Vivo takes US healthcare into China

It is one of a number of US firms Vivo Ventures is supporting as they seek to expand their footprint overseas. Frank Kung, the VC firm's managing director, sees consumer medicines - ranging from Botox to prosthetics - as a rich potential market in China. Importantly, this segment lies outside mainstream pharma products, which are often subject to government price controls.

"Consumer medicines are established in the US. Some Chinese companies have never heard of it before, but we tell them about it and they like it," says Kung. "We have some portfolio firms that are looking for China-based partners."

The area is likely to feature prominently in Vivo's seventh fund, which recently closed at $375 million, $100 million more than its 2007 vintage predecessor. Approximately 80% of the capital committed came from US institutions, including pension funds-of-funds, insurance companies, endowments and family offices. The remaining 20% was split between European and Asian investors.

In response to LP demand, the seventh fund is structured differently to its predecessor. Some investors wanted exposure to China only, so Vivo created a $75 million sleeve devoted to that country alone. With one third of the main fund to be deployed in China and two thirds in the US, Kung estimates that a total of $175 million will be invested in Chinese firms. In the sixth fund, only one fifth of the corpus was committed to the country.

Vivo was set up in 1996 and opened its first office in China 10 years later. Although it focuses on technological synergies between China and the US, the firm's strategies for the two countries differ somewhat. In the US, Vivo targets late development stage healthcare product manufacturers; in China, there is more of a growth capital approach.

This strategy has already seen orthopaedic device maker KangHui Medical, a portfolio company since 2009, list in New York in 2010 and drug developer Lee's Pharma, which also received backing in 2009, graduate from Hong Kong's GEM board to the main board. Another three firms are in the IPO process.

China's healthcare space is inevitably attracting greater interest from generalist venture capital firms, but Kung warns that the sector is difficult to navigate.

"Investments require an extraordinary amount of knowledge - not only in terms of product performance but also regulatory issues," he says. "Most healthcare products have a specific use in hospitals so there is government intervention on pricing. You have to grasp the philosophy behind the regulation."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Healthcare
• Expansion
• Fund formation
• China
• Growth capital
• USA
• healthcare