Fund focus: OrbiMed scales up for Fund III
US-based healthcare specialist investor OrbiMed once again raises the bar with the closing of its oversubscribed third Asia fund
US-based healthcare specialist OrbiMed started its Asian operations in 2007 and raised a $188 million regional fund the following year. A second vehicle of $325 million closed in 2014, with LP commitments from the likes of the Asian Development Bank and global pharmaceutical company BMS. OrbiMed recently stepped up the quantum of capital once again as Fund III closed at the hard cap of $551 million. It was substantially oversubscribed.
“The biggest difference in our LP base is that only 60% of Fund II was raised from existing LPs, whereas almost 90% of Fund III comes from existing LPs,” says Carter Neild, a US-based partner at OrbiMed. “Investors want to access growth and they can see that the long-term drivers of increasing healthcare consumption in Asia are very powerful.”
The latest fund will make 15-20 investments across the region in the fields of pharmaceuticals, medical devices and healthcare services, with about two thirds of the corpus earmarked for China. While the majority of these will be growth-stage companies, up to 20% of the fund will concentrate on early-stage drug discovery in China, reflecting the industry’s transition from commoditized, generic-type products towards more innovative healthcare solutions.
“Our China and India strategies are different due to the countries’ different strengths and opportunities,” says Jonathan Wang, senior managing director and founding partner at OrbiMed Asia. “China’s healthcare market has grown rapidly and is becoming the second largest in the world. Partially driven by overseas returnees and government support, China is becoming an important innovation center. “
India is strong in other areas including pharmaceutical manufacturing and healthcare services, says Sunny Sharma, an India-based managing director at OrbiMed. He notes that about one quarter of generic drugs consumed in the US by market value are made in India. This is an “old and profitable business in India.”
OrbiMed Asia currently manages over $3 billion across private equity and public market investments. With a larger corpus, the average ticket size is set to increase to $30 million per transaction from $10 million. The new fund has already made one investment and two more are in the pipeline. While healthcare outcomes in China and India generally lag behind developed markets, OrbiMed hopes its cross-border strategy can help close the technology gap between the geographies.
“We see more and more private companies with a presence in both China and the US. For cross-border opportunities, we may invite our global sister funds to co-invest in Asian companies, or we may invest in US companies alongside the global funds,” says Wang. “We often help our Asian portfolio companies license products from their Western counterparts, or help our Western portfolio companies find partners in Asia. That will also be our strategy going forward.”
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