Panacea closes debut China healthcare fund at $180m

The vehicle, which launched 12 months ago with a target of $150 million, received commitments from family offices, endowments, sovereign wealth funds, pension funds, and fund-of-funds across Asia, the US, Europe, and the Middle East. Demand from LPs amounted to more than $200 million, according to a source familiar with the situation.

Around one-fifth of the corpus has been drawn down and deployed in four or five start-ups. Panacea focuses on incubation and Series A rounds, with companies that have been through the incubation process expected to account for the bulk of the fund.

Several dedicated healthcare VC investors – Lilly Asia Ventures, Pivotal Bioventure Partners China, and 6 Dimensions Capital among them – have incorporated incubation into their biotech strategies. It means they can avoid high valuations in the later stages and minimize execution risk by shaping companies from the outset, pairing intellectual property with talented teams.

Panacea differs from its peers in the amount of incubation it is looking to do and the practice of using management fees to cover the initial costs of these efforts. Costs are only transferred to the fund once a company is ready for a Series A round.

Speaking to AVCJ in 2017, Huang emphasized the importance of de-risking situations. “We go through a rigorous process with every single idea, trying to figure out the underlying risks and the competitive landscape on a global basis,” he said. “During the incubation period, if we believe that we can make money on that company, we will deploy more capital in the Series A round. That’s how we do it, but it’s easier said than done.”

Huang has been working in the biotech and pharmaceuticals space, from operations to investments, for more than 30 years. He held positions with Bristol-Myers Squibb, SmithKline Beecham, GlaxoSmithKline, and cancer drug developer Tularik before Vivo Ventures offered a path into the investment space in 2007. Huang assumed responsibility for Asia, with a particular focus on China.

Four years later, he was tapped by KPCB, which wanted to add a healthcare practice in the country. One-third of the firm’s $250 million second China fund went into healthcare investments, including five incubated businesses.

JHL Biotech was seeded by Huang and went on to raise three rounds of funding before listing in Taipei in 2015. It became one of the largest biotech companies in Greater China. KPCB was also the first investor in Zai Lab, which was established in 2013 to license pre-clinical findings from the West and develop drugs in China. It went public in the US in 2017 and is now worth around $1.7 billion.

Interest in Chinese healthcare is driven by the country’s rising consumption levels and aging population. People aged over 60 accounted for 16.7% of the population in 2016 and Frost & Sullivan expects the proportion to reach 18.6% by 2026. Meanwhile, healthcare expenditure contributed only 6.1% of GDP in 2015 compared to 17.7% in the US. Expenditure is projected to reach RMB11.4 trillion ($1.7 trillion) by 2026, up from RMB4.6 trillion in 2016.

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• Topics
• Greater China
• Fundraising
• Healthcare
• Venture
• GPs
• China
• Panacea