ADVOCACY: A view of the emerging markets healthcare sector

The right to health should not depend on the economic resources of a country. With products and services that are geared for emerging markets environments, China healthcare companies could help to bridge the gaps in health access and equity

BVCF Management was founded in 2005 with a focus in Greater China healthcare sector. BVCF has raised five funds with total assets under management of more than $700 million and investors from the United States, Europe and Asia. To date, BVCF has invested in 43 companies across different healthcare subsectors, which created more than 4,200 job opportunities. The BVCF team spent a substantial amount of time working with entrepreneurs to help them build a lasting organisation. Our base view is that two macro financial forces – continuous new company creation and global asset allocation demand – will continue to drive activities and interests in the emerging markets healthcare sector. However, we believe it is the social aspects that were accentuated by the Covid-19 pandemic that will change the dynamics of EM healthcare investments going forward (for good) – the urgency of global health infrastructure investments and the glaring gaps of global health access and equity. These are coupled with the increased awareness of better stakeholder accountability and the need to amplify R&D rewards beyond shareholders only. We remain positive on the private sector’s role in serving public health and appreciate the responsibility of private capital to be part of the solutions in building a resilient global health ecosystem.   

A defensive growth profile 

Broadly speaking, the enterprise value of a company reflects its underlying sales/net income potential. For healthcare companies, that ultimately means the health needs of individuals. Most investors understand healthcare is defensive – in other words, human health is independent of the economic situation. However, the healthcare sector in EM has an additional growth dimension; as countries build and modernise their hospital and treatment infrastructure, it leads to increased consumption of health services and products across all ages. There is often a fundamental under diagnosis and treatment in many EM countries. The shortage in services and products will continuously drive company creation. The EM healthcare sector presents a unique and highly attractive investment profile of defensive growth that differentiates it from its developed market peers. 

Furthermore, we are currently in a time of great scientific breakthroughs, research on mRNA, immunotherapy, and cell and gene therapy have all been validated with lifesaving products. The application of artificial intelligence and computing power to the process of drug development and disease management will continue to transform the way health and care are delivered to patients, as well as the healthy population. This excitement is global and especially meaningful to big population countries such as China and countries where basic health infrastructure is limited. Scientific breakthroughs always lead to active company creation, high capital demand and attractive investment opportunities.

Separately, there is a shortage of investible defensive growth market cap for global investors. For China healthcare companies, only those listed on non-China domestic exchanges such as the Hong Kong Stock Exchange are freely available to international investors. This translates to around $400 billion in investable market cap for China healthcare sector, which is approximately the market cap of Johnson & Johnson, the largest pharma company in the US. The rest of healthcare companies in emerging Asia, Latin America, Central and Eastern Europe, the Middle East and Africa have a combined market cap of around $600 billion, but many are listed on less liquid exchanges with currency risks. As a reference, the current total US healthcare market cap is around $6.5 trillion. While market cap is not the perfect reflection of sector value and part of the US healthcare market cap represents global consumption, it is not hard to imagine we are still relatively early in the growth process given that EM has more than ten times the population of the US. Global asset allocation need has and will continue to drive strong investor demand for high-quality EM healthcare companies.

Social aspects driving investments

Like many, we believe healthcare R&D investments can be globally beneficial and we believe in the possibilities of partnership among scientists and investors across different countries and backgrounds. However, while global R&D investments have led to many new technological breakthroughs, most of the benefits are being enjoyed in a limited number of countries. With the urgency of global health access and equity, technologies that are applicable globally rather than just in high-income countries should be the core emphasis of future R&D investments. The pricing and distribution models of products should not remain status quo but should consider equity and R&D rewards sharing going forward, though best practices are yet to emerge.

The right to health is unfortunately economic resources–dependent in many countries. We believe (and hope) there will ultimately be discipline among global health ecosystem participants to share regional and country experience in building health access and health delivery systems without the lens of politics. We observe many parallels in the development paths, needs and supply gaps of the healthcare sector in other countries and that of China’s healthcare sector. Most China healthcare companies are still domestically oriented with limited overseas sales. We see the potential for China healthcare companies to be technology out-licensers with products and services that are geared for EM environments. 

While we look forward to the exciting years ahead for EM healthcare, we should always remember the human aspects of healthcare investments. In the most fundamental sense, as healthcare companies transform from a few scientists to future giants, they will hire thousands of employees and the products they develop will save thousands of lives. We should also remember that if there is no capital available for these small healthcare companies, many drugs and technologies would never make it to market, many jobs would never be created and many lives would be left unsaved.