The healthcare industry, comprising the companies in pharmaceuticals, delivery, diagnostics, medical devices, and biotechnology sectors along with the insurance firms, has witnessed tremendous private equity interest
in the recent past albeit in a selective fashion. While the interest has waned in the lifesciences and pharma markets, there has been a surge in activity in the healthcare delivery and other allied emerging industries.
The generics opportunity attracted heavy investments from 2003 to 2004, however the investments declined by 2008 as the trend matured and the market saturated. The period between 2009 and 2010 witnessed investments in diagnostics, while at present the focus is primarily on healthcare delivery. There is an upsurge of multiple healthcare delivery ventures in the sector which have attracted the interest of private equity or venture capital (PE/VC) firms. Healthcare delivery and pharmaceutical sector accounted for nearly 50 percent of the total deals in the healthcare space in 2012.
The capital intensive nature of the traditional pharmaceutical market and the long gestation period make it a deterrent in terms of private funding. Research oriented firms too face issues as they are not in a position to guarantee quick returns as opposed to other healthcare delivery models. Start-ups and new enterprises in the life sciences space also detract investor interest because of scalability. The valuation expectation from an enterprise can be a constraint in case of mature firms. There are limited viable exit routes available and the size of the enterprise may pose challenges in exiting for PE investors. Although there are a number of start-ups that have come up in the clinical research domain, the market is fairly nascent and regulatory hurdles in the country make it a risky proposition for VC/PE firms. Investors are, however, inclined towards niche therapy segments and novel drug delivery segments, giving smaller research outfits their due credit.
Amidst regulatory, policy, and market hurdles, the PE/VC funding in biotechand pharmaceuticals marginally increased to reach $338 million during the period 2011-till date from nearly $300 million during 2008-2010. With the generic opportunity on a decline, the focus in the life sciences space is on R&D (clinical research), niche segments, and biosciences The biosciences segment is currently a major area of focus in the lifesciences space due to its niche and novel nature. The segment is also receiving attention owing to its relevance in the global context. The Indian government has invested more than $650 million in biosciences in India, while the investment through private equity in 2012 was at about $268 million. However this is a high risk segment and hence deters investors. Nonetheless with drying therapeutic pipelines and focus on research, this segment is probably one to be watched out for in the near future.
A classic example of such an investment is IndoUS Venture Partners (IUVP), which has invested $3.5 million (`18.5 crore) along with Aarin Capital and Navam Capital as co-investors in Vyome Biosciences, an innovation-driven dermatology company focused on developing novel and innovative treatments for common skin conditions such as dandruff, acne, pigmentation disorders and wound healing. This investment indicates the shift of interest towards niche therapy segment which has grown due to the increasing awareness among people and owing to the increase in disposable incomes.