Quadria Capital Booklet-23 · The nascent healthcare market in Asia is set for spectacular growth,...
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QUADRIA CAPITAL THOUGHT LEADERSHIP ASIAN HEALTHCARE A New Centre Of Gravity QUADRIA CAPITAL
Transcript of Quadria Capital Booklet-23 · The nascent healthcare market in Asia is set for spectacular growth,...
QUADRIA CAPITAL THOUGHT LEADERSHIP
ASIAN HEALTHCARE A New Centre Of Gravity
QUADRIA CAPITAL
Our mission at Quadria Capital is to produce superior investment returns for our investors and to make positive developmental impact on local communities. To accomplish this, Quadria Capital’s investment strategy follows four fundamental principles that have driven the excellence of the firm.
INTRODUCTION
A NEW CENTRE OF GRAVITY
PRIVATE SECTOR LEADING THE WAY
HEALTHCARE DELIVERY
LIFESCIENCES
MEDICAL TECHNOLOGY
ASSOCIATED HEALTHCARE SERVICES
CREATING A POSITIVE IMPACT
INVESTING IN GROWTH
Value Added ApproachFocused Strike Zone Positive Social Impact
Our investments are focused on the fast growth healthcare sector in South and Southeast Asia. The strategic backdrop of our region is a dynamic private sector, supported by strong demographic momentum, improving macroeconomic fundamentals and an encouraging investment and regulatory environment. We focus on healthcare companies that have the potential to emerge as regional leaders.
Our investment approach is “inspired ownership”. We act as meaningful strategic investors and not just as financial sponsors. Quadria Capital seeks meaningful stakes to mitigate risks and to drive tangible value creation. We aim to create value via our healthcare industry operating knowhow and the use of proprietary methodologies to prioritize key value drivers in our investments.
As a healthcare investor, we believe that our investment decisions have the power to create an enormous and meaningful positive impact on our shareholders, portfolio companies and their local communities. By delivering high quality, affordable healthcare to those that need it the most, Quadria
aims to make a transformative social impact beyond superior financial returns.
Capital
3
5
11
15
19
23
27
29
33
Knowledge Based Investing
Quadria Capital’s investment philosophy is a sector-based, fundamentals driven approach. We strongly believe that to achieve superior returns, it is critical to understand the local, regional and global fundamentals of the healthcare industry in which we invest. Our healthcare expertise enables us to proactively source some of the best investment opportunities and to create meaningful value in our investments.
ABOUT QUADRIA CAPITAL TABLE OF CONTENTS
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1. INTRODUCTION
Asian Healthcare: Opportunities In The New Equilibrium
Countries in South and Southeast Asia account for approximately 31% of the world’s population and 40% of the world’s disease burden, yet command only 5% of the global healthcare expenditure.
Yet, by the end of this decade, healthcare expenditure in Asia will surpass that of the U.S. and Europe currently. Sustainable growth rates in the Asian healthcare industry will continue to exceed 15% per annum. These catalysts place Asia as the new Centre of Gravity for the future of the global healthcare industry.
Driven by increasing population, rising income levels and prevalence of chronic diseases, the explosive growth in demand for healthcare in the region is placing severe pressure on existing healthcare infrastructure. Equally, the natural comparative advantages for healthcare provision in Asia - including access to low cost raw materials, manufacturing, research and development as well as abundance of skilled labour - have created a significant opportunity for local companies to emerge as regional and potentially world leaders.
In response to these opportunities and challenges, governments in Asia seek to attract private capital into the healthcare system to increase the efficiency of healthcare, to meet the increasing capital requirements for new and upgraded healthcare
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systems and to reduce the growing strain on public resources. For investors, this creates a continuing opportunity to unlock superior investment returns in a fast growth yet defensive healthcare industry.
These market dynamics form the catalyst for Quadria Capital’s Asian Healthcare Fund. By harnessing these market forces, Quadria Capital seeks to create superior investment returns whilst becoming a critical platform for long-term, sustainable provision of healthcare. We will achieve this through a returns oriented investment strategy that promotes the development of the private sector. Quadria Capital believes that harnessing private capital and a market orientation can bring efficiency to healthcare provision while delivering high quality, affordable healthcare to those that need it the most.
Quadria Capital believes that its goals of both “doing good” and “doing well” are not just compatible but in fact mutually reinforcing. By integrating a consideration of environmental, social and corporate governance impact into investment decisions and portfolio company management, Quadria Capital aims to make a positive, transformative impact on its shareholders, portfolio companies and their local communities above and beyond significant financial returns.
INTRODUCTION
Robust Fundamentals Predictable, Fast Growth
are creating a
yetinvestment environment
Defensive
Asia, home to people 4.2 billion
Asia’s GDP growing at outstripping
OECD growth rate of
1 8% annually, 2%
Asian healthcare industry growing even faster at 2c. annually 15%
By 2020, Asian healthcare expenditure will reach
surpassing U.S. and Europe currently
3
US$3 trillion,
Yet Asia spends an average of per capita 4on healthcare vs. in U.S.
only US$164 US$7,164
Healthcare is the largest component of U.S. government spend 5at Asia average government spend is 20% only 8% ; in
1South and Southeast Asia GDP2Projected growth rate based on 11 Asian countries that include China, , India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam
Hong Kong the
3Asia Pacific healthcare expenditure 4South and Southeast Asia per capita healthcare expenditure 5South and Southeast Asia average government spend on healthcare as percentage of GDP
Population And Demographic Change
The sheer size of the population in Asia renders it a market with strong potential for growth. With a population of almost 4.2 billion and severe gaps in the supply of adequate healthcare, Asia presents a large consumer base that can be tapped by private healthcare companies.
Asia is also characterised by higher population growth rates than most other regions in the world. According to IMF estimates, population in South and Southeast Asia will have a compounded annual growth rate of about 1.4% - higher than the world average of 1.1% - bringing the regional population to more than 2.3 billion by 2016 and placing further strain on the healthcare infrastructure.
Proportion Of Population Aged 60 And Over
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1950 1975 2000 2025 2050
World Asia
Source : Economic and Social Commission for Asia and the Pacific (UNESCAP), 2009
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2. A NEW CENTRE OF GRAVITY
Global Centre Of Gravity For Healthcare Shifting From West To East
As the new century unfolds, a new global industry reality in healthcare is emerging. As Asia’s economic progress blazes forward, its spend towards healthcare is increasing exponentially.
Whilst healthcare growth in the developed economies has slowed, growth in the emerging markets - particularly Asia - has been robust. For example, whi le the U.S. and European pharmaceutical market growth has slowed to c.1.8%, the Asian market is growing at c.13.7% and is anticipated to reach US$738 billion by 2020 – surpassing the pharmaceutical market size of Europe and the U.S. combined.
Not only does Asia enjoy dynamic growth fundamentals that form the bedrock for a strong and sustainable healthcare industry, Asia is also home to intrinsic advantages for a thriving healthcare industry, including access to low cost raw materials, low cost manufacturing, low cost research and development and a well-educated pool of scientific and medical talent.
Asia’s comparative cost advantage is a key factor for the establishment of the new Centre of Gravity in global healthcare – for instance, with the cost of clinical trials in India at one-tenth of the regulated markets and manufacturing costs at half of the developed countries, international and regional healthcare companies alike are establishing hubs in Asia for cost advantages and economies of scale.
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The nascent healthcare market in Asia is set for spectacular growth, driven by the large and rapidly growing population, rising middle class with increasing disposable income, greater awareness of health and preventive care, increasing incidence of chronic diseases and the political will for reform.
Key Drivers Of Healthcare Demand In Asia
Fast Growing Economies of Asia Vs. The World
Despite the global economic slowdown and financial crises, Asia continues to grow at a faster pace – for instance, GDP in Asia is anticipated to grow at an average of 8% vs. GDP growth of 3-4% for U.S. and Europe.
As a defensive sector typically immune to global economic downturns and financial turmoil, the healthcare sector continues to be a bright spot for growth across Asia. For example, the average real growth in health expenditure per capita across Asia of 6% is well above the OECD average of 4%.
Source: OECD
Annual Average Real Growth In Per Capita Health Expenditure (1998-2008)
5
Caring For More Than A Billion
A NEW CENTRE OF GRAVITY
6Asian pharma market includes China, India, Japan, South Korea, Hong Kong, Taiwan and Southeast Asia
12.0%
10.0%
8.0%
6.0%
4.0%
0.0%
2.0%
9.7%
Vie
tnam
9.1%
Cam
bo
dia
7.0%
Ban
glad
esh
6.9%
Mal
aysi
a
5.0%
Thai
lan
d
5.0%
Sri L
anka
4.6%
Ind
ia
3.7%
Ph
ilip
pin
es
3.0%
Ind
on
esia
2.7%
Lao
PD
R
2.4%
Sin
gap
ore
0.4%
Paki
stan
4.1%
OEC
D A
vera
ge
Underserved Region With Growing Healthcare Needs
While Asia has never had a shortage of patients given its large population base, rising affluence and increasing disposable income have further increased the pool of patients with the ability to pay for healthcare. Demand for quality healthcare services already far exceeds supply in Asia, and the healthcare system will be hard-pressed to keep pace with the rapidly expanding population demanding reliable, high quality healthcare services.
Healthcare expenditure has become an urgent priority in Asia where the most basic healthcare benchmarks are significantly trailing those of the developed economies. Asia currently spends on average c. US$ 164 per capita on healthcare, far less than the global average of US$ 899 per capita spend on healthcare.
This significant underspend has translated into an aging, under-developed and over-stretched healthcare system across Asia. The number of physicians per thousand stands at 0.6 in India as compared to 2.7 in the US and the UK; India and Indonesia respectively have 9 and 6 beds per 10,000 population versus 31 in the US, 34 in the UK and 36 across upper middle income countries.
(PPP) (PPP)
Lifestyle Changes Leading To Chronic Diseases
As Asia becomes more urbanised and more affluent, the incidence of chronic diseases is rising due to lifestyle changes.
Lifestyle diseases require recurring medical treatment leading to higher healthcare and pharmaceutical expenditure. In particular, the incidence of chronic diseases such as diabetes, obesity, hypertension, cardiovascular and cerebral diseases are on the rise. In India, Type 2 diabetes, a disease highly correlated to unhealthy lifestyle choices, accounts for 85 – 95% of the total diabetes population. There are a staggering 50.8 million diabetics in India, and the International Journal of Diabetes in Developing Countries has dubbed India the Diabetes Capital of the World. South and Southeast Asia also face an epidemic of chronic non-communicable diseases, now responsible for 54% of deaths in the world. This growth rate is likely to increase as purchasing power increases and stress levels rise due to the growing urban population.
Favourable Regulatory Landscape
Given the robust demand growth, governments in Asia are actively looking at ways to boost private sector participation in healthcare services. Singapore, India, Malaysia, Brunei and Indonesia have been most proactive in this regardby providing concrete incentives to attract private investment such as reimbursements for a minimum number of patient visits to private hospitals. They have also engaged private players to manage public facilities and reimbursed patient treatments.
Population (million)
Population Density
(People per 2km )
Urban Population (% of Total Population)
Adult Literacy Rate (%)
Life Expectancy,Both Sexes
(years)
Life Expectancy,
Women(years)
LifeExpectancy,
Men(years)
Population Aged 65 Years or Older (%)
Total Fertility
Rate(children
per woman)
InfantMortality
Rate(deaths per 1,000 live births in
2010)
Brunei 0.4 66 72% 95% 76 80 75 4% 2.05 6
Singapore 5 7,022 100% 94% 81 83 78 9% 1.26 2
Malaysia 29 86 68% 92% 72 77 72 4% 2.51 5
Thailand 64 132 36% 94% 70 72 66 7% 1.82 9
Philippines 96 307 63% 93% 71 74 70 4% 3.03 21
Indonesia 240 128 43% 92% 68 73 69 6% 2.13 30
Vietnam 89 263 28% 90% 72 76 72 7% 2.03 11
Laos 7 27 27% 73% 61 66 63 4% 3.42 49
Cambodia 14 82 15% 76% 61 63 59 3% 2.86 50
Myanmar 50 74 31% 90% 56 63 59 5% 2.28 42
Source: IMF, Population Reference Bureau, UN, WHO, The Lancet
Demographic & Health Indicators
8
Towards Greater Access, Efficiency And QualityHigher Healthcare Risks Leading To Greater Demand
A NEW CENTRE OF GRAVITYA NEW CENTRE OF GRAVITY
Source: WHO, IMF, OECD
7
Healthcare Expenditure Vs. Population
Hea
lth
Sp
end
Per
Cap
ita
(US
$, P
PP
)
GDP Per Capita (US$, PPP)
2000 4000 6000 8000 10,000 12,000 14,000 33,000 36,0000
300
250
200
150
100
50
0
350
400
3300
OECD Average
Size of the bubble reflects size of population
India
Laos
Cambodia
Bangladesh
Vietnam
Philippines
Indonesia
Thailand
Malaysia
Growing Supply Of Healthcare
Source: IMF, Frost & Sullivan, CIA World Factbook, WHO
Economic Growth In Asia
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Intrinsic Competitive Advantages Driving Sustainable Growth Global Centre Of Gravity For Healthcare Shifting West To East
Comparative Advantage Of Asia
The high demand and Asia’s comparative advantages have prompted an increasing supply of high quality healthcare. For example, 38% of India’s bulk drug production is exported, and is growing at c.10% per year. The quality of hospitals has risen to international standards – India now has 16 Joint Commission International (JCI) accredited hospitals, Thailand has 15 and Singapore has 13. Merck has set up a major packaging facility in Indonesia citing attractive opportunities in Asia due to economic growth, increasing purchasing power and consumption of medicines.
All along the value chain, more companies in Asia are emerging to supply healthcare services to meet the escalating regional and global demand.
Compared to the rest of the world, Asia’s advantages include the following: • Access to low cost active pharmaceutical
ingredients• Access to low cost research, development and
manufacturing• Well-educated pool of scientific and medical
talent• Large number of U.S. Food and Drug
Administration (FDA) - approved facilities• Intellectual property legal framework that
conforms to World Trade Organisation patent standards
Perhaps the most pronounced comparative advantage in Asia is cost. In India, for instance, clinical trial costs are one-tenth, R&D costs are one-eighth and production costs are one-half as compared to the West.
Asia also has access to a high quality, lower cost skilled workforce. India, Malaysia and Pakistan have world class medical institutions which produce specialists in a wide range of medical fields. The growth in medical schools coupled with the large, low-cost skilled work force creates a strong opportunity to tap the local talent pool.
Increasingly, regional and international companies are setting up operations in Asia to benefit from the region’s natural advantages.
A NEW CENTRE OF GRAVITY
Asia’s sectorhealthcare is uniquely positioned for significant
Country
India
Indonesia
Thailand
Malaysia
Philippines
Vietnam
Pakistan
Hong Kong
Singapore
Bangladesh
Sri Lanka
Nepal
Cambodia
Bhutan
Laos
7Total
U.S.
U.K.
Brunei
8Average
A NEW CENTRE OF GRAVITY
7Total South and Southeast Asia8Average South and Southeast Asia
Population
in mn
1,207
240
64
29
96
89
175
7
5
167
21
28
14
1
7
2,152
313
63
0.4
NM
GDP (2011)
(PPP USD bn)
4,470
1,123
623
448
394
300
489
350
315
283
115
38
33
4
17
9,027
15,065
2,254
21
531
GDP (2011)As % of
World GDP
5.67%
1.42%
0.79%
0.57%
0.50%
0.38%
0.62%
0.44%
0.40%
0.36%
0.15%
0.05%
0.04%
0.01%
0.02%
11.45%
19.10%
2.86%
0.03%
0.67%
Per CapitaHealthcare
Spend (2008)
(PPP USD)
122
91
328
621
129
201
62
1,841
1,833
44
187
66
118
263
84
NM
7,164
3,222
1,131
164
GDP (2016)
(PPP USD bn)
6,919
1,643
833
603
529
443
647
467
407
412
166
48
49
7
27
13,232
18,251
2,670
26
778
GDP (2016)As % of
World GDP
6.69%
1.59%
0.81%
0.58%
0.51%
0.43%
0.63%
0.45%
0.39%
0.40%
0.16%
0.05%
0.05%
0.01%
0.03%
12.79%
17.63%
2.58%
0.02%
0.75%
5.75%
GDP CAGR(2011-2016)
9.13%
7.91%
5.99%
6.15%
6.07%
8.16%
5.90%
5.24%
7.81%
7.61%
4.89%
8.35%
10.54%
8.76%
NM
3.91%
3.45%
3.82%
7.95%
Per CapitaHealthcare
Spend (2008)
(PPP USD)
122
91
328
621
129
201
62
1,841
1,833
44
187
66
118
263
84
NA
7,164
3,222
1,131
164
Per-Capita GDP (2011)
(PPP USD)
3,703
4,668
9,693
15,579
4,111
3,355
2,792
49,189
59,937
1,697
5,609
1,328
2,286
6,020
2,659
NM
48,147
35,974
49,518
4,194growth growth
3. PRIVATE SECTOR LEADING THE WAY
Bridging The Gap In Healthcare Needs In Asia
Asia faces significant challenges in funding its healthcare needs. As compared to OECD countries that are expected to increase their healthcare expenditure from 10% of GDP to 14% by 2020, emerging nations in Asia face a steeper hike as they strive to reduce infant mortality rates, increase life expectancy and combat acute diseases.
Rapid population growth, an ageing population, increasing affluence and rising incidence of chronic diseases will further strain the already over-stretched public healthcare system and require additional healthcare expenditure. The global economic downturn has further exacerbated the situation by limiting available funding for investments.
Currently, healthcare expenditure in Asia is not even half that of the OECD countries, with the lowest spenders - Indonesia and Brunei - investing just 2.3% of GDP on the health of their citizens. Going forward, healthcare expenditure in Asia and the developing economies will outpace GDP growth and likely double over the next decade.
Despite the significant need for financing, companies in the healthcare industry in Asia generally face significant funding constraints, including:
• Bank borrowing. As Banks typically prefer lending to mature companies, smaller and younger companies face high borrowing costs and difficult loan conditions, including personal guarantees, excessive collateral, and immediate commencement of loan repayments.
• Debt-to-equity ratios. Banks monitor debt-to-equity ratios strictly, and equity is often a precondition for loan disbursement.
• Public offerings. A public listing is no guarantee of liquidity, and a premature IPO can bring the burden of compliance with listing regulations without the associated listing benefits.
For small to medium-sized healthcare companies in Asia that are in the phase of rapid expansion, have limited access to debt markets and are not yet ready for public equity, private equity can be the ideal source of growth capital, as well as an invaluable source of operating expertise and sponsorship for future rounds of financing.
Unlocking Value In The Changing Environment
Despite the increasing government expenditure on healthcare, the requirements for financing the healthcare industry are enormous and will require leadership and active participation by the private sector.
For example, as per the Indonesian Chamber of Commerce, the private sector constituted only 10% of healthcare providers in 2011. Over the next 30 years, the private sector is expected to contribute around 60% of public health spending in Indonesia.
With the private sector leading the way, governments in Asia continue to assist in attracting private capital into the healthcare system to increase the efficiency of healthcare, meet the increasing capital requirements for new and upgraded healthcare systems, and to reduce the growing strain on public resources. This is also expected to accelerate the emergence of global industry leaders from Asia.
PRIVATE SECTOR LEADING THE WAY
Asia is home to some of the fastest growing economies in the world and is fairly compact with interconnectivity and existing trade linkages. It is fast emerging as a favored destination for private equity investments.
The healthcare sector is particularly attractive because of its strong fundamentals and high growth rates. The healthcare sector has grown significantly in importance with its global buyout deal count expanding 4 times, more than any other industry sector.
Healthcare private equity returns have also been robust - for example, healthcare PE returns in India have outperformed other sectors at a median IRR of 25.8%.
4.5x
4.0x
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
4.0x
3.7x
3.2x
2.9x
2.6x
Hea
lth
care
Ener
gy
Rea
l Est
ate
Co
nsu
mer
Tech
no
logy
Source: Bain Research
Growth In Global Healthcare Buyout Deals Exceeds Other Sectors
Private Equity Capital To Address Current Funding Deficiencies In Asian Healthcare
Golden Opportunity For Asian Healthcare Private Equity
1211
Total Health Expenditure (% of GDP) (2008)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
U.S
.
U.K
.
OEC
D A
vera
ge
Vie
tnam
Cam
bo
dia
Nep
al
Mal
aysi
a
Ind
ia
Sri L
anka
Thai
lan
d
Lao
PD
R
Ph
ilip
pin
es
Ban
glad
esh
Sin
gap
ore
Paki
stan
Bru
nei
Ind
on
esia
15.2%
8.7%
9.9%
7.2%
5.7% 6.0%
4.3% 4.2% 4.1% 4.1%4.0% 3.7%
3.3% 3.3%
2.6%2.3% 2.3%
Source: WHO, OECD
PE Returns Across Sectors In India (1999-2010)
Source: KPMGSource: WHO, OECD
Healthcare Expenditure Per Capita And Gap With OECD Average
Health Expenditure per capita (US$, PPP)
Gap With OECD Average (US$, PPP)
2,5001,5001,0005000 3,0002,000
2,644621Malaysia
328 2,937Thailand
44 3,221Bangladesh
122 3,143India
201 3,064Vietnam
129 3,136Philippines
91 3,174Indonesia
118 3,147Cambodia
84 3,181Laos
3,500
Med
ian
IRR
Engi
neer
ing
29.2%
Ener
gy
16.9%
Man
ufac
turi
ng
11.8%
Hea
lthc
are
25.8%
Average 7.7%
Fina
ncia
l
6.9%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
28.0%
32.0%
Taking Advantage Of Robust Fundamentals
Investing in Asian healthcare allows investors to hedge against economic recession associated risks given the inherent recession-resistant characteristics of the sector. The Asian economy shows strong fundamentals ideal for growth and relative resistance to global economic shocks. According to IMF’s 2011 World Economic Outlook, developing Asia continued to grow most rapidly exceeding growth in all other regions.
Healthcare is uniquely characterized by high involvement, high stakes consumption which is not driven directly by the consumer. As a result, there is little short-term demand elasticity in relation to prices. Healthcare project economics, therefore, are typically non-cyclical and relatively less affected by short term macroeconomic fluctuations.
With strong underlying fundamentals driving the defensive industry, healthcare growth rates have outstripped GDP growth significantly. It is anticipated that these growth drivers will continue to drive significant expansion in healthcare over the next decade.
13
Asian Healthcare: A Defensive Sector In Recession Resistant Markets
PRIVATE SECTOR LEADING THE WAY
14
PRIVATE SECTOR LEADING THE WAY
Healthcare Delivery: Poised For Phenomenal Growth
HEALTHCARE DELIVERY
15 16
4. HEALTHCARE DELIVERY
Given the large population, under-resourced healthcare systems and geographic spread, provision of basic medical services has been challenging, particularly in the rural areas. India, Indonesia and Philippines have adequate healthcare delivery in the major cities, but lack coverage in the rural areas.
Lifestyle changes have resulted in an increased incidence of “developed world” diseases such as hypertension, cancer and diabetes. As such, healthcare systems are faced with unprecedented, dual challenges of addressing basic health needs and “developed world” diseases.
Although Asia grapples with policy dilemmas over funding, resource allocation, the balance between public vs. private provision and expensive universal healthcare coverage, private players have been quick to find innovative solutions including the use of mobile technology and creative business models such as hub and spoke systems.
The healthcare delivery sector in South and Southeast Asia is poised for exceptional growth. The Asian healthcare delivery market was c. US$120 billion in 2011 and is expected to grow at a CAGR of 15.3% to more than double its size to reach c. US$244 billion by 2016.
While healthcare delivery traditionally includes a wide range of services including primary, secondary and tertiary/quaternary care facilities, the sector has recently evolved towards sub-specialisation (facilities that provide highly specialised care). The sector also includes independent diagnostic centres and medical management companies.
Governments in Asia are increasing funding for public insurance programs for lower income populations while the growing penetration of private insurance is fueling the demand for healthcare by middle to high income populations. In effect, the increased demand for healthcare from both poor and rich segments of the society will further aggravate the demand-supply gap.
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Delivery Models Refined, Competencies Defined
Bifurcation Of Premium And Mid/Low Tier Facilities In The Urban Healthcare Delivery Market
The urban cities, particularly Metro/Tier I cities in Asia have fairly well developed healthcare infrastructure. These cities boast of hospitals and other medical facilities that are on par with their counterparts in the West.
However, these hospitals primarily cater to patients seeking high end care and are able to pay a premium. These hospitals provide highly specialised care and are well positioned to benefit from the rise in chronic diseases in Asia. The major revenue drivers for these hospitals are complex procedures and long term treatment of chronic diseases that are more costly.
Big cities also have a plethora of mid and low-tier facilities catering to the low and middle classes. The low income groups in such cities often find themselves in a situation similar to those living in non-urban areas as they are limited to government hospitals that tend to be overcrowded and have long queues, thereby limiting or delaying access to healthcare.
The Rise Of Medical Tourism
Asia has emerged as a medical tourist destination with facilities and quality of care comparable to the most advanced medical systems in the world. Medical tourism is a high value sector that is being increasingly targeted by Asian governments as a component of their national strategies to raise their country profiles as well as to increase tourism revenues.
Thailand leads the medical tourism market at US$1.2 billion, with large, established hospitals such as Bumrungrad and Bangkok Dusit Hospitals. Singapore and Malaysia have also established thriving medical tourism hubs with hospitals such as Parkway, Raffles Hospital and Columbia Asia. These hospitals are attractive to foreign patients as they offer quality care at just a fraction of the costs in their home countries.
While the slowdown in the global economy may impact the growth of medical tourism, Asia will nevertheless continue to attract foreign patients seeking lower cost alternatives without long delays as compared to their home options.
Surgery (US$) U.S. India Thailand Singapore
Heart bypass $130,000 $10,000 $11,000 $18,500
Heart valve replacement $160,000 $9,000 $10,000 $12,500
Angioplasty $57,000 $11,000 $13,000 $13,000
Hip replacement $43,000 $9,000 $12,000 $12,000
Hysterectomy $20,000 $3,000 $4,500 $6,000
Knee replacement $40,000 $8,500 $10,000 $13,000
Spinal fusion $62,000 $5,500 $7,000 $9,000
Source: American Medical Association, June 2007
Cost Comparison For Selected Surgeries
9Aggregate outpatient, inpatient and long term care markets including India, Indonesia, Malaysia, Singapore and Thailand
Healthcare Delivery Remains Attractive To Both Public And Private Market Investors
Source: Quadria Capital
FavourableUnderlying
Demographics Rise Of Independent
Providers
IncreasingPrivate Payers
IncreasingPublic
Outsourcing
DefensiveGrowth
Characteristics
ConsiderableConsolidationOpportunities
Scalable BusinessModels
HealthcareWithout Binary
Risk
Scarcity OfQuality Assets
Strong CashGeneration
Characteristics
Asian Healthcare
Delivery
HEALTHCARE DELIVERY
From Insights To Outcomes
Hub And Spoke Model To Address Supply Gaps InRural Areas
In rural areas, there is a significant shortage of hospital beds and skilled medical personnel including doctors, nurses, and midwives. Further, rural populations have limited means to spend on healthcare. Profitable operations in the rural areas involve the ability to capitalise on the inherently large patient volumes.
To increase access and cut costs, healthcare providers are increasingly using asset-light hub and spoke models. Established healthcare providers leverage their facilities in the Metro/Tier I cities as hubs or Centres of Excellence which are supported by the spokes in Tier II/III cities. The hubs and spokes often leverage telemedicine to treat patients in the non-urban areas.
In India, the emergence of “halfway doctors”, locally based practitioners with no formal education in medicine but who have worked in laboratories, pharmacies, or doctors’ offices, has also helped increase access to care for rural populations. These halfway doctors rely on mobile technology to boost their knowledge and are showing increased protocol compliance and standardisation of care.
A report published by Proactive Universal Group shows that while the Average Revenue Per Operational Bed in Tier II/III cities in India is 15-30% lower than in Metro cities, Tier II/III cities offer higher occupancy rates and significant cost advantages in terms of lower capital expenditures and higher margins.
Quadria Capital’s Approach To Healthcare Delivery
Quadria Capital believes that a successful investment strategy in the Asian healthcare delivery sector involves a three-pronged strategy:
• First, make healthcare accessible to as many people as possible, particularly those in the non-urban regions. This will not only create an enormous and meaningful positive impact on local communities but also offer significant profit opportunities given the economies of scale.
• Second, focus on the evolving disease trends in these countries by providing high quality and longer duration care for chronic diseases in bigger cities. Significant opportunities to create regional leaders in acute healthcare service provision continue to exist. In particular, given the low penetration of high quality regional hospital groups and the highly fragmented nature of the market, there are attractive investment opportunities to lead the consolidation and the creation of a leading regional hospitals provider.
• Third, pursue a “buy and build” strategy for single specialty clinics as these enable the company to charge a premium for specialised care while still being operationally less complex.
18
HEALTHCARE DELIVERY
Tier II/III Cities Provide Cost Benefits To Healthcare Providers
17
10Based on INR 50 = US$1 Exchange Rate 11Operating Margins in Year 5
0.0%
5.0%
10.0%
15.0%
20.0%
11O
per
atin
g M
arg
in (%
)
Tier II
12.0%
Tier I
400,000
Metro
8.0%
17.0%
100,000
18.0%
Tier III
Source: Proactive Universal Group
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
10C
apex
per
Bed
(US
$)
180,000
300,000
5. LIFESCIENCES
Lifesciences: Leveraging Significant Cost Advantages And Regional Growth DynamicsThe Asian pharmaceutical market is growing rapidly and is anticipated to reach c.US$738 billion by 2020 – surpassing the pharmaceutical market size of Europe and the U.S., driven by the large patient population, growing disposable incomes and accelerating demand for affordable, quality drugs and therapies.
The impending patent cliff for blockbuster drugs in the U.S. bodes well for Asia, as global pharmaceutical companies seek to drive down R&D costs. The patent expirations also provide an opportunity for Asian pharmaceutical companies to penetrate the developed markets with generic products.
With access to lower cost R&D and a large patient pool, Asia has become the preferred location for clinical trials, accounting for 10% of total patients recruited globally in 2009. Government-led regulatory reforms and incentives, such as grants and tax breaks, continue to attract Western healthcare companies to Asia.
Simultaneously, Asian pharmaceutical companies are moving up the value chain and acquiring R&D capabilities. For example, Piramal Life (India) has entered into an agreement with Eli Lilly to develop and commercialise several pre-clinical drug candidates across multiple therapeutic areas.
12
LIFESCIENCES
New Connections For New Business Models
In Asia, India is one of the fastest growing pharmaceutical markets with more than 20,000 registered drug manufacturers producing generics for local markets and licensed proprietary drugs for large global pharmaceutical companies.
The growth in India’s pharmaceutical industry is supported by the implementation of Intellectual Property regulations as per the WTO standards and the availability of a well-established infrastructure and skilled labour force. India has the greatest number of FDA approved facilities – the most anywhere in the world outside of the U.S., and a large, well-educated, English-speaking workforce that produces 700,000 scientists and engineers every year.
Well Established Market With Access To Infrastructure And Talent
The pharmaceutical market in Asia is home to some of the largest producers of generics in the US$225 billion global generics industry. Asian generics manufacturers are expected to benefit immensely from the loss of patent protection on proprietary drugs with revenues of over US$250 billion. For instance, Pfizer, one of the world’s largest drug manufacturers, saw its global revenues for Lipitor fall 71%, driven by an 87% decline in U.S. sales mainly from generic competition following the loss of patent protection in November 2011. As a result, Pfizer has attempted to slash its costs through layoffs and a shift in strategy into the emerging markets.
Declining R&D productivity and increasing challenges in bringing new drugs to market have not only prompted global pharmaceutical companies to establish R&D and manufacturing facilities in lower cost Asia, but also to establish their presence in the generics markets via partnerships and acquisitions. Technology transfer, knowledge sharing and access to new markets have created new avenues for growth for both Western as well as Asian pharmaceutical companies.
Patent Cliffs And Ballooning Healthcare Costs Bode Well For Asia’s Pharmaceutical Industry
Balance Of Patent Risk To R&D Productivity Looks Negative For Most Big Pharmaceutical Companies
19 20
Patent Risk (2010-17E)
0.0 5.0 10.0 15.0 20.0
Late-stage R&D Pipeline
Novartis
Roche
GSK
AZN
Novo
Shire
Bayer
Merck
Actelion
UCB
Ipsen
15.6
12.2
8.7
6.1
7.2
3.4
6.9
1.6
0.8
1.1
0.3-0.3
-1.1
-2.1
-3.2
-1.6
-1.6
-4.0
-19.1
-7.2
-6.1
-12.9
-5.0-10.0-15.0-20.0-25.0
US$bn
12Asian pharma market includes China, India, Japan, South Korea, Hang Kong, Taiwan and Southeast Asia
Asia To Drive Growth In The Pharmaceutical Industry
Source: FDA Orange Book, SEC Filings, IMS Health, USPTO and Broker ReportsSource: Frost & Sullivan, AstraZeneca
US$320bn
EUR$218bn
US$366bn
EUR$265bn
2011 2020
CAGR: 1.8%
AsiaUS$233bn
Asia US$738bn
2011 2020
CAG
R: 1
3.7%
Changing Business Models Aligned To New Opportunities
Attractive Cost Advantages
Cost Structures Unlocking Greater Value Opportunities
Quadria Capital’s investment strategy in the lifesciences sector is to invest in some of the best positioned regional generic pharmaceutical companies that can not only take advantage of the robust industry fundamentals but can also lead the consolidation of the industry.
In a highly fragmented market, we believe that pursuing an aggressive “buy and build” strategy will be critical to unlocking value to not only create greater economies of scale but to also compete successfully in the global pharmaceutical markets.
Quadria Capital’s Approach To Lifesciences
Rising drug development costs in western markets and drying pipelines of blockbuster drugs are forcing the multinational pharmaceutical companies to adopt alternative ways to reduce costs such as outsourcing to Clinical Research Organisations (“CRO”) and Contract Research and Manufacturing Services (“CRAMS”) companies in Asia.
Asia has a low cost research, development and manufacturing base as well as access to cheaper raw materials, skilled labor at lower wages and a large supply of treatment-naïve patients to conduct clinical trials. In India, clinical trial costs are one-tenth, R&D costs are one-eighth and production costs are one-half as compared to the developed markets.
With international companies moving their research, development and manufacturing facilities to Asia to cut costs, many seek potential partners to gain access to the local markets.
LIFESCIENCES
22
Diverse Pharmaceutical Business Models
Clinical Development
Major Pharma e.g. GSK, Novartis, Pfizer
Drug delivery & Manufacturing
e.g. Strides Arcolab
Domestic distribution focused e.g. Apex
Healthcare, Pharmaniaga
GP Sales
Hospital Sales
Genericse.g. Cipla, Kalbe
Discovery Research
Bio Teche.g. Gilead, Amgen
Manufacturing & Distribution
Source: Quadria Capital
Asia Enjoys Some Unique Features That Support And Favour The Long-Term Growth Of The Pharmaceutical Industry
AsiaLifesciences
Skilled Talent
AbundantFDA Approved
Facilities/Infrastructure
Cost Advantage
Patent Cliff
Reduced R&dProductivity
For InnovativeDrugs
Well DevelopedGenericsIndustry
Source: Quadria Capital
LIFESCIENCES
21
6. MEDICAL TECHNOLOGY
Medical Technology: Moving Up The Value Chain
Medical technology is a broad term encompassing various sub-sectors such as medical devices, medical equipment, supplies, consumables, and healthcare information technology. At a CAGR of 13.5%, Asia's medical technology market is growing at more than double the rate of the developed markets, and is expected to reach c.US$164 billion by 2015.
Consumption of advanced medical devices is closely correlated with the increase in specialty medicine and surgery as well as the capability of local doctors to perform advanced procedures. The industry is also driven by advances in material technology and design, new clinical technology, new product development and lifestyle diseases.
23
MEDICAL TECHNOLOGY
Finding Promise In Innovation And Demand
Asia has a tiered market for medical equipment, medical supplies and other devices, with wealthy patients able to consume premium devices comparable to those used in advanced economies.
The majority of high-end medical devices used in Asia are imported from the developed markets. According to data from Espicom and Deloitte, over 75% of the domestic market in India relies on imports.
Tiered Markets In Asia For Medical Products
Asia To Drive Growth Of The Global Medical Technology Industry
Source: Frost & Sullivan, Market Line
US $132bn
EUR $117bn
US $159bn
EUR $138bn
2011 2015
CAGR: 4.6%
24
Medical Technology In Asia To Move Up The Value Chain Via Technological Sophistication And Expansion Into Foreign Markets
Level O
f M
ed
ical Tech
no
log
y S
op
his
ticati
on
In
Asia
International Expansion
ManufactureAnd Use High-techProducts Locally
Penetration Into Foreign Markets
Innovation & Development
Customize And Sell
High-tech Products In Advanced
Markets
Import High-tech
Products To Meet Local Demand
Source: Quadria Capital
Movement Up The Value Chain
Given its natural cost advantages, Asia has served as a strong base for manufacturing of low-end medical devices. 60% of medical supplies manufactured in India are exported, while Malaysia is the leading producer of catheters and rubber gloves.
Regional governments and local medtech players have recognised the need to advance from being low cost, low value manufacturers to innovative medical technology companies. For example, Malaysian rubber glove manufacturers such as Top Glove and Hartalega are moving up the value chain by utilising state-of-the-art systems and development of technologically advanced products.
Increasing specialisation and affordability in Asia have resulted in increased demand for diagnostic imaging and pathology services, including MRIs, CT scans, ultrasound machines, routine X-Ray machines, pathology equipment and associated supplies.
Health IT is also a growing market in the region. The highly price sensitive market is dominated by a plethora of players based out of Singapore, India and Malaysia. IT-enabled health services offer new vistas for growth as insurance companies require health information systems in place for reproducible clinical data.
AsiaUS $99bn
Asia US $164bn
2011 2015
CAGR: 13.5%
Taking Advantage Of Lower Costs In Manufacturing, Raw Materials And DevelopmentFrugal Innovation To Address Rising Demand for Medical Technology In Asia
To meet the high volume, high quality and low cost demand in Asia, global medical technology players have adopted frugal innovation – the customisation and development of no frills products tailored specifically to the local markets.
For example, Johnson & Johnson opened the Innovation Centre in China to design and develop medical devices and diagnostic products to be rolled out across Asia. GE introduced the concept of reverse innovation to fulfill the unmet demand for lower cost medical products including CT imaging systems which are manufactured locally in Bangalore.
25 26
Lower Cost Manufacturing Capabilities Provide Asian Medtech With A Natural Competitive Advantage
The growing prominence of sterile medical packaging, precision engineering, assembly and machinery fabrication provides a catalytic effect to boost the growth of medical devices, diagnostic equipment and healthcare information technology industries in Asia.
For example, the Medical Device Prototype Development Project led by The National Metal and Materials Technology Centre in Thailand aims to boost the manufacturing capabilities of local manufacturers to launch new and more sophisticated products at affordable prices. In addition, the Thai Board of Investments offers incentives such as exemption from import duties on machinery and 8-year income tax holidays to support the development of the local medical devices industry.
MEDICAL TECHNOLOGY
Executing Frugal Innovation Across Asia To Address Unmet Medtech Needs Medtech Innovation Scorecard: Capacity For Innovation
Seeking Frugal Innovation
Ÿ
Ÿ
Ÿ
Ÿ
Incremental innovation capable of lowering the cost of product/ delivery in emerging economies of Asia
Targets customers who do not require full performance products at high end of the market
Changes to existing products to create no – frills or lower end versions
Products that can be catered to general physicians as well as specialists, as well as those that ensure serviceability in rural and remote areas
Leveraging The Intrinsic Asian Advantage
Opportunities For Local And Regional Healthcare IT Platforms In Pace With Insurance Adoption
With the increase in Asia’s sophistication in the level of care, health IT has gained traction particularly with increased insurance penetration. The price sensitive nature of the health providers in Asia has resulted in global players pricing themselves out of the market as they are typically 10-20 times more expensive. This has created new opportunities for local and regional players whose products, even with advanced features, fall in the range of US$100,000 – 200,000.
The level of healthcare IT spending is expected to grow rapidly and will account for up to 2-3% of hospital budgets as healthcare providers increase their focus on digitisation of data, transcription and healthcare data analytics services.
Quadria Capital’s Approach To Medical Technology
The investment strategy in the medical technology sector will be geared towards companies targeting the general population with high quality “value” products, or those adapting existing technologies unprotected by intellectual property rights to the Asian markets. Other investment opportunities exist with medical device, supplies and diagnostic manufacturers seeking geographic expansion and distribution capabilities across Asia, and those focused on IT – enabled health services systems for hospitals, private clinics and health insurance companies.
Tier I Cities: • High Penetration Of Products • Existing Demand For Medical Technology Concentrated In Big Cities
Tier II/III Cities: Smaller towns, cities and
rural areas are largely untapped• “Frugal innovation” is required to improve access, availability and affordability
• Ÿ
Ÿ
Ÿ
Frugal Innovation products will also need to be used in the context of integrated solutions for improving health outcomes
Financing options for healthcare and payment of medical devices and equipment will need to be flexible (e.g. payment in installments, equipment leases)
Integration with healthcare information technology and communication providers allows for universal access at lower costs, and creative ways to support innovation in medtech (e.g. telemedicine via mobile sets, remote monitoring for cardiac devices to reduce hospital visits)
Integrated Business Models
MEDICAL TECHNOLOGY
10.0
8.0
6.0
4.0
2.0
0.0
Source: PWC Medtech Innovation Scorecard
2.3
2.7
India
5.55.4
United Kingdom
7.1
7.4
United States
2005 2010Source: Quadria Capital
7. ASSOCIATED HEALTHCARE SERVICES
Associated Healthcare Services: Emerging Sector Driven By Changes In LifestyleThe global market for Associated Healthcare Services was estimated to be US$2 trillion in 2010. The sector includes healthcare manpower, cosmetic dentistry, cosmetic optometry, weight loss centres, sleep centres, medical spas, detox centres, healthcare call centres, health clubs, holistic centres, psychiatry facilities, nutrition clinics, lifestyle services, smoking cessation clinics and diabetes consultants.
Growth in this sector is largely driven by high-end medical spending not covered under standard healthcare service and insurance packages, such as cosmetic dentistry, medical spas, weight management and smoking cessation clinics. The sector is set for revenue growth from a rise in chronic diseases and medical touristsseeking cost effective therapies.
28
Collaboration And Innovation Unleash Value
Other growth opportunities in the sector include healthcare manpower and skill sourcing. Asia’s hospitals and healthcare companies are already severely understaffed; growth in the number of high quality healthcare delivery facilities and other infrastructure will further increase the demand for skilled medical personnel including doctors, nurses and technicians.
27
Transition To An Organised Sector Will Promote Growth And Consolidation
Lack of clear definition and standardisation have previously impeded the growth of Asia’s associated healthcare services industry. The recent spate of systematic efforts to create industry wide benchmarks and protocols will drive further growth of the sector.
For example, the Quality Council of India (QCI) formed a Committee for preparing guidelines for Standards of National Accreditation Board for Hospitals and Healthcare Providers to be adopted by wellness centres.
Quadria Capital’s Approach To Associated Healthcare Services
The strategy in associated healthcare services is to invest in companies that address unmet needs in regional healthcare. These companies should also exhibit potential for standardisation, quality control and strong brand management for scale up across Asia.
ASSOCIATED HEALTHCARE SERVICES
Source: IMF
Projected GDP CAGR (2011-2016)
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Paki
stan
Sin
gap
ore
Ind
on
esia
Ind
ia
Thai
lan
d
Sri L
anka
Mal
aysi
a
Vie
tnamU.K
.
U.S
.
3.5%
3.9%
5.2%5.7%
6.0%6.2%
7.6%7.9%
8.2%
9.1%
13Disability Adjusted Life Years (DALYs) is defined as the sum of years of potential life lost due to premature mortality and the years of productive life lost due to disability (WHO) 14Asia includes South and East Asia as per WHO classification
Comporative Global Burden of Disease: Disabillity 13Adjusted Life Years (DALYs, in m)
0.0
Source: WHO
Diabetes Neuropsychiatric Disorders
Cardiovascular Diseases
2.61.3
10.0
20.0
30.0
40.0
50.0
60.0
4.9
20.9
26.8
42.1
16.3
52.3
8.9
The Americas Europe 14Asia
8. CREATING A POSITIVE IMPACT
Quadria Capital: Driving Meaningful Impact Via Healthcare InvestmentsAs a healthcare private equity investor in Asia, Quadria Capital seeks to make meaningful, positive impact by increasing access to affordable, high quality healthcare to underserved populations that need it the most. Quadria Capital believes that responsible investment is critical to long term, sustainable value creation in the region, and that its goals of both “doing good” and “doing well” are not just compatible, but in fact mutually reinforcing.
29 30
Facilitating Access To Affordable, High Quality Healthcare To Underserved Populations Quadria Capital is focused on leveraging its healthcare expertise to enable greater efficiency to healthcare provision, improve health outcomes and increase access to affordable, high quality healthcare for underserved patient populations. With Asia significantly trailing its developed counterparts in healthcare spending (c. 4% health expenditure as % of GDP across Asia vs. 10-15% in the developed countries), increased catch-up spending via private equity capital will also assist in the overall economic development of the region.
By working together with investee companies, local communities and government bodies, Quadria Capital seeks to integrate environmental, social and corporate governance impact into its investment decisions, portfolio company management and value creation strategies in order to drive positive developmental impact above and beyond financial returns.
Quadria Capital adheres to the Global Impact Investing Rating System and United Nation’s Principles for Responsible Investment. Quadria Capital has also worked closely with the International Finance Corporation (IFC) and has adopted IFC’s policies and procedures for social and environmental considerations for private equity funds.
Building High Quality, Lower Cost, Efficient Access
Community Impact Via Investments In Asian Healthcare
CREATING A POSITIVE IMPACT
• Building of higher quality companies that raiseoverall inustry standards. Quadria Capital supports regional healthcare companies, in turn raising the standard of individual companies and increasing the degree of sophistication and efficiency of the industry.
• Transfer and management skills training. Local business managers “pollinate” the industry when they move to other firms.
• Financial diversification. Equity investments diversify financing sources available to regional healthcare companies. Equity capital further serves as collateral for bank loans and purchase of fixed assets. This helps medium-sized companies graduate to larger enterprises and eventually raise capital by listing on the stock exchange.
• Contribution of indirect effects and externalities. In addition to the direct contributions noted above, impact investment in Asian healthcare also makes several indirect, but important, contributions such as: (a) increased taxable revenues that governments can direct toward social services, infrastructure and environmental requirements; (b) investee companies often use locally sourced materials for production; (c) jobs created at investee companies contribute to employment and a stable, middle class, which in turn contribute to long-term economic progress for countries in the region.
According to J.P. Morgan, maternal health alone among the Bottom of the Pyramid populations represents an investment opportunity ranging from US$400 million to US$2 billion over the next ten years, with profitability ranging from 25-50%. Such investments can be achieved by employing market-based mechanisms to develop profitable and sustainable social enterprises in Asia while improving health outcomes for underserved populations.
Quadria Capital believes that its investment activities can steward the following community development initiatives in the region:
• Improved access to quality healthcare for the poor. Quadria Capital works with high-calibre healthcare companies to expand operations in Tier II/III cities and increase access to affordable, high quality healthcare for those that need it the most.
• Creation of jobs. Investment in regionalhealthcare companies supports their growth and creates sustainable employment in the community. A recent report from the Global Impact Investing Network shows that for organisations focusing on positive impact through healthcare, the average annual wage per employee is US$ (PPP) 9,717, more than double the per capita income of US$ (PPP) 4,194 in South and Southeast Asia.
Building Blocks For Sustainable Economic Development
31 32
Regional Impact Via Investments In Asian Healthcare
Impact investment in Asian healthcare also creates the following economic benefits for member countries:
• Healthcare and economic growth. Healthcare investment contributes to economic growth primarily because healthcare provision is a critical input to human development and productivity, reduces workers’ time off and raises overall productivity of the economy.
• Economic growth and poverty reduction. As per the World Bank’s Poverty Reduction Report,“[e]conomic growth reduces poverty in developing countries… because average incomes of the poor tend to rise proportionately with those of the rest of the population.” The relationship between economic growth and poverty reduction has been consistently substantiated by empirical evidence.
• Healthcare and poverty reduction. Healthcare investment serves to reduce poverty in a number of ways: (i) quality healthcare provision allows poor people to maintain health and generate employment income more efficiently; (ii) access to healthcare and move towards a healthier lifestyle reduce the overall pressure on the state; and (iii) healthcare provision enables a more efficient route to access education and employment. These are only a few of the ways in which healthcare investment has the potential to result in improved socioeconomic conditions for the poor.
Promoting Positive Impact In Asian Healthcare
Quadria Capital not only seeks to drive positive impact via its investments in Asian healthcare, but also to promote acceptance and implementation of environmental, social and corporate governance initiatives in the investment industry, and to uphold appropriate disclosure on our activities and progress.
Quadria Capital believes that information should be reported on a regular basis to allow for tracking of impact risks and performance on implemented initiatives, as well as to better understand the key regulatory and legal constraints faced by entrepreneurial companies in Asia.
Quadria Capital aims to apply its understanding of the environmental, social, governance and regulatory environment to engage in productive discussions with governments and industry leaders in the region to help address key constraints and to encourage regulatory frameworks conducive to environmental, social, governance, entrepreneurship and private sector development. Quadria Capital believes that this would ultimately assist in the development of an effective and well-functioning social, regulatory and legal environment in Asia.
CREATING A POSITIVE IMPACTCREATING A POSITIVE IMPACT
INVESTING IN GROWTH
9. INVESTING IN GROWTH
Unlocking Superior Investment Returns Via Value Creation
Quadria Capital’s investment philosophy is to create value by investing in growth driven by industry trends, economic fundamentals and specific company circumstances. Our ability to provide unique investment insights to growth companies, as well as to deal with complex and distressed companies differentiates us from other investment firms.
Quadria Capital focuses on the populous, fast developing countries in Asia where affluence is rapidly rising. These countries have relatively younger populations that are capable of driving significant growth in the healthcare sector.
We believe that in the past decade a number of drivers have come together to create a unique investment climate for Quadria Capital to create meaningful strategic value and unlock superior returns for investors.
Healthcare Industry Expertise: Beyond Financing
With our strong sector expertise, meaningful value creation and management support, Quadria Capital provides more than just financing.
As one of the few private equity firms in the region with a strong sector-focused team and investment approach, Quadria Capital leverages its regional presence, industry knowledge and access to business networks. This not only allows us to evaluate companies efficiently but to also work effectively with management to maximize business opportunities according to global and regional trends.
We also employ a flexible investment approach with management and vendors with the aim of aligning interests to benefit all.
Supporting Management Teams To Execute Growth Strategies
We collaborate with vendors and management teams as well as actively participate on the boards of all our portfolio companies to create long-term value. We provide expert resources, either from within our firm or from our network of advisors.
We are committed to working with management to achieve our shared objectives. We know that a strong management team with compelling equityincentives will foster an entrepreneurial organisation positioned for greater success.
Collaborative Long Term Partnership With Corporate And Family Sellers
We offer corporate and family sellers quick and efficient means of realising non-core assets, while also giving vendors the chance to remain invested alongside Quadria Capital. Being highly sector focused, we understand the businesses in which we invest and strive to help create a strong long term strategic and competitive position in the market.
We also have a proven track record of structuring and executing international buyouts, which require an understanding of different cultures, legal systems and local market conditions.
Quadria Capital: Leading Long Term, Sustainable Value Creation
Seamless Execution Of Shareholder Ownership Change
We offer management teams the freedom to manage as we believe this results in optimised operational spend, reduced levels of bureaucracy and enhanced performance. We do so by establishing a clear and focused shareholder base without the distractions associated with other forms of corporate ownership.
I. Leveraging Sector Expertise And Intimate Knowledge To Identify Value
Sourcing and winning deals at the right price has never been more challenging. Apart from proactively originating the best deals, we undertake detailed sector analysis to decide how we approach every deal. This allows us to determine the viability of the target’s industry and markets, the drivers of top line growth and the desired exit.
During due diligence, we also identify the issues and opportunities that need to be addressed right at the onset.
33 34
Our Approach to Sustainable, Long Term Shareholder Value Creation
At Quadria Capital, we follow a three step process to generate superior returns which involves: Identifying Value, Creating Value and Realising Value.
II. Applying Hands-On Involvement Approach To Create Value
The real challenge in investing is in achieving the various milestones set out for the portfolio company after the investment is made.
Once the deal is won, proper planning and execution support is in place to ensure smooth ownership transition. When strategy support is needed, we will lead a collaborative effort to design a strategic framework alongside management.
This framework involves an early identification of key factors critical to a smooth ownership transition as well as potential upside strategies. A 100-day plan and 3-year plan that clearly define operational and strategic initiatives will also be formulated to help portfolio companies meet their growth objectives and realign the business towards profitability and growth.
Quadria Capital typically structures an investment to reduce inherent risk factors and maximise potential returns. We do so by finding the appropriate balance between market terms that are attractive to investors and at the same time sufficient to motivate the entrepreneurs, management and employees to build value, thus keeping the interests of all parties aligned.
In creating meaningful strategic value in our portfolio companies, we constantly adapt the portfolio company’s core businesses so that it can better meet future challenges. This is supported by a suite of well thought-out initiatives reinforced by brands, value proposition to customers and solid operational skills.
Highest Calibre Investment Team
Quadria Capital has brought together an unparalleled investment team with diverse backgrounds including private equity, investment banking, operations and consulting in healthcare across Asia.
The firm is led by Abrar Mir and Dr. Amit Varma:
• Abrar Mir has over twenty years of financial experience and has led private equity transactions with an aggregate value of over US$40 billion. Previously, Abrar was a Managing Partner of NBD Sana Capital (Dubai) and Managing Director at Bank of America (London).
• Dr. Amit Varma is a renowned critical care medicine physician with over twenty years of practice in the U.S. and India. He continues to practise as a critical care physician on a part-time basis through which he remains connected to clinical medicine, patients and physicians.
Abrar and Amit have worked together for more than three years to establish a successful investment track record in healthcare across Asia.
Quadria Capital believes that its leadership, operating and transactional experience in Asian healthcare are unique in the private equity industry.
35 36
Achieving Maximum Value Realisation
INVESTING IN GROWTH
III. Value Realisation Via Pre-Defined Exit Strategies
Quadria Capital places a strong emphasis on planning value realisations early at the pre-investment phase. When making an investment, we plan in advance the exit options available and the proposed timing for exit.
This is extremely critical in emerging markets where capital markets are less developed and there is a relatively smaller number of trade buyers.
Central to Quadria Capital’s investment philosophy is the early return of equity to investors and the maximisation of value on exit. We only invest in an opportunity where there is a clearly defined pathway for exit. In maximising value, we deploy a carefully crafted, multi-option value realisation strategy.
Key to our value realisation strategy is grooming our portfolio companies such that the best price can be achieved upon exit. Primarily, we plan to proactively manage, position and develop our portfolio companies to a point that they become attractive acquisition targets for larger players seeking to expand into Asia.
At the same time, we examine potential synergies between our portfolio companies in order to create entities that have sufficient critical mass to be sold to trade buyers or be floated on the most appropriate stock markets.
Highest Calibre, Multi-Disciplinary Investment Team
INVESTING IN GROWTH
LEGAL NOTICE
This publication is confidential and personal to recipients. No part of this publication may be reproduced in whole or in part or provided to others without the prior written permission of Quadria Capital. Quadria Capital asserts all of its rights (including copyright) in respect of the publication.
This publication has not been subject to a verification or audit procedure. The information and opinions herein are believed to be reliable and have been obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to the fairness, correctness, accuracy, reasonableness or completeness of the information and opinions contained in this publication and no person shall be entitled to assert any reliance (legal or otherwise) on anything in this publication. There is no obligation to update, modify or amend this publication or to otherwise notify any recipient if information, opinion, projection, forecast or estimate set forth herein changes or subsequently becomes inaccurate.
This publication does not constitute an offer of, or the solicitation of, an offer to buy or subscribe for, any financial instrument or investment, nor shall it (or any part of it or the fact of its distribution) form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract or commitment whatsoever.
37 38
www.quadriacapital.com
Quadria Capital Investment Management
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D +65 6221 6779
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D +91 11 4953 9900
Quadria Capital ( India Investment Advisor )
QUADRIA CAPITAL
