Industry Q&A: Norman Chen, Partner, Fidelity Asia Ventures
Chen talks to AVCJ’s Paul Mackintosh about opportunities for healthcare investments in China
Q: Please tell us about Fidelity’s healthcare focus and investment platform.
A: We have about $450 million earmarked for China; about half for healthcare. We have another $250 million earmarked for India; we have a separate India team in Mumbai
Our style of investing is to be quite thematic. So we have looked across various sectors within healthcare.
Q: In the long term this might play very well with other complementary investments?
A: We here and now are seeing a nice congregation of more and more talent coming back to China, government support for research, big pharma being involved, setting up R&D facilities in China, and the VC community being more active as well. These factors form a bit of a brew here – similar to the development of Silicon Valley and the Cambridge area – of really innovative technology companies.
We tried to pull together a leading R&D team: leading scientists as well as leading investors; because drug development can be quite expensive. Fidelity formed a consortium of leading VCs, who are very experienced in drug development; from the US, but keen to do something in China … top-notch biotech VCs from the US and China. It’s really bringing best of class managers and investors together. So that’s one space we are actually working on an initiative to pull together and create a company. It’s going to be our first drug development company in China.
Q: So I take it that you are seeing enough intellectual capital in the market?
A: It’s a little bit of a leap of faith, admittedly. But we’re willing to take a bet to be at the forefront of these investment themes in China. We think now is the time to be looking at these discovery companies.
Q: Do you see a domestic pharma industry of size you can work with?
A: We haven’t come across very many Chinese drug discovery companies we want to invest with yet. We think the time will come, but thus far they’re still mostly focused on generics. We feel that we need to be involved on the catalyzer/jump-start effort, to bring in more innovation, a combination of scientists and investors. Thus far, we don’t think the domestic companies by themselves are ready to invest in yet.
Q: In terms of the overall characteristics of investment in the healthcare space, do you find it has a longer time horizon?
A: Given the fact that healthcare is still emerging in China, more things are at an earlier stage, and take a long time. Having said that, we think that gives us a competitive advantage, because we can do early stage deals. VCs with all the capital they have to manage are looking to put more money to work, and so they are less likely to do early stage, as that’s hard work. They do later stage pre-IPO deals.
Q: Do there appear to be prospects that China might grow to rival India?
A: It really depends sector by sector. We have a fund in Mumbai, and we always are comparing notes, so I can tell you sector by sector who’s ahead.
In the CRO space, China’s slightly ahead, given companies like Wuxi. That also includes animal testing. In India, animal testing is much more of an issue, because of the religious objections. So China has clear advantages for animal testing, and also market advantages from a CRO point of view.
In hospitals, India’s way ahead; 60% of hospitals in India are private sector. They opened this up for foreign investors a long time ago. So you have the Apollos of this world, and other groups, way ahead. We learned a lot from them. We actually have engaged Apollo to consult for us, for our strategy for China.
In medical devices, China’s ahead. You have the Mindrays, the Microports – they’re way ahead of India. India has such a high incidence of cardiovascular disease and diabetes, but they import everything. They don’t have a local manufacturing base for these devices.
In pharmaceuticals, from a generics point of view to the US, India is way ahead. Maybe there’s a language advantage there, but in terms of API, and the components for drugs, India was ahead initially, but now I think China’s catching up.
Q: How does healthcare fit alongside other Fidelity’s investment priorities?
A: We’ve invested both in healthcare and IT over the past 15 years. Gradually healthcare is increasing. For our share of investment, right now we’re earmarking 50% for healthcare; 50% for IT and other industries. That’s the current plan. It’s gone up from maybe a third to a half in the past couple of years. And part of our US expertise comes from our sister fund Fidelity Biosciences, which has a strong team of PhDs and MDs, that we actively co-invest with.
We really have an advantage in the healthcare space in China, because we have deep China expertise and deep healthcare expertise. And very few shops have a combination of both. We’re really trying to leverage that as much as possible.
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