. We are well-positioned to achieve this goal with reduced risk and higher liquidity by injecting growth capital into late-stage venture-backed healthcare companies while also capitalizing on China’s robust healthcare demand for the U.S’s advanced technology to strategically create value for our portfolio companies.
 Deloitte Insights: 2020 Global health care outlook, pg.2  Dean Koh, “IT investment in China’s hospital system estimated to reach 65.7 billion yuan in 2020,” Healthcare IT News, November 30, 2018.