GAMECHANGERS HEALTHCARE MAGAZINE ONE / SEVENTEEN

solutions for diseases with vast economic and social consequences.

HEALTHCARE

Pharmaceuticals

BioTech and other related industry news.

Healthcare (noun): The organized provision of medical care to individuals or a community Healthcare, as an important body of both science and art has developed over many centuries. While tremendous progress has been made over these hundreds of years, more recently it has become apparent that despite significant recent investment and progress, that many systems (across the western world as much as the developing world) are struggling to cope with their systems under increasing pressure – therefore highlighting the importance of these industries and the research they perform.

Healthcare, pharmaceutical and biotech play such crucial roles in today’s society. Gamechangers, the magazine of ACQ5 as always, takes a closer look into the innovations that are changing the way we look at healthcare, technological advancements that are keeping us one step ahead and the leaders that are behind it all.

Editior, Jake Robson 3 Gamechangers

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not just your average cannabis consultants

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Pharmaceutical Gamechangers

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Priv Car

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can the medicines company change medicine?

GameChangers™ welcomes news and views from its readers. Correspondence should be sent to gamechangers@acq5.com For more information about GameChangers™ visit www.acq5.com/posts/ gamechangers/ GameChangers™ Copyright © 2016 GameChangers™ No part of this magazine may be reproduced, stored in a retrieval system or transmitted in any form without permission.

SAFE HARBOR The interviews in this publication may contain certain forward looking statements with respect to the financial condition, results of operations of the businesses profiled. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements may have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in these announcements should be construed as a profit forecast.

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Top 10 Most Influential Physician Executives and Leaders 2016

The woman at the center of the biggest Biotech IPO of the year

OCTOBER OCTOBER 20162016

OCTOBER 2016

IAL REPORT: SPECIAL REPORT:

ivate Equity SPECIAL REPORT: and Health Private Equity and Health rePrivate in Emerging Markets Equity and Health Care in Emerging Markets Care in Emerging Markets

The Most Influential People in Healthcare 2016

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016 A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

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SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

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SPECIAL REPORT: Private Equity and Health Care in Emerging Markets SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

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SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

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SPECIAL REPORT: Clearwater Pharmaceutical & Biotechnology Report

TEAM David Rogan - President & Editor-In-Chief Jon Van Dyke - Editorial Director James Wiltshire - Publisher EDITORIAL J Robson - Editor-At-Large L. B. Kooler - Deputy Editor P Ramone - Senior Editor J LaRusso - Copy Chief M-C Fisher - Editorial Assistant B Sancheze - Senior Staff Writer ADVERTISING A Bott - Digital Advertising Director J Downey - Advertising Director Z Wolfel - Business Development Director C Thomas - Account Executive H Smith - Account Executive ADMINISTRATION A Kessler - Finance & Admin Director T Dolby - Technology Manager P Hughes - Operations Coordinator T. A. Black - Office Manager

5 Gamechangers

Not Just Your Average Cannabis Consultants Quantum 9, Inc., international marijuana consulting firm, has been awarded the ACQ5 global award for the 2016 US - Niche Consultancy Firm of the Year (Cannabis Markets). We sat down with GameChanger of the Year, Michael Mayes, CEO, to better understand the focus of his cannabis consulting firm. Michael is fresh off his recent travel from Michigan, Pennsylvania, and Colorado. The firm has 35 marijuana consultants and has now practiced in 12 countries.

Quantum 9 was nominated for the work they did with the German Ministry to help determine a tax on cannabis sales. The engagement also focused on the implementation of an impaired driving protocol.

“The tax on marijuana sales was easy, we set a number, and the government agreed, the impaired driving issues were a bit trickier. We provided United States Department of Transportation information debunking the ability for an oral nanogram meter to score intoxication levels of a motorist efficiently.”

Michael adds that the firm works with a wide variety of clients, typically CEO’s & CFO’s including corporate finance and private equity executives from all corners of the globe.

The marijuana industry is gaining momentum and is expected to grow to $36.8 B by 2020.

Michael’s firm Quantum 9 is dominating the international marijuana licensing space.

Their consulting firm has completed 25 application submissions with a tremendous success rate of 92%.

“Our high success rate is due to a few different factors, the first being that we only take on projects where the executives are already pillars in the community. These types of people have incredible resources to invest in building a team and lobbying. The second factor is the amount of time we require to complete a project.

We typically need six months to finish a project, but every market is different. The third factor is the fact that we only work with one or two companies in a territory.”

Michael goes on to say “Where the team is lacking expertise we augment with our team members or we go out and recruit.”

Michael also owns and operates businesses in Colorado and Michigan. “I started my cannabis career in Colorado in 2009 when the first for-profit medical marijuana market emerged.

Quantum 9 Headquarters, 744 N. Clark St., Suite 804, Chicago, IL 60654 Gamechangers 6

At the time, the market was truly the wild west, and there were no testing requirements, no background checks, and no enforcement.

Now you can’t take a step in the cannabis industry without proper checks and balances.

The industry has grown to well over a billion dollars annually, and competition is now fierce.

There has already been consolidation within the industry. Powerhouses such has Good Meds is now being created. We are looking to make some pretty big acquisitions in 2017.

Our operations in Michigan are just getting off the ground. Greenwave is in Lansing, Michigan and has shown incredible growth in the short ten months of operation. We are in a fantastic position for state licensing.”

We asked Michael what his thoughts were on the recent election and what consequences are ahead for picking Attorney General Jeff Sessions. In a recent Marijuana Business Daily poll, 30% of executives are “very concerned.”

For current businesses operating within the cannabis market, businesses are running no differently. Even major purchases are still being made.

T: +1-888-716-0404

I think that those of us that are “all in” do not have a choice but to conduct business as usual.

I started my career in cannabis in 2009 at the time everyone was scared. We are operating 100% with no reservations.

I have built my business by swinging for the fences and luckily that has paid off big. The Trump election has many people scared, in my eyes, it is the right people.

Big money scares easily, their apprehension should allow a little more time for the underdogs to make a few bucks while the industry is still gray.”

He adds “I’m optimistic, but I’m taking some proactive steps to get the positive message out there. I’m doing a television show next week on the political side of things. I doubt that cannabis will be taken out of the hands of children that will die if they don’t get it.

If Congress starts a war with marijuana, things will get interesting. The patient backlash could cause many problems for the government. A father will do anything to protect their children even if it means procuring products from the black market. If the rules tighten then, a larger black market will be created.”

E: info@quantum9.net 7 Gamechangers

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Can The Medicines Company Change Medicine?

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As The Medicines Company continues to deliver on its strategy to reinvent itself around a pipeline of promising potential blockbuster drugs, it just may help to reinvent the way the pharmaceutical industry delivers value. Supported by a sophisticated set of biopharma investors, the company is also taking an audacious new approach to capital deployment— one aimed at unlocking potentially massive shareholder value.

Generating revenue from selling drugs and improving the lives of patients are the twin missions of any pharmaceutical company.

A successful pharma can make enough money that the revenue can be spread around —some for investors, some for licensing in new opportunities, some for R&D. Founded in Cambridge, MA in 1997 and now based in Parsippany, NJ, The Medicines Company built an enviable revenue stream with a trailblazing hospital sales strategy and solid late-stage development operation that has been unusually successful recently at turning promising molecules into marketed drugs. In 2016, it decided to give all of that up. That decision represents a big call for the near-20-year-old ĆƒUPĹžD FKDQJH LQ GLUHFWLRQ DQG LQ SRWHQWLDO outlook.

The Medicines Company has made a number of bold and successful moves to reinvent itself.

During what has been, at times, a turbulent WUDQVLWLRQ WKH FRPSDQ\ KDV VROG RĆ‚ PXFK RI its hospital-channel revenue generating drugs DQG UHIRFXVHG LWV GHYHORSPHQW HĆ‚RUWV DURXQG a small handful of potential blockbuster drug candidates. In the process, revenues and DVVRFLDWHG SURĆƒWV KDYH IDOOHQ GUDPDWLFDOO\ DQG yet shareholders and analysts have jumped on board—Fidelity piled into the stock, acquiring DERXW RI WKH ĆƒUPĹ V VKDUHV RQ WKH RSHQ market, and those shares are currently trading at or close to their all-time high. Fidelity is in good company. Long-term players Wellington, BlackRock, Vanguard and State Street, plus a slew of sharp-minded hedge funds such as Corvex, Bridger Capital, Camber Capital and 6DULVVD DOO ĆƒJXUH DPRQJ WRS KROGHUV 7KH QHZ generation of investigational drugs, says the company—and its sell-side analysts—could potentially improve health outcomes for millions of patients while cutting costs from the infamously labyrinthine US health care system.

They could also generate outsize revenue streams—way above those envisioned from

7KH Ĺ&#x;2ULJLQDOĹ 0HGLFLQHV &RPSDQ\ EXVLQHVV plan. If that re-invention sounds incredibly GLĆ…FXOWĹžSHUKDSV HYHQ FRXUDJHRXVĹžWKDWĹ V because it is.

Drug development is notoriously tricky—only one in ten development candidates that enter human trials will eventually be approved by the Food and Drug Administration as a new PHGLFLQH 0RVW RI WKRVH ZRQŠW JHQHUDWH WKH NLQG of revenue necessary to move the needle at a multinational pharmaceutical company. The ones that do succeed often wind up costing patients and their health insurers hundreds of thousands of dollars per year and have increasingly earned the ire of legislators and the public alike for their high prices and dubious health care value propositions. The Medicines Company has been able to succeed, in part, because of its emphasis on demonstrating and explaining how its products can save money compared to the competition.

To get its new and innovative drugs to the PDUNHW 7KH 0HGLFLQHV &RPSDQ\ ZLOO ĆƒUVW QHHG WR SURYH WKDW WKH\Ĺ UH VDIH DQG HĆ‚HFWLYH %XW turning those drugs into blockbusters at a time when health insurers and other payers are eyeing new therapies with unprecedented scrutiny will require continued commercial innovation, too. A breakthrough cholesterollowering therapy from The Medicines Company may illustrate how fresh thinking around the delivery of a medicine can create value for patients and payers alike, and light a path forward for others in the pharmaceutical industry.

A new era 7KH 0HGLFLQHV &RPSDQ\Ĺ V SUHYLRXV GHFDGH of success was thanks to a suite of products that CEO Clive Meanwell calls “a bunch of solid singles and doublesâ€? that the company could deploy down its established hospital sales channel. It appeared the hits would keep

on coming. In fact, in 2015, the company was IUHVK RĆ‚ D SHULRG RI XQSUHFHGHQWHG UHJXODWRU\ VXFFHVV ZLWK ĆƒYH GUXJV DSSURYHG LQ WKH US and the EU in a span of 14 months.

But that seismic success threatened to generate a looming tsunami of expensive launch activity. At the same time, revenue from the FRPSDQ\Ĺ V Ć„DJVKLS $QJLRPD[ GLUHFW WKURPELQ inhibitor therapy was evaporating in the wake RI D FKDOOHQJH WR WKH YDOLGLW\ RI WKH GUXJĹ V SDWHQWV by generic competitors. At one time Angiomax was the highest-selling hospital product in the US at nearly $700 million per year, thanks to its use as an anticoagulant in patients undergoing a variety of cardiovascular SURFHGXUHV DQG DV VXFK FRPSULVHG WKH OLRQĹ V VKDUH RI 7KH 0HGLFLQHV &RPSDQ\Ĺ V WRWDO VDOHV The combination of generic competition for Angiomax and the investment necessary to make its new products a success was daunting. “Investors were skeptical that we could do what we needed to do to create value,â€? admits Meanwell.

But The Medicines Company had been able to leverage its development and marketing successes to boost its prospects in the business development arena. “We always believed that once we had established a strong track record for developing products, marketing products, deploying capital appropriately and hiring good people that we could attract world leading technologies,â€? he says. “And in the last four RU ĆƒYH \HDUV WKDW LV H[DFWO\ ZKDW ZHĹ YH GRQH ĹŁ 7KH 0HGLFLQHV &RPSDQ\ VHFXUHG WKH ĆƒUVW RI its key pipeline assets back in 2009, when in December of that year it agreed on a deal with 3Ćƒ]HU WR DFFHVV ZKDW ZRXOG EHFRPH 0'&2 7KH 0HGLFLQHV &RPSDQ\ SDLG 3Ćƒ]HU million up front (with $410 million in potential milestones, plus royalties) for the potentially game-changing acute coronary syndrome therapy, a combination of a phospholipid and recombinant apolipoprotein A-1 Milano. In 2012, the company invested in the anesthetics start up Annovation Biopharma, and subsequently acquired the company and its lead therapy ABP-700 for up to $55 million plus potential royalties in 2015. In 2013, it bought Rempex Pharmaceuticals for $140 million up-front and $334 million in potential milestones, landing leading antibiotic meropenem/vaborbactam.

Also in 2013, the company licensed from Alnylam Pharmaceuticals for $25 million

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One of the constants that runs through the ‘old’ Medicines Company and the ‘new’ one is that we don’t pay lip service to the value proposition of our therapies ... We work with medical and economic experts to build a value proposition that the customer can understand, and then stick with it. — Clive Meanwell up-front an RNA interference therapy designed to silence the production of proprotein convertase subtilisin/kexin type 9 (PCSK9).

The PCSK9 synthesis inhibitor (PCSK9si) is in mid-stage clinical trials to treat patients ZLWK K\SHUFKROHVWHUROHPLD WKDW LVQĹ W FRQWUROOHG by statin therapy.

0HDQZKLOH 7KH 0HGLFLQHV &RPSDQ\Ĺ V LQYHVWRUV ZHUH FKDĆƒQJ DW WKH LQWULQVLFDOO\ VORZHU JURZWK RI WKH FRPSDQ\Ĺ V KRVSLWDO SRUWIROLR Ţ(YHU\RQH felt that we needed to deploy our capital around these blockbuster opportunities, instead of chugging slowly up the funicular railway of growth of a specialty pharma hospital sales company,â€? says Meanwell. In late 2015, the company set in motion a plan that eventually VDZ LW VHOOLQJ RĆ‚ VL[ RI LWV PDUNHWHG SURGXFWV for total potential consideration of more than $1 billion.

7KH 0HGLFLQHV &RPSDQ\Ĺ V KRVSLWDO cardiovascular drugs, aside from Angiomax, went to the Italian specialty pharma company Chiesi. Mallinckrodt, a specialty pharma company based in Dublin, scooped up The 0HGLFLQHV &RPSDQ\Ĺ V KHPRVWDVLV SRUWIROLR including Recothrom (recombinant thrombin) DQG 5DSOL[D ĆƒEULQ VHDODQW ,Q WKH SURFHVV WKH FRPSDQ\ VLJQLĆƒFDQWO\ GRZQVL]HG LWV RSHUDWLQJ and commercial footprints, allowing it to plough that savings into developing its potential future blockbusters. “It felt very strange, having spent the better part of ten years looking for quarteron-quarter revenue growth to then just jettison WKH SURGXFWV ĹŁ VD\V 0HDQZHOO Ţ$W ĆƒUVW WKH PRVW GLĆ…FXOW SHRSOH WR VHOO WKH QHZ VWUDWHJ\ WR ZHUH ourselves. But these are very intriguing, high-value, dream-like opportunities and they need a lot of money to drive them forward.â€?

Technology and trust $Q\ RI 7KH 0HGLFLQHV &RPSDQ\Ĺ V IRXU GUXJ candidates could turn out to be a blockbuster with more than $1 billion in annual sales.

But as data emerged from The Medicines &RPSDQ\Ĺ V 3&6. VL SURJUDP DV ZHOO DV competing monoclonal antibodies from Amgen, 6DQRĆƒ 5HJHQHURQ DQG 3Ćƒ]HU RYHU WKH SDVW WZR years, PCSK9si emerged as its most profound opportunity. It looks as though The Medicines Company has a drug candidate that might be dosed so infrequently—maybe even only twice per year—that it could fundamentally change the management of hypercholesterolemia.

There are as yet no approved RNA interference therapies. This adds a layer of intrigue—and ULVNŞWR 7KH 0HGLFLQHV &RPSDQ\ŠV VWUDWHJ\

Gamechangers 10

Meanwell acknowledges the risk but emphasizes the reward. â&#x20AC;&#x153;How many new classes of drugs are being developed in the ZRUOG ZKLFK RĆ&#x201A;HU WKH RSSRUWXQLW\ WR PDNH D PDVVLYH PHGLFDO DQG Ć&#x192;QDQFLDO GLĆ&#x201A;HUHQFH" <RX can count them on one hand,â&#x20AC;? he says, â&#x20AC;&#x153;and I think you need to step out of the box and take that risk.â&#x20AC;? Not that the company did so blindly.

7KH 0HGLFLQHV &RPSDQ\Ĺ V SDUWQHU $OQ\ODP is the pioneering RNAi specialist helmed by John Maraganore. During a previous role at Biogen, Maraganore invented and led R&D on bivalirudin, which would eventually become 7KH 0HGLFLQHV &RPSDQ\Ĺ V $QJLRPD[ Ţ:H KDYH a wonderful long-term relationship with John and that made it natural for us to get close to $OQ\ODP (YHQ LI ZH ZHUHQĹ W H[SHUWV DW Ć&#x192;UVW ZH were believers in the technology and we were believers in the people. There is a mutual trust.â&#x20AC;?

After all, Alnylam wanted to put one of its most important assets in the hands of a partner that could successfully commercialize it. â&#x20AC;&#x153;From our perspective, we knew that The Medicines Company have the people and vision to advance a transformative therapy like PCSK9si (ALN-PCSsc) forward,â&#x20AC;? says Maraganore. Ţ7KHUH ZDV D FRQĆ&#x192;GHQFH EDVHG RQ P\ SUHYLRXV experience with bivalirudin. Sometimes, it helps to have innovators work with innovators to pioneer breakthrough medicines.â&#x20AC;?

So far, commercial success in the PCSK9 space KDV EHHQ HOXVLYH IRU WKH Ć&#x192;UVW PDUNHW HQWUDQWV which have been criticized for the high prices of their anti-PCSK9 monoclonal antibody WKHUDSLHV ,Q $XJXVW UHVHDUFKHUV DĆ&#x2026;OLDWHG with the Institute for Clinical and Economic Review (ICER) published a study in the Journal of the American Medical Association that concluded that at current prices (roughly $14,000 per year) PCSK9 inhibitors marketed E\ $PJHQ DQG 6DQRĆ&#x192; 5HJHQHURQ ZHUHQĹ W FRVW HĆ&#x201A;HFWLYH IRU SDWLHQWV ZLWK KHWHUR]\JRXV familial hypercholesterolemia (FH) or atherosclerotic cardiovascular disease (ASCVD), the indications for which the drugs were approved in 2015.

ICER tends to be regarded as an antagonist of the drug industry, and much of the industry UHVSRQVH WR WKLV VWXG\Ĺ&#x17E;DQG WKH LQVWLWXWHĹ V RWKHU stancesâ&#x20AC;&#x201D;has been designed to discredit the ,&(5 PHWKRGRORJ\ Ţ%XW ZHĹ UH GRLQJ WKH RSSRVLWH ĹŁ VD\V 0HDQZHOO Ţ:HĹ G UDWKHU OHDUQ from their methodology. Since when has anyone got an adequate methodology for health HFRQRPLFV" ,WĹ V ULGLFXORXV WR LPDJLQH WKDW WKRVH

of us on the industry side have the righteous SDWK RI GHWHUPLQLQJ WKH Ć&#x192;VFDO YDOXH RI KHDOWK care and that everyone else is wrong,â&#x20AC;? he says.

If that sounds unusual coming from a ELRSKDUPDFHXWLFDO FRPSDQ\ &(2 WKDWĹ V EHFDXVH LW LV %XW 7KH 0HGLFLQHV &RPSDQ\Ĺ V own calculation of the value of a PCSK9 LQKLELWRU LVQĹ W WKDW IDU RĆ&#x201A; RI ,&(5Ĺ V ,&(5 concluded that based on a $100,000 qualityadjusted life year the value of a PCSK9 inhibitor ZDV Ţ,&(5Ĺ V YLHZ RI WKH ZRUOG VKRXOG not be dismissed as inconvenient or invalid,â&#x20AC;? says Meanwell. â&#x20AC;&#x153;Their view of a fair price in many ZD\V UHĆ&#x201E;HFWV WKH YLHZ RI SD\LQJ FXVWRPHUV and so we take their estimate seriously as we EXLOG Ć&#x192;QDQFLDO PRGHOV RI WKH DVVHW ĹŁ 7UHDWLQJ 1,000,000 patients per year that need something better than a statinâ&#x20AC;&#x201D;a number â&#x20AC;&#x153;which we could easily imagine doing,â&#x20AC;? he saysâ&#x20AC;&#x201D;is $5 billion. In other words, he says, ŢWKLV UHSUHVHQWV D VLJQLĆ&#x192;FDQW UHYHQXH opportunity even at ICER-preferred prices!â&#x20AC;?

No â&#x20AC;&#x153;lip serviceâ&#x20AC;?

To understand why The Medicines Company FDQ DĆ&#x201A;RUG WR YLHZ WKH ZRUOG WKURXJK DQ ,&(5 lens as well as the more conventional industry OHQV LWĹ V LPSRUWDQW WR XQGHUVWDQG WKH XQLTXH DWWULEXWHV RI LWV 3&6. LQKLELWRU ,WĹ V DOVR important to recognize that The Medicines Company, with its deeply held commitment WR GHPRQVWUDWLQJ YDOXH LVQĹ W D W\SLFDO pharmaceutical company. â&#x20AC;&#x153;One of the constants that runs through the Ĺ&#x;ROGĹ 0HGLFLQHV &RPSDQ\ DQG WKH Ĺ&#x;QHZĹ RQH LV WKDW ZH GRQĹ W SD\ OLS VHUYLFH WR WKH YDOXH proposition of our therapies,â&#x20AC;? says Meanwell.

In general the industry â&#x20AC;&#x153;talks a good gameâ&#x20AC;? about value, but when push comes to shove, the industry has collectively allowed its R&D teams and its marketing teams to be RYHUZKHOPHG E\ WKH Ć&#x192;QDQFLDO GHPDQGV of returns, he says. In some cases industry continues to succeed handsomely and spectacularly, he saysâ&#x20AC;&#x201D;particularly in specialty areas like oncology. â&#x20AC;&#x153;But that has never been our philosophy,â&#x20AC;? says Meanwell. â&#x20AC;&#x153;We work with medical and economic experts to build a value proposition that the customer can understand, and then stick with LW ĹŁ 7RR PDQ\ WLPHV LWĹ V D GUXJ FRPSDQ\Ĺ V Ć&#x192;QDQFH department that backs into the price of a drug based on an established return-on-investment criterion, he says.

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7KH 0HGLFLQHV &RPSDQ\Ĺ V 3&6. VL PD\ HQWHU a crowded marketplace when it is eventually DSSURYHG Ţ&RPLQJ WR PDUNHW IRXUWK RU Ć&#x192;IWK DV a me-too would be impossible,â&#x20AC;? acknowledges Meanwell. But the company is convinced LWV GUXJĹ V FRUH GLĆ&#x201A;HUHQWLDWLQJ IDFWRUV ZLOO JLYH LW DQ RSSRUWXQLW\ WR XSHQG WKH 3&6. Ć&#x192;HOG Along the way it may upend the way cholesterol is managed and drugs are distributed for high-risk patients.

The single most important medical need in lipid management is patient adherence (because the GLVHDVH LV DV\PSWRPDWLF DQG SDWLHQWV GRQĹ W IHHO DQ\ GLĆ&#x201A;HUHQW LI WKH\ PLVV WDNLQJ WKHLU GUXJV RQO\ 40% of patients continue taking their prescribed statin for more than six months).

The Medicines Company has produced solid data supporting the idea that PCSK9si could be dosed only once every six months. If that expectation is backed up by Phase 3 clinical data, the company will have tremendous FRPPHUFLDO Ć&#x201E;H[LELOLW\Ĺ&#x17E;D ZLGH UDQJH RI commercial options that could enable The Medicines Company to deliver a singularly unique value proposition to patients, physicians and payers, as well as compelling long-term and sustainable returns to its shareholders. In fact, those options could drive a complete shift in the economics of lipid management. â&#x20AC;&#x153;A shot every six months is about as often as I go to the dentist,â&#x20AC;? points out Meanwell. Unlike existing

anti-PCSK9 antibody therapies that require self-injection, â&#x20AC;&#x153;we could do it for you, and we FRXOG FKHFN \RXU FKROHVWHURO ZKLOH \RXĹ UH WKHUH ĹŁ he says. Or the therapy could be administered with a 21st-Century house call, whereby a nurse DGPLQLVWHUV WKH GUXJ LQ D SDWLHQWĹ V KRPH RU RĆ&#x2026;FH and gathers relevant data for pharma and payer alike. In this scenario, payers would know quickly whether a patient was responding to therapy and therefore know whether they should keep SD\LQJ IRU LW HQDEOLQJ HĆ&#x2026;FLHQW RXWFRPHV EDVHG contracting. Meanwhile The Medicines Company could even circumvent middlemen in the current drug distribution system that HURGH GUXJ FRPSDQ\ SURĆ&#x192;WV ZKLOH DW WKH VDPH time helping to push drug prices higher. â&#x20AC;&#x153;Having the right business model will be as important to success in the biopharma industry as having the right molecule,â&#x20AC;? says Real Endpoints CEO Roger Longman.

The Medicines Company has engaged Real (QGSRLQWV WR KHOS LW GHĆ&#x192;QH LWV SURGXFWVĹ YDOXHV in an increasingly payer-dominated marketplace. â&#x20AC;&#x153;For an industry trained on

the notion that science will always win out, LWĹ V YHU\ GLĆ&#x2026;FXOW WR DFFHSW WKH QHFHVVLW\ WKDW companies will now have to innovateâ&#x20AC;&#x201D; sometimes radicallyâ&#x20AC;&#x201D;on the commercial side,â&#x20AC;? says Longman. â&#x20AC;&#x153;The Medicines Company is H[WUDRUGLQDU\ LQ WKDW ZD\ WKH\Ĺ YH JUDVSHG WKH new economic realities of the marketplace and are willing to consider, develop, and employ the alternative models that will ensure patients actually get their drugs.â&#x20AC;?

To Meanwell, understanding the economic UHDOLWLHV RI 7KH 0HGLFLQHV &RPSDQ\Ĺ V FKRVHQ PDUNHWV LV SDUDPRXQW 7KHUHĹ V QR SRLQW LQ KDYLQJ a massive drug discovery and development HĆ&#x201A;RUW HYHQ EHIRUH \RXĹ YH GHWHUPLQHG ZKDW WKH HFRQRPLF RSSRUWXQLWLHV DUH KH VD\V Ţ7KDWĹ V FUD]\Ĺ&#x17E;QR PDWWHU ZKDW DUHD RI PHGLFLQH \RXĹ UH in, you need to understand the value drivers in that business and that part of the health care systemâ&#x20AC;? and only develop technologies and GHOLYHU\ PRGHOV WKDW FRXOG PDNH D GLĆ&#x201A;HUHQFH to those economics. â&#x20AC;&#x153;Why would you bother WR GR DQ\WKLQJ HOVH"ĹŁ

The Medicines Company is extraordinary in that theyâ&#x20AC;&#x2122;ve grasped the new economic realities of the marketplace and are willing to consider, develop, and employ the alternative models that will ensure patients actually get their drugs. â&#x20AC;&#x201D; Roger Longman

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The Intelligent Asthma Management Kit (ADAMM)

The complete solution for monitoring your asthma The award-winning device is a patch-type, flexible wearable with a rechargeable battery that can be worn anywhere on the upper torso, front or back. Move it around from day to day as you choose. Symptom detection provides notifications, inhaler detection and voice journaling for cough counting, respiration, wheeze and heart rate. The app itself offers journaling, medication reminders, symptom displays, wearable graphical user interface and treatment plans – tracking as you go along. With over 3,000 devices already committed for clinical trials, ADAMM-RSM is leading the digital health revolution for respiratory monitoring in clinical trials: a complete package featuring a uniquely searchable database that allows very flexible query.

Diet Sensor SCiO Food Scanner Trying to track what you’re eating for dieters is important, but it’s even more important for those with conditions like Diabetes. What this little gadget does is scan the chemical makeup of the food or drink at hand, analyzing whether or not it’s something you should eat given your dietary conditions. It can only do one piece of the food at a time and has to use a multistep app to do the job, but it’s kind of astounding that it even works in the first place.

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Health Patch MD

The HealthPatch MD is a wearable biosensor that provides clinical-grade measurements of eight core health metrics.

After data collection, it delivers intelligent health measurements by processing thousands of data points per minute with the SensorFusion algorithms. During the past three years, design of the HealthPatch MD has it sized down to the point that patient experience is no different than putting on a bandage. Itâ&#x20AC;&#x2122;s designed to meet three broad healthcare categories: Remote monitoring, clinical environments and wellness. A user might be continuously monitored if they were just discharged from the hospital, or they might use it for period monitoring if they are just looking for a baseline of their health. The technology fits a variety of cases that push forward wearable health devices.

Valedo Back Therapy Kit Brought to you by a medical device company you will get two highly sensitive motion sensors and iOS/Android App with therapeutic back pain exercises. With a pair of sensors and the Valedo App the user will learn how to perform therapeutic exercises correctly and have fun by performing them in form of video games. Hocoma, movement scientists, physical therapists and physicians developed the therapeutic exercises. Through more than 50 games app aims to train all the deep stabilising back muscles that are key for a healthy, fit back. Valedo App tracks your performance and progress, checks the precision and accuracy of your moves, and lets you share the results with your physical therapist. Due to its innovative approach, transforming traditional back therapy, the Valedo has already won many awards for innovation.

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Philips Lumify Ultrasound images via a mobile app Among many other things, Phlips introduced at the IFA, Lumify an app-based ultrasound solution that offers high-quality imaging on a compatible smart device. It is sold through a subscription model, and is intended mainly for healthcare professionals, but it has a consumer side. It could be used for instance by women waiting for a baby to take ultrasound images of the fetus and send them to the doctor. Users can have access to an online portal where they can manage their device and access Philips’ support services.

iHealth Align

Taking at-home health management to the next level!

Meet the world’s smallest, most portable mobile glucometer. The small, discreet and powerful meter plugs directly into your Smartphone’s headphone jack, and displays results instantly on the phone screen. Just slightly bigger than a quarter, its compact size and mobile sync capability make it a small and powerful tool for diabetes management. This tiny FDA approved meter and mobile app make your smart phone even smarter. The Gluco-Smart app allows you to take and log measurements anywhere and view trends and statistics for a span of 7, 14, 30 or 90 days. The iHealth Smart-Gluco app works as your automatic logbook that stores readings and notes. Set-up reminders for medication, plus record pre/post meals or fasting and insulin dosages.

The mobile app keeps track of test strip quantity and expiration dates for you.

With iHealth Simple Savings, you’ll no longer have to deal with insurance paperwork because we’ve kept the cost at or below the typical insurance co-pay contribution.

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Google's Smart Contact Lenses Unlike regular contact lenses, Google’s smart lenses are made for diabetes patients especially those who coincidentally also wear glasses. The product was developed after the giant tech company partnered with a Swiss-based pharmaceutical company. The technology behind this innovation stems from the fact that a person’s glucose level can be measured through their tears’ fluidal composition.

The data is then relayed to a connected iPhone or Android app that then analyses and displays the results to the patient or relevant healthcare professional.

Google also claims that the smart contact lenses can also be used additionally to restore a patient’s vision’s natural autofocus. Plans of fine-tuning and expanding the use of these glasses are currently underway.

“Gamechanger: A visionary strategist bringing fresh and unique ideas to the table, an individual or business that stands out from the crowd with ideas that inventively change the way a situation develops.”

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Big Data: A gamechanger in healthcare Big Data will leave no sector untouched as it continues to change the way we think about everything from sales to human resources, and medicine and healthcare are no different.

For years, the basis of most medical research and discovery has been the collection and analysis of data: who gets sick, how they get sick and why. But now, with sensors in every smartphone and doctors able to share information across disciplines, the quantity and quality of the data available is greater than ever before, which means that the potential for breakthroughs and change is growing just as exponentially.

Prevention We humans are notoriously terrible about preventing problems — we’re much more motivated to treat them after they appear. But healthcare providers know that the old adage “an ounce of prevention is worth a pound of cure” is true.

Smartphones and other popular smart devices including Jawbone, Fitbit and others, now have the capacity to help people track their progress towards a healthier lifestyle.

incredibly useful databases that could be game changers in understanding the intersection of lifestyle and disease. The problem with many medical studies is that patient behaviors are self-reported, and there’s a well known psychological phenomenon wherein participants fudge their own data to make themselves look better.

But with smartphones and other devices, the device can impartially record and transmit the actual data — steps walked, heart rate, etc. — and the patient’s ego or opinions never enter into the equation providing more and more accurate data for researchers than ever before.

Diagnosis The next logical step, then is giving doctors access to this trove of patient information.

Apps and devices to help track and monitor physical fitness but also chronic ailments like diabetes, Parkinson’s and heart disease are also being developed.

The medical industry already collects a huge amount of data, but it’s often siloed in individual doctors’ offices, hospitals, and clinics. Unifying that data — and combining it with patient-collected data from smart devices — is the industry’s next big hurdle to overcome.

Researchers are beginning to compile this information into

Healthcare providers are already focusing on digitizing

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patient records and ensuring access to one set of records across the healthcare system.

For example, Kaiser Permanente has created a program called HealthConnect that unifies health records across its system, and the program is already credited with a $1 billion reduction in costs across the system.

The Pittsburgh Health Data Alliance aims to compile data from various sources (including medical and insurance records, wearable sensors, genetic data and even social media use) to draw a comprehensive picture of the patient as an individual, and then offer a tailored healthcare package. I predict that more and more services like this will emerge in the future.

In addition, programs like IBM’s Watson are being applied as pattern recognition programs to diagnostics. So far, algorithms with machine learning capabilities are proving as effective or more effective than human diagnosticians in spotting cancers in test results.

The potential here is incredible for catching more diseases at earlier stages, and thus increasing the likelihood of treatment success.

Treatment Big Data also allows the fascinating intersection of huge quantities of patient data with personal, individualized care.

IBM’s Watson and other deep learning algorithms have already proven successful at “reading” and analyzing huge quantities of text. IBM is working to produce an interface that would allow Watson (or a program like it) to analyze the existing medical research on any given topic and then synthesize and summaries the information for the doctor.

Follow Up Care Data, deep learning, and robotics come together especially when it comes to follow-up, long-term care, and preventing relapses and readmissions.

Big Data has been used to predict which patients are most likely to follow their doctor’s advice — and which aren’t — to help prevent hospital readmissions in the most vulnerable patients.

Apps are being developed that can track when a patient takes his or her medication — like GPS enabled inhalers for asthmatics. Others record information about calls, texts, physical location, movement and sleep patterns that can help alert doctors or family members if the patient is likely feeling unwell (poor sleep, lack of movement) or even in danger of an anxiety or other psychological attack.

Because of a rapidly aging population, the Japanese in particular are at the forefront of combining advanced robotics with caregiving and treatment. Robots can be used for everything from monitoring elderly patients who live alone, to helping doctors provide care from a distance to rural patients, to even robotic pets that help calm and soothe dementia and Alzheimer’s patients.

The potential to improve patient outcomes, understand disease — even cure cancer — all seem just around the corner with these advances in the quantity and quality of the data we collect along with the computing power to analyze and understand it.

Original Source: Bernard Marr, Forbes

The result is that the doctor will be able to make the best treatment choices for an individual patient based on the vast amounts of data available — without having to spend hours doing the research himself.

It’s likely that the medicines and treatments the doctor would then prescribe were also developed with the aid of Big Data.

Data on applicants helps researchers choose the best subjects for clinical trials, and algorithms help them analyze the results.

Recently, data-sharing arrangements between the pharmaceutical giants has led to breakthroughs such as the discovery that Desipramine, commonly used as an antidepressant, has potential uses in curing types of lung cancer.

In the near future, the doctor might also choose to use personalized medicine as a treatment option, which involves tailoring medicines to a person’s unique genetic makeup.

It is developed by integrating a person’s genetic blueprint and data on their lifestyle and environment, then comparing it alongside thousands of others to predict illness and determine the best treatment.

Big Data is also being used to track, analyze and treat epidemics across the world, including Ebola and Zika.

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The strategy that will fix healthcare In healthcare, the days of business as usual are over.

Around the world, every health care system is struggling with rising costs and uneven quality despite the hard work of well-intentioned, well-trained clinicians. Healthcare leaders and policy makers have tried countless incremental fixes - attacking fraud, reducing errors, enforcing practice guidelines, making patients better “consumers,” implementing electronic medical records - but none have had much impact.

It’s time for a fundamentally new strategy.

At its core is maximizing value for patients: that is, achieving the best outcomes at the lowest cost. We must move away from a supply-driven health care system organized around what physicians do and toward a patient-centered system organized around what patients need.

We must shift the focus from the volume and profitability of services provided - physician visits, hospitalizations, procedures, and tests - to the patient outcomes achieved.

And we must replace today’s fragmented system, in which every local provider offers a full range of services, with a system in which services for particular medical conditions are concentrated in health-delivery organizations and in the right locations to deliver high-value care.

Making this transformation is not a single step but an overarching strategy. We call it the “value agenda.” It will require restructuring how health care delivery is organized, measured, and reimbursed.

In 2006, Michael Porter and Elizabeth Teisberg introduced the value agenda in their book Redefining Health Care.

Since then, through our research and the work of thousands of health care leaders and academic researchers around the world, the tools to implement the agenda have been developed, and their deployment by providers and other organizations is rapidly spreading.

The transformation to value-based health care is well under way. Some organizations are still at the stage of pilots and initiatives in individual practice areas. Other organizations, such as the Cleveland Clinic and Germany’s Schön Klinik, have undertaken large-scale changes involving multiple components of the value agenda. The result has been striking improvements in outcomes and efficiency, and growth in market share.

There is no longer any doubt about how to increase the value of care. The question is, which organizations will lead the way and how quickly can others follow? The challenge of becoming a value-based organization should not be underestimated, given the entrenched interests and practices of many decades. This transformation must come from within. Only physicians and provider organizations can put in place the set of interdependent steps needed to improve value, because ultimately value is determined by how medicine is practiced. Yet every other stakeholder in the health care system has a role to play. Patients, health plans, employers, and suppliers can hasten the transformation - and all will benefit greatly from doing so.

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Defining the Goal The first step in solving any problem is to define the proper goal. Efforts to reform health care have been hobbled by lack of clarity about the goal, or even by the pursuit of the wrong goal. Narrow goals such as improving access to care, containing costs, and boosting profits have been a distraction. Access to poor care is not the objective, nor is reducing cost at the expense of quality. Increasing profits is today misaligned with the interests of patients, because profits depend on increasing the volume of services, not delivering good results.

In healthcare, the overarching goal for providers, as well as for every other stakeholder, must be improving value for patients, where value is defined as the health outcomes achieved that matter to patients relative to the cost of achieving those outcomes. Improving value requires either improving one or more outcomes without raising costs or lowering costs without compromising outcomes, or both.

Failure to improve value means, well, failure.

Embracing the goal of value at the senior management and board levels is essential, because the value agenda requires a fundamental departure from the past. While health care organizations have never been against improving outcomes, their central focus has been on growing volumes and maintaining margins. Despite noble mission statements, the real work of improving value is left undone. Legacy delivery approaches and payment structures, which have remained largely unchanged for decades, have reinforced the problem and produced a system with erratic quality and unsustainable costs.

All this is now changing. Facing severe pressure to contain costs, payors are aggressively reducing reimbursements and finally moving away from fee-for-service and toward performance-based reimbursement. In the U.S., an increasing percentage of patients are being covered by Medicare and Medicaid, which reimburse at a fraction of private-plan levels.

These pressures are leading more independent hospitals to join health systems and more physicians to move out of private practice and become salaried employees of hospitals.

The transition will be neither linear nor swift, and we are entering a prolonged period during which providers will work under multiple payment models with varying exposure to risk.

In this environment, providers need a strategy that transcends traditional cost reduction and responds to new payment models. If providers can improve patient outcomes, they can sustain or grow their market share. If they can improve the efficiency of providing excellent care, they will enter any contracting discussion from a position of strength. Those providers that increase value will be the most competitive. Organizations that fail to improve value, no matter how prestigious and powerful they seem today, are likely to encounter growing pressure. Similarly, health insurers that are slow to embrace and support the value agenda - by failing, for example, to favor high-value providers - will lose subscribers to those that do.

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The Strategy for Value Transformation The strategic agenda for moving to a high-value health care delivery system has six components. They are interdependent and mutually reinforcing; as we will see, progress will be easiest and fastest if they are advanced together.

The current structure of health care delivery has been sustained for decades because it has rested on its own set of mutually reinforcing elements: organization by specialty with independent private-practice physicians; measurement of “quality” defined as process compliance; cost accounting driven not by costs but by charges; fee-forservice payments by specialty with rampant cross-subsidies; delivery systems with duplicative service lines and little integration; fragmentation of patient populations such that most providers do not have critical masses of patients with a given medical condition; siloed IT systems around medical specialties; and others. This interlocking structure explains why the current system has been so resistant to change, why incremental steps have had little impact, and why simultaneous progress on multiple components of the strategic agenda is so beneficial.

The components of the strategic agenda are not theoretical or radical. All are already being implemented to varying degrees in organizations ranging from leading academic medical centers to community safety-net hospitals. No organization, however, has yet put in place the full value agenda across its entire practice. Every organization has room for improvement in value for patients - and always will.

1. Organise into Integrated Practice Units (IPUs) At the core of the value transformation is changing the way clinicians are organized to deliver care. The first principle in structuring any organization or business is to organize around the customer and the need. In health care, that requires a shift from today’s siloed organization by specialty department and discrete service to organizing around the patient’s medical condition. We call such a structure an integrated practice unit. In an IPU, a dedicated team made up of both clinical and nonclinical personnel provides the full care cycle for the patient’s condition.

IPUs treat not only a disease but also the related conditions, complications, and circumstances that commonly occur along with it - such as kidney and eye disorders for patients with diabetes, or palliative care for those with metastatic cancer. IPUs not only provide treatment but also assume responsibility for engaging patients and their families in care - for instance, by providing education and counseling, encouraging adherence to treatment and prevention protocols, and supporting needed behavioral changes such as smoking cessation or weight loss.

In an IPU, personnel work together regularly as a team toward a common goal: maximizing the patient’s overall outcomes as efficiently as possible. They are expert in the condition, know and trust one another, and coordinate easily to minimize wasted time and resources. They meet frequently, formally and informally, and review data on their own performance. Armed with those data, they work to improve care - by establishing new protocols and devising better or more efficient ways to engage patients, including group visits and virtual interactions.

Ideally, IPU members are co-located, to facilitate communication, collaboration, and efficiency for patients, but they work as a team even if they’re based at different locations.

Take, for example, care for patients with low back pain - one of the most common and expensive causes of disability. In the prevailing approach, patients receive portions of their care from a variety of types of clinicians, usually in several different locations, who function more like a spontaneously assembled “pickup team” than an integrated unit. One patient might begin care with a primary care physician, while others might start with an orthopedist, a neurologist, or a rheumatologist. What happens next is unpredictable.

Patients might be referred to yet another physician or to a physical therapist. They might undergo radiology testing (this could happen at any point - even before seeing a physician). Each encounter is separate from the others, and no one coordinates the care. Duplication of effort, delays, and inefficiency is almost inevitable. Since no one measures patient outcomes, how long the process takes, or how much the care costs, the value of care never improves.

Contrast that with the approach taken by the IPU at Virginia Mason Medical Center, in Seattle. Patients with low back pain call one central phone number (206-41-SPINE), and most can be seen the same day. The “spine team” pairs a physical therapist with a physician who is board-certified in physical medicine and rehabilitation, and patients usually see both on their first visit. Those with serious causes of back pain (such as a malignancy or an infection) are quickly identified and enter a process designed to address the specific diagnosis. Other patients will require surgery and will enter a process for that. For most patients, however, physical therapy is the most effective next intervention, and their treatment often begins the same day.

Virginia Mason did not address the problem of chaotic care by hiring coordinators to help patients navigate the existing system - a “solution” that does not work. Rather, it eliminated the chaos by creating a new system in which caregivers work together in an integrated way. The impact on value has been striking. Compared with regional averages, patients at Virginia Mason’s Spine Clinic miss fewer days of work and need fewer physical therapy. In addition, the use of MRI scans to evaluate low back pain has decreased by 23% since the clinic’s launch, in 2005, even as outcomes have improved. Better care has actually lowered costs, a point we will return to later. Virginia Mason has also increased revenue through increased productivity, rather than depending on more fee-for-service visits to drive revenue from unneeded or duplicative tests and care. The clinic sees about 2,300 new patients per year compared with 1,404 under the old system, and it does so in the same space and with the same number of staff members.

Wherever IPUs exist, we find similar results - faster treatment, better outcomes, lower costs, and, usually, improving market share in the condition. But those results can be achieved only through a restructuring of work. Simply co-locating staff in the same building, or putting up a sign announcing a Center of Excellence or an Institute, will have little impact.

IPUs emerged initially in the care for particular medical conditions, such as breast cancer and joint replacement.

Today, condition-based IPUs are proliferating rapidly

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across many areas of acute and chronic care, from organ transplantation to shoulder care to mental health conditions such as eating disorders.

Recently, we have applied the IPU model to primary care. By its very nature, primary care is holistic, concerned with all the health circumstances and needs of a patient. Today’s primary care practice applies a common organizational structure to the management of a very wide range of patients, from healthy adults to the frail elderly. The complexity of meeting their heterogeneous needs has made value improvement very difficult in primary care - for example, heterogeneous needs make outcomes measurement next to impossible.

In primary care, IPUs are multidisciplinary teams organized to serve groups of patients with similar primary and preventive care needs - for example, patients with complex chronic conditions such as diabetes, or disabled elderly patients.

Different patient groups require different teams, different types of services, and even different locations of care. They also require services to address head-on the crucial role of lifestyle change and preventive care in outcomes and costs, and those services must be tailored to patients’ overall circumstances. Within each patient group, the appropriate clinical team, preventive services, and education can be put in place to improve value, and results become measureable.

This approach is already starting to be applied to highrisk, high-cost patients through so-called Patient-Centered Medical Homes. But the opportunity to substantially enhance value in primary care is far broader. At Geisinger Health System, in Pennsylvania, for example, the care for patients with chronic conditions such as diabetes and heart disease involves not only physicians and other clinicians but also pharmacists, who have major responsibility for following and adjusting medications. The inclusion of pharmacists on teams has resulted in fewer strokes, amputations, emergency department visits, and hospitalizations, and in better performance on other outcomes that matter to patients.

2. Measure Outcomes and Costs for Every Patient Rapid improvement in any field requires measuring results - a familiar principle in management. Teams improve and excel by tracking progress over time and comparing their performance to that of peers inside and outside their organization. Indeed, rigorous measurement of value (outcomes and costs) is perhaps the single most important step in improving health care. Wherever we see systematic measurement of results in health care - no matter what the country - we see those results improve.

Yet the reality is that the great majority of health care providers (and insurers) fail to track either outcomes or costs by medical condition for individual patients. For example, although many institutions have “back pain centers,” few can tell you about their patients’ outcomes (such as their time to return to work) or the actual resources used in treating those patients over the full care cycle. That surprising truth goes a long way toward explaining why decades of health care reform have not changed the trajectory of value in the system.

When outcomes measurement is done, it rarely goes beyond tracking a few areas, such as mortality and safety. Instead, “quality measurement” has gravitated to the most easily measured and least controversial indicators. Most “quality”

metrics do not gauge quality; rather, they are process measures that capture compliance with practice guidelines.

HEDIS (the Healthcare Effectiveness Data and Information Set) scores consist entirely of process measures as well as easy-to-measure clinical indicators that fall well short of actual outcomes. For diabetes, for example, providers measure the reliability of their LDL cholesterol checks and hemoglobin A1c levels, even though what really matters to patients is whether they are likely to lose their vision, need dialysis, have a heart attack or stroke, or undergo an amputation. Few health care organizations yet measure how their diabetic patients fare on all the outcomes that matter.

It is not surprising that the public remains indifferent to quality measures that may gauge a provider’s reliability and reputation but say little about how its patients actually do.

The only true measures of quality are the outcomes that matter to patients. And when those outcomes are collected and reported publicly, providers face tremendous pressure - and strong incentives - to improve and to adopt best practices, with resulting improvements in outcomes. Take, for example, the Fertility Clinic Success Rate and Certification Act of 1992, which mandated that all clinics performing assisted reproductive technology procedures, notably in vitro fertilization, provide their live birth rates and other metrics to the Centers for Disease Control. After the CDC began publicly reporting those data, in 1997, improvements in the field were rapidly adopted, and success rates for all clinics, large and small, have steadily improved.

Measuring outcomes that matter to patients.

Outcomes should be measured by medical condition (such as diabetes), not by specialty (podiatry) or intervention (eye examination). Outcomes should cover the full cycle of care for the condition, and track the patient’s health status after care is completed. The outcomes that matter to patients for a particular medical condition fall into three tiers.

Tier 1 involves the health status achieved. Patients care about mortality rates, of course, but they’re also concerned about their functional status. In the case of prostate cancer treatment, for example, five-year survival rates are typically 90% or higher, so patients are more interested in their providers’ performance on crucial functional outcomes, such as incontinence and sexual function, where variability among providers is much greater.

Tier 2 outcomes relate to the nature of the care cycle and recovery. For example, high readmission rates and frequent emergency-department “bounce backs” may not actually worsen long-term survival, but they are expensive and frustrating for both providers and patients. The level of discomfort during care and how long it takes to return to normal activities also matter greatly to patients. Significant delays before seeing a specialist for a potentially ominous complaint can cause unnecessary anxiety, while delays in commencing treatment prolong the return to normal life.

Even when functional outcomes are equivalent, patients whose care process is timely and free of chaos, confusion, and unnecessary setbacks experience much better care than those who encounter delays and problems along the way.

Tier 3 outcomes relate to the sustainability of health. A hip replacement that lasts two years is inferior to one that lasts 15 years, from both the patient’s perspective and the provider’s.

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Measuring the full set of outcomes that matter is indispensable to better meeting patients’ needs. It is also one of the most powerful vehicles for lowering health care costs.

If Tier 1 functional outcomes improve, costs invariably go down. If any Tier 2 or 3 outcomes improve, costs invariably go down. A 2011 German study, for example, found that one-year follow-up costs after total hip replacement were 15% lower in hospitals with above-average outcomes than in hospitals with below-average outcomes, and 24% lower than in very-low-volume hospitals, where providers have relatively little experience with hip replacements. By failing to consistently measure the outcomes that matter, we lose perhaps our most powerful lever for cost reduction.

Over the past half dozen years, a growing array of providers have begun to embrace true outcome measurement. Many of the leaders have seen their reputations - and market share - improve as a result. A welcomed competition is emerging to be the most comprehensive and transparent provider in measuring outcomes.

The Cleveland Clinic is one such pioneer, first publishing its mortality data on cardiac surgery and subsequently mandating outcomes measurement across the entire organization. Today, the Clinic publishes 14 different “outcomes books” reporting performance in managing a growing number of conditions (cancer, neurological conditions, and cardiac diseases, for example). The range of outcomes measured remains limited, but the Clinic is expanding its efforts, and other organizations are following suit. At the individual IPU level, numerous providers are beginning efforts. At Dartmouth-Hitchcock’s Spine Center, for instance, patient scores for pain, physical function, and disability for surgical and nonsurgical treatment at three, six, 12, and 24 months are now published for each type of low back disorder.

Providers are improving their understanding of what outcomes to measure and how to collect, analyze, and report outcomes data. For example, some of our colleagues at Partners HealthCare in Boston are testing innovative technologies such as tablet computers, web portals, and telephonic interactive systems for collecting outcomes data from patients after cardiac surgery or as they live with chronic conditions such as diabetes.

Outcomes are also starting to be incorporated in real time into the process of care, allowing providers to track progress as they interact with patients.

To accelerate comprehensive and standardized outcome measurement on a global basis, we recently cofounded the International Consortium for Health Outcomes Measurement. ICHOM develops minimum outcome sets by medical condition, drawing on international registries and provider best practices. It brings together clinical leaders from around the world to develop standard outcome sets, while also gathering and disseminating best practices in outcomes data collection, verification, and reporting.

Just as railroads converged on standard track widths and the telecommunications industry on standards to allow data exchange, health care providers globally should consistently measure outcomes by condition to enable universal comparison and stimulate rapid improvement.

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Measuring the cost of care.

For a field in which high cost is an overarching problem, the absence of accurate cost information in health care is nothing short of astounding. Few clinicians have any knowledge of what each component of care costs, much less how costs relate to the outcomes achieved. In most health care organizations there is virtually no accurate information on the cost of the full cycle of care for a patient with a particular medical condition. Instead, most hospital cost-accounting systems are department-based, not patientbased, and designed for billing of transactions reimbursed under fee-for-service contracts. In a world where fees just keep going up, that makes sense. Existing systems are also fine for overall department budgeting, but they provide only crude and misleading estimates of actual costs of service for individual patients and conditions. For example, cost allocations are often based on charges, not actual costs.

As health care providers come under increasing pressure to lower costs and report outcomes, the existing systems are wholly inadequate.

To determine value, providers must measure costs at the medical condition level, tracking the expenses involved in treating the condition over the full cycle of care. This requires understanding the resources used in a patient’s care, including personnel, equipment, and facilities; the capacity cost of supplying each resource; and the support costs associated with care, such as IT and administration. Then the cost of caring for a condition can be compared with the outcomes achieved.

The best method for understanding these costs is timedriven activity-based costing, TDABC. While rarely used in health care to date, it is beginning to spread. Where TDABC is being applied, it is helping providers find numerous ways to substantially reduce costs without negatively affecting outcomes (and sometimes even improving them).

Providers are achieving savings of 25% or more by tapping opportunities such as better capacity utilization, morestandardized processes, better matching of personnel skills to tasks, locating care in the most cost-effective type of facility, and many others.

For example, Virginia Mason found that it costs $4 per minute for an orthopedic surgeon or other procedural specialist to perform a service, $2 for a general internist, and $1 or less for a nurse practitioner or physical therapist. In light of those cost differences, focusing the time of the most expensive staff members on work that utilizes their full skill set is hugely important.

Without understanding the true costs of care for patient conditions, much less how costs are related to outcomes, health care organizations are flying blind in deciding how to improve processes and redesign care. Clinicians and administrators battle over arbitrary cuts, rather than working together to improve the value of care. Because proper cost data are so critical to overcoming the many barriers associated with legacy processes and systems, we often tell skeptical clinical leaders: “Cost accounting is your friend.”

Understanding true costs will finally allow clinicians to work with administrators to improve the value of care - the fundamental goal of health care organizations.

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3. Move to Bundled Payments for Care Cycles Neither of the dominant payment models in health care - global capitation and fee-for-service - directly rewards improving the value of care. Global capitation, a single payment to cover all of a patient’s needs, rewards providers for spending less but not specifically for improving outcomes or value. It also decouples payment from what providers can directly control. Fee-for-service couples payment to something providers can control - how many of their services, such as MRI scans, they provide - but not to the overall cost or the outcomes. Providers are rewarded for increasing volume, but that does not necessarily increase value.

The payment approach best aligned with value is a bundled payment that covers the full care cycle for acute medical conditions, the overall care for chronic conditions for a defined period (usually a year), or primary and preventive care for a defined patient population (healthy children, for instance). Well-designed bundled payments directly encourage teamwork and high-value care.

Payment is tied to overall care for a patient with a particular medical condition, aligning payment with what the team can control. Providers benefit from improving efficiency while maintaining or improving outcomes.

Sound bundled payment models should include: severity adjustments or eligibility only for qualifying patients; care guarantees that hold the provider responsible for avoidable complications, such as infections after surgery; stop-loss provisions that mitigate the risk of unusually high-cost events; and mandatory outcomes reporting.

Governments, insurers, and health systems in multiple countries are moving to adopt bundled payment approaches.

For example, the Stockholm County Council initiated such a program in 2009 for all total hip and knee replacements for relatively healthy patients. The result was lower costs, higher patient satisfaction, and improvement in some outcomes.

In Germany, bundled payments for hospital inpatient care combining all physician fees and other costs, unlike payment models in the U.S. - have helped keep the average payment for a hospitalization below $5,000 (compared with more than $19,000 in the U.S., even though hospital stays are, on average, 50% longer in Germany).

Among the features of the German system are care guarantees under which the hospital bears responsibility for the cost of rehospitalization related to the original care.

In the U.S., bundled payments have become the norm for organ transplant care. Here, mandatory outcomes reporting has combined with bundles to reinforce team care, speed diffusion of innovation, and rapidly improve outcomes.

Providers that adopted bundle approaches early benefitted.

UCLA’s kidney transplant program, for example, has grown dramatically since pioneering a bundled price arrangement with Kaiser Permanente, in 1986, and offering the payment approach to all its payors shortly thereafter. Its outcomes are among the best nationally, and UCLA’s market share in organ transplantation has expanded substantially. Employers are also embracing bundled payments. This year,

Walmart introduced a program in which it encourages employees who need cardiac, spine, and selected other surgery to obtain care at one of just six providers nationally, all of which have high volume and track records of excellent outcomes: the Cleveland Clinic, Geisinger, the Mayo Clinic, Mercy Hospital (in Springfield, Missouri), Scott & White, and Virginia Mason. The hospitals are reimbursed for the care with a single bundled payment that includes all physician and hospital costs associated with both inpatient and outpatient pre- and post-operative care. Employees bear no out-of-pocket costs for their care - travel, lodging, and meals for the patient and a caregiver are provided - as long as the surgery is performed at one of the centers of excellence. The program is in its infancy, but expectations are that Walmart and other large employers will expand such programs to improve value for their employees, and will step up the incentives for employees to use them. Sophisticated employers have learned that they must move beyond cost containment and health promotion measures, such as copays and on-site health and wellness facilities, and become a greater force in rewarding high-value providers with more patients.

As bundled payment models proliferate, the way in which care is delivered will be transformed. Consider how providers participating in Walmart’s program are changing the way they provide care. As clinical leaders map the processes involved in caring for patients who live outside their immediate area, they are learning how to better coordinate care with all of patients’ local physicians. They’re also questioning existing practices. For example, many hospitals routinely have patients return to see the cardiac surgeon six to eight weeks after surgery, but out-of-town visits seem difficult to justify for patients with no obvious complications.

In deciding to drop those visits, clinicians realized that maybe local patients do not need routine postoperative visits either.

Providers remain nervous about bundled payments, citing concerns that patient heterogeneity might not be fully reflected in reimbursements, and that the lack of accurate cost data at the condition level could create financial exposure. Those concerns are legitimate, but they are present in any reimbursement model. We believe that concerns will fall away over time, as sophistication grows and the evidence mounts that embracing payments aligned with delivering value is in providers’ economic interest. Providers will adopt 4. Integrate Care Delivery Systems A large and growing proportion of health care is provided by multisite health care delivery organizations. In 2011, 60% of all U.S. hospitals were part of such systems, up from 51% in 1999. Multisite health organizations accounted for 69% of total admissions in 2011. Those proportions are even higher today. Unfortunately, most multisite organizations are not true delivery systems, at least thus far, but loose confederations of largely stand-alone units that often duplicate services. There are huge opportunities for improving value as providers integrate systems to eliminate the fragmentation and duplication of care and to optimize the types of care delivered in each location.

To achieve true system integration, organizations must grapple with four related sets of choices: defining the scope of services, concentrating volume in fewer locations,

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choosing the right location for each service line, and integrating care for patients across locations. The politics of redistributing care remain daunting, given most providers’ instinct to preserve the status quo and protect their turf.

Some acid-test questions to gauge board members’ and health system leaders’ appetite for transformation include: Are you ready to give up service lines to improve the value of care for patients? Is relocating service lines on the table?

Define the scope of services.

A starting point for system integration is determining the overall scope of services a provider can effectively deliver and reducing or eliminating service lines where they cannot realistically achieve high value. For community providers, this may mean exiting or establishing partnerships in complex service lines, such as cardiac surgery or care for rare cancers. For academic medical centers, which have more heavily resourced facilities and staff, this may mean minimizing routine service lines and creating partnerships or affiliations with lower-cost community providers in those fields. Although limiting the range of service lines offered has traditionally been an unnatural act in health care - where organizations strive to do everything for everyone - the move to a value-based delivery system will require those kinds of choices.

Concentrate volume in fewer locations.

Second, providers should concentrate the care for each of the conditions they do treat in fewer locations. The stated promise of consumer-oriented health care - “We do everything you need close to your home or workplace” - has been a good marketing pitch but a poor strategy for creating value. Concentrating volume is essential if integrated practice units are to form and measurement is to improve.

Numerous studies confirm that volume in a particular medical condition matters for value. Providers with significant experience in treating a given condition have better outcomes, and costs improve as well. A recent study of the relationship between hospital volume and operative mortality for high-risk types of cancer surgery, for example, found that as hospital volumes rose, the chances of a patient’s dying as a result of the surgery fell by as much as 67%. Patients, then, are often much better off traveling longer distance to obtain care at locations where there are teams with deep experience in their condition. That often means driving past the closest hospitals.

Concentrating volume is among the most difficult steps for many organizations, because it can threaten both prestige and physician turf. Yet the benefits of concentration can be gamechanging. In 2009, the city of London set out to improve survival and prospects for stroke patients by ensuring that patients were cared for by true IPUs dedicated, state-of-the-art teams and facilities including neurologists who were expert in the care of stroke. These were called hyper-acute stroke units, or HASUs. At the time, there were too many hospitals providing acute stroke care in London (32 of them) to allow any to amass a high volume.

UCL Partners, a delivery system comprising six well-known teaching hospitals that serve North Central London, had two hospitals providing stroke care - University College London Hospital and the Royal Free Hospital - located less than three miles apart. University College was selected to house the

new stroke unit. Neurologists at Royal Free began practicing at University College, and a Royal Free neurologist was appointed as the overall leader of the stroke program. UCL Partners later moved all emergency vascular surgery and complex aortic surgery to Royal Free.

These steps sent a strong message that UCL Partners was ready to concentrate volume to improve value. The number of stroke cases treated at University College climbed from about 200 in 2008 to more than 1,400 in 2011. All stroke patients can now undergo rapid evaluation by highly experienced neurologists and begin their recovery under the care of nurses who are expert in preventing stroke-related complications. Since the shift, mortality associated with strokes at University College has fallen by about 25% and costs per patient have dropped by 6%.

Choose the right location for each service.

The third component of system integration is delivering particular services at the locations at which value is highest.

Less complex conditions and routine services should be moved out of teaching hospitals into lower-cost facilities, with charges set accordingly. There are huge value improvement opportunities in matching the complexity and skills needed with the resource intensity of the location, which will not only optimize cost but also increase staff utilization and productivity. Children’s Hospital of Philadelphia, for instance, decided to stop performing routine tympanostomies (placing tubes into children’s eardrums to reduce fluid collection and risk of infection) at its main facility and shifted those services to suburban ambulatory surgery facilities. More recently, the hospital applied the same approach to simple hypospadias repairs, a urological procedure. Relocating such services cut costs and freed up operating rooms and staff at the teaching hospital for morecomplex procedures. Management estimated the total cost reduction resulting from the shift at 30% to 40%.

In many cases, current reimbursement schemes still reward providers for performing services in a hospital setting, offering even higher payments if the hospital is an academic medical center -another example of how existing reimbursement models have worked against value. But the days of charging higher fees for routine services in high-cost settings are quickly coming to an end.

Integrate care across locations.

The final component of health system integration is to integrate care for individual patients across locations. As providers distribute services in the care cycle across locations, they must learn to tie together the patient’s care across these sites. Care should be directed by IPUs, but recurring services need not take place in a single location. For example, patients with low back pain may receive an initial evaluation, and surgery if needed, from a centrally located spine IPU team but may continue physical therapy closer to home.

Wherever the services are performed, however, the IPU manages the full care cycle. Integrating mechanisms, such as assigning a single physician team captain for each patient and adopting common scheduling and other protocols, help ensure that well-coordinated, multidisciplinary care is delivered in a cost-effective and convenient way.

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5. Expand Geographic Reach Health care delivery remains heavily local, and even academic medical centers primarily serve their immediate geographic areas. If value is to be substantially increased on a large scale, however, superior providers for particular medical conditions need to serve far more patients and extend their reach through the strategic expansion of excellent IPUs. Buying full-service hospitals or practices in new geographic areas is rarely the answer. Geographic expansion should focus on improving value, not just increasing volume.

Targeted geographic expansion by leading providers is rapidly increasing, with dozens of organizations such as Vanderbilt, Texas Children’s, Children’s Hospital of Philadelphia, MD Anderson Cancer Center, and many others taking bold steps to serve patients over a wide geographic area.

Geographic expansion takes two principle forms. The first is a hub-and-spoke model. For each IPU, satellite facilities are established and staffed at least partly by clinicians and other personnel employed by the parent organization. In the most effective models, some clinicians rotate among locations, which helps staff members across all facilities feel they are part of the team. As expansion moves to an entirely new region, a new IPU hub is built or acquired.

Patients often get their initial evaluation and development of a treatment plan at the hub, but some or much care takes place at more-convenient (and cost-effective) locations.

Satellites deliver less complicated care, with complex cases referred to the hub. If complications occur whose effective management is beyond the ability of the satellite facility, the patient’s care is transferred to the hub. The net result is a substantial increase in the number of patients an excellent IPU can serve.

This model is becoming more common among leading cancer centers. MD Anderson, for example, has four satellite sites in the greater Houston region where patients receive chemotherapy, radiation therapy, and, more recently, lowcomplexity surgery, under the supervision of a hub IPU. The cost of care at the regional facilities is estimated to be about one-third less than comparable care at the main facility. By 2012, 22% of radiation treatment and 15% of all chemotherapy treatment were performed at regional sites, along with about 5% of surgery. Senior management estimates that 50% of comparable care currently still performed at the hub could move to satellite sites—a significant untapped value opportunity.

The second emerging geographic expansion model is clinical affiliation, in which an IPU partners with community providers or other local organizations, using their facilities rather than adding capacity. The IPU provides management oversight for clinical care, and some clinical staff members working at the affiliate may be employed by the parent IPU. MD Anderson uses this approach in its partnership with Banner Phoenix. Hybrid models include the approach taken

by MD Anderson in its regional satellite program, which leases outpatient facilities located on community hospital campuses and utilizes those hospitals’ operating rooms and other inpatient and ancillary services as needed.

Local affiliates benefit from the expertise, experience, and

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reputation of the parent IPU - benefits that often improve their market share locally. The IPU broadens its regional reach and brand, and benefits from management fees, shared revenue or joint venture income, and referrals of complex cases.

The Cleveland Clinic’s Heart and Vascular Institute, a pioneering IPU in cardiac and vascular care, has 19 hospital affiliates spanning the Eastern seaboard. Successful clinical affiliations such as these are robust - not simply storefronts with new signage and marketing campaigns - and involve close oversight by physician and nurse leaders from the parent organization as well as strict adherence to its practice models and measurement systems. Over time, outcomes for standard cases at the Clinic’s affiliates have risen to approach its own outcomes.

Vanderbilt’s rapidly expanding affiliate network illustrates the numerous opportunities that arise from affiliations that recognize each partner’s areas of strength. For example, Vanderbilt has encouraged affiliates to grow noncomplex obstetrics services that once might have taken place at the academic medical center, while affiliates have joint ventured with Vanderbilt in providing care for some complex conditions in their territories.

6. Build an Enabling Information Technology Platform The preceding five components of the value agenda are powerfully enabled by a sixth: a supporting information technology platform. Historically, health care IT systems have been siloed by department, location, type of service, and type of data (for instance, images). Often IT systems complicate rather than support integrated, multidisciplinary care. That’s because IT is just a tool; automating broken service-delivery processes only gets you more-efficient broken processes. But the right kind of IT system can help the parts of an IPU work with one another, enable measurement and new reimbursement approaches, and tie the parts of a wellstructured delivery system together.

A value-enhancing IT platform has six essential elements: • It is centered on patients.

• The system follows patients across services, sites, and time for the full cycle of care, including hospitalization, outpatient visits, testing, physical therapy, and other interventions. Data are aggregated around patients, not departments, units, or locations.

• It uses common data definitions.

• Terminology and data fields related to diagnoses, lab values, treatments, and other aspects of care are standardized so that everyone is speaking the same language, enabling data to be understood, exchanged, and queried across the whole system.

It encompasses all types of patient data. Physician notes, images, chemotherapy orders, lab tests, and other data are stored in a single place so that everyone participating in a patient’s care has a comprehensive view. The medical record is accessible to all parties involved in care. That includes referring physicians and patients themselves. A simple “stress test” question to gauge the accessibility of the data in an IT system is: Can visiting nurses see physicians’ notes, and

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vice versa? The answer today at almost all delivery systems is “no.” As different types of clinicians become true team members - working together in IPUs, for example - sharing information needs to become routine. The right kind of medical record also should mean that patients have to provide only one set of patient information, and that they have a centralized way to schedule appointments, refill prescriptions, and communicate with clinicians. And it should make it easy to survey patients about certain types of information relevant to their care, such as their functional status and their pain levels.

The system includes templates and expert systems for each medical condition.Templates make it easier and more efficient for the IPU teams to enter and find data, execute procedures, use standard order sets, and measure outcomes and costs. Expert systems help clinicians identify needed steps (for example, follow-up for an abnormal test) and possible risks (drug interactions that may be overlooked if data are simply recorded in free text, for example).

The system architecture makes it easy to extract information.

In value-enhancing systems, the data needed to measure outcomes, track patient-centered costs, and control for patient risk factors can be readily extracted using natural language processing.

Such systems also give patients the ability to report outcomes on their care, not only after their care is completed but also during care, to enable better clinical decisions. Even in today’s most advanced systems, the critical capability to create and extract such data remains poorly developed.

As a result, the cost of measuring outcomes and costs is unnecessarily increased.

The Cleveland Clinic is a provider that has made its electronic record an important enabler of its strategy to put “Patients First” by pursuing virtually all these aims. It is now moving toward giving patients full access to clinician notes - another way to improve care for patients.

Getting Started The six components of the value agenda are distinct but mutually reinforcing. Organizing into IPUs makes proper measurement of outcomes and costs easier. Better measurement of outcomes and costs makes bundled payments easier to set and agree upon. A common IT platform enables effective collaboration and coordination within IPU teams, while also making the extraction, comparison, and reporting of outcomes and cost data easier.

With bundled prices in place, IPUs have stronger incentives to work as teams and to improve the value of care. And so on.

Implementing the value agenda is not a one-shot effort; it is an open-ended commitment. It is a journey that providers embark on, starting with the adoption of the goal of value, a culture of patients first, and the expectation of constant, measurable improvement. The journey requires strong leadership as well as a commitment to roll out all six value agenda components. For most providers, creating IPUs and measuring outcomes and costs should take the lead.

As should by now be clear, organizations that progress rapidly in adopting the value agenda will reap huge benefits, even if regulatory change is slow. As IPUs’ outcomes

patient volumes. With the tools to manage and reduce costs, providers will be able to maintain economic viability even as reimbursements plateau and eventually decline. Providers that concentrate volume will drive a virtuous cycle, in which teams with more experience and better data improve value more rapidly - attracting still more volume. Superior IPUs will be sought out as partners of choice, enabling them to expand across their local regions and beyond.

Maintaining market share will be difficult for providers with nonemployed physicians if their inability to work together impedes progress in improving value. Hospitals with privatepractice physicians will have to learn to function as a team to remain viable. Measuring outcomes is likely to be the first step in focusing everyone’s attention on what matters most.

All stakeholders in health care have essential roles to play.

Yet providers must take center stage. Their boards and senior leadership teams must have the vision and the courage to commit to the value agenda, and the discipline to progress through the inevitable resistance and disruptions that will result. Clinicians must prioritize patients’ needs and patient value over the desire to maintain their traditional autonomy and practice patterns.

Providers that cling to today’s broken system will become dinosaurs. Reputations that are based on perception, not actual outcomes, will fade. Maintaining current cost structures and prices in the face of greater transparency and falling reimbursement levels will be untenable. Those organizations - large and small, community and academic - that can master the value agenda will be rewarded with financial viability and the only kind of reputation that should matter in health care - excellence in outcomes and pride in the value they deliver.

Original Source: Michael E. Porter and Thomas H. Lee, MD, Harvard Business Review

Universal Healthcare: The affordable dream Twenty-five hundred years ago, the young Gautama Buddha left his princely home, in the foothills of the Himalayas, in a state of agitation and agony. What was he so distressed about? We learn from his biography that he was moved in particular by seeing the penalties of ill health – by the sight of mortality (a dead body being taken to cremation), morbidity (a person severely afflicted by illness), and disability (a person reduced and ravaged by unaided old age). Health has been a primary concern of human beings throughout history. It should, therefore, come as no surprise that healthcare for all – “universal healthcare” (UHC) – has been a highly appealing social objective in most countries in the world, even in those that have not got very far in actually providing it.

The usual reason given for not attempting to provide universal healthcare in a country is poverty. The United States, which can certainly afford to provide healthcare at quite a high level for all Americans, is exceptional in terms of the popularity of the view that any kind of public

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establishment of universal healthcare must somehow involve unacceptable intrusions into private life. There is considerable political complexity in the resistance to UHC in the US, often led by medical business and fed by ideologues who want “the government to be out of our lives”, and also in the systematic cultivation of a deep suspicion of any kind of national health service, as is standard in Europe (“socialised medicine” is now a term of horror in the US).

One of the oddities in the contemporary world is our astonishing failure to make adequate use of policy lessons that can be drawn from the diversity of experiences that the heterogeneous world already provides. There is much evidence of the big contributions that UHC can make in advancing the lives of people, and also (and this is very important) in enhancing economic and social opportunities – including facilitating the possibility of sustained economic growth (as has been firmly demonstrated in the experience of south-east Asian countries, such as Japan, South Korea, Taiwan, Singapore and, more recently, China).

Further, a number of poor countries have shown, through their pioneering public policies, that basic healthcare for all can be provided at a remarkably good level at very low cost if the society, including the political and intellectual leadership, can get its act together. There are many examples of such success across the world. None of these individual examples are flawless and each country can learn from the experiences of others. Nevertheless, the lessons that can be derived from these pioneering departures provide a solid basis for the presumption that, in general, the provision of universal healthcare is an achievable goal even in the poorer countries. An Uncertain Glory: India and its Contradictions, my book written jointly with Jean Drèze, discusses how the country’s predominantly messy healthcare system can be vastly improved by learning lessons from high-performing nations abroad, and also from the contrasting performances of different states within India that have pursued different health policies.

Over the last three decades various studies have investigated the experiences of countries where effective healthcare is provided at low cost to the bulk of the population. The places that first received detailed attention included China, Sri Lanka, Costa Rica, Cuba and the Indian state of Kerala.

Since then examples of successful UHC – or something close to that – have expanded, and have been critically scrutinised by health experts and empirical economists. Good results of universal care without bankrupting the economy – in fact quite the opposite – can be seen in the experience of many other countries. This includes the remarkable achievements of Thailand, which has had for the last decade and a half a powerful political commitment to providing inexpensive, reliable healthcare for all.

Thailand’s experience in universal healthcare is exemplary, both in advancing health achievements across the board and in reducing inequalities between classes and regions. Prior to the introduction of UHC in 2001, there was reasonably good insurance coverage for about a quarter of the population.

This privileged group included well-placed government servants, who qualified for a civil service medical benefit scheme, and employees in the privately owned organised sector, which had a mandatory social security scheme from 1990 onwards, and received some government subsidy. In

the 1990s some further schemes of government subsidy did emerge, however they proved woefully inadequate.

The bulk of the population had to continue to rely largely on out-of-pocket payments for medical care. However, in 2001 the government introduced a “30 baht universal coverage programme” that, for the first time, covered all the population, with a guarantee that a patient would not have to pay more than 30 baht (about 60p) per visit for medical care (there is exemption for all charges for the poorer sections – about a quarter – of the population).

The result of universal health coverage in Thailand has been a significant fall in mortality (particularly infant and child mortality, with infant mortality as low as 11 per 1,000) and a remarkable rise in life expectancy, which is now more than 74 years at birth – major achievements for a poor country.

There has also been an astonishing removal of historic disparities in infant mortality between the poorer and richer regions of Thailand; so much so that Thailand’s low infant mortality rate is now shared by the poorer and richer parts of the country.

There are also powerful lessons to learn from what has been achieved in Rwanda, where health gains from universal coverage have been astonishingly rapid. Devastated by genocide in 1994, the country has rebuilt itself and established an inclusive health system for all with equityoriented national policies focusing on social cohesion and people-centred development. Premature mortality has fallen sharply and life expectancy has actually doubled since the mid-1990s. Following pilot experiments in three districts with community-based health insurance and performance-based financing systems, the health coverage was scaled up to cover the whole nation in 2004 and 2005. As the Rwandan minister of health Agnes Binagwaho, the US medical anthropologist Paul Farmer and their co-authors discuss in Rwanda 20 Years on: Investing in Life, a paper published in the Lancet in July 2014: “Investing in health has stimulated shared economic growth as citizens live longer and with greater capacity to pursue the lives they value.”

The experiences of many other countries also offer good lessons, from Brazil and Mexico (which have recently implemented UHC with reasonable success) to Bangladesh and the Indian states of Himachal Pradesh and Tamil Nadu (with progress towards the universal coverage that has already been achieved by Kerala). Bangladesh’s progress, which has been rapid, makes clear the effectiveness of giving a significant role to women in the delivery of healthcare and education, combined with the part played by women employees in spreading knowledge about effective family planning (Bangladesh’s fertility rate has fallen sharply from being well above five children per couple to 2.2 – quite close to the replacement level of 2.1). To separate out another empirically observed influence, Tamil Nadu shows the rewards of having efficiently run public services for all, even when the services on offer may be relatively meagre. The population of Tamil Nadu has greatly benefited, for example, from its splendidly run mid-day meal service in schools and from its extensive system of nutrition and healthcare of pre-school children.

The message that striking rewards can be reaped from serious attempts at instituting – or even moving towards – universal healthcare is hard to miss. The critical ingredients of

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or what medicine would work, or even what exactly the doctor is giving to them as a remedy. Unlike in the market for many commodities, such as shirts or umbrellas, the buyer of medical treatment knows far less than what the seller – the doctor – does, and this vitiates the efficiency of market competition. This applies to the market for health insurance as well, since insurance companies cannot fully know what patients’ health conditions are. This makes markets for private health insurance inescapably inefficient, even in terms of the narrow logic of market allocation. And there is, in addition, the much bigger problem that private insurance companies, if unrestrained by regulations, have a strong financial interest in excluding patients who are taken to be “high-risk”. So one way or another, the government has to play an active part in making UHC work.

The problem of asymmetric information applies to the delivery of medical services itself. It makes the possibility of exploitation of the relatively ignorant a likely result even when there is plentiful market competition. And when medical personnel are scarce, so that there is not much competition either, it can make the predicament of the buyer of medical treatment even worse. Furthermore, when the provider of healthcare is not himself trained (as is often the case in many countries with deficient health systems), the situation becomes worse still. As a result, in the absence of a well-organised public health system covering all, many patients, denied any alternative, remain vulnerable to exploitation by unscrupulous individuals who robustly combine crookery and quackery.

While such lamentable conditions are seen in a number of countries, there are other countries (or states within countries) that, as has already been discussed, demonstrate the rewards of having a functioning universal public healthcare system – with better health achievements and also larger development of human capabilities. In some countries – for example India – we see both systems operating side by side in different states within the country.

A state such as Kerala provides fairly reliable basic healthcare for all through public services – Kerala pioneered UHC in India several decades ago, through extensive public health services. As the population of Kerala has grown richer – partly as a result of universal healthcare and near-universal literacy – many people now choose to pay more and have additional private healthcare. But since these private services have to compete with what the state provides, and have to do even better to justify their charges in a region with widespread medical knowledge and medical opportunity, the quality of private medical services tends also to be better there than where there is no competition from public services and a low level of public education. In contrast, states such as Madhya Pradesh or Uttar Pradesh give plentiful examples of exploitative and inefficient healthcare for the bulk of the population. Not surprisingly, people who live in Kerala live much longer and have a much lower incidence of preventable illnesses than do people from states such as Madhya Pradesh or Uttar Pradesh.

A system of universal healthcare also has the advantage that it can focus on vitally needed – but often ignored – primary medical attention, and on relatively inexpensive outpatient care when a disease receives early attention. In the absence of systematic care for all, diseases are often allowed to develop, which makes it much more expensive to treat them, often involving inpatient treatment, such as surgery.

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Thailand’s experience clearly shows how the need for more expensive procedures may go down sharply with fuller coverage of preventive care and early intervention.

Good healthcare demands systematic and comprehensive attention, and in the absence of affordable healthcare for all, illnesses become much harder and much more expensive to treat. If the advancement of equity is one of the rewards of well-organised universal healthcare, enhancement of efficiency in medical attention is surely another.

The case for UHC is often underestimated because of inadequate appreciation of what well-organised and affordable healthcare for all can do to enrich and enhance human lives. It is one thing to accept that the world may not have the resources and the dexterity at this moment to provide the finest of medical care to all, but that is not a reason for eliminating our search for ways of proceeding towards just that, nor a ground for refusing to provide whatever can be easily provided right now for all. In this context it is also necessary to bear in mind an important reminder contained in Paul Farmer’s book Pathologies of Power: Health, Human Rights and the New War on the Poor: “Claims that we live in an era of limited resources fail to mention that these resources happen to be less limited now than ever before in human history.”

In addition, we have to take note of the dual role of healthcare in directly making our lives better – reducing our impoverishment in ways that matter to all human beings – as well as helping to remove poverty, assessed even in purely economic terms. Reduction of economic poverty occurs partly as a result of the greater productivity of a healthy and educated population, leading to higher wages and larger rewards from more effective work, but also because UHC makes it less likely that vulnerable, uninsured people would be made destitute by medical expenses far beyond their means. Here again, Thailand’s experience shows how penury caused by medical costs can fall rapidly once UHC is established.

The mutual support that healthcare and economic development can provide has been brought out very extensively by the results of UHC-oriented policies in southeast Asia, from Japan to Singapore. The complementary nature of health advancement and economic progress is also illustrated in the comparative experiences of different states within India. I remember being admonished 40 years ago, when I spoke in support of Kerala’s efforts to have state-supported healthcare for all. I was firmly told that this strategy could not possibly work, since Kerala was, then, one of the poorest states in India. The thesis of unaffordability was, however, wrongly argued for reasons already discussed.

Despite its poverty, Kerala did manage to run an effective UHC programme that contributed greatly to its having, by some margin, the longest life expectancy in India and the lowest rates of infant and child mortality, among its other health accomplishments. But in addition to these so-called “social achievements”, it was possible to argue even in those early days – despite scorn from those who were opposed to UHC – that with the help of a more educated and healthier workforce, Kerala would also be able to grow faster in purely economic terms. After all, there are no influences as strong in raising the productivity of labour as health, education and skill formation – a foundational connection to which Adam Smith gave much attention. This has actually happened. In fact, the previously poor state of Kerala, with its

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Amartya Sen, Economist

success that have emerged from these studies appear to include a firm political commitment to the provision of universal healthcare, running workable elementary healthcare and preventive services covering as much of the population as possible, paying serious attention to good administration in healthcare and ancillary public services and arranging effective school education for all. Perhaps most importantly, it means involving women in the delivery of health and education in a much larger way than is usual in the developing world.

The question can, however, be asked: how does universal healthcare become affordable in poor countries? Indeed, how has UHC been afforded in those countries or states that have run against the widespread and entrenched belief that a poor country must first grow rich before it is able to meet the costs of healthcare for all? The alleged common-sense argument that if a country is poor it cannot provide UHC is, however, based on crude and faulty economic reasoning.

The first – and perhaps the most important – factor overlooked by the naysayers is the fact that at a basic level healthcare is a very labour-intensive activity, and in a poor country wages are low. A poor country may have less money to spend on healthcare, but it also needs to spend less to provide the same labour-intensive services (far less than what a richer – and higher-wage – economy would have to pay).

Not to take into account the implications of large wage differences is a gross oversight that distorts the discussion of the affordability of labour-intensive activities such as healthcare and education in low-wage economies.

Second, how much healthcare can be provided to all may well depend on the country’s economic means, but whatever is affordable within a country’s means can still be more effectively and more equitably provided through universal coverage. Given the hugely unequal distribution of incomes in many economies, there can be serious inefficiency as well as unfairness in leaving the distribution of healthcare entirely to people’s respective abilities to buy medical services. UHC can bring about not only greater equity, but also much larger overall health achievement for the nation, since the remedying of many of the most easily curable diseases and the prevention of readily avoidable ailments get left out under the out-of-pocket system, because of the inability of the poor to afford even very elementary healthcare and medical attention. It is also worth noting here, as European examples richly illustrate, that providing UHC is compatible

allowing the purchase of extra services for the especially affluent (or those with extra health insurance), and the demands of UHC must be distinguished from the ethics of aiming at complete equality. This is not to deny that remedying inequality as much as possible is an important value – a subject on which I have written over many decades.

Reduction of economic and social inequality also has instrumental relevance for good health. Definitive evidence of this is provided in the work of Michael Marmot, Richard Wilkinson and others on the “social determinants of health”, showing that gross inequalities harm the health of the underdogs of society, both by undermining their lifestyles and by making them prone to harmful behaviour patterns, such as smoking and excessive drinking. Nevertheless, the ethics of universal health coverage have to be distinguished from the value of eliminating inequalities in general, which would demand much more radical economic and social changes than UHC requires. Healthcare for all can be implemented with comparative ease, and it would be a shame to delay its achievement until such time as it can be combined with the more complex and difficult objective of eliminating all inequality.

Third, many medical and health services are shared, rather than being exclusively used by each individual separately.

For example, an epidemiological intervention reaches many people who live in the same neighbourhood, rather than only one person at a time. Healthcare, thus, has strong components of what in economics is called a “collective good,” which typically is very inefficiently allocated by the pure market system, as has been extensively discussed by economists such as Paul Samuelson. Covering more people together can sometimes cost less than covering a smaller number individually.

Fourth, many diseases are infectious. Universal coverage prevents their spread and cuts costs through better epidemiological care. This point, as applied to individual regions, has been recognised for a very long time. The conquest of epidemics has, in fact, been achieved by not leaving anyone untreated in regions where the spread of infection is being tackled. The transmission of disease from region to region – and of course from country to country – has broadened the force of this argument in recent years.

Right now, the pandemic of Ebola is causing alarm even in parts of the world far away from its place of origin in west Africa. For example, the US has taken many expensive steps to prevent the spread of Ebola within its own borders. Had there been effective UHC in the countries of origin of the disease, this problem could have been mitigated or even eliminated. In addition, therefore, to the local benefits of having UHC in a country, there are global ones as well. The calculation of the ultimate economic costs and benefits of healthcare can be a far more complex process than the universality-deniers would have us believe.

In the absence of a reasonably well-organised system of public healthcare for all, many people are afflicted by overpriced and inefficient private healthcare. As has been analysed by many economists, most notably Kenneth Arrow, there cannot be a well-informed competitive market equilibrium in the field of medical attention, because of what economists call “asymmetric information”. Patients do not typically know what treatment they need for their ailments,

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universal healthcare and universal schooling, now has the highest per capita income among all the states in India.

Tamil Nadu and Himachal Pradesh, both of which have made substantial moves towards the provision of education and basic healthcare for all, have both progressed admirably and now belong solidly among the richer Indian states.

There is, thus, plenty of evidence that not only does universal healthcare powerfully enhance the health of people, its rewards go well beyond health. There is, indeed, a strong relationship between health and economic performance, and we have every reason to base public policy on a proper understanding of the nature and reach of what is clearly a positive interdependence. There is no mystery in all this given the centrality of health for better lives and for enhancing human capabilities.

Independent Validators in Pharmaceutical Logistics, an IATA programme that takes the GDP legislation and fleshes out its implications for forwarders and handlers. IJS Global GEFCO is part of a Schiphol-wide project in which ten companies are combining to create a CEIV-certified airport.

Launched at the World Cargo Symposium in March, the initiative has been branded “Pharma Gateway Amsterdam Qualified and Transparent”, and has the support of Air Cargo Netherlands, the Dutch air cargo industry association, as well as participants such as Air France-KLM-Martinair Cargo, handlers dnata and Swissport, and trucker Jan de Rijk.

“We are doing it as a community − airlines, forwarders and everyone involved in the chain,” Landman says.

Original Source: Amartya Sen, Economist

Pharmaceutical Gamechangers All specialist product areas have their particular regulations and jargon, but they seem to proliferate in pharmaceuticals more than in any other sector.

Naomi Landman, director commercial development for IJS Global GEFCO, says the current hot topic is serialisation.

These are rules that say that each pharmaceutical package has to have a barcode that can facilitate a global track and trace capability.

The idea is to protect against counterfeit drugs, and regulators all over the world are lining up to implement the new measures. The US is imposing serialisation on all drug products at the saleable unit and case level from November 2017, with repackagers to follow in 2018, while in the European Union serialisation will be a requirement from 2019. China and Brazil already have programmes in place.

What this will mean for airfreight is not yet entirely clear; Landman says details are still being finalised.

“But it may mean products will need to be scanned at various points. And if a forwarder stores pharmaceuticals, like we do, they may need to scan them and check them against a European database.

“That would mean that a pallet would have to be stacked so as to make barcodes accessible from the outside. Since it is not until 2019 we don’t have all the details yet, but we are investigating what procedures and training we might need to have in place.”

IJS Global GEFCO has also been busy recently meeting the Good Distribution Practice (GDP) standards of the European Union, themselves derived from World Health Organization (WHO) guidelines.

The forwarder received its certificate from the Dutch Ministry of Health on April 18. Previously, in 2014, IJS Global Netherlands was awarded Wholesale Distribution Authorisation (WDA), allowing it to store medicinal products.

And then there is CEIV − the Centre of Excellence for

“The idea is to get all partners in the supply chain up to a certain level, so that every one of the stakeholders understands their role and the impact it has on others.

“For example, the handling company has to have the same detailed procedures as the forwarder, knowing what the correct labelling is and storing the shipment at the correct temperature. Both need to measure time on the tarmac and keep it to a minimum, and so avoid temperature excursions.”

Ultimately, she reckons, it is all about seeing the supply chain through the eyes of the customer.

“Then you get a whole different dialogue. For the customer it is about getting a product to its final destination at the right temperature and integrity. What is important is that the drugs reach the patient in the right condition, and that matters because the patient is you, me, everyone.”

With all these speci-alist programmes and standards to contend with, it is not surprising that IJS Global GEFCO has dedicated teams who work only on pharmaceutical shipments.

“That is important as it requires a different mindset and also working with the right partners to develop knowledge and procedures together,” Landman points out.

The company also has to be prepared to invest in equipment, training and certification.

Asked if it gets a return on that investment, she reframes the question.

“If you want to do these products, you have to meet these requirements,” Land-man says. “We are a service-orientated company with many years of experience in this sector throughout the world and this is an area where we can and do add value.”

There have been various reports of pharmaceutical companies shifting product from airfreight to sea, and Landman does not deny that there is such a trend: “Ten years ago pharmaceutical customers did not speak much about ocean freight, but they do now.”

But she is not sure how far it will go, and sees airfreight as

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Naomi Landman, Director Commercial Development, IJS Global GEFCO

as still holding some cards. One is that it is more advanced than ocean freight in meeting GDP requirements and another is that an entire 40ft container packed with pharmaceuticals is a lot of stock to be moving at once or have tied up in one place.

“The cost of airfreight is higher, but the cost of keeping stock on the ocean for 30 days is also significant. Also, if there is a problem on the ocean − for example if a reefer breaks down – then how long does it take to get the product off the boat or into a different container? With airfreight you have temperature deviations too, but usually over shorter timeframes and in places where you can do something about it.”

Asked what airfreight could do to improve its offering, Landman is clear about the answer. “It would be good to have more transparency and monitoring in transit,” she remarks. “The question is technology − a willingness to invest, but also a willingness to share the information.”

Standards and procedures also have to be applied globally: “Although lots of airfreight companies have put effort into their pharmaceutical product, there are often still gaps. For example an airline may have invested at their hub airport, but not always at every destination they fly to. It has to be on every lane.”

Landman understands this is about creating CEIV-audited lanes. “Singapore has already been audited, work is

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underway in Miami and Amsterdam is coming up, so it is spreading.”India is one of the growth markets that Landman identifies for pharmaceutical traffic, with manufacturing of generic drugs there and across Asia increasing.

“We also see a trend towards repackaging products − preparing them for local markets. For example Singapore is a distribution point for product into Asia.

“A lot of product is also being combined with delivery devices − for example asthma drugs in vaporisers.

“And temperature-controlled is ever increasing.

“More and more product is temperature-controlled which used to be sent as general cargo.”

IJS Global’s recent merger with French logistics company GEFCO is also creating new opportunities for the pharmaceutical team. “There are a lot of great benefits,” Landman enthuses.

“GEFCO is in countries such as Russia, Brazil, and in eastern Europe where it was not present before. Equally, it has a Europe to Asia and Asia to Europe rail solution and we are investigating if that would be suitable for the pharmaceutical business. Both directions would be interesting, but particularly Asia to Europe.”

Original Source: Air Cargo News

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Biotech Venture Capital Mythbusting Redux Venture capital has been on a good run over the past few years across a range of sectors; even with recent slowdown relative to 2014-2015, venture-backed investments remain above historic averages. In fact, the first three quarters of 2016 alone are already higher than the annual rate of venture investing in all but two years since 2002.

Like the overall venture capital asset class, biotech has also been strong over the past few years: 2014-2016 will be the three largest years for private biotech funding since the start of data collection in 1995. On the public market front, even with the 30%+ correction since July 2015, we’ve continued to see significant IPO activity and will likely have over 30 biotech IPOs this year–a top-quartile year for new issuances.

It’s worth noting that biotech has witnessed a much more receptive IPO market over the past three years than other venture sectors: during that period, biotech has represented only 11% of VC financings, but 54% of VC-backed IPOs. And the demand from larger companies for biotech is at historic levels: private M&A values over the past few years are 3x what they were in 2010-2012, as described back in September.

Against this backdrop, it’s not surprising that there’s been a solid market for raising new venture funds focused on biotech investing: just in the past few weeks, we’ve heard of new funds from Sofinnova, Third Rock, and Versant, and a number of others are in the market. Interest from institutional Limited Partners (those who invest in VC funds) into the field is certainly higher than it was five years ago when pundits were lamenting the demise of life science venture.

“that’s where venture returns are.” On occasion (thankfully less often than five years ago), we still hear common refrains like “but it takes 12-15 years to bring a new drug to market” or “biotech’s losses are too big and too binary” or “biotech is too risky.”

Fortunately, a number of LP’s have either done their homework with industry data, or have direct exposure to one or more of the high-performing biotech venture funds. But a large swath of the LP community, and more generally the layperson audience, is still anchored to myths from earlier eras of venture capital.

Back in 2013, there was a piece “debunking” many of these myths, and in 2015 again highlighted the positive comparative performance of biopharma. These myths have been wrong for years, but they are even more wrong today.

In an attempt to synthesize prior points, and to look at updated data sets, let’s tackle the three major myths: that biotech returns lag other VC sectors, that it takes too long, and that the losses are more frequent and much bigger.

Returns Biopharma returns have indeed been quite strong over the past decade. Leveraging data from global investment firm Cambridge Associates, biopharma venture capital’s net IRR (e.g., the internal rate of return net of fees) for initial investments made during the decade of 2006-2016 outperformed the venture capital asset class as a whole by over 500 basis points for realized (exited) investments.

Including illiquid, unrealized investments (those still in progress), the combined net IRR for biopharma deals in this period still outperforms by over 250 basis points. While some subsectors (like software) perform more in line with biopharma during the period, other technology sectors don’t–creating the aggregate differential.

One would think in light of the solid performance in biotech that we’d either be growing within the venture sector, or at least holding our own as a share of the industry. Biotech has been shrinking as a share of the asset class over the past few years, moving from 19% of investments in 2010 down to 12-13% in 2015-2016. That’s over a one-third reduction in “market share” for biotech despite its stellar performance.

Why is this?

The biggest driver is the significant inflows of funding into the technology sectors within venture capital (like software), which are up 300-400% in the past few years (vs. biotech up 50%). Technology has seen the emergence of a number of mega-VC funds, as well as a near-Cambrian Explosion of micro-VC funds–leading to a big infusion of LP capital.

This dramatically changes the denominator, and hence the relative market share for biotech.

But another reason is the continued existence and propagation of negative myths ingrained in the conventional wisdom about biotech venture capital, especially across many in the LP community, including family offices, endowments, pensions and fund of funds. We’ve heard some FoF managers say they only invest in tech VC because

Another way to look at the returns is via their distributions.

The chart below plots the cumulative distribution of deals on the y-axis, and the multiple of invested capital on the x-axis.

The top-decile and top-quartile returns are the 90th and 75th percentile lines on the y-axis.

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The rate of high-performing 5x or greater deals is 50% greater for biopharma than IT/software (15% vs 10%, respectively), and the top-quartile multiples differ by a full turn of invested capital (3.5x for biotech vs 2.5x for IT/ software, respectively).

Biotech investment strategies that engage pharma partners early by focusing on cutting-edge innovation can bias even faster than these median data. For our last 12 biotech exits at Atlas, our median holding period has been 5.0 years– much faster than typical holding periods.

Loss Ratios

This distribution bodes well for the sector as a whole, and for investment managers within it–as this curve implies that biopharma has more predictability and is less dependent on rare outlier effects versus a tech sector that is more biased towards the one-in-a-hundred lottery ticket.

The Cambridge dataset explored here doesn’t track above 5x, but I’ve blogged on the differences at the higher end of the distribution before, and those are consistent with this theme.

Holding Periods Biotech investors typically don’t start drug discovery companies with the expectation of bringing those medicines to market during a single fund’s investment period: we all appreciate that drug R&D is a long-cycle endeavor.

But different players participate in different stages of the process. In general, early-stage VCs participate in discovering potential medicines and advancing them to early clinical proof of concept, at which point alternative capital providers like the public markets (via IPOs) or larger Pharma (via M&A) take on the later stages of development and marketing. This allows for shorter investment cycle times (vs. full drug R&D timelines) for early-stage biotech investors.

On the other hand, many technology companies need to become “real businesses” before they are able to generate an exit–often taking years to build the repeatable sales growth model and profitability.

Data tracking the time it takes from company founding to an exit event reflect this dichotomy. The two charts below capture these data, as tracked by business analytics firm Pitchbook. For both the median time to IPO and to major M&A event ($50M or greater), biopharma has been faster than the rest of venture capital as a whole over the last decade, in line with prior analyses.

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Losses in venture happen, and they happen reasonably frequently. We’re in a high-risk asset class, so this should be expected. But a common criticism of biotech is that there are either more losses and/or larger ones–neither of which is supported by the data.

The primary way to analyze this is through loss ratios. These metrics are either deal-weighted or dollar-weighted: The former captures what percentage of deals lose money (go below 1x), and the latter captures what percentage of the dollars invested go into loss-making deals. Based on a recent analysis from the data-driven investment firm Correlation Ventures, biopharma has lower deal- and dollar-weighted loss ratios than the rest of venture capital. Roughly 15% fewer deals lose money in biopharma, and 20% fewer dollars are exposed to those loss-making deals. These data are similar to those from Adams Street.

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Our seed-led strategy at Atlas is aimed at reducing the dollar-weighted loss ratios even further: by taking most of our losses in the seed stage, where we attempt to derisk the early science and story, our dollar-weighted loss ratio in Funds VIII and IX is around 25%.

Conclusion Biopharma has been and likely will continue to be a strong sector within venture capital, as many of its tailwinds reflect secular and structural forces: significant unmet medical needs remain addressable by pharmaceuticals, aging populations in both developed and emerging markets will further drive demand, Pharma R&D relies upon external sourcing to complement its internal efforts (even more so with pricing constraints), biomedical science is becoming more translational in focus, etc…. All of this bodes well for early-stage biopharma.

However, and coming full circle, we’ve recently seen the “odd juxtaposition” of strong performance and shrinking market share in venture. I’ve attempted to address the question of why, and hopefully debunked some of the myths above.

But it’s worth asking–does market share in venture even matter?

Frankly, it almost certainly doesn’t in the grand scheme: Enough institutional LP’s appreciate the performance potential of biotech and are making capital commitments into new funds; the sector is functioning well with a measured pace of startup creation and investing activity; new medicines are advancing through R&D; and, as a sector, we’ve been delivering with compelling returns.

Beyond all that, we’re also delivering on the biotech’s important double-bottom-line mission of doing well by doing well.

Original Source: Bruce Booth, Forbes

The future of Healthcare mergers under Trump The proposed health insurance mega-merger between Anthem and Cigna heads to court on Monday, as the companies face off against a Justice Department seeking to block their $48 billion deal. It will be followed in just a few weeks by the trial for another proposed insurance mega-merger, between Aetna and Humana.

announced the government’s decision to challenge these mergers.

But the election of Donald J. Trump could recalibrate how vigorously the federal government handles these two deals, as well as the many other deals now taking place in health care, according to legal experts. On Friday, Mr. Trump nominated Senator Jeff Sessions, the conservative Republican from Alabama, to replace Ms. Lynch. While it is unclear how Mr. Sessions would have the department handle antitrust cases, Mr. Trump has said that he wants less government regulation of business.

In each of the two big cases headed to court, a federal judge will decide whether consumers would be worse off after the mergers take place. The companies contend people would benefit because a bigger company would be more efficient and better able to strike deals with hospitals and doctors that result in lower prices for medical care. In its pretrial brief, Anthem argues the government’s opposition threatens to “deprive American consumers of lower health care costs.”

The insurance deals were the culmination of a deal frenzy that took place in which the giant for-profit companies were desperate not to be left behind if the biggest companies got even bigger. All four companies involved in the mergers say they are committed, although the relationship between Anthem and Cigna has been fraught. The two have accused each other of breaching the merger agreement.

Any fallout from the election would almost certainly not be felt immediately. Both cases are expected to be decided before Mr. Trump takes office in January.

But a Trump administration could still have a major say, particularly if either the companies or the government decide to appeal the initial decision.

There is little expectation that the Justice Department under the Trump administration would drop the case if the companies lost and appealed, for example, but it might be inclined to strike a settlement less onerous to the insurer.

After the department under President Bill Clinton won its antitrust case against Microsoft, the officials taking over for President George W. Bush pursued a settlement that many viewed as less far-reaching than one that would have been sought by their predecessors.

There is also a distinct chance, antitrust experts said, that the approach to health care mergers will not pivot much from the current one.

Together, those two mergers would remake the industry, resulting in the nation’s five largest health insurers shrinking to just three, including UnitedHealth Group, which remains independent. And the Justice Department is set to argue that the consolidation would be bad for consumers.

“If these mergers were to take place, the competition among insurers that has pushed them to provide lower premiums, higher-quality care and better benefits would be eliminated,” Attorney General Loretta E. Lynch said in July when she

Donald Trump, President-elect, United States

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“There is a history of bipartisan support for antitrust enforcement in health care,” said Leslie C. Overton, a partner at Alston & Bird and a former Justice Department official. “I don’t think we should expect a wholesale shift, based on the change from Democratic to Republican.”

The clearest sign of the new administration’s position, antitrust experts said, will come from who is appointed to crucial positions at the Justice Department and the Federal Trade Commission.

Other parts of the health care industry will also be on the lookout for any shift in stance. Hospital mergers, for example, have been aggressively challenged by the F.T.C. Last week, two large Chicago-area health systems, Advocate Health Care and NorthShore University HealthSystem, said they would continue their legal fight after an appeals court sent the case brought by the commission back to a lower court.

The F.T.C.’s position on the health care deals may change less than the Justice Department’s. The commission, an independent agency that includes both Republicans and Democrats, is somewhat less subject to the political preferences of the White House. But priorities often do change.

“The swings from administration to administration have not been as strong as they have in the Justice Department,” said Michael J. Perry, a former lawyer for the F.T.C. who is now a partner at Baker Botts. The agency has a long history of pursuing hospital mergers, he said, and “has a lot of success” in its attempts to block various deals.

the negotiating clout that comes with being bigger.

Hospitals are likely to see the divide between winners and losers grow, said Dr. Sanjay B. Saxena, a partner at the Boston Consulting Group, whose clients include health systems and insurers.

“That shake-up,” he said, “is going to continue.”

Original Source: Reed Abelson, Writer

3 Biotech stocks with the potential to become major gamechangers Buyside analysts don’t publish ratings and target prices for the public: Nearly all their notes, analyses and projections are top secret. However, in this interview orginally published in The Life Sciences Report, Wasatch Advisors’ Jill Wahleithner breaks that tacit rule. Wahleithner, a former big pharma scientist, identifies three unusual biotechs with advanced therapeutic technology platforms that could turn the tide against conditions that have plagued humankind for eons, and the potential returns on investment matches the potential to completely and radically change the practice of medicine.

In any event, few expect the deal-making that has taken place in recent years to abate. Hospitals have joined with other hospitals and bought physician practices, surgery centers and the like to bulk up. Last month, two of the nation’s largest nonprofit health systems, Catholic Health Initiatives and Dignity Health, said they were in talks to join forces.

Even among smaller insurers, mergers are likely to continue.

This month, WellCare Health Plans announced its intention to buy Universal American, a smaller insurer, as a way to expand its presence in the private Medicare Advantage market.

Although the federal health care law that was passed under President Obama, which prodded both insurers and health systems to deliver less-expensive medical care, encouraged some of the merger activity, many of these entities were likely to combine anyway. “We’re in the middle of a global merger wave,” said Martin S. Gaynor, an antitrust expert at Carnegie Mellon University.

The possible repeal of the Affordable Care Act, which many Republicans are pushing, is unlikely to change those dynamics. Hospitals may feel more pressure to join forces as a way of coping with what many people think will be a difficult environment. Government programs like Medicare and Medicaid could become less generous with their payments, and hospitals may experience an increase in the number of patients who have no insurance. What’s more, health systems need access to capital to pay for sophisticated computer systems, and insurers, hospitals and doctors prefer

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The Life Sciences Report: Back in the mid-1990s, you were a scientist at Novo Nordisk (NVO) , where you worked to find potential industrial enzymes. You understand the research and discovery phase of biotechnology quite well. Now, as a buyside analyst, you follow emerging companies with very sophisticated technologies, including immunology-focused platforms. How do you evaluate these platforms? Do you go to peer-reviewed literature as you look at emerging technologies?

Jill Wahleithner: All the time. I have online access to an academic journal library. It is the first place I go when I start looking into a company. I pull out the relevant publications so that I can understand the science, understand the pathways, and see what has happened in the past.

TLSR: Most investors outside of institutions have little idea how to evaluate the technology and how to assess

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intellectual property (IP). You have your name on at least two patents, so you understand this process. How do you evaluate IP? JW: I will pull up patents if I think if they’re relevant. There are times when I want to understand where a company is positioned with respect to the future of a particular product, so I read the patents. When you work for a pharmaceutical company as a bench scientist, part of your job is to bring forward ideas that you think could be part of the company’s patent pool. When you become the source of these ideas, you must learn how to think about patents—what a patent means and what exactly is patentable. That being said, I also recognize that my reading of a patent is not the same as what the courts might read, so there’s always a risk.

TLSR: A couple of decades ago, when I began speaking with analysts and CEOs of biotechnology companies, I would frequently hear the term “bulletproof” as it relates to biotech patents. I hardly ever hear that term anymore. Is that my imagination?

JW: I think that’s very insightful. Some patents that people considered to be bulletproof have been overturned. The U.S. Supreme Court definitely has impacted what is patentable and what is not patentable. I think there is more hesitation to be confident about what you are protected against.

TLSR: You review the science of emerging biotech companies for portfolio managers (PMs) at Wasatch Advisors. What are the PMs focused on? I know you write reports for them, but when you are in a face-to-face conference discussing early-stage names, what is the bottom-line judgment the PM wants to hear from you?

JW: It really depends upon the portfolio manager. Some of them have a deep interest in the space, and they want to understand what’s happening with the science. Others, not so much. It comes down to one thing. My job is to go back to the science and help PMs understand why a compound in development is relevant, where it fits in the medical community and what would happen if they did invest.

TLSR: You have a tremendous interest in immunotherapies and immune prophylaxis. You’re also very interested in genetically modified cellular technologies. Have we crossed into a new realm of harnessing and modifying the genome to leverage cellular and humoral immune responses?

JW: I think we’ve built a bridge, and we’re just now starting to walk across. The question is: How solid is the bridge? I see a lot of potential. I see so many promising ideas out there, but there have been a lot of failures. These failures have allowed companies to fine-tune their processes, and to come up with novel methods that incorporate the knowledge learned from the failures. In the next two to three years, we are going to see whether we really can fix diseases by driving the body to do the repairs, instead of adding products into the body to handle the symptoms of disease.

TLSR: Your answer implies that genetic disease may be curable with some of these technologies. If platforms can be developed such that functional cures can be accomplished— let’s say for HIV/AIDS—does that necessarily mean that you can cross over to another disease indication and effect the same kind of result with that platform?

JW: Possibly. It depends upon the disease. Given the basic technology of editing the genome, once it has been proven as safe, there are many ways to use that tool. What we’re seeing from Sangamo BioSciences Inc. (SGMO) right now, with its genome-editing HIV data, is that there have not been any long-term repercussions that raise questions about safety. This means you can go into diseases where existing treatments are not necessarily optimal. You don’t have to worry about possibly killing the patient with the Sangamo approach because we know, from trials with its HIV product SB-728-T, that you don’t have the downstream long-term safety events seen with some of the initial gene therapy technologies.

TLSR: Is Sangamo a company that you’re currently positive on?

JW: Yes, it is. It’s a company that I really like. I see a lot of potential. Its scientists are phenomenal. They think deeply about the products and how to develop these tools. In the next two years, we should see several products come to the clinic where, for the first time, the human body will be used to enable “functional cures.” It will be interesting to see how those “cures” do.

TLSR: What milestones should investors be looking for at Sangamo?

JW: I would look for Phase 2 data from the HIV program with SB-728-T, and whether that gets partnered. At this point, the company has generated enough data that if a larger pharma is interested, a partnership will happen. I would also look at Sangamo’s in vivoprotein replacement therapy products, which are just hitting the clinic. We should get some Phase 1 data from some of those in the next year, and that will tell us whether these tools meet their promise.

TLSR: Which protein replacement products are you referring to?

JW: The first one I think will be for beta thalassemia major with SB-BCLmR-HSPC. There will also be some data for lysosomal storage diseases, as well as for Huntington’s disease and for the hemophilias. We’re going to see multiple products hitting the clinic in the next year. Depending upon the product, different routes are being used to enable protein production in the body.

TLSR: We’re talking pretty much about monogenic (single gene-related) diseases here. Do you foresee this platform extending to polygenic diseases, since most diseases, by far, are polygenic?

JW: I could see where it might have some functionality in specific cancers. I don’t know about diseases like diabetes or heart disease. These are a lot more complicated, and it depends upon how the science evolves in identifying the causative agents and whether those agents can be impacted by altering the genome.

TLSR: Would you speak to another name?

JW: Inovio Pharmaceuticals Inc. (INO) has spent years developing a DNA-based vaccine platform. Its first product and lead candidate, VGX-3100, is for cervical intraepithelial neoplasia, a precancerous condition resulting from infection

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with the human papillomavirus (HPV). VGX-3100 is a synthetic, circular DNA molecule that acts like a virus. It comes into the body enabled by electroporation, an electrical shock applied to the skin with the injection. It hooks onto the cell surface and injects its DNA into the cell, which is what a virus does in vector-guided gene therapy. It then takes over the cellular translation or protein synthesis machinery, and directs the production of antigens, which are proteins, just as they were encoded in the plasmid. It allows the body to attack four proteins found on HPV virions. The idea of using DNA, which is simple to make and cost-effective, to drive the body’s natural immune response is just fascinating.

TLSR: The dangers of gene therapy have been written up in the general press, as well as the scientific literature. Inovio CEO Joseph Kim told me that one of the things about vector (viral)-based delivery of genetic material is that patients could develop an allergy to the virus itself. He believes this is one of the major advantages of Inovio’s plasmid delivery of genes into cells.

JW: That’s exactly right, and it’s why you can’t do repeat treatments when you’re using gene therapy products that are delivered by a virus. Patients develop antibodies that could cause a violent immune response on readministration of the vector. There are a lot of advantages to the plasmid delivery system. The injected plasmid just disappears with time because, unlike a virus, it’s not able to replicate. It doesn’t leave a footprint behind that might cause long-term safety issues. Inovio is capitalizing on the fact that the virus stimulates an immune response that could be dangerous for the patient, and its delivery system does not.

With safety established, the company announced last July that its 150-patient, Phase 2 trial met its primary endpoint.

VGX-3100 induced regression of cervical intraepithelial neoplasia, and it cleared the virus from the cervical tissue.

Now we have both safety and proof of concept.

TLSR: Back in September 2013, Roche Holding AG (RHHBY) made a deal to pay Inovio an upfront $10 million ($10M) for the rights to two therapeutic immunizations, INO-5150 for prostate cancer and INO-1800 for chronic hepatitis B (HBV). Roche returned rights to Inovio for the prostate cancer program. Can you comment on that?

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JW: The INO-1800/HBV program is still intact with Roche, and it should be hitting the clinic this year. As for the prostate cancer program with INO-5150, Roche has had some failures in its oncology space, where it once had a huge lead relative to the rest of the world. That lead has flipped a bit, so Roche has gone back and looked at its portfolio. I think that after some failures in prostate cancer, like with Dendreon Corp.’s (DNDN) Provenge (sipuleucel-T), there are some questions about how effective immune therapies will be in prostate cancer. That’s part of why Roche made its decision.

Returning the rights to INO-5150 was more about Roche’s own business models than about the promise of Inovio’s technology.

TLSR: Since you brought it up, let’s address Dendreon. The company is in bankruptcy, and its assets are in the process of being acquired by Valeant Pharmaceuticals International Inc. (VRX) (VRX:CA) . The development of Provenge was an amazing scientific achievement, but it is an autologous therapy, meaning that it’s not an off-the-shelf product. A patient’s own cells must be processed and returned to the patient. What did we learn from that? Is this something that investors in Sangamo might be concerned about since its lead candidates are autologous, genetically modified cells?

JW: It’s true that Sangamo has an autologous model, but Dendreon’s Provenge problem went beyond just the production issues. There was some skepticism about the clinical trial results that flowed down into the product’s uptake by clinicians. Production was definitely expensive, but Provenge also has to be administered in three different treatments from three different white blood cell harvests and three different processings. That’s a lot of work. With Sangamo’s platform, you have a one-time process. Right there, you’ve cut the cost down. Sangamo also has done a lot of work to produce a messenger RNA-driven process, which will help with cost. If anything, Sangamo has learned from the failures of Dendreon and will, I think, be able to work around some of the cost issues.

TLSR: Was there another company on your list?

JW: Of the three companies I’m talking about today, Argos Therapeutics Inc.’s (ARGS) program is probably closest to Dendreon’s platform. It has a vaccine that uses RNA from

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a cancerous tumor to direct an immune response. What caught my eye about its trial results with AGS-003, in metastatic renal cell carcinoma (mRCC), is that every piece of immune data aligned with what Argos expected. The therapy is generating memory T cells, and the number of T cells that it generates is directly correlated to the response of the patient.

TLSR: It sounds like you are positive on Argos. Is that right?

We saw more than a doubling in overall survival in these patients, which is quite an increase. These data were stronger than we’ve seen previously with vaccine companies. In addition, Argos is developing an automated manufacturing platform, which will greatly reduce the cost and address some of the problems that Dendreon ran into.

JW: We should hear about the final patient being enrolled in its Phase 3 mRCC trial. Interim data will follow within several months of that enrollment completion. The interim data will just be the data and safety monitoring board (DSMB) reviewing safety and looking for futility. Bad news would take the stock down, but good safety news probably won’t affect the stock much.

TLSR: Argos has an HIV program as well. The company’s shares lost a third of their value on Jan. 9, when its Phase 2 trial in HIV failed to meets its primary endpoint. I should note that the stock has recovered quite well since then. But what was your take on that event?

JW: First, that program is fully funded by the National Institutes of Health, and while the company is involved in this study, it is not spending its own funds to develop that product. The next thing I would say is that when Argos took that hit in January, the trading volume was not that high relative to the number of shares outstanding. Usually that means somebody is taking advantage of press release results instead of an event that impacts the company long term.

JW: I do like the company. I think it has an interesting technology.

TLSR: What about catalysts or milestones that Argos investors might look for?

TLSR: Thank you, Jill.

Jill Wahleithner worked as a research scientist in both industry and academia for 10 years before moving to the financial industry as a biotech consultant. Since 2004, she has focused on reviewing the science of emerging biotechs for equity investment firms. In 2006, she signed an exclusive contract with Wasatch Advisors, and in 2014 transitioned to a full-time employee of Wasatch, where she helps company portfolio managers navigate the complex world of biotech.

Original Source: George S. Mack, The Life Sciences Report

The woman at the center of the biggest Biotech IPO of the year Myovant Sciences has conducted the biggest biotechnology initial public offering of the year by raising $218 million.

The company’s shares priced at $15 a piece, the higher end of its IPO range, but the stock did not pop, trading down by 11.6% and closing at $13.26.

Myovant will use the proceeds of the IPO to fund late-stage clinical trials for its relugolix drug in women with heavy menstrual bleeding associated with uterine fibroids and in women with endometriosis-associated pain, as well as men with advanced-prostate cancer. Myovant believes that the pill poses several advantages over currently approved injectable therapies. Myovant acquired a license for relugolix for most of the world except Japan and certain Asian countries from Japan’s Takeda Pharmaceuticals, which received a 12% stake in Myovant and future royalties from Myovant’s net sales.

Part of what Takeda got in the deal is the expertise of Lynn Seely, CEO of Myovant, who is ideally suited to run a company focusing on endocrine disorders and prostate cancer. Seely is a board-certified endocrinologist who led the development of blockbuster prostate cancer drug Xtandi as the chief medical officer of Medivation, which was recently purchased by Pfizer for $14 billion. Vivek Ramaswamy, the founder of Roivant Sciences, which acquired relugolix from Takeda and spun off Myovant, recruited Seely to Myovant.

Q. What made you excited about relugolix and leading the effort at Myovant?

“We have a late stage phase III asset in relugolix, it has

Lynn Seely, CEO, Myovant

already been in 1,300 study participants with robust phase II data. This is a drug with a targeted mechanism of action and we understand how it works. So this is a case where the science is very clear and now our job is to execute well on phase III.” Q. If this is such a promising assets, why would Takeda not keep it for itself?

“The answer is that we have teamed up with Takeda to do this development program globally. Takeda is running phase III trials as we speak in Japan, which is where they have a nice commercial organization for women’s health, and we are going to do the global development for women’s health outside of the Japanese territory as well as globally for prostate cancer.”

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Q. How did you get to partner with Roivant on Myovant?

“I have known Vivek for years but clearly this was a remarkable opportunity with a great lead asset. An opportunity to build an innovative global leader in women’s health was enormously attractive to me. It’s an opportunity to take a leadership role. One of the things that has been lacking in the pharmaceutical industry is female leaders.”

Q. How long have you been working on this?

“We began to discuss this even before the deal with Takeda had been completed, so I was part of the due diligence on this opportunity and helped them shape the development plan right out of the gate. It is very rare to see such a well developed drug come into a company like this so we can take advantage of all the work done by Takeda and take it into phase III and turn it into a blockbuster product.”

Q. Can you talk to us about the evolution of your career and how it prepared you to be CEO of Myovant?

“I was at Medivation from the very beginning, I was employee number three, and built that company with the others on the leadership team for 10 years. I built all the development functions and at the time I left out of the 650 employees more than half of them reported to me. I had a seat at the table as we executed one of the best oncology launches in history and so the experience I gained at Medivation was phenomenal. I thought this was a great

opportunity. Also, there is a real need here. Women are underrepresented in leadership positions in this industry and I feel like I am well qualified.”

Q. The company is also focused on women’s health issues.

“That’s right. I have an opportunity to be a voice for women in leadership roles but more importantly for me for women suffering from women health diseases. There are millions of women suffering from fibroids and endometriosis. This is a disease that has largely been ignored and seen as a surgical disease and we are hoping to develop medical therapy so that women have an alternative to surgical procedures they are now going through.”

Q. Anything else you would like to reflect on today?

“Some people are saying this company is coming out of nowhere, how can this company do this with nine employees? But the beautiful thing about the Roivant model is that they have a full development team while we are building our company very rapidly in the Bay area. Roivant has real development experience in taking drugs to phase III trials and commercialization and a variety of experts, so we have a large team working on this. I think the confidence that Pfizer expressed as a lead investor in this deal is also important.”

Original Source: Nathan Vardi, Forbes

Historic medical breakthrough is a gamechanger for Biotech One of the most marvelous medical breakthroughs in the history of the world has just occurred. For the first time, neuroscientists treated a total quadriplegic (a 21-year-old young man) with stem cells, and he has largely recovered the functions of his upper body after just two months.

This news is incredible for two reasons. First, using pluripotent stem cells, scientists have been able to help a patient’s severed nerves repair themselves. This discovery also points to the potential to accomplish the same sort of regenerative healing in every organ in our bodies.

As report by Patrick Cox, the author of the Transformational Technology Alert newsletter from Mauldin Economics. He focuses primarily on biotechnology but looks at all sorts of interesting companies and technologies that are going to transform our world.

The depth of Patrick’s knowledge of multiple disciplines is staggering. In fact, major scientists call him to share results and ask questions. They do so hoping that Patrick will point them to other research that they haven’t come across yet.

I kid you not. This guy is at the center of a nexus of antiaging researchers and biotechnologists that has few parallels.

Below, is Patrick Cox’s weekly letter where he tells his

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subscribers about this fantastic breakthrough from one of the researchers he has followed for almost 20 years Dr. Mike West of BioTime (BTX).

BioTime makes history with announcement of first stem cell spinal cord therapy results USC neuroscientists just announced truly historic news about BioTime’s (BTX) (*see disclosure below) stem cell platform.

For the first time, a quadriplegic patient with complete injury to the spinal cord has substantially recovered.

I’ve told you this was coming, but I wanted to get more information to you today as news of this long-awaited breakthrough in neurobiology spreads through the media. In fact, the news is even better than the information released by the Keck Medical Center of USC would indicate… and you should understand why.

A press release of this nature must follow strict conventions enforced by the SEC and FDA as well as traditional scientific guidelines. For example, the news release describes this spinal cord treatment, an injection of stem cells into the area of spinal cord injury, as “a procedure that may improve neurological function.” Watch the following video, however,

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and the only reasonable conclusion you can make is that the procedure has already done that.

Watch the entire B-roll video that USC has made available to the media. B-roll video isn’t edited as a story, of course.

Rather, it’s meant to supply short video snippets for reporters.

Nevertheless, most of this material is worth watching as it provides more information than is available in the extremely reserved press release, which is available here.

Note that Charles Liu, MD, PhD, says that this procedure should change the way that scientists and doctors think about spinal cord injury, making it possible to aim for full functional recovery for the first time.

The part of the B-roll that really gets me is seeing Kris Boesen, the 21-year-old man who received the treatment, wipe tears from his eyes while expressing his gratitude toward the scientists who made it possible. Prior to receiving BioTime’s stem cell therapy, Boesen was completely paralyzed from the neck down and couldn’t even lift his hands to his face.

Note also that Boesen mentions that his recovery is ongoing—from the top of the spine downward. We don’t yet know if he will regain use of his lower body, but he reports positive indications.

The critical part of this story that is entirely left out of the press release, however, is that the patient would have made a far better recovery if he had been treated promptly.

Boesen was injured on March 6 but could only communicate his desire to participate in the clinical trial through head movements. He had to undergo assisted breathing therapy before he could give verbal consent.

That means that about a month of serious scarification took place before 10 million AST-OPC1 cells were injected into Boesen’s cervical spine. Scarring is the enemy of nerve reattachment and the reason that this procedure is only being administered to patients who have recently suffered spinal cord injuries.

Nevertheless, those stem cells managed to sort out and self-assemble, connecting severed nerves correctly from the upper and lower sides of the injury.

This is the true power of regenerative medicine. It doesn’t rely on the surgeon’s skill. It’s the patient’s genome and the biological wisdom inherent in pluripotent stem cells that affect the cure. None of the scientists will publicly say this, but I’m positive that the results would have been much better and more rapid if Boesen had been given the injection immediately following his injury. Additionally, Boesen started

his treatment in the middle of a dose-escalating study, so he was only given half of the full therapeutic dose. (A full therapeutic dose will probably be 20 million neural stem cells.) So by no means should we view his dramatic and life-changing results as typical of what would happen to a patient given optimal dosage promptly after injury.

What this means for investors Essentially, Boesen’s ability to lift light weight overhead after a catastrophic spinal cord injury is proof that Dr. Michael West, co-CEO of BioTime, was right when he launched this project at Geron, which he founded in 1990. I first met Mike, by the way, shortly thereafter.

West did not run the company he founded but acted as Chief Scientific Officer so he could concentrate on the science and technology. West made many of the most critical and ground-breaking discoveries regarding stem cells.

Though at the time his theories and predictions were much maligned by the medical mainstream, his pioneering work has revealed the potential of stem cell medicine and made Boesen’s restored functionality possible.

West’s decision to hand Geron’s management over to others may have not been the best decision though. Despite extremely promising data regarding the spinal cord therapy as well as the cancer vaccine, the company seemed to lose its way. This actually worked to benefit current BioTime investors, however, as they are the majority owner of subsidiary Asterias (AST).

Moreover, Geron’s most important intellectual property was acquired for a fraction of the cost spent to develop its massive library of patents as well as several important technologies now in or near human trials. For example, Asterias also has a cancer vaccine headed for clinical trials in the UK. I consider it superior to those now being developed by cancer companies that have ten times the capitalization of parent company, BioTime.

Stock traders are just not that clever as a group, so the capitalization of Asterias has rivaled BioTime’s, creating interesting arbitrage opportunities.

This doesn’t make sense, of course, but success in the Asterias spinal cord trial should help smart investors begin to understand that the same scientific biotechnologies implemented by Keck Medical Center of USC are also operative in other BioTime therapies. BioTime subsidiary CellCure NeuroSciences is developing retinal pigmented epithelial (RPE) stem.

Original Source: Mauldin Economics

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Medimmune Scientists in Global Elite Two MedImmune scientists - one from Cambridge, UK and the other based in Maryland, US - have been recognised in the PharmaVOICE 100, an annual list of the most inspiring people in the life sciences industry.

Tristan John Vaughan, senior director of lead generation, is based in Cambridge and Gail Wasserman - senior vice-president of biopharmaceutical development - in the States.

Established seven years ago by PharmaVOICEmagazine, the PharmaVOICE 100 recognises professionals for their positive contributions to the life-sciences industry. The publication’s readers nominate honorees.

Drs. Vaughan and Wasserman were selected for MedImmune and to their communities, as well as the motivation they provide to colleagues and peers. Peter Greenleaf, MedImmune’s president, said: “We are proud to have the inspiring work of Drs. Vaughan and Wasserman acknowledged by PharmaVOICE, as they exemplify the spirit of innovation that is central to MedImmune’s mission.

“They demonstrate the tireless commitment of our researchers to deliver life-changing products to help patients

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with unmet medical needs.” Among achievements throughout his career, Dr. Vaughan has played a key role in the discovery and development of innovative first-in-class products, including the first fully human antibody to reach the market as well as the first new treatment option for patients with systemic lupus erythematosus in more than 50 years.

Dr. Vaughan leads a team of more than 80 employees in MedImmune’s Cambridge, UK facility where he and his colleagues continue to refine the technologies that have successfully delivered drugs that make a meaningful difference to patients.

Dr. Wasserman’s work has also had a significant impact on the health of patients around the world. Her pioneering development work contributed to the introduction of the first monoclonal antibody approved by the US Food and Drug Administration to help prevent an infectious disease.

She leads a team of 700 employees worldwide, enabling new technologies to be developed and delivered to patients.

During her 20-year tenure at MedImmune, the company’s pipeline has grown from just a few molecules to more than 100 drug candidates in development.

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Award-winning Pneumacare targets Europe and U.S. A company pioneering lifesaving diagnostic instruments has fast-tracked its international sales push with a key commercial hire.

PneumaCare has stepped up its European sales push and the appointment of Eric Stewart as commercial director is designed to broaden the company’s global reach as swiftly as possible. Stewart has 14 years experience in the medical device market worldwide.

CEO Ward Hills said: “Our scope is all of Europe with a focus on the UK, Germany and France. We will be focusing on opening up in the US in the autumn.”

Hills said the timing of the appointment reflected PneumaCare’s confidence in its product offering. “This is an exciting time in PneumaCare’s development and expansion,” he said. “In recent weeks we have successfully moved PneumaScan through its regulatory hurdles and achieved initial sales in key clinics around the UK. “Appointing a dedicated commercial director with Eric Stewart’s experience gives us the resource we need to take our instruments smoothly and swiftly to international markets.”

PneumaCare’s first product, PneumaScan, enables clinicians to assess lung function in a more comfortable setting or at the patient bedside, allowing for a broader application including coverage of more frail and vulnerable groups currently excluded from spirometry measurement.

PneumaCare recently won two accolades at the Medical Futures Innovation Awards ceremony in London. It won the respiratory category and was also named as having the best business proposition of all the winners.Clinical trials of PneumaScan are about to start at Addenbrooke’s Hospital in Cambridge and the technology has further applications outside human health. Work is soon to start on a project at the Department of Veterinary Medicine.

spirometer, the existing technology used to monitor lung function.

Ward Hills said: “The existing technology, spirometers, pose problems for many patients with lung problems. For example, small children have problems blowing into standard spirometers, because when they feel resistance, they stop blowing, preventing an accurate reading of lung function.

Additionally, some older patients can actually be harmed due to the physical effort required by current approaches.”

PneumaScan utilises video motion capture technology in order to monitor lung function, producing accurate three-dimensional moving models of a patient’s respiration.

The device is simple to use for both clinicians and patients, accurate, cost-effective, and, as it is noncontact, is less likely to pass on hospital-based infections.

Dr Hills said: “The Medical Futures Innovation Awards are among the most prestigious in the healthcare sector and we are delighted that they have chosen to recognise PneumaCare.”

PneumaScan has been developed by PneumaCare in partnership with the Department of Engineering at the University of Cambridge, Addenbrooke’s Hospital and Cambridge-based design house Plextek Limited.

In 2009, PneumaCare was the first company to receive funding from the University of Cambridge Discovery Fund, one of three seed funds managed by Cambridge Enterprise, the University’s commercialisation group.

Novartis’ fevipiprant hailed a gamechanger in asthma treatment Researchers are hailing Novartis’ fevipiprant (QAW039) as a game-changer in asthma treatment after a Lancet-published trial showed its potential to significantly reduce the severity of the condition.

The research, funded by Novartis Pharmaceuticals, National Institute for Health Research (NIHR) and the EU (AirPROM) and carried out by scientists at Leicester University, demonstrated that the pill significantly decreased the symptoms of asthma, improved lung function, reduced inflammation and repaired the lining of airways.

Lung disease affects one in seven people in the UK, resulting in over 24 million doctor visits each year, at an annual cost of £500 million to primary care providers and £6.6 billion to the broader UK economy.

“Most treatments might improve some of these features of disease, but with fevipiprant improvements were seen with all of the types of tests,” noted lead researcher Professor Christopher Brightling, a NIHR Senior Research Fellow and Clinical Professor in Respiratory Medicine at the University of Leicester.

Over 300,000 specialist lung function tests are carried out each year and yet one in three patients is unable to use a

In the small trial, which involved just 61 patients, one group was given 225mg of the drug twice a day for 12 weeks

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and the other a placebo, given in addition to medication already being taken by the participants.

The study was designed primarily to examine the effects on inflammation in the airway by measuring the sputum eosinophil count. Patients who do not have asthma have a percentage of less than one while those with moderate-tosevere asthma typically have about about five percent.

The rate in asthma patients taking fevipiprant was reduced from an average of 5.4 percent to 1.1 percent over 12 weeks, according to the study results, published in The Lancet Respiratory Medicine.

“We already know that using treatments to target eosinophilic airway inflammation can substantially reduce asthma attacks. This new treatment, fevipiprant, could likewise help to stop preventable asthma attacks, reduce hospital admissions and improve day-to-day symptoms making it a ‘game changer’ for future treatment,” Prof Brightling said.

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“This research shows massive promise and should be greeted with cautious optimism,” commented Dr Samantha Walker, Director of Research and Policy at Asthma UK. “The possibility of taking a pill instead of using an inhaler will be a very welcome one among the 5.4 million people in the UK with asthma, particularly as this study focused on people who develop the condition in later life, some of whom we know can struggle with the dexterity required to use an inhaler.”

“We’re a long way off seeing a pill for asthma being made available over the pharmacy counter, but it’s an exciting development and one which, in the long term, could offer a real alternative to current treatments.”

The drug, the first new asthma pill in twenty years, is also currently being evaluated in late stage clinical trials in patients with severe asthma.

Original Source: Selina McKee, Pharma Times

Gamechanging sports science formula around injuries in the NBA As fans and players settle in to watch the 2016-17 NBA season, player and team performance is a constant thread that runs throughout. Debates on television and radio will rage as to which are performing above or below standards. Ultimately it all centers on who is rebuilding, who makes the playoffs, and finally, who will win the NBA Finals.

The back-story centers on contracts and injuries, a constant that is a critical part of the front offices throughout the league.

Investments are made, and with it, risk has to be taken on.

Unlike other investments, even with understanding medical history, the chaotic, and oftentimes randomness of player injury can derail plans for not only a season, but alter direction for how a roster is constructed over multiple years and watch careers end. This variable can have ownership direct general managers to assume extra risk, be risk neutral, or seek risk aversion depending on where the other pieces of a roster are at and where they are on the projected win curve.

With the increased risk and escalation in contract dollars, accessing quantitative data around injuries has become more important. To that, Kitman Labs has released a metric around it. The Injury Impact Index (i3) – showcases how injuries directly relate to team performance and a team’s chances of making the playoffs.

It also introduces two new key metrics – Salary Available to Win and Games Lost to Injury (see the infographic at the end of this article) While it is not always indicative given that salaries are based on prior performance, not always future performance, the formula by Kitman looks to salary as a driver. The logic is that the higher the salary, the better performing the player should be. Yes, there are all the gyrations around the cap system, but it is a point to work from.

Kitman created a metric called Salary Available to Win (SAW) for each team that uses data from the last five years. From there, they calculate the team’s base salary and subtracted the athlete salary lost for each day an athlete is unavailable for selection as well as the number of wins to reach the playoffs over the five year period. From that, the cost “spent” due to injuries can be calculated. For an NBA team team, $12.9M in SAW is lost to injured player salaries each season (from all injuries). A breakdown of NBA injuries reveals that 63% of all injuries are ruptures/strains & sprains, commonly believed to be potentially avoidable. This means that $8.1M in SAW is lost to potentially avoidable injuries each year.

Take that data and apply it to wins and that translates to 9 games Lost to Injury (GLI) and therefore 3 places on the conference win ladder. The data – especially around preventable injury through proactive measures – can be calculated. Looking at the Kitman Labs analytics around injuries, clubs can start to budget accordingly, use the historical information to see where increased budget around medical staff makes the most sense, and work toward having roster construction and development more inline with what general managers envision.

Below is an infographic showing how the Kitman Labs Injury Impact Index works:

Original Source: Maury Brown, Forbes

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The Most Influential People in Healthcare 2016

A report from “The 100 Most Influential People in Healthcare” awards & recognition program, a program set in place to honour individuals in healthcare who are deemed by their peers and the senior editors of Modern Healthcare to be the most influential individuals in the industry, in terms of leadership and impact.

Knocking John Roberts off from first place, Barack Obama takes the lead with ObamaCare. Gamechangers takes a closer look at the Top 10.

President | United States Washington, DC Age: 55 Compensation: $400,000 (House Press Gallery) Years on list: 10

1. Barack Obama, President, United States

The new president was facing America’s biggest economic crisis since the Great Depression. Key advisers urged him to keep his focus on economic recovery. The opposition party signaled it would wage an all-out fight to block healthcare reform.

And his own party was divided. But President Barack Obama charged ahead. “Now is the time to deliver on healthcare,” he told Congress in September 2009. First, he pushed through a huge expansion of electronic health records as part of his 2009 economic stimulus package. Then, with stalwart help from congressional Democratic leaders, he won passage - barely, after a titanic political battle - of a healthcare overhaul that moved the country toward universal coverage.

Chairman and CEO | Kaiser Permanente Oakland, CA Age: 57 Compensation: $4,687,312 (2014 IRS 990) Years on list: 3

2. Bernard Tyson, Chairman and CEO, Kaiser Permanente

Tyson leads an integrated delivery system that is often cited as the healthcare model of the future, and it’s one without a true peer. Kaiser provides health insurance to 10.6 million people in eight states and Washington, D.C., owns 38 hospitals and has almost 19,000 physicians across the $61 billion enterprise. His voice rang loudly this summer following the shootings of Alton Sterling and Philando Castile by police officers, prompting his call to revisit race relations: “This moment calls for unity, for listening and for empathy as we seek to understand what communities of color are facing and the assumptions that the broader society is working from.”

President and CEO | Ascension St. Louis, MO Age: 66 Compensation: $14,325,063 (2014 IRS Form 990) Years on list: 12

3. Anthony Tersigni, President and CEO Ascension

Tersigni, head of the nation’s largest Catholic healthcare system, measures decisions and results against a simple premise: are they aligned with the system’s mission of caring for the poorest and most-vulnerable people in Ascension’s 21 major markets?

With that guidance, Ascension this year became the first giant hospital system to waive deductibles for all patients with incomes of less than 250% of poverty level.

And it launched its biggest marketing campaign ever to attract veterans to its 125 hospitals and thousands of doctors under the $10 billion Veterans Choice program that provides an option for veterans to seek care outside of the Veterans Affairs system.

Chairman and CEO | Aetna Hartford, CT Age: 60 Compensation: $17,262,879 (2016 proxy statement) Years on list: 5

4. Mark Bertolini, Chairman and CEO, Aetna

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Bertolini, Aetna’s CEO since late 2010, was one of the biggest winners from 2015’s health insurance merger hoopla as he bested his competitors’ pursuits for the highly desired Humana and its Medicare Advantage heft - a move that would greatly expand Aetna’s $63 billion of revenue. He’s made it a mission to challenge the federal government and obtain approval for the Humana deal, and he’s also pushing Medicare Advantage as “the solution to entitlement reform around health benefits.” He recently joined the board of Thrive Global, the new health and wellness company founded by media mogul Arianna Huffington.

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Secretary | HHS Washington, DC Age: 51 Compensation: $199,700 (Federal executive schedule) Years on list: 3 Burwell’s focus in the past year can be summed up in one word: quality.

She and her team have been aggressively working to move Medicare away from its fee-for-service to a model that focuses on reimbursing for quality of care via alternative payment models. Last year, the agency set the goal of tying 30% of Medicare payments to quality or value through alternative payment models by the end of 2016, and 50% by the end of 2018. The agency has already announced or launched experimental pay models that will change the way it pays for primary care, nursing home services, cardiac procedures and hip and knee replacements.

5. Sylvia Mathews Burwell, Secretary, HHS

Chairman and CEO | HCA Nashville, TN Age: 59 Compensation: $17,764,761 (2016 proxy statement) Years on list: 3 Johnson’s drive for steady, consistent growth at HCA reflects his conservative rise from accountant and tax department manager to treasurer and CFO. The company - known for its high-flying past of hospital acquisitions and leveraged buyouts - today provides one of the best returns on investment among healthcare providers by focusing on building out clinics and free-standing emergency rooms around its hospital hubs in Dallas, Houston, Miami and elsewhere. Johnson took the helm of HCA in January 2014.

6. R. Milton Johnson, Chairman and CEO, HCA

President and CEO | UnitedHealth Group Minnetonka, MN Age: 63 Compensation: $14,518,164 (2016 proxy statement) Years on list: 7 Hemsley became CEO in 2006, replacing Dr. William McGuire, who was ousted over a stock options backdating scandal. Since taking over, UnitedHealth Group has grown from $71.5 billion in revenue to roughly $180 billion, making it the 17th largest company in the world, according to Fortune’s rankings. His company’s financial and political reach is almost unmatched - from Medicare Advantage to managed Medicaid to small and large employers - although it was Hemsley’s decision to abandon most of the Affordable Care Act’s individual exchanges that created shockwaves throughout the industry this past year.

7. Stephen Hemsley, President and CEO, UnitedHealth Group

President and CEO | American Hospital Association Chicago, IL Age: 66 Compensation: $1,483,925 (2015 IRS 990) Years on list: 4 For nearly 25 years, Pollack was the top lobbyist in Washington, D.C., for one of the nation’s most-effective lobbying organizations, the American Hospital Association. Then in September 2015, he succeeded Richard Umbdenstock to become the 11th president of the 117-yearold organization. The Brooklyn native has stayed in the trenches, fighting for higher reimbursement for hospitals under Medicare and opposing the proposed mega-mergers between health insurers Aetna and Humana, and Anthem and Cigna.

8. Rick Pollack, President and CEO, American Hospital Association

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President and CEO | America’s Health Insurance Plans Washington, DC Age: 65 Compensation: NA Years on list: 5

9. Marilyn Tavenner, President and CEO, America’s Health Insurance Plans Association

As administrator of the CMS during the early years of implementing the Affordable Care Act, Tavenner is arguably America’s foremost authority on the ACA. She’s taken that expertise to AHIP, where health insurers big and small are struggling to make money on exchange patients while the industry argues over the merits of consolidation. In the year that Tavenner has led AHIP, giants Aetna and UnitedHealthcare Group have left the association. Meanwhile, Aetna is trying to beat back a U.S. Justice Department challenge to its merger with Humana and exchange losses mount for Aetna and United alike.

Acting administrator | CMS Baltimore, MD Age: 49 Compensation: NA Years on list: 2

10. Andy Slavitt, Acting administrator, CMS

After decades in the private sector with healthcare technology and consulting companies, Andy Slavitt joined the CMS in 2014 as principal deputy administrator before being appointed acting administrator last year. Philosophically, Slavitt believes CMS’ promotion of bundled payments is consistent with a team approach to medicine that requires communication, data and smooth patient handoffs. The CMS touches the healthcare needs of about 140 million Americans. “We all want our payment system to pay for what we value. At the highest level, it’s all the things we want from our own healthcare experiences—high quality coordinated care that ties the fragmented system together for us and allows us to get back to our lives.”

Top 10 Most Influential Physician Executives and Leaders 2016: Change Agents Charge to the Top

Robert Califf, Commissioner, Food and Drug Administration

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Modern Healthcare’s 12th annual ranking of the “The 50 Most Influential Physician Executives and Leaders” honors physicians working in the healthcare industry who are deemed by their peers and an expert panel to be the most influential in terms of demonstrating leadership and impact.

These physician leaders are innovators, excel in community services, and demonstrate reputable executive authority.

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As conversations in healthcare continue to focus on quality, patient safety and a system shifting to value over volume, “50 Most Influential Physician Executives and Leaders” increasingly reflects the industry players charged with making it happen.

While physician-CEOs at some of the nation’s most prominent health systems continue to dominate the top of the chart, quality experts and regulators are moving up the list.

as editor-in-chief of the journal Neurology, which he has expanded in scope and frequency during his tenure. Mayo has continued expanding on and beyond its Rochester campus since Noseworthy took the helm, including the 2011 launch of the Mayo Clinic Care Network, which now has affiliate healthcare organizations across the country.

Among his activities outside of Mayo, Noseworthy serves as a member of the healthcare governors for the Geneva, Switzerland-based World Economic Forum.

No. 1 this year is Dr. Robert Califf, the newly confirmed commissioner of the Food and Drug Administration, followed closely at No. 3 by another top-level agency executive, Dr. Patrick Conway, chief medical officer at the CMS.

3. Dr. Patrick Conway Deputy administrator for innovation and quality, chief medical officer CMS

Systems on the front lines of executing change remain near the top. They include Dr. John Noseworthy, CEO at Mayo Clinic, No. 2; Dr. Toby Cosgrove, CEO of the Cleveland Clinic, No. 5; Dr. David Torchiana, CEO at Partners HealthCare, No. 7; Dr. Benjamin Chu, newly named CEO at Memorial Hermann Health System, No. 8; and Dr. David Feinberg, CEO at Geisinger Health System; and No.9 Dr. Gary Kaplan, CEO of the Virginia Mason Health System.

Dr. Patrick Conway is used to juggling duties in his roles at the CMS. He serves as deputy administrator for innovation and quality while also holding the title of the agency’s chief medial officer. The 41-year-old pediatrician leads the Center for Clinical Standards and Quality as well as the Center for Medicare and Medicaid Innovation. The clinical standards center oversees all quality measures, value-based purchasing programs, quality-improvement programs, clinical standards, and survey and certification of Medicare and Medicaid providers nationally. The innovation center is the agency’s learning lab, charged with testing new payment and delivery models, including accountable care approaches, bundledpayment programs and medical-home models. Before joining the CMS in 2011, Conway was director of hospital medicine at Cincinnati Children’s Hospital Medical Center, as well as an associate professor of medicine.

Kaplan says one of the roles he’s most proud of involves his work outside of Virginia Mason to “change the conversation” from a healthcare system focused on physicians and care teams to one that’s centered on patients and their families. He cited gains in quality and patient safety across the industry, but noted that “we’re nowhere near as good as we can be.”

Gamechangers takes a closer look at the Top 10...

1. Robert Califf Commissioner Food and Drug Administration The winds of change blowing through the U.S. Food and Drug Administration—with the arrival of newly confirmed Commissioner Dr. Robert Califf—come at a time when the agency faces a host of challenges. Addressing the opioid drug abuse epidemic and preparing for the possibility of new rules that will redefine its approach to regulating medical products are among the issues the former clinical researcher must make his top priorities while trying to improve a workforce that has been under-resourced and understaffed for years. “The FDA must evaluate increasingly complex information to make good decisions on behalf of the public,” Califf said. “So we need the best people, and that includes keeping the pipeline full but also keeping people happy when they work here.” A cardiologist by training, Califf, 64, served as founding director of Duke University’s Clinical Research Institute.

2. Dr. John Noseworthy President and CEO Mayo Clinic Dr. John Noseworthy has been synonymous with Mayo Clinic since he took the helm at the world-renowned organization in 2009. But his relationship with Mayo dates to 1990, and he has played many roles over the years. A neurologist, he’s held many clinical leadership posts, including chair of the neurology department, where he still holds the title of professor. He’s well-respected in the specialty, especially for extensive research into multiple sclerosis. He also serves

4. Dr. Robert Wachter Professor and interim chairman, Department of Medicine University of California at San Francisco As an enthusiastic challenger of the status quo, Dr. Robert Wachter, 58, has been shaking things up in the healthcare industry for just over two decades. He has delved into prickly policy concerns and elucidated the hidden ways in which the healthcare system harms patients. His charismatic persona, including a willingness to dress in costume, has helped spark conversations on these difficult topics. Wachter was an innovator behind the hospitalist movement in the mid-1990s, which completely revamped existing concepts of patientcare management. In his recent book, The Digital Doctor, he warns that hype over medical technology could cause an El Niño of electronic despair and anxiety. Besides being a professor and interim chair of the University of California at San Francisco department of medicine, where he directs the hospital medicine division, Wachter is also a patient-safety leader, public speaker, blogger and Bruce Springsteen fan.

5. Dr. Toby Cosgrove President and CEO Cleveland Clinic The organization that Dr. Delos “Toby” Cosgrove leads might be named the Cleveland Clinic, but the enterprise extends far beyond northern Ohio. And he’s certainly one of the masterminds behind the growth. Although he’s been CEO since 2004, Cosgrove has been with the system since 1975, when he joined as a surgeon, and he became chairman of thoracic and cardiovascular surgery in 1989. As CEO, he now leads an organization with more than $8 billion in annual revenue with nine regional hospitals, 21 family health and ambulatory surgery centers, a brain-health facility in Las

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Vegas, a hospital campus in Florida and the newest entity, Cleveland Clinic Abu Dhabi, a multispecialty facility that opened in 2015. Early in his career, Cosgrove was a surgeon in the U.S. Air Force. He’s a Vietnam War veteran, serving as the Air Force’s chief of casualty staging flights. He was awarded a Bronze Star for his service.

6. Dr. Richard Migliori Executive VP of medical affairs and chief medical officer UnitedHealth Group Dr. Richard Migliori’s playbook for changing health insurance comes down to how well medical data can be analyzed and how well patients can use that data. The top medical executive for UnitedHealth Group routinely sings the praises of technology in today’s healthcare system, believing mobile apps and other means can help patients embrace preventive treatments. That would theoretically lower the cost of care, an issue that has grabbed the attention of nearly every lawmaker, economist and employer. “By taking an aggressive stance on prevention, we could mitigate a lot of the healthcare expenditure and adverse health consequences,” he said at an industry conference in 2014. Migliori, 59, has held his current roles since 2013. Previously he was UnitedHealth’s executive vice president of health services.

7. Dr. David Torchiana President and CEO Partners HealthCare Dr. David Torchiana has served as president and CEO of Boston-based Partners HealthCare since early 2015, succeeding Dr. Gary Gottlieb. He took the reins at a tough time for Partners, which was undergoing intense criticism for an expansion plan that drew antitrust scrutiny.

The system was also suffering losses from its fledgling insurance business. Before taking the top job at Partners, Torchiana was chairman and CEO of the Massachusetts General Physicians Organization, a Partners subsidiary and the largest physician group practice in New England, with more than 2,000 participating doctors. Torchiana, a cardiothoracic surgeon, practiced at Massachusetts General Hospital, Boston, eventually becoming chief of cardiac surgery in 1998 before being named CEO of the medical group in 2003. Under Torchiana’s leadership, Massachusetts General began the Care Management Program, one of six demonstration projects established nationwide. The three-year demonstration allowed the hospital to design new strategies to improve the delivery of care to its most vulnerable patients, those with multiple health conditions and chronic disease.

8. Dr. Benjamin Chu Incoming president and CEO Memorial Hermann Dr. Benjamin Chu clearly likes the challenges of leading large healthcare systems. In early March, Chu, 64, was named incoming president and CEO at Memorial Hermann, one of the largest provider organizations in Houston. The move follows more than 10 years of service at Kaiser Permanente, most recently as group president for Kaiser’s Southern California and Georgia regions since 2014. He first joined Kaiser in early 2005 as regional president of Southern California and earned multiple promotions over the years, gaining responsibilities for larger markets as well

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as systemwide roles. Before coming to Kaiser, Chu served for three years as president of the New York City Health and Hospitals Corp.- now NYC Health & Hospitals - the nation’s largest public hospital system. Chu also has received broader industry recognition, including serving as chairman of the American Hospital Association in 2013 and being elected to the National Academy of Medicine in 2015.

9. Dr. David Feinberg President and CEO Geisinger Health System Dr. David Feinberg has served as president and CEO at Geisinger Health System just since May 2015, but he’s already making his mark at the integrated organization.

He’s tested a warranty program that offers a money-back guarantee to patients for some healthcare services if the system doesn’t meet their expectations. And he’s doubleddown on the system’s approach emphasizing the patient experience, telling Modern Healthcare last year that “we want to take patient-centeredness to the next level We want to make our transitions in care remarkably smooth.

We want patients to understand their bill.” Before joining Danville, Pa.-based Geisinger, Feinberg was CEO of the UCLA Health System in Los Angeles for four years. He is boardcertified in psychiatry, child and adolescent psychiatry and addiction psychiatry.

10. Dr. Jonathan Perlin President of clinical services and chief medical officer HCA Dr. Jonathan Perlin’s healthcare experience has been broad and varied, with a resume touching industry, government and advocacy. As president of clinical services and chief medical officer at Nashville-based HCA, Perlin, 55, brings strong research credentials to the publicly traded hospital chain, tackling issues ranging from MRSA prevention to reducing the number of early elective deliveries. While at HCA, he took a 2014 assignment as a special adviser to the Veterans Affairs Department at a time when the agency was facing allegations of mismanagement in its healthcare services, including long waits to receive care. “I think it’s fair to say the VA has lost the trust of the American public and of the veterans themselves,” Perlin said during his time there. “I’m working on not only reducing the waiting times for veterans, but also ensuring transparency in all aspects of performance.” Perlin last year served as chairman of the American Hospital Association and in October was elected to the National Academy of Medicine.

New drug regulator confronts major challenges An opioid abuse epidemic fueled by prescription drugs.

Public outcry over high drug prices. A huge backlog of generic drug applications. Industry stakeholders pressing for faster approvals.

Former clinical researcher Dr. Robert Califf recently took over a U.S. Food and Drug Administration that is heading into an era of unprecedented challenges and change. The decisions he will make over the next few years - assuming he holds on to his job in the next administration - will redefine how drugs, medical devices, tobacco, food safety and controlled substances are regulated in the 21st century. President Barack Obama’s appointee got off to a rocky start.

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Though his nomination received bipartisan support, several Democratic lawmakers For that reason, Dr. Califf was selected to top the list of the 50 Most Influential Physician Executives and Leaders. attempted to block his confirmation in an effort to get the FDA to take a more active role in trying to curb the widespread use of prescription opioids. These regulated products are the major driver behind a growing abuse epidemic responsible for killing well over half the 48,000 people who died from drug overdoses in 2013.

Some consumer groups challenged his connections to regulated industries while at the Duke University School of Medicine, where he served as a clinical researcher and adviser to numerous drug companies. They expressed doubts about how he will use his power to shape and eventually implement the 21st Century Cures Act, the House-passed overhaul of the rules for approving drugs and devices that is designed to get medical breakthroughs to market sooner.

To face these challenges and more, Califf inherited a shorthanded agency whose workforce was already struggling to keep up with the rapid changes taking place in the sciences of drug and device development. “If you want to actually get results from a 21st Century Cures, you have to get the most qualified people,” said Dr. David Gortler, a former FDA senior medical officer and drug-safety expert at the consultation site FormerFDA.com. “You have to poach those people from academia and you have to poach them from industry. Right now, they’re waiting for those people to knock on the door.”

In an interview with Modern Healthcare, Califf said strengthening the FDA workforce is his No. 1 priority. That requires attracting top talent to the agency, as well as retaining current employees by making the agency a more appealing place to work.

“The FDA must evaluate increasingly complex information to make good decisions on behalf of the public,” Califf said.

“So we need the best people, and that includes keeping the pipeline full, but also keeping people happy when they work here.”

Complaining about the adequacy of the FDA workforce is a constant refrain in Washington. But the job of protecting the public from unsafe or ineffective drugs and devices will only get tougher should Congress create a regulatory environment that generates less-definitive clinical trial data for new drug and device applications, and asks the agency to make its decisions more quickly. Among the proposed provisions is a change that would allow a drug to be approved with a “breakthrough therapy designation,” based on evidence from its early-stage testing. Another provision would allow manufacturers to get accelerated approval for a drug based on its effect on a surrogate endpoint - a lab test result like lowered cholesterol that predicts health benefits, but hasn’t yet been shown in clinical trials to improve patient outcomes.

Given the prospect of greater scientific uncertainty, critics wonder whether Califf will remain impartial and hold the line on safety and efficacy standards. They cite his long-standing financial ties with drug companies while directing the Duke Clinical Research Institute. “The attitudes he’s formed will lead him to make decisions that weigh in favor of industry

Robert Califf, Commissioner, Food and Drug Administration

instead of public health,” charged Dr. Michael Carome, director of the Health Research Group for the advocacy organization Public Citizen.

Critics of some of the reform measures proposed by Congress, including former FDA Commissioner Dr. Margaret Hamburg and her former top deputies, are more concerned about the agency’s ability to simply keep up with changed regulatory standards. The agency will need additional resources to train existing and new personnel to keep up with evolving regulatory science if it is going to play its traditional role of guiding the industry through the process of developing new drugs and devices without causing unexpected harm.

“It’s important for people to understand the FDA is not an obstacle to progress but really can help progress come about,” said Dr. Joshua Sharfstein, an associate dean at the Johns Hopkins Bloomberg School of Public Health and a former deputy FDA commissioner. “FDA is sometimes the agency people love to hate - but usually that comes out of a place of not understanding.”

Given the election year uncertainty, Califf will probably use the next six months to chart future plans. The one exception is an initiative on opioid abuse, which has become a major issue on the campaign trail. With the Obama administration ending in less than a year, experts say Califf will move cautiously on other issues, in hopes of maximizing his chances of being retained by the next administration - by whoever wins the election.

“I would be surprised if there were many groundbreaking positions that could be controversial politically,” said Marc Scheineson, a partner at the Washington, D.C.-based law firm Alston and Bird, who previously served as associate commissioner for legislative affairs at the FDA.

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Bridgepoint to sell Oasis Dental Care to BUPA for £835m Bridgepoint, the European private equity group, is to sell Oasis Dental Care, the UK’s leading private dental services provider, to Bupa in a transaction valuing the business at £835million.

Acquired by Bridgepoint in 2013, Oasis is the leading branded operator of scale in its market with 380 practices and over 1,800 dentists, serving both the private and public sectors in equal measure. Under Bridgepoint ownership, Oasis: • completed 191 practice acquisitions as part of its consolidation strategy • entered the Republic of Ireland market • made significant investment in marketing and clinical infrastructure • offered longer and more convenient opening hours • introduced transparent online and practice pricing • ran the first national dental chain TV campaign which led to a 12% rise in appointments • tripled EBITDA during the period.

Bridgepoint partner and head of healthcare investment Jamie Wyatt said: “Oasis’ performance has been impressive. With its robust clinical platform and a commitment to quality and innovation, it has become the leading branded dental operator of scale in the UK. It will continue to lead future consolidation of the UK dentistry market as it extends its brand in the market.”

Justin Ash, Oasis CEO, said: “Our growth is accelerating and enthusiasm is building amongst dentists and customers.

We now believe that as part of the Bupa family that we can really develop the business further and that we can continue to transform the UK dentistry market. Bridgepoint has been very good at asking us what our world will look like and how we can make sure we’re winning in five years’ time. It’s been a very motivating way to run a business.”

“Above all, the success of Oasis is built on the talent and commitment of our clinicians and staff and the loyalty of our 2 million customers. We will continue to focus on their need every day” he concluded.

UK dentistry is a £7bn market with underlying long-term growth driven by structural factors including favourable demographics (such as ageing and a growing population), government policy trends (as dentistry becomes a higher profile public service) and the growth in cosmetic dentistry.

This is also reflected in the widening product offering from Oasis and in the strong private pay like-for-like growth in the business.

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Bankrolling the biotech gamechangers A venture capitalist firm dedicated to supporting industries transforming our world has just raised $616 million dollars for the next generation of biotech pioneers.

The fund from Third Rock Venture will back innovative biotech startups and build on the company’s “strategy of creating innovative healthcare companies to make a meaningful difference in the lives of patients and their families”.

“We appreciate the ongoing support from all the investors participating in Fund IV. Over the years, we have continued to build a leading investor base that is supportive of our unique model – a hands-on, team-based approach of discovering, launching and building great companies based on bold ideas that meet at the intersection of science, strategy, business and medicine,” said Robert Tepper, M.D., partner at Third Rock.

“Our investment has always been shaped by the ongoing tremendous innovation in science and medicine. We aim to be both the preferred partner to scientific innovators from academia, and the preferred provider of innovative programs in important disease areas to address the bio-pharma industry’s pipeline needs.”

Leapfrog announces move into healthcare with the largest direct investment in East African retail pharmacy sector to date • Leapfrog announces first healthcare investment with a $22m majority stake in GoodLife Pharmacy – the largest direct investment in East African retail pharmacy sector to date • Michael Fernandes and Dr. Felix Olale, Partners, to serve as Global Co-Leaders for Health Investments • Investments will focus on increasing access, quality and affordability of consumer-centred healthcare services in Africa and Asia LeapFrog Investments, a leading specialist investor in emerging markets, announced its acquisition of a USD 22m majority stake in Kenya’s GoodLife Pharmacy, the largest direct investment in the East African retail pharmacy sector to date.

LeapFrog will now build on its financial services specialism by diversifying its private equity investments into a closely linked sector – healthcare. This will develop a platform that combines both payers and providers, thereby bringing consumers greater access to affordable, quality healthcare.

The World Health Organisation (WHO) estimates that over 150m people fall into poverty annually due to catastrophic healthcare events and an inability to pay out-of-pocket for healthcare services.

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• Leapfrog announces first healthcare investment with a $22m majority stake in GoodLife Pharmacy – the largest direct investment in East African retail pharmacy sector to date • Michael Fernandes and Dr. Felix Olale, Partners, to serve as Global Co-Leaders for Health Investments

to deliver consumer-centric models,” said Michael Fernandes “By focusing on bridging the gap in products and services that are most relevant within emerging markets, we can bring health services closer to the consumer and improve patient outcomes, while making top returns for our investors.”

LeapFrog Investments, a leading specialist investor in emerging markets, announced its acquisition of a USD 22m majority stake in Kenya’s GoodLife Pharmacy, the largest direct investment in the East African retail pharmacy sector to date.

The Goodlife transaction was led by Dr. Olale who added that “The future of healthcare in emerging markets is about looking at a model that will endure for the 21st century.

At the center of this is a focus on consumer-centric and integrated healthcare. Goodlife’s business model delivers on this imperative. It is a pharmacy, a wellness outlet, a diagnostics centre, and in the future will also be a place where you can access clinicians through telemedicine. This is a model that markets like East Africa are ripe for, particularly as we see a dramatic increase in chronic lifestyle diseases.”

LeapFrog will now build on its financial services specialism by diversifying its private equity investments into a closely linked sector – healthcare. This will develop a platform that combines both payers and providers, thereby bringing consumers greater access to affordable, quality healthcare.

Goodlife provides trusted pharmaceuticals and wellness products to over 600,000 customers from 19 different convenient locations across East Africa. With LeapFrog’s investment, Goodlife plans to expand its footprint to more than 100 stores over the next five years.

The World Health Organisation (WHO) estimates that over 150m people fall into poverty annually due to catastrophic healthcare events and an inability to pay out-of-pocket for healthcare services.

Co-founded by Dr. Josh Ruxin in Nairobi in 2013, the company has quickly grown to over 200 employees under the leadership of its CEO, Tony McNally. Ruxin, said, “LeapFrog is not just a provider of capital. We also appreciate their healthcare expertise, and look forward to partnering closely with them to accelerate growth. This investment will benefit the people that really matter – our customers.

• Investments will focus on increasing access, quality and affordability of consumer-centred healthcare services in Africa and Asia

LeapFrog’s approach is aimed at partnering with companies in Asia and Africa that are addressing this challenge. The Goodlife investment follows LeapFrog’s 2014 investment of $18.7m in leading Kenyan health insurer Resolution Insurance.

Dr. Felix Olale and Michael Fernandes, Partners, will serve as Global Co-Leads for health investments. They will be supported by a team of eight specialists with deep healthcare investment expertise, and experience of African and Asian markets. Leapfrog’s wider global network will support origination and execution.

“Low health insurance penetration, coupled with an increase in utilisation of services has an enormous impact on the ability of consumers to access and afford quality health care.

By moving into health, we are taking a unique approach and addressing the challenge from both sides – investing in both health insurance companies and health service providers,” said Dr. Olale.

A leading healthcare expert in emerging markets, Dr. Felix Olale was previously the Chairman of the Excelsior Group, a US-Kenyan-based advisor and investor in healthcare, finance and technology companies in Africa. Prior to that he was an Associate Partner with McKinsey & Company in New York.

Michael Fernandes, Global Co-Lead responsible for Asia, has an extensive track record in health investments. He previously served as Country Head for India for Khazanah Nasional Berhad, leading a global healthcare team responsible for over $7bn of investments across the platform. Michael also served on the Boards of the Indian-based Infrastructure Development Finance Company and Apollo Hospitals, the leading healthcare provider in India. “Our focus is on investing in companies that are re-thinking traditional approaches to solving health problems by finding new ways

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Healthcare booking platform, Doctify, closes seven-figure round led by Amadeus Capital Partners Doctify, a fast-growing healthcare technology platform that allows patients to search for specialist doctors and book appointments simply online has closed a seven-figure Series A round led by global technology investor, Amadeus Capital Partners.

Founded in 2015, Doctify is a user-friendly platform that allows patients to search, compare reviews and prices, and book appointments with medical specialists across the UK. The company focuses on the rapidly-expanding private healthcare market and currently puts patients in touch with doctors qualified in 47 different specialisms, including cardiology, oncology and paediatrics, as well as dentistry and dermatology.

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Doctify chief executive officer Oliver Thomas commented, “We are excited to announce our partnership with Amadeus Capital Partners and this round of growth funding.

Amadeus’s investment will enable Doctify to improve the platform, scale-up UK operations and realise our aim of becoming the largest online medical appointments booking service.” Doctify co-founder Stephanie Eltz added, “Amadeus has significant experience and resources in the digital healthcare sector in the UK and beyond, which we will put to good use as Doctify develops plans to access international markets next year.”

“Since its launch last year, Doctify has quickly become the most popular patient platform for booking specialist medical appointments in the UK. With healthcare systems the world over still principally paper-based and appointments made over the phone, Doctify is at the forefront of digitising patient bookings and is well-positioned to become both the market leader in the UK and an established player in Europe,” said Pierre Socha, Principal, Amadeus Capital Partners.

Doctify is free to patients with clinicians paying a monthly fee to list on the platform. The system helps specialists re-fill appointments that have been cancelled at short notice and manage their schedules better. There are an estimated 25,000-30,000 consultant doctors who operate within the private sector, as well as the publicly-funded National Health Service, in the UK. In addition, there are some 35,000 dentists, as well as tens of thousands of allied health professionals including chiropodists and physiotherapists.

Cavendish advises SG Court Pharmacy Group on its acquisition by Paydens Ltd to create a leading pharmacy chain in the South-East of England Transaction showcases the strength of Cavendish’s Healthcare Group Cavendish Corporate Finance, the UK’s leading sell-side mid-market M&A firm, has advised the shareholders of the SG Court Pharmacy Group (SG Court), a privately owned chain of pharmacies located in the South East of England, on its acquisition by Paydens Ltd (Paydens). Also located in the South East, Paydens is a leading, independently owned pharmacy group that also includes a pharmaceutical

wholesaler and a small care home group within its portfolio.

Established in 2004, SG Court has grown strategically through acquisition, and now runs a chain of 21 pharmacies in key locations predominately across Kent, Sussex and Surrey. SG Court has a highly attractive pharmacy footprint, and dispenses approximately 2.7m prescription items each year, significantly higher than average script levels and operates modern premises from strategic locations, with an established and loyal customer base. The SG Court pharmacies will continue to provide comprehensive healthcare services to the communities they serve, supported

by Paydens’ wider geographical reach and distribution channels across the region.

Growing competition among pharmacy groups, combined with recently announced Government funding cuts, has encouraged recent consolidation amongst pharmacy groups. The combined business will have a total network of 129 pharmacies, enabling further economies of scale and allowing distribution to be centrally controlled in one geographical location.

Cavendish Corporate Finance, which advised the shareholders of the SG Court Group, has considerable experience in advising pharmaceutical and healthcare businesses. Recent high profile transactions include advising on the sale of Kent Pharmaceuticals to DCC plc and the sale of off-patent pharmaceuticals provider DB Ashbourne Ltd to Ethypharm.

Michael Jewell, partner at Cavendish Corporate Finance, which advised SG Court on the transaction commented: “We are delighted to have advised the shareholders of SG Court and to have found in Paydens the right buyer to continue to develop the network and continue its reputation for customer focused service. This acquisition will see SG Court and Paydens unlock significant synergies from their complementary geographical reach, improve pharmacy efficiency and deliver high quality patient services.

SG Court and Paydens are both recognized names in the pharmacy industry and the acquisition by Paydens presents an exciting opportunity for continued growth.

The competitive landscape of pharmacies has changed over the past decade, and we believe that further cuts to NHS funding will result in further consolidation in the industry.”

Dennis Pay, Managing Director, Paydens Pharmacy Group, commented: “We are very pleased to have found such a complementary match in SG Court, a company we have long admired. The firm operates a successful chain of pharmacies and has a strategic geographical presence in the South East that complements our own. SG Court has an impressive track record and has successfully grown the business against the backdrop of a challenging economic environment and Government funding pressures on community pharmacies.

We look forward to welcoming SG Court to the Paydens family and to integrating its business operations into our growing network of pharmacies.”

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Health Axis Europe launches Funding Initiative

Dr. Christian Tidona (right) with the founders of the start-up company Cogitars during the HAE Summer Camp

Cambridge’s life sciences collaboration with Leuven and Heidelberg - Health Axis Europe (HAE) - has opened up a route to crucial new funding.

mid-October 2011, depending on the topic). Anyone who wants to get involved should act now in order to meet those deadlines.

HAE has launched the “Access to EU funding” initiative. It is aimed at making it easy for companies to access FP7 and IMI European Union funding for research & development - by providing expert advice as well as access to a pool of businesses and researchers looking for partners to build or join consortia.

There are a number of possible options open to Cambridge companies. They can participate in a consortium led by either Heidelberg or Leuven - these clusters are already well advanced in building their consortia - or they can initiate the formation of a consortium and, through HAE, access help to identify partners.

The project was launched at a workshop at St John’s Innovation Centre in Cambridge UK. It was hosted by Alex Smeets (pictured left) of Cambridge Funding Solutions and Cambridge healthcare ambassador Alan Barrell with support from Jeanette Walker of lets cell it.com

The aim of the collaboration is to make it easier for participating companies and research organisations to do business with one another, identify research partners and share resources.

Christian Tidona, CEO of the Heidelberg cluster organisation BioRN, and a former EU grant assessor with an in-depth knowledge of these grants, demonstrated a bespoke on-line system that makes it easy for companies to register their interest in specific calls and identify partners.

Smeets explained: “These EU funding calls require participants from at least three EU Member States, so through the HAE initiative we can offer immediate access to a range of potential partners in Germany and Belgium.

“Given the number of people we’ve met over the years who have struggled with the administrative burden of applying for and administering EU grants, we are happy to do whatever we can to facilitate participation by Cambridgebased companies and research organisations in this initiative.

“Where possible, we will engage with the East of England Understanding Finance for Business programme managed

by St John’s Innovation Centre in order to make support available free of charge.”

The deadlines for submission of proposals are: FP7-HEALTH (September 27, 2011); IMI (between late September and

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Alex Smeets is happy to field enquiries whether companies want to bid for funding through HAE or via Understanding Finance for Business. He is also the contact if companies want to know what else HAE is planning.

Professor Alan Barrell said: “We see the Axis as being able to organise a day when investors meet the cream of our new, early stage companies. We intend to enhance the connections between entrepreneurs and funders Europewide to intensify the payback from medical innovation.

“By mapping and matching the crucial areas of medical science resident in our three centres of excellence we can bring to market more significant life saving medicines and devices than could possibly be made available without the synergy and symbiotic nature of three of the world’s great centres of clinical excellent joining forces,” he said.

Jeanette Walker commented: “The Health Axis Europe Initiative is a great way for us to help raise the profile of the Campus in Europe and beyond. “The biomedical research in the clusters in Leuven and Heidelberg is very synergistic with that taking place on the Campus - especially in the field of personalised medicine, regenerative medicine and connected health.”

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Antitrust Suits Aim to Block Two Health Care Mergers The Obama administration announced it would seek to block two giant health care mergers, citing concerns that the deals could drive up health care premiums, undermine innovation and reduce competition. The Justice Department filed lawsuits challenging Anthem’s $48 billion acquisition of Cigna and Aetna’s $37 billion takeover of Humana, threatening to put an abrupt stop to the insurance industry’s rapid consolidation.

vital and healthy through continuous innovation,” Rick Pollack, the association’s CEO, said in a statement.

Eleven states and the District of Columbia joined the attempt to block the Anthem deal, which would combine the nation’s second- and fourth-largest insurers. Eight states and D.C. joined the suit to block the Aetna deal, which would combine the third and fifth largest. Attorney General Loretta Lynch told reporters the mergers would “drastically” curb competition in the insurance industry, including by reducing the number of options for people who buy insurance on public exchanges.

Waging a fight against the insurance deals reflects another mark left by the Obama administration on the contours of an industry already dramatically reshaped by the president’s sweeping health care overhaul.

“If these mergers were to take place, the competition among these insurers that has pushed them to provide lower premiums, higher-quality care and better benefits would be eliminated,” Lynch said.

In a show of unity, Hartford, Conn.-based Aetna and Louisville-based Humana immediately issued a joint statement vowing to “vigorously” contest the government’s suit, saying their deal would improve the quality of care and lower costs while increasing insurance options for many Medicare patients. The Anthem-Cigna alliance appears to be on shakier ground. Cigna said in a statement that the deal would no longer close in 2016 “and the earliest it could close is 2017, if at all,” adding that it is “currently evaluating its options.”

Indianapolis-based Anthem called the challenge an “unfortunate and misguided step backwards for access to affordable health care for America” and pledged to fight the suit in court, though it signaled an openness to a settlement, which could involve divestitures.

Marianne Udow-Phillips, director of the Center for Healthcare Research & Transformation at the University of Michigan, said that although the deals would likely reduce prices paid by insurers to health care providers, patients wouldn’t necessarily see lower bills.

“That doesn’t always get passed on to consumers,” UdowPhillips said in an interview, adding “it will be challenging for them to succeed in court.”

A federal judge will decide whether the mergers are anticompetitive. Although there is no guarantee the Justice Department will prevail, corporations often choose to give up instead of waging an uncertain, lengthy and costly fight against the government. The American Hospital Association and the American Medical Association hailed the suit as critical to preserving accessible health care and fostering innovation among insurers.

“Fewer coverage options for consumers also would undermine the hospital field’s goal of keeping communities

The suits mark the latest in a series of steps taken by the Justice Department’s antitrust division to block corporate consolidation. The division prevented oilfield services giant Halliburton’s acquisition of Baker Hughes and blocked retail and supplies company Staples’ purchase of Office Depot.

Udow-Phillips, director of the Center for Healthcare Research & Transformation, said there’s a risk of less competition in the Obamacare exchanges if the deals are approved.

“More health plans are questioning whether they’re going to stay in the exchange market, and the government is very concerned because that individual market only works when there’s enough competition,” she said.

Principal Deputy Associate Attorney General Bill Baer, a former antitrust chief, said the health care mergers are unnecessary.

“These insurance companies are already some of the largest, most sophisticated companies in the country,” he told reporters. “They are thriving as independent firms, they do not need these deals to survive and consumers deserve to benefit from their continued competition.”

Still, insurers have been aggressively pursuing consolidation sparked by the onset of Obamacare, which insurers have blamed for increasing regulatory costs.

If the deals collapse, the insurers “may take a break from mergers and acquisitions but will resume with smaller-scale transactions in the future,” S&P Global Healthcare analysts said in a research note.

The government said a merger of Anthem and Cigna would reduce head-to-head competition in at least 35 major metropolitan regions and give the combined company too much bargaining leverage over health care providers such as hospitals and doctors.

The Aetna-Humana deal would combine two of the four largest providers of Medicare Advantage plans, threatening to drive up costs for certain seniors, and would undermine competition in public exchanges in Florida, Georgia and Missouri, the government said.

A combination of the two companies would create the largest provider of Medicare Advantage plans, Udow-Phillips said.

Anthem and Cigna collectively serve 54 million people with combined 2015 revenue of more than $117 billion. Aetna and Human collectively serve 37 million people with $114 billion in revenue.

59 Gamechangers

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Gamechangers impact how the game is played from one objective and ruling model to a completely new vision â&#x20AC;&#x201C; changing the face of how we know something.â&#x20AC;?

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OCTOBER 2016

SPECIAL REPORT:

Private Equity and Health Care in Emerging Markets

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

1

About EMPEA EMPEA is the global industry association for private capital in emerging markets. We are an independent non-profit organization with over 300 member firms, comprising institutional investors, fund managers and industry advisors, who together manage more than US$1 trillion of assets and have offices in more than 100 countries across the globe. Our members share EMPEA’s belief that private capital is a highly suited investment strategy in emerging markets, delivering attractive long-term investment returns and promoting the sustainable growth of companies and economies. We support our members through global authoritative intelligence, conferences, networking, education and advocacy.

Project Team Brady Jewett (lead), Senior Research Analyst Jeff Schlapinski, Director, Research Luke Moderhack, Senior Research Analyst Rae Winborn, Senior Research Analyst Isabelle Diop, Research Analyst Kevin Horvath, Research Analyst Executive Editor Robert W. van Zwieten, President & Chief Executive Officer Production Assistance Amy Waggoner, Graphic Design

EMPEA’s Board of Directors Robert Petty (Chairman)

Managing Partner & Co-Founder, Clearwater Capital Partners

Teresa Barger (Vice Chair)

Senior Managing Director, Cartica Management, LLC

Rebecca Xu (Vice Chair)

Co-Founder & Managing Director, Asia Alternatives Management LLC

Runa Alam

Co-Founding Partner & CEO, Development Partners International

Thomas C. Barry

President & Chief Executive Officer, Zephyr Management, L.P.

Fernando Borges

Managing Director & Co-Head of South America Buyout Group, The Carlyle Group

Paul Fletcher

Chairman, Actis

Rashad Kaldany

Executive Vice-President, Emerging Markets, Caisse de dépôt et placement du Québec (CDPQ)

Mark Kenderdine-Davies

General Counsel, CDC Group plc

Maria C. Kozloski

Chief Investment Officer, International Finance Corporation (IFC)

Temitope (Tope) Lawani

Co-Founder & Managing Partner, Helios Investment Partners

H. Jeffrey Leonard

President & Chief Executive Officer, Global Environment Fund

Piero Minardi

Managing Director, Warburg Pincus

Sanjay Nayar

Member & Head, KKR India Advisors Pvt. Ltd.

Ziad Oueslati

Founding Partner, AfricInvest

Nicolas Rohatyn

Chief Executive Officer & Chief Investment Officer, The Rohatyn Group

Jean Eric Salata

Chief Executive & Founding Partner, Baring Private Equity Asia

Maninder Saluja

Partner & Co-Head, Emerging Markets Private Equity, Quilvest Group

Tom Speechley

Partner, The Abraaj Group & Chief Executive Officer, Abraaj North America

Yichen Zhang

Chairman & Chief Executive Officer, CITIC Capital

1077 30th Street NW • Suite 100 • Washington, DC 20007 USA Phone: +1.202.333.8171 • Fax: +1.202.333.3162 • Web: empea.org 2 EMPEA

To learn more about EMPEA or to request a membership application, please send an email to membership@empea.net.

SPECIAL REPORT:

Private Equity and Health Care in Emerging Markets CONTENTS

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Big Picture: An Introduction to Health Care and Private Equity in Emerging Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Structural Drivers of Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The Current Investing Landscape: How and Where Managers Are Putting Capital to Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Investor Perspectives: Accessing Health Care in Emerging Markets . . . . . . . . . 12 Regional Profile: Emerging Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Regional Profile: CEE and CIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Regional Profile: Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Regional Profile: MENA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Regional Profile: Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

1

Executive

Summary In many ways, health care exemplifies EMPEA’s belief that emerging markets (EM) private equity provides investors the opportunity for outsized returns, as well as positive social impact. Demand for health care products and services has grown faster than overall EM economic activity, and the needs of consumers have outstripped the capacity of public sector options. Many governments, faced with budgetary pressures and preoccupied with ensuring macroeconomic stability in a volatile global landscape, have recognized the need for increased private investment in the sector. It’s therefore no surprise that health care private equity investment activity in emerging markets has reached the highest levels ever recorded by EMPEA. Yet delivering on the promise of health care in emerging markets requires not just an opportunistic mindset, but patience, creativity and operational insight into what is ultimately a very complex sector.

However strong the macroeconomic drivers may be, the “micro” attributes of investments in health care are crucial to success. This report explores the health care private equity landscape in emerging markets, with a view to how fund managers are approaching investments across countries, subsectors and investment stages.

Most importantly, the report examines how fund managers are driving change at the portfolio company level, creating value not only for investors, but also for the communities that health care companies ultimately serve.

2

EMPEA

Introduction

Key findings include: • Health care opportunities across emerging markets are driven by a persistent gap at a macro level between supply in health care provision and growing demand. The new global middle class’s spending on health care is outpacing GDP growth. Additionally, with the rise of chronic diseases and, in some markets, aging populations, the composition of health care services that citizens need is evolving.

• Overall private investment in health care reached US$2.7 billion in 2015 across 131 deals—the largest year-end investment totals (both in terms of capital deployed and number of deals) reported for the sector since EMPEA began tracking investment figures in 2008. This year is on track to set a new high, with US$1.7 billion invested across 79 deals in the first half of 2016 alone. Health care providers—including hospitals, clinics and diagnostics labs—have attracted the largest share of health care deals and capital invested in recent years, accounting for 41% of deals and 43% of capital invested from 2011 through 1H 2016.

• Health care-specific specialist funds are gaining traction in emerging markets, having raised more than US$1 billion in 2015. This is largely a regional phenomenon, however, as the vast majority of health care-specific fundraising is taking place in Emerging Asia. Across emerging markets, the overwhelming majority of investments in health care are made by generalist fund managers, but this may change if other regions follow the path of Emerging Asia toward increasing specialization at the GP level.

• Investors in private equity are keen to increase their exposure to health care in emerging markets, ranking the sector more attractive than any other in EMPEA’s 2016 Global Limited Partners Survey. However, LPs express concern about rising valuations (brought on, in part, by the uptick in investor interest). While LPs are committing to health carespecific funds in the deepest markets, most emphasize the need to work with sector-agnostic funds to increase exposure to health care in less mature markets for private investment in health care.

• For investors seeking exposure to health care in emerging markets, private equity is a well-suited strategy through which to access and reap returns from the sector.

Public markets offer very few options for EM health care investment—there are just 34 health care companies in the FTSE Emerging Index and seven health care companies in the FTSE Frontier Index. By contrast, private equity has backed 424 different health care companies between 2011 and 1H 2016. Moreover, private equity fund managers can create value in companies by improving operations, consolidating

fragmented industries, achieving scale and leveraging local expertise to tap market-specific opportunities. Such value addition remains out of reach when simply investing in the few health care opportunities available in public markets.

• Emerging Asia boasts the largest and most mature health care investment landscape of the five major EM regions, with capital invested outpacing all other regions combined since 2012. Fund managers focusing on Emerging Asia have access to a rich diversity of mature and sophisticated health care subsectors, such as biotechnology and pharmaceuticals.

• State health care systems in CEE and CIS are working with private providers to expand access, providing opportunities for private investors in the space. After Turkey launched public-private partnership provisions for its health care system in 2010, for example, the country attracted several investments in large-scale hospitals.

• Brazil and Mexico have accounted for the majority of health care investments in Latin America. Brazil, specifically, has seen an influx of capital in recent years due to regulatory changes easing restrictions on foreign ownership of health care providers.

• Health care in MENA perhaps best demonstrates the defensive and resilient nature of the sector when facing economic uncertainty. In recent years, private equity fund managers in MENA have dealt with volatility on several fronts—the global financial crisis in 2008 was followed by the Arab Spring in 2011, and now the low price of oil is a major challenge. Nonetheless, spending on health care in MENA has increased every year throughout these periods, even in times of negative GDP growth in the region.

• Sub-Saharan Africa’s health care sector is underdeveloped, but primed for takeoff. While Sub-Saharan Africa has attracted just a small fraction of the total capital invested in EM health care in recent years, the region’s large gap in health care supply, growing urban populations and receptive governments are generating opportunities for early movers in the region. Indeed, some of the largest investors in emerging markets are raising capital to back companies in the space.

Note: The methodology used for this report may be found on page 37. EMPEA Members have exclusive access to the underlying exhibits and data in the report via the MS Excel icon on the right.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

3

The Big Picture: An Introduction to Health Care and Private Equity in Emerging Markets When TMG Capital invested in Brazil-based insulin producer Biomm Technology in 2013, the private equity fund manager saw an opportunity to address growing domestic demand for pharmaceutical products by creating a national leader in a niche

to pay for things above and beyond what the government might offer, so that private insurers can prosper and private clinics can prosper.”

Perhaps unsurprisingly, private fund managers’ recent investment activity largely mirrors heightened LP interest. In 2015, the number of deals and disclosed capital deployed in the health care sector reached the highest levels ever recorded by EMPEA (dating back to 2008), and data from the first half of 2016 reveal no signs of deceleration (see Exhibit 2).

Exhibit 1: LP Views – Most Attractive Sectors in Which to Build Exposure via EM PE, Ranked 1-3

Financials

11%

12%

8%

9%

9%

6%

19%

25% 5%

18%

16%

21%

Health care Consumer goods and services* Technology and telecommunications

Once institutional investors decide to invest in 18% 16% 21% EM health care, they still must consider why Consumer goods private equity, rather than public markets, is the 7% 7% 5% Agribusiness 6% 19% 25% and services* right channel through which to build exposure Technology and 10% Industrials 3% 3% 11% 12% 5% telecommunications to the sector. Here, the rationale is simple: 5% 4% Utilities** Financials 8%much deeper and broader in 9% 9% opportunities are Oil and gas 3% private Clean technology 8% While there are just 34 health 8% markets.

7% Most Attractive care companies in the FTSE’s Emerging Markets Basic materials 2nd Agribusiness Most Attractive 5% 7% 7% Index, making up just 3% of the index’s weight, 3rd Most Attractive 10% Industrials 3% 3% more than 400 EM health care companies have % of Respondents 5% 4% Utilities** received private investment between 20111H 2016, accounting for 7% of the total (see Oil and gas 3% *Includes retail/e-commerce. **Includes water and electric power.

Most Attractive Exhibit 3). Publicly-listed health care companies Source: EMPEA 2016 Global Limited Partners Survey.

Basic materials 2nd Most Attractive also tend to be clustered geographically and by 3rd Most Attractive subsector. Such limited availability drives up entry multiples for market segment—supported by a government keen on finding a Respondents markets.1 publicly-held health care companies%inofemerging local alternative to international suppliers, one that could address the everyday needs of Brazilians. In the years since TMG’s investment, Moreover, data from Cambridge Associates reveal that the Brazil has become mired in political crisis and economic recession, performance of private equity (inclusive of venture capital) confronting fund managers with perhaps the most challenging 150 $3 investments in the health care sector has beaten returns for investment environment in decades. Yet demand for health 131 care in 122 the country has remained resilient, and fund managers continue 110 to see opportunities to address unmet demand for quality and 120 Exhibit 2: EM Private Investment in Health Care, 2008-1H 2016 100 affordable health care products and services.

Eduardo Buarque de $2 86 83 attests, “Even in 2015, which 90 Almeida, Partner at TMG Capital, 74 72 year 150 $3 was a challenging for the economy overall, the sector grew 131 79 by 2.7%. That is why private equity firms are still investing here.”

122 8%

Health care

60

$1

1

$2

30

0

86 72

7%

83 79

60 $1

$0

1.8

1.1

1.5

1.4

1.9

1.9

1.8

2.7

1.7

2008

2009

2010

2011

2012

2013

2014

2015

1H 2016

Capital Invested

Source: EMPEA. Data as of 30 June 2016.

8%

6%

3%

90

30

EMPEA 375 300

120

74

“Healthcare in the Emerging Markets: A Compelling Private Equity Opportunity.” Siguler Guff & Company. October 2014. http://www.sigulerguff.com/sites/default/files/2014.11.12-Siguler-Guff-Healthcare-in-the-Emerging-Markets.pdf.

450

4

110 100

No. of Deals

0

No. of Deals

TMG’s experience with Biomm encapsulates the opportunities available for private equity investors in the health care sector in emerging markets. Taking notice of the sector’s resilience and 1.8 1.5 1.4 1.9 1.8 1.7 the factors$0driving the1.1opportunities in1.9EM health care,2.7investors 2008 2009 2010 2011 2012 2013 2014 2015 1H have become increasingly attracted to the sector. In EMPEA’s 2016 2016 Global Limited Partners Survey, respondents ranked health care Capital Invested No. of Deals among the most attractive sectors in which to gain exposure via EM PE (see Exhibit 1). Bernard McGuire, Managing Director of EMfocused fund of funds manager 57 Stars explains, “The level of interest in the sector stems from its strong growth, persistence and lack of volatility. Governments are increasingly aware of the need to provide better, deeper, cheaper health care solutions for a much broader part of the population. At the same time, rising middle class incomes in a lot of countries mean a greater ability

US$ Billions

8%

7%

No. of Deals

US$ Billions

Clean technology

30

$0

1.8

1.1

1.5

1.4

1.9

1.9

1.8

2.7

1.7

2008

2009

2010

2011

2012

2013

2014

2015

1H 2016

Capital Invested

0

No. of Deals

The Big Picture: An Introduction to Health Care and Private Equity in Emerging Markets, continued

Exhibit 3: FTSE ICB Sector Comparison – Health Care Exposure, Private vs. Public Markets

7%

450

8%

375 6% 300 225

3%

“

4%

150

2% 2%

75 0

34

424

7

FTSE Emerging Index

EM Private Capital

FTSE Frontier Index

0%

No. of Constituents

% of Total

Sources: EM Private Capital – EMPEA (companies receiving investments from private funds, 2011-1H 2016); FTSE Emerging and Frontier Indices – FTSE International Limited. Data as of 31 August 2016.

This is a very complex market, and while there’s huge unmet need for health care, investors must also consider the extent to which it is economically viable to service this unmet need and earn a return on capital. Investors must weigh the structural drivers of the opportunity against the challenges of investing in the space, decide how to access the sector and find managers that can deploy capital effectively and generate value.

EM public equities, not to mention the broader pool of private equity and venture capital investments in EM companies across all sectors, over multiple time horizons (see Exhibit 4). In this sense, private investing in the EM health care sector has the potential to be a true source of alpha.

Exhibit 4: Horizon Returns for PE/VC Investments in EM-based Health Care Companies vs. All EM PE/VC-backed Companies and MSCI Emerging Markets Index 30

20

25.61

16.69

20.26

17.45

14.80

15.33 11.60

Pooled IRR (%)

While the track record of EM health care suggests that the sector as a whole has the capacity to outperform, top-line performance figures should not overshadow the complexity of health care investing in emerging markets.

Challenges at the fund and investment level persist, with the potential to negatively affect individual fund and deal returns. Hari Buggana, Founder and Managing Director of Indiafocused health care fund manager InvAscent, cautions, “This is a very complex market, and while there’s huge unmet need for health care, investors must also consider the extent to which it is economically viable to service this unmet need and earn a return on capital.” Such concerns can easily be applied to not only India, but all emerging markets. In effect, investors must weigh the structural drivers of the opportunity against the challenges of investing in the space, decide how to access the sector and find managers that can deploy capital effectively and generate value. The following sections of this report address these themes.

10

7.78 3.95

0 1-Year

3-Year

-20

5-Year

10-Year -4.47

-6.42

-10 -14.60

EM-based Health Care Companies

All EM PE/VC-backed Companies

MSCI EM Index

Source: Cambridge Associates. Data as of 31 December 2015.

8

(Per 1,000 People)

US$

60 $1

Deals

79

6

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets 4 6.5

5

Structural Drivers of Opportunity Health care expenditure around the world is growing, but the expansion is led most aggressively by emerging markets. The compound annual growth rate of EM health care spending from 2005 to 2014 was 12.5%; developed markets health care expenditures grew at just 4.4% over the same period.2 The forces powering this growth are well known: populations in many emerging markets are becoming older, more urban and wealthier; chronic and ‘lifestyle’ diseases such as diabetes and hypertension are on the rise; and the public health care systems in place in many emerging markets frequently lack the capacity and quality demanded by patients, driving them to new private facilities.

Pooled IRR (%)

Despite robust growth, EM health care spending represents just 25% of the global total3—even while the vast majority of the world’s population resides in emerging markets—suggesting 30 25.61 more investment is needed to address latent demand for health goods and services. Across developed markets, the number of 20 16.69 14.80 hospital beds per 1,000 people averages 4.6, but in emerging markets, the average is just 2.8.4 While these aggregate figures 7.78 10 can hide variance at the country level, the pattern holds in the largest emerging economies: China has 3.8 beds per 1,000 people, India has 0.7 and Brazil, 02.3 (see Exhibit 5). Moreover, 1-Year 3-Year demographic changes in these countries are likely to add -10 The populations of India and-6.42 additional strain to such systems.

Brazil will grow by approximately 6% and 4%, respectively, in -14.60 5 population in the five years to 2020.

China’s population, while -20 not growing as quickly, is rapidly aging: the median in the EM-based Healthage Care Companies country has been increasing since 1970, and is projected to

continue rising till 2075.6 This trend will strain existing facilities and drive demand for facilities and services for the elderly, such as assisted living.

As emerging markets across the board become wealthier and large populations move into the global middle class, the incidence of communicable diseases is on the decline—the average percent cause of death by such diseases among EM countries fell from 35% to 29% between 2000 and 2012. While this represents an unequivocally positive development, the growth of the global middle class is also driving up the prevalence of noncommunicable chronic or “lifestyle” diseases, such as diabetes, hypertension, heart disease and cancer in emerging markets.

Such diseases grew from causing an average of 55% of total deaths in EM countries in 2000 to 61% in 2012. In the world’s largest countries, the increase is even more stark. In China, the average moved from 80% to 87%; in India, from 48% to 60%.7 20.26 17.45

15.33

11.60 This phenomenon necessitates that health systems in emerging markets not only increase capacity, but also develop more 3.95 sophisticated, holistic health care systems. The rise of chronic diseases, notes Dr. Amit Varma, Managing Partner of Asia5-Year 10-Year focused health care fund manager Quadria Capital, means -4.47 that “from an economic standpoint, once you have any of these lifestyle diseases, you end up becoming a patient for life. You need doctors, you need diagnostics, you need infrastructure, you need beds, youCompanies need low-cost you’ll need it for All EM PE/VC-backed MSCI EMmedication—and Index the rest of your life.”

Exhibit 5: No. of Hospital Beds per 1,000 People in Select Markets

Hospital Beds (Per 1,000 People)

8

6

4 6.5 2

4.6

3.8 2.5

0

2.3

0.7 China

India Asia

Poland

Turkey

Brazil

CEE & CIS

1.5

1.1

Mexico

U.A.E.

Latin America

Source: World Health Organization. Figures represent most recent available data.

World Health Organization. Accessed September 2016. Data as of 2014.

Ibid.

Ibid. Data as of 2012.

5 UN Department of Economic and Social Affairs, Population Division. Accessed September 2016.

6 Ibid.

7 World Health Organization. Accessed September 2016.

2 3 4

6

EMPEA

0.5 Egypt

MENA

1.4

0.9

Kenya

Ghana SSA

Dev. Markets Average

Structural Structural Drivers Drivers of of Opportunity, Opportunity, continued continued While growing and changing demand for health care products and While growing and changing demand for health care products and services across emerging markets does not necessarily translate to services across emerging markets does not necessarily translate to opportunity for private equity, some governments—recognizing opportunity for private equity, some governments—recognizing the need to expand the capacity of their health care systems—are the need to expand the capacity of their health care systems—are partnering with the private sector to make opportunities in such partnering with the private sector to make opportunities in such markets more appealing. Omar El Labban, Principal at Egyptmarkets more appealing. Omar El Labban, Principal at Egyptfocused private equity firm BPE Partners (formerly Beltone Private focused private equity firm BPE Partners (formerly Beltone Private Equity) notes, for example, that as pressures on public spending Equity) notes, for example, that as pressures on public spending mount, some governments have put out the welcome mat: mount, some governments have put out the welcome mat: “The Egyptian government has been supportive of the private “The Egyptian government has been supportive of the private sector, welcoming public-private partnerships and privatizing sector, welcoming public-private partnerships and privatizing hospitals. It even passed a new comprehensive health care hospitals. It even passed a new comprehensive health care insurance law that would open the door for new investments in insurance law that would open the door for new investments in this sector.” Similarly, Edson Peli, Director at global private equity this sector.” Similarly, Edson Peli, Director at global private equity firm The Carlyle Group, observes the Brazilian government, firm The Carlyle Group, observes the Brazilian government, recognizing a significant gap in supply capacity in health care recognizing a significant gap in supply capacity in health care provision, recently passed a law allowing foreign participation provision, recently passed a law allowing foreign participation in Brazilian hospitals. After years of slow development in the in Brazilian hospitals. After years of slow development in the sector, “the new legislation has created a great opportunity sector, “the new legislation has created a great opportunity to put capital to work in the sector, which offers a significant to put capital to work in the sector, which offers a significant consolidation opportunity.” consolidation opportunity.”

It is perhaps fitting that the governments of Egypt and Brazil— It is perhaps fitting that the governments of Egypt and Brazil— both of which are recovering from extreme political and both of which are recovering from extreme political and economic volatility in recent years—are opening the doors to a economic volatility in recent years—are opening the doors to a sector resilient to economic tumult. Indeed, the secular growth sector resilient to economic tumult. Indeed, the secular growth drivers in the health care sector are particularly attractive in drivers in the health care sector are particularly attractive in times of broader economic uncertainty, which many emerging times of broader economic uncertainty, which many emerging markets are currently facing. The global commodity downturn markets are currently facing. The global commodity downturn has hit many emerging markets hard in recent years, and even has hit many emerging markets hard in recent years, and even those unaffected by the rout in commodity prices have had those unaffected by the rout in commodity prices have had their currencies and national balance sheets battered by “risktheir currencies and national balance sheets battered by “riskoff” capital flows that often fail to differentiate among specific off” capital flows that often fail to differentiate among specific country-level circumstances. Even worse, some emerging country-level circumstances. Even worse, some emerging markets have lost standing among investors due to revolution markets have lost standing among investors due to revolution and conflict in neighboring countries. In this light, health care and conflict in neighboring countries. In this light, health care can be a relative economic safe haven. To take just one regional can be a relative economic safe haven. To take just one regional example, as much of the Middle East and North Africa was shaken example, as much of the Middle East and North Africa was shaken by the Arab Spring in the years after 2011, regional spending on by the Arab Spring in the years after 2011, regional spending on health care continued to grow robustly, by 11% between 2011 health care continued to grow robustly, by 11% between 2011 and 2013 (see Exhibit 31 in MENA Regional Profile). and 2013 (see Exhibit 31 in MENA Regional Profile).

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SPECIAL REPORT: Private Equity and Health Care in Emerging Markets SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

7 7

30

25.61

The Current Investing Landscape: How and Where Managers Are Putting Capital to Work 20

16.69

20.26

17.45

14.80

15.33

Pooled IRR (%)

11.60

10

7.78

3.95

Hospital Beds (Per 1,000 People)

Specialist health care funds have gained traction recently, with Demand for health care does not always equate to private equity 0 3-Year 5-Year 10-Year private equity fund managers having raised steadily growing returns. As noted by Dan1-Year Schonfeld, Head of Finance of impact -4.47 amounts of capital for such funds in recent years. Capital raised investing firm -10 Vital Capital Fund, in reference -6.42 to the health totaled more than US$1 billion in 2015 for such funds—more care market in Sub-Saharan Africa, “The question is not whether than any other year since EMPEA began tracking fundraising there will be demand for what-14.60 you supply. There will be. The only -20 data in 2006 (see Exhibit 7). Specialist fund managers, which question from a private equity perspective is can youAll doEMitPE/VC-backed in a way Companies EM-based Health Care Companies MSCI EM Index often retain staff with high levels of industry experience, or grow that is likely to generate the kind of returns that you need to deliver directly out of the health care industry, tend to focus on subsectors to your investors over the time frame you have to work with. And outside of large-scale health care delivery—such as specialist this is where things become tricky.” Indeed, private equity fund care, pharmaceuticals, biotechnology or medical devices—or in managers must define and hone their strategies for approaching geographies beyond the reach of large generalist funds, where the sector, taking into account the depth and maturity of the the specialists’ operational expertise in health care or unique 8 health care markets in their targeted geographies, the competitive knowledge of niche market segments can be put directly to use. landscape and their own ability to generate value in various health care companies.

6 Such fund managers tend to pursue strategies that allow them to avoid competing with large generalist funds, direct investors Large generalist investors with experience scaling companies and 4 or strategic investors. For some, this means narrowing down on 6.5 sectors may be well-suited to pursuing consolidation in other health care subsectors in which they can generate significant 4.6 grow a hospital chain or adopt a buy-and-build strategy for retail 2 value. Lilly Asia Ventures, a China-focused fund manager staffed 3.8 2.5 2.3 the other side of pharmacies across a market, for example.

On largely by professionals from the biotechnology sector, pursues 1.5 1.4 1.1 0.9 0.7 0.5 such a strategy. the spectrum, “There are so many pitfalls to avoid in health 0 specialist fund managers focusing on niche areas China India Poland Turkey Mexico Ghana such as biotechnology are likely better suitedBrazil to source andU.A.E. back Egypt careKenya and hence, smart capital is critical for any venture’s success,” Asia CEE & CIS Latin America MENA SSA Dev. notes Judith Li, Partner Markets at Lilly Asia Ventures. Others emphasize early-stage, high-tech ventures seeking to develop a new product.

Average generating proprietary deal flow in geographies in which generalist It’s important to emphasize that the health care opportunity is funds may not have a presence. Hari Buggana of InvAscent notes, not just full-service hospitals and specialist care centers, but also “We don’t rely on investment bank deals. We go into parts of India a whole range of pharmaceuticals, medical devices, equipment outside Mumbai and really work to find good companies—and and information technology solutions that doctors and patients work with them for two or three years to turn them into deals.” will rely on as health care systems in emerging markets mature.

Though deal activity in the provider segment predominates, As explained by Hoda Abou-Jamra, Founding Partner of India and accounting for 43% of disclosed capital invested since 2011, MENA-focused fund manager TVM Capital Healthcare Partners, private fund managers have invested across the entire value chain having a long-standing presence in EM health care markets can (see Exhibit 6). be another benefit. “The experience and understanding that specialist funds Exhibit 6: EM Private Investment in Health Care by Subsector, 2011-1H 2016 gain about the specifics of the health care regulatory environments they operate in can lead to opportunity. % of Capital Invested % of No. of Deals Diverse regulations across geographies, especially in emerging markets, can 8% 8% create challenges not only to investing 4% 9% in health care companies, but even more with regards to operational 3% Providers 41% 43% 17% issues. Dedicated health care investors Pharmaceuticals Biotechnology know how to deal with this and have 12% Medical Equipment an operations team of health care Medical Supplies specialists ready to support the portfolio Health IT 9% Retail Pharmacy and Vision 9% management teams.”

18%

Source: EMPEA. Data as of 30 June 2016.

8

EMPEA

17%

Limitations in the supply of deals in certain markets—as well as the availability of specialist funds in emerging markets more broadly—

The Current Investing Landscape: How and Where Managers Are Putting Capital to Work, continued

“

The experience and understanding that specialist funds gain about the specifics of the health care regulatory environments they operate in can lead to opportunity. Diverse regulations across geographies, especially in emerging markets, can create challenges not only to investing in health care companies, but even more with regards to operational issues.

largest end of the market, where large global generalist funds are wont to compete for large hospital and health care services deals, high returns may be harder to come by, as competition for such assets from global players tend to drive up entry multiples, and the assets themselves tend to be capital-intensive. This is not to say that such deals cannot generate impressive returns: where fund managers can build or roll up market-leading companies, such marquee assets may demand premium valuations at exit from strategic buyers. Global growth markets investor The Abraaj Group pursued this strategy in its investment in Turkey-based hospital operator Acibadem, which was later sold to Malaysiabased global health care provider IHH Healthcare.

The EM health care opportunity most commonly communicated is that of capacity expansion, and the generalist fund managers with extensive experience scaling companies both in and out of the health care sector can create extensive value with such strategies. In Sub-Saharan Africa, Vital Capital’s Dan Schonfeld notes, “I would at least find it difficult to think of any country in Sub-Saharan Africa, and any sector of health care in Sub-Saharan Africa, that wouldn’t be at least potentially attractive from the outset. The fundamental starting point for any discussion of this type is the gap between supply and demand—which in this case is overwhelming.” Of course not every opportunity will be wellsuited for private equity investment, and while the amount of white space in the Sub-Saharan Africa health care market creates interesting opportunities, the time horizons required can outlast the life of a standard PE fund.

US$ Millions

Indeed, many sectorand geography-agnostic funds are building significant exposure to the EM health care space. Such funds are often able to deploy more capital and can bring expertise in growing and consolidating largescale, market-leading health care companies. But this strategy is not without its challenges. At the

5

6

5

$600 582 3 $300

219

395 2

100 2008

57 2009

3

4

2 76

$0

557

No. of Funds

complicate the question for LPs (see Exhibit 8). As 57 Stars’ Bernard McGuire notes, “like anything in life, if you could have somebody who was an expert in health care, you’d like to work with them.

But how many emerging markets can truly support sector focused funds? And then, how many of those markets have multiple sector-focused funds for you to choose from and really making a discerning selection?” Indeed, as of 1H 2016, of the 579 total EM private capital funds in the market, just 14 focused solely on While the supply gap is less stark in other regions and markets, health care. However, in shallower health care markets with few or its persistence still represents an opportunity for many managers. no choices for specialized managers, generalists can still generate According to an internal report by The Carlyle Group, in Brazil the value. Egypt-focused fund manager BPE Partners’ Omar El Labban gap in private hospital beds alone in Q1 2016 is 19,000—a gap attests, “While large global funds might be willing to come and pay Exhibit 7: Capital Raised by EM Health Care-dedicated Private Funds, 2008-1H 2016 high entry multiples for assets in Egypt, you will find many doctors 10 $1,200 9 and hospital managers are willing to partner with local players 823 8 like us to leverage local market $900 6 6 knowledge and expertise.”

115 2010

Capital Raised, ex-Emerging Asia

2

147 37 48 2011

135 2012

2013

Capital Raised, Emerging Asia

2014

202

56

2015

1H 2016

0

Total No. of Funds Holding a Close

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets % of Capital Invested

% of No. of Deals

9

The Current Investing Landscape: How and Where Managers Are Putting Capital to Work, continued

that could take dozens of new hospitals to close. Overall, supply tends to be lower in emerging markets than in their developed market counterparts, suggesting that—as disease burdens are not likely much lower in emerging markets—the supply gap for health care delivery persists across such markets (see Exhibit 5).

Related to the opportunity present in capacity expansion, as the hospital business is reliant on scale, fractured health care markets present opportunity for consolidation. In Brazil, where Carlyle’s Edson Peli estimates that the majority of hospitals remain subscale and could benefit from increased scale, Carlyle played on the fractured environment as well as the broader supply gap in its BRL1.75 billion (approximately US$580 million) primary investment in Brazil’s hospital network Rede D’Or Sao Luiz—much of which was to be used for organic growth as well as acquisitions in the sector. The Abraaj Group’s development of health care platform North Africa Hospital Holdings Group, which to-date owns two hospitals in Egypt and two others in Tunisia, follows a similar thesis.

$900

$600

$300

$0

9

Perhaps less frequently communicated, but arguably more exciting are the opportunities for innovation in health care products and 823 services in emerging markets. Pricing pressures and infrastructure 6 6 shortcomings challenge health care provision in ways that are 5 5 less salient in developed markets, and systems, structures and norms are not as fully established and internalized as in developed 582 557 3 markets—providing incentive and opportunity for improvement.

395 2

219

2

6

No. of Funds

US$ Millions

$1,200

“

I cannot not innovate. I don’t have an option. When you’re talking about a population with an almost 80% mobile phone saturation, innovation to my mind is, how do we use mobile technology to provide care? Frugal or incremental innovation in service delivery, drugs, medical devices and consumables is being pursued successfully by many local Asian health care companies, and they are delivering some very good 10 results on increasing access 8 and affordability.

in which sophisticated oncological services are carried out in major cities—allowing for a concentration of medical equipment and 4 3 in such cities—with more basic care and monitoring taking talent place in clinics in smaller towns. The model allows patients from 2 smaller towns to receive quality care without re-locating across the56country for long periods of time, and without the cost and 0 of building fully integrated “hub” clinics across India’s inefficiency 1H 2016 many smaller cities and towns.

147innovation in health care Most unique to emerging markets is 76 37 delivery systems that115lowers prices for quality services. Hari Buggana 100 135 202 57 48 of InvAscent, notes “there are different types of innovation, but in 2008 2009 2010 2011 2012 2013 2014 2015 health care delivery we find a lot of room for business process and business model innovation.”

Among the most important of Capital Raised, ex-Emerging Asia Capital Raised, Emerging Asia Total No. of Funds Holding a Close innovations undertaken by InvAscent’s portfolio companies was The same pressures that make this example useful—pricing building out a network of cancer clinics in a “hub and spoke” model pressures and urban-rural demographic dynamics—also make telemedicine a useful tool. Quadria Capital’s Dr. Amit Varma notes, “at the end Exhibit 8: EM Private Investment in Health Care by Region, 2011-1H 2016 of the day, it’s my core objective to provide the highest quality care at the least possible % of No. of Deals % of Capital Invested price. This is the need of the day in Asia and other developing countries. I cannot 5% 4% not innovate. I don’t have an option. When 4% you’re talking about a population with 17% 10% an almost 80% mobile phone saturation, Emerging Asia innovation to my mind is, how do we use CEE & CIS mobile technology to provide care? Frugal 11% Latin America 8% MENA or incremental innovation in service delivery, Sub-Saharan Africa drugs, medical devices and consumables is 69% 70% being pursued successfully by many local Asian health care companies, and they are delivering some very good results on

Source: EMPEA. Data as of 30 June 2016.

10

EMPEA 100%

10% 7%

80%

13% 7%

5% 11%

7% 11%

33%

18%

The Current Investing Landscape: How and Where Managers Are Putting Capital to Work, continued

$600

$300

$0

2008

2009

2010

2011

2012

2013

2014

2015

“

In emerging markets, you’re able to pioneer certain new 8 methodologies of treatment that 6 you just wouldn’t be able to do in a developed market. I think that is 4 one of the most exciting aspects 2 for me as a clinician, in that the 0 technology just lends itself so much to health care delivery.

If you get the technology right you can really influence the way clinicians learn and deliver care.

10

3

56 1H 2016

The dearth of existing infrastructure encourages the creation and Capital Raised, ex-Emerging Asia Capital Raised, Emerging Asia Total No. of Funds Holding a Close adoption of such technologies in a way that developed marketsbased companies are less apt to undertake. As Jonathan Louw, Managing Director of The Abraaj Group, sums up, “You’re able to pioneer certain new methodologies of treatment that you just wouldn’t be able to do in a developed market.” Adds Bobby Prasad, Global Chief Medical Officer of The Abraaj Group, “I think % of No. of Deals % of Capital Invested that is one of the most exciting aspects for me as a clinician, in that ability to understand the drugs and devices that such companies the technology just lends itself so much to health care delivery. are creating.

5% 4% technology right you can really influence If you get the the way 4% clinicians learn and deliver care.”

17% 10% Other innovations can target the health care ecosystem more broadly.

Emerging markets vary drastically in the infrastructure Emerging Asia Beyond the provider subsector, in Asia’s most mature health CEE & CIS available to pay for health care, as well as the structures adopted to care markets, the biotechnology and11% drug discovery sectors are Latin America 8% MENA do so.

As following sections of this report demonstrate, operating actively developing new therapies for their own markets as well as Sub-Saharan Africa a private hospital in a market such as U.A.E., with a robust private export around the world (see Exhibit 14 in Emerging Asia Regional 69% 70% insurance system might be very different than operating similar Profile). Specialist fund managers such as Lilly Asia Ventures and hospitals in markets where out-of-pocket payments dominate.

BioVeda China Fund (BVCF) are heavily staffed with professionals For example, LeapFrog Investments’ strategy for its third flagship from the biotechnology sector to source such deals with the fund, which targets both financial inclusion— the payer side of health care—as well as health Exhibit 9: EM Private Investment in Health Care by Deal Type, 2011-1H 2016 care providers, proposes a solution to investing in markets without the financial infrastructure 100% 5% 10% to pay for health care. What is clear is that 13% 11% 7% 18% 7% the ability to pay for services—regardless of 7% 11% 33% 80% 16% the level of demand for health care—is crucial 25% to whether private equity will benefit from 60% investment in the space. In some markets, 13% 68% public investment in health care coverage can 67% 62% provide openings for private investment, as 40% 64% the following section on MENA demonstrates.

46% 55% The scaling back of public participation in the 20% space can also provide opportunity, as the 16% 15% 13% following sections on Sub-Saharan Africa and 7% 6% 0% CEE and CIS demonstrate—so long as incomes 2011 2012 2013 2014 2015 1H 2016 are high enough to afford care.

Buyout Growth Venture Capital PIPE Mezzanine/Debt

% of Total Capital Invested

$900

increasing access and affordability.” Such technologies can take 9 the form of physicians remotely consulting with patients, but also methods for making systems more efficient on the back-end.

823 Dr. Felix Olale, Partner at EM financial services investor LeapFrog Investments, notes6 that scalable telemedicine 6 technologies are beginning to take hold. Lifetrack Medical Systems, for5 example, 5 has created a global tele-radiology platform that allows images 582 557 from rural locations and in some cases across other countries in 3 395 South Asia2 to maximize utilization of radiology reporting from 2 a219single location in Manila. This alleviates both the challenge of 147 access to medicine 76 for rural locations, but also deals with shortages 37 100 115 135 202 57 consultants in these 48 of specialist markets.

No. of Funds

US$ Millions

$1,200

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

11

Investor Perspectives: Accessing Health Care in Emerging Markets While institutional investors are becoming increasingly interested in gaining exposure to the EM health care sector, their approaches and strategies to fund investment in the space vary. EM-focused fund of funds manager 57 Stars has built exposure to the sector via specialist funds. As John Engel, Director at 57 Stars, notes, “Health care as an asset class generally lends itself to specialization, particularly, as you move to pharmaceuticals, biotechnology, medical devices and diagnostics. These are products or services that require a deep level of technical expertise, to really grasp the value proposition and understand the market landscape.”

Of course, such a strategy has its limits. While it may be ideal to work with specialist funds, outside of the most mature emerging markets, there are few specialist funds targeting EM health care— and there are few EM regions with enough health care-specific funds in the market to allow for meaningful fund selection for LPs seeking exposure to the sector.

Global fund of funds manager Siguler Guff & Company confronts the same issue. Managing Director Praneet Singh describes how the firm builds exposure to the space outside of just specialist funds. “We take a bifocal approach: when specialist funds come onto the scene, we will be watching closely, but as the majority of deals are now done by sector-agnostic funds, you can’t ignore that.” Singh does welcome the move toward greater specialization, however. “In developed markets, health care funds tend to be extremely specialized, with teams that have deep experience in a really narrow area. In emerging markets, it isn’t as specialized, with fewer sub-segments to focus on. But it is important for EM GPs to narrow in on a niche.”

The European Bank for Reconstruction and Development (EBRD), a development finance institution with a regional remit to focus on Central and Eastern Europe, Turkey and North Africa, faces this limitation to an even more pronounced degree. “We

12

EMPEA

“

The problem that we have with many EM managers, is lack of track record—either teams that have done something else that now want to shift strategy, or that have done PE elsewhere that want to move into emerging markets.

The funds that we invest in in developed markets have long track records in the same strategy.

looked to see if there was enough depth in the market to have a specialist fund purely concentrated on health care in our region, and came to the conclusion that it was probably too premature— that there wasn’t enough depth in the market,” notes Anne Hutton, Senior Banker at EBRD. “What we do see, however, is that within our funds portfolio, that there is quite a large proportion of fund managers who are making investments into the health care and pharmaceuticals segments.”

Where the depth of specialist funds exists, fund manager selection can present challenges unique to the sector, including the depth of operational experience required to evaluate deals and the generally nascent nature of EM PE specifically targeting health care. Greg Jania, Head of Fund Investing at pension fund manager APG Asset Management agrees with the sentiment across EM health care and emerging markets broadly: “The problem that we have with many

Investor Perspectives: Accessing Health Care in Emerging Markets EM managers, is lack of track record—either teams that have done something else that now want to shift strategy, or that have done PE elsewhere that want to move into emerging markets. The funds that we invest in in developed markets have long track records in the same strategy.” 57 Stars’ Bernard McGuire elaborates on how he confronts this issue: “These are naturally younger funds— even the older ones are only seven or eight years old, so you don’t have the depth of track record, which is generally a problem. So, we look at the background of the team, all the way to education through early work experience through what investing they’ve done more recently that provides a straight-line logic path that you could follow to what they’re proposing to do going forward.”

There are, of course, similarities in the skillsets that LPs look for when evaluating funds for health care investment. “The basics that we look for in a team remain the same,” notes Siguler Guff’s Singh, “strong valuation discipline and a strong and stable team, for example. Much of the value-add for health care is helping portfolio companies to build their teams, as health care talent is often hard to come by in emerging markets.”

In terms of challenges LPs face, investors’ own growing interest in the sector has made returns harder to generate in recent years.

As Singh elaborates, “the changes that have taken place in EM health care in recent years have been on the private equity side; the fundamental drivers of the opportunity set have stayed the same, but hype from private equity has increased competition for assets and driven up valuations.” This has led owners and managers of health care assets in emerging markets to ratchet up entry multiples for their assets. “We are increasingly seeing smaller health care companies benchmarking their valuations against the biggest, most expensive recent IPOs. There is a gradation in valuations between the smaller companies and the largest, but the benchmarking is pretty clear.”

“

Our goal is to do more sustainable investing, and we view health care in emerging markets as providing a greater good.

Taking a step back, APG’s Greg Jania emphasizes APG’s interest in the sector for reasons beyond its return profile: “Our goal is to do more sustainable investing, and we view health care in emerging markets as providing a greater good.” EBRD takes similar factors into consideration, says EBRD’s Hutton: “The funds that we’ve invested in focus on improving the standards and operational aspects as well as on delivering commercial returns on the investment. All our investments are expected to deliver commercial returns, are structured in accordance with best practice international standards and have to meet the Bank’s transition mandate.”

However, despite the desire to increase exposure to the sector, larger macroeconomic pressures challenge such propositions. “In an era of low interest rates and returns, it has been tough for pension funds to expand into emerging or unproven strategies that have a philanthropic theme,” APG’s Jania notes. “When rates were higher and coverage ratios were much better, there was more willingness to try new strategies. But with rates low, we don’t have much room for error in return. Investors that would like to do more in the area are scaling back and becoming more conservative. It’s hard to get new funds started, because few people are willing to put capital in an emerging manager without a realized track record.”

Exhibit 10: Sampling of LPs with Disclosed Past Commitments to EM Health Care-dedicated Funds (by LP Type) DFIs and Government Agencies African Development Bank (AfDB) Asian Development Bank (ADB) BNDES Corporacion Andina de Fomento (CAF) DEG Dutch Good Growth Fund (DGGF) European Investment Bank (EIB) FINEP Inter-American Development Bank Multilateral Investment Fund (MIF) International Finance Corporation (IFC) Invest Rio National Centre for Research and Development (Poland) National Development Fund (Taiwan) Netherlands Development Finance Company (FMO) Nossa Caixa Desenvolvimento Overseas Private Investment Corporation (OPIC) Singapore Economic Development Board (EDBI) State Assets Management Company of Tianjin Economic Development Area

Funds of Funds 57 Stars Adveq Management Avanz Capital BlackRock Private Equity Partners Magic Stone Alternative Investment Munich Private Equity Partners Obviam Partners Group Sigular Guff

Strategic Investors GE Healthcare Goldis Mayo Clinic Medtronic Novartis Pfizer Religare Enterprises Tianjin Chase Sun Pharmaceutical

)DPLO\ 2ƫFHV DQG )RXQGDWLRQV Bill & Melinda Gates Foundation Starling Group W.K. Kellogg Foundation

Others Bio1 China Jianyin Investment Fundacao dos Economiarios Federais (FUNCEF) HBM Healthcare Investments Investor AB Saudi Health Investment Temasek Holdings

Insurers Achmea Swiss Re

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

$2

120

13

DFIs and Government Agencies Funds of Funds Strategic Inves African Development Bank (AfDB) 57 Stars GE Healthcare Asian Development Bank (ADB) Adveq Management Goldis BNDES Avanz Capital Mayo Clinic Corporacion Andina de Fomento (CAF) BlackRock Private Equity Partners Medtronic SNEHIT / Shutterstock.com DEG Magic Stone Alternative Investment Novartis Dutch Good Growth Fund (DGGF) Munich Private Equity Partners Pfizer DFIs andInvestment Government Agencies Funds of Funds Strategic Inve European Bank (EIB) Obviam Religare Enterpr African Development Bank (AfDB) 57 StarsGroup GE Healthcare FINEP Partners Tianjin Chase Su Asian Development Bank (ADB) Adveq Guff Management Goldis Inter-American Development Bank Multilateral Investment Fund (MIF) Sigular BNDES Avanz Capital Mayo Clinic International Finance Corporation (IFC) Corporacion Andina de Fomento (CAF) BlackRock Private Equity Partners Medtronic Invest Rio �amil� ���es an� �o�n�a�ions Others SNEHIT / Shutterstock.com DEG Magic Stone Alternative Investment Novartis National Centre for Research and Development (Poland) Bill & Melinda Gates Foundation Bio1 Dutch Good Growth Fund MunichGroup Private Equity Partners PfizerJianyin In National Development Fund(DGGF) (Taiwan) Starling China Fund managers deployed US$1.6 billion Emerging The relative maturity of the W.K. private industry in Emerging Europeaninto Investment BankFinance (EIB) Asia’s Obviam Religare Enterp Netherlands Development Company (FMO) Kelloggequity Foundation Fundacao dos E FINEP Caixa Group Tianjin Chase S Asia’s health care sector isPartners demonstrated by several factors. health care sector in the first half of 2016, surpassing 2015’s yearNossa Desenvolvimento HBM Healthcare Inter-American Bank Multilateral Fund Sigular Guff Overseas Private Investment Corporation Insurers Investor AB Liquidity in (MIF) the sector, for example, sets Emerging Asia apart from end totals (see Exhibit 11). Such a large jump inDevelopment investment may(OPIC) Investment International FinanceDevelopment Corporation Board (IFC) (EDBI) Singapore Economic Achmea Saudi Health Inv other regions.

Exit opportunities are far more varied.

Perhaps come as little surprise to those specializing in the region.

As Dr. InvestAssets Rio Management Company of Tianjin Economic Development Area �amil� Others Holdin State Swiss Re ���es an� �o�n�a�ions Temasek the biggest indicator of the development private equity in theBio1 Amit Varma, Managing Director of Quadria explains, “Asia National Capital, Centre for Research and Development (Poland) Bill & Melinda Gatesof Foundation National Development Fund (Taiwan) sector been the increase in secondary sales in the last severalChina Jianyin In Starling Group gencies Funds of Funds Strategic has Investors isFund double chargeddeployed wheneverUS$1.6 it comes to trend changes or how managers billion into Emerging The relative maturity of the W.K. private industry in Emerging Netherlands Development FinanceAsia’s Company (FMO) Kelloggequity Foundation k (AfDB) 57 Stars GE Healthcare years.

In the first half of 2016, EMPEA has already recorded fourFundacao dos E countries in sector this region evolve.

Thisofis2016, due to the low income Asia’s health care sector is demonstrated by several factors. health care in the first half surpassing 2015’slevels yearNossa Caixa Desenvolvimento ADB) Adveq Management Goldis secondary sales of health care assets in the region, includingHBM Healthcar in Asia intersecting with11). its hyper-dynamic growth—with the GDP Overseas Private Corporation Insurers sets Emerging Asia apart from Investor AB Capital Mayo Clinic in the sector, for example, Liquidity end totals (see Exhibit Such aAvanz large jump inInvestment investment may(OPIC) Advent India-based health care providerSaudi Health In Singapore Economic Board (EDBI) Medtronic International’s sale of Achmea mento (CAF) of some countries increasing 5% to BlackRock Equity Partners 8% a Private year.

AsiaDevelopment is constantly other regions. Exit opportunities are far more varied. Perhaps come as little surprise to those specializing in the region.

As Dr. CARE The Abraaj Group State Assets Management Company of Tianjin Economic Developmentto Area Swiss Re for US$195 million, compared Temasek Holdin Magic Stone Alternative Investment Novartis Hospital

Regional Profile: Emerging Asia

Regional Profile: Emerging Asia

leapfrogging; changes in the macro are basically reinventing these

the biggest indicator of the development of private equity in the Pfizer to five recorded in all of 2015. While the emergence of secondary sector has been the increase in secondary sales in the last several Strategic Investors Religare Enterprises sales exemplifies the region’s depth of private equity in health GE Healthcare $2 Tianjin Chase years.

In Sun thePharmaceutical first half of 2016, EMPEA has already120 recorded four care, the number of recent IPO success stories point to the dearth Goldis 100 in the region, including secondary sales of health care assets of health Mayo Clinic care exposure in the public markets. As Praneet Singh, Advent International’s sale 84of India-based health care provider Medtronic Others Managing Director of78Siguler Guff noted, “The high90valuations of CARE Novartis Hospital to The Abraaj Group for US$195 million, compared Bio1 a few recent IPOs show how hungry investors in public markets 65 Pfizer to five recorded of secondary China Jianyin Investmentin all of 2015. While the emergence are forEnterprises health care, as historically there haven’t been many 59 Religare exemplifies dos Economiarios Federais (FUNCEF)depth of private equity sales the region’s in health 60 $1 Fundacao in the listed space.” Most IPOs have occurred in either $2 opportunities 120 Tianjin Chase Sun Pharmaceutical 45 HBM Healthcare Investments care, the number of1.6recent IPO success stories point to the dearth 1.6 1.5 China or India, Group-backed IHH Healthcare Investor AB 100 1.5 though The Abraaj 1.4 public markets. As Praneet Singh, of health care exposure in the Saudi Health Investment successfully listed on the Bursa Malaysia and Singapore Exchange 30 Others Holdings Managing Director of78Siguler84Guff noted, “The high Temasek 90valuations of in 2012.

Fund managers have also successfully listed companies in 0.5 recent IPOs show how hungry investors in public markets aBio1few the States, including China-based and 65CITIC Private EquityChinaUnited Jianyin Investment are for health care, as historically there haven’t been many 59 0 on NASDAQ $0 backed biotechnology company dos Economiarios Federais (FUNCEF)BeiGene, which listed 60 $1 Fundacao 2011 2012in the2013 2014 2015IPOs1H 2016 occurred opportunities listed space.”

Most have in either 45 HBM Healthcare Investments in February 2016.

1.6 1.6 1.5 China or India, Group-backed IHH Healthcare Investor AB 1.5 though The Abraaj 1.4 Capital Invested No. of Deals Saudi Health Investment successfully listed on the Bursa Total Malaysia and Singapore Exchange 30 Temasek Holdings Exhibit Emerging Asia Health Care Investment by in 2012.12: Fund managers have also successfully listed companies in 0.5 specialization Country, 2011-1H 2016 (% China-based of No. of Deals) 2011-1H 2016of GPs in markets like China may have predictive the United States, including and CITIC Private Equity0 on NASDAQ value in $0 backed biotechnology company BeiGene, which listed $2 for emerging markets outside Asia as private investing 120 2011 2012 2013 2014 2015 1H 2016 these geographies grows more advanced. 100 in February 2016.

US$ Billions

No. of Deals

Amit Varma, Managing Director of Munich Quadria Capital, explains, “Asia (DGGF) Private Equity Partners countries five years.”

Fundsto of Funds kgencies (EIB) Obviam is doubleevery charged whenever it comes trend changes or how k (AfDB) 57 StarsGroup countries in this region evolve. ThisPartners is due to the low income levels (ADB) Adveq Guff Management ent Bank Multilateral Investment Fund care (MIF) investment totals Sigular In fact, health in growth—with Emerging Asia in Asia intersecting with its hyper-dynamic thehave GDP Avanz Capital oration (IFC) outpaced all other major EM regions combined since 2012. omento (CAF) of some countries increasing 5% to BlackRock Equity Partners 8%���es a Private year.

Asia is constantly �amil� an� �o�n�a�ions Emerging Asia changes is also the region able to Alternative sustain an ecosystem Magic Stone Investment ch and Development (Poland) Bill & Melinda Gates reinventing Foundation leapfrogging; in only the macro are basically these d (DGGF) Munichat Private Equity Partners nd (Taiwan) of health care-specific fund managers: Starling Group least one health carecountries every five years.” kFinance (EIB) Company (FMO) Obviam W.K. Kellogg Foundation specific fund has held a close in each year since 2007, and fund Partners Group nto managers raised US$823 million across five funds in Asia 2015.have Of entCorporation Bank Multilateral Investment Fund care (MIF) investment totals Sigular Guff nt (OPIC) Insurers In fact, health in Emerging poration (IFC) course, Emerging Asia boasts the most lopment Board (EDBI) Achmeasophisticated PE industry outpaced all other major EM regions combined since 2012. �amil� ���es an� regions, �o�n�a�ionsbut the Company of Tianjin Economic Development Area Swiss Re and the largest middle class population of allsustain EM Emerging Asia is also the only region to an ecosystem rch and Development (Poland) Billable & Melinda Gates Foundation specialization of GPs in markets like China may havehealth predictive nd (Taiwan) of health care-specific fund managers: Starlingat Group least one carevalue for emerging markets outside Asia as private investing in t Finance Company (FMO) W.K. Kellogg Foundation specific fund has held a close in each year since 2007, and fund ento these geographies grows more advanced. managers raised US$823 million across five funds in 2015. Of ent Corporation (OPIC) Insurers course, Emerging Asia boasts the most elopment Board (EDBI) Achmeasophisticated PE industry t Company ofExhibit Tianjin Economic Development Area Swiss Re and the largest middle classHealth population ofInvestment, all EM regions, but the 11: Emerging Asia Care

US$ Billions

No. of Deals

84

78

US$ Billions

$1 $2

45

1.6

1.5

78

US$ Billions

1.6

1.5 100

65

59 2011 45

2012

2013

1.6 1.5 Capital Invested

2014

2015

1H 2016 1.6

0 60

1.5 1.4 Total No. of Deals

Exhibit 12: Emerging Asia Health Care Investment by Country, 2011-1H 2016 (% of No. of Deals)India China

46%

42%

14

$0

EMPEA 2011 2012

2013

4% Capital Invested 4%

South Korea

0

India China

EMPEA

46%

Singapore Malaysia

4% 42%

4%

South Korea Taiwan Other

Singapore Malaysia

Total No. of Deals

Source: EMPEA. Data as of 30 June 2016.

14

1H 2016

Other India China

Source: EMPEA. Data as of 30 June 2016.

2015

Taiwan

46%

42%

2014

South Korea

4%

30

Source: EMPEA. 0.5 Data as of 30 June 2016.

Singapore Malaysia

4%

30 90

84

Total No. of Deals

No. of Deals

0.5 $0 $1

1.4

60 120

No. of Deals

Exhibit 11: Emerging Asia Health Care Investment, 65 2011-1H 2016 59

4% Capital Invested 4%

90

Source: EMPEA. Data as of 30 June 2016.

Taiwan Other

Regional Profile: Emerging Asia, continued

ngs

Though government support is encouraging, challenges persist, particularly in the health care providers subsector. As Bin Li, Chief Investment Officer of China and U.S.-focused health care fund manager Ally Bridge Group remarks, “Our view on the service side of health care is that it presents the biggest growth opportunity over the next ten years. However, we think this segment is not yet ready for investment. There are a lot of policies that still need to be addressed and the government still exercises too much control.”

Beyond government regulation, attracting talent and navigating hospitals’ reimbursement structures also pose challenges for fund managers investing in the sector.

Many fund managers forgo investment in China’s health care providers completely, preferring to tap into subsectors with Exhibit 13: Expected Population and Median Age, 2010-2050

Despite the drivers of value in this space, drug discovery and30 1.0 innovation in China is still far behind the United States in terms of maturity and sophistication. As Judith Li, Partner at Lilly Asia20 Ventures, explains, however, this is part of the Chinese advantage: “Given0.5so much ‘white space’ in China’s health care landscape 10 today, there is plenty of room for ‘first in China’ or ‘best in China’ products from domestic companies, i.e. making a novel version 0.0 0 of a product that2015 has already been 2030 introduced to the U.S. market.

2010 2020 2025 2035 2040 2045 2050 Traditionally, these Population products are very Median competitive on price.

So Age when the company introduces a product,China* it could be third to China* the global market, butIndia first to the ChineseIndia market, because the Southeast Asia Southeast Asia domestic company can price optimally for China. Importantly, the product is innovative, based on completely new patents, but is simply operating in a proven area.”

Exhibit 14: Emerging Asia Health Care Investment by Subsector, 2011-1H 2016

50

2.0

100%

30 1.0 20 0.5

10

Median Age (Years)

Population (Billions)

1.5

% of Total Capital Invested

40

80%

8% 15%

19% 60%

6% 8%

13%

7% 6%

21%

20%

18%

8%

40%

11%

13% 50%

20%

29%

25% 0.0

2010

2015

2020

2025

2030

Population

2035

2040

China* India Southeast Asia

*Note: Excludes Hong Kong and Macau.

Source: UN World Population Prospects.

8 9

0% India

Providers Medical Equipment Retail Pharmacy and Vision

Pharmaceuticals Medical Supplies

Southeast Asia Biotechnology Health IT

Source: EMPEA. Data as of 30 June 2016.

World Bank. Accessed September 2016.

“Notice on the Establishment of Wholly Foreign-owned Hospital Pilot.” Chinese National Health and Family Planning Commission. http://www.moh.gov.cn/yzygj/s3577/201408/73f1ec5b56304347aa3436a08e39ddfa.shtml.

100%

d

2050

China

Median Age

China* India Southeast Asia

2045

0

16%

80%

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets 8% 15%

6% 8% 7%

13% 21%

15

Median Age (Years)

China has attracted approximately one third of all health care investments in Emerging Asia each year since 2008. Though the size of the country is certainly a contributing factor, government estors support has also played an enabling role in the growth of the industry. As Judith Li of Lilly Asia Ventures notes, “China is reaching critical mass. It is huge, aging and facing environmental problems that are causing a diverse multitude of health issues, so the government is strongly supportive of the industry, providing prises funding and operational support in ways I don’t even see in the Sun Pharmaceutical United States.” Indeed, the government has increased funding dramatically within the last ten years, with public spending rising from 38% of total health expenditure in 2004 to 56% in 2014.8 Regulators are also taking big steps toward transitioning nvestment health care to a market-driven sector. For example, in 2014 the Economiarios Federais (FUNCEF) State Council, China’s administrative authority, relaxed foreign re Investments investment rules for joint venture hospitals as part of an effort to encourage private investment.9 nvestment

demonstrated track records of successful private equity involvement.

Sheng Lu, Head of Investor Relations and Communication at health care-focused private equity firm BVCF, notes, “On one hand, we are still struggling to provide basic services and products to the general public. On the other hand, you see all this toptier and high quality scientists and researchers coming back to China to create new drugs and devices.” Pharmaceuticals and biotechnology have attracted a combined US$2.2 billion across 99 deals from 2008 to 1H 2016, almost half of all capital invested in China health care and about a third in terms of deal count. These industries have benefited greatly in recent years from an influx of Chinese scientists and senior professionals who are returning to China after having spent several years working in senior positions abroad.

2.0 Termed “haigui” or “sea turtles,” these professionals ease50 the challenge of attaining high-level staff and management at health care portfolio companies—a perennial challenge across 40 emerging 1.5 markets.

Population (Billions)

China

Regional Profile: Emerging Asia, continued For these “first in China” companies, fund managers can provide the business expertise needed to get enterprises off the ground and into market. As Bin Li of Ally Bridge Group explains, “In the case of drugs and medical devices, companies often focus on product development and not on commercialization. So we help them create a market strategy. We also play a major role in facilitating cross-border technology transfer and licensing that will give them an edge in the market.” Fund managers can also play a critical role for Chinese companies ready to compete globally. Lu explains how BVCF’s connections were essential for the success of their portfolio company, “We invested in a company whose technology was not only advanced for China, but globally.

However, the team consisted mainly of scientists and researchers, who were new to the approval process, new to how to expand in the marketplace and new to promoting and branding. They were very strong on the scientific front, but they needed help on the commercial front. After our investment, we took this company out of China and promoted them in the U.S. through one of our network’s conferences. That was first time they got exposure on a global platform. The company immediately became a hit.”

India

As the second most popular market for private health care investment in Asia, India accounted for US$719 million in capital invested across 37 deals in 2015. Topline statistics clearly convey why India is popular among managers investing in the health care sector. Though India’s has one of the fastest growing populations, expected to surpass China in 2025 (see Exhibit 13), India’s health care infrastructure is still fairly limited. India has only 0.7 beds per 1,000 people and only 17% of the Indian population is covered by health insurance.10 However, investors should not overlook India’s complexity. As Hari Buggana, Founder and Managing Director of InvAscent, explains, “India is a very heterogeneous country. Every state has its own language and culture. Health care policies are decided at the state level as well as at the federal level, so there is no uniformity in policies across India. Then you have economic disparity, between north and south, east and west. There is also a concentration of modern health care in the metros. Due to a lack of robust social infrastructure in the tier two cities and smaller cities, it is difficult to attract health care professionals to smaller cities and towns.”

Perhaps due to of all of these complications, the Indian government’s provision of health care falls short of the needs of its population. Buggana continues, “the government has more or less withdrawn from tertiary care and is just as absent in rural areas. Furthermore, most government hospitals have bare minimum infrastructure, and so people are now beginning to turn to the private sector for care.” Private equity firms are financing much of the private sector’s attempt to bridge the supply gap in health care provision, and providers accounted for the majority of capital invested by fund managers in the health care sector in 2015. Given India’s dense urban populations and remote rural areas, many businesses are forced to adjust their operations and service procedures to overcome challenges of infrastructure and geography. One innovation that has emerged from the dearth of health care infrastructure is the “hub and spoke model” of service, which allows providers to concentrate tertiary care in major centers while smaller clinics provide basic services much closer to patients in need. As Buggana notes, “These models are suitable not only for emerging markets—even the developed economies should start borrowing some of these ideas, if you ask me. The traditional U.S. health care delivery model involves big footprint hospitals with multiple departments under the same roof. There’s no logic for these departments to coexist next to each other under one roof in an extremely expensive physical infrastructure.” Such innovation demonstrates that investing in EM companies not only has the potential to greatly impact local economies, but change how health care is delivered globally.

In addition to health care provision, India has developed a robust generic pharmaceuticals industry. Addressing the need for quality, low priced medicine, the market for generic pharmaceuticals has grown tremendously over the last ten years. Fund managers have deployed over US$1 billion into the subsector since 2008.

While India has had fewer successes in the area of biotechnology and drug discovery, many generic drug companies have not only taken over their local market, but are serious global players, often thanks in part to the assistance of private equity fund managers.

Buggana explains how InvAscent encouraged one of their portfolio companies to go global: “Initially it was a struggle to convince them that they should be a specialty generics company and that

Exhibit 15: Largest Disclosed Health Care Investments in Emerging Asia, 2008-1H 2016 Company Name

Country

Subsector

Investment Type

Investment Amount (US$m)

CITIC Private Equity Funds Management, Hony Capital

Biosensors International

Singapore

Medical Equipment

Buyout

724

Apr-16

CITIC Private Equity Funds Management

Biosensors International

Singapore

Medical Equipment

Growth

312

Nov-13

FountainVest Partners

Kehua Bio-engineering

China

Biotechnology

PIPE

264

Feb-14

PAG

Bicon Pharmaceutical

China

Pharmaceuticals

Growth

250

Feb-12

Biosensors International

Singapore

Medical Equipment

PIPE

216

Oct-10

Gland Pharma

India

Pharmaceuticals

Growth

200

May-14 May-13

Fund Manager(s)

Hony Capital KKR CITIC Private Equity Funds Management The Carlyle Group Bain Capital TPG

3SBio

China

Biotechnology

Buyout

154

Global Health

India

Providers

Growth

152

Dec-13

Asia Pacific Medical Group (APMG)

China

Providers

Buyout

150

Mar-16

Manipal Health Enterprises (Manipal Hospitals)

India

Providers

Growth

145

Feb-15

Source: EMPEA. Data as of 30 June 2016.

10

“National Health Profile 2015.” Indian Ministry of Health and Family Welfare. http://cbhidghs.nic.in/writereaddata/mainlinkFile/NHP-2015.pdf.

16

EMPEA

Investment Date

Regional Profile: Emerging Asia, continued they should stop behaving like a contract manufacturer. We spent about nine months putting in place a product pipeline, leveraging their capabilities to develop these generics, and then partnered with big generic pharmaceutical companies around the world who have the strength to sell these products in their local market.”

Southeast Asia

The health care sector in Southeast Asia attracted US$1.7 billion across 51 deals since 2008. While Singapore, arguably the most developed country in the region, attracted the most investments, fund managers also completed a number of deals in Indonesia, Malaysia, Philippines, Thailand and Vietnam. About a third of all investments in the health care sector from 2008 through 1H 2016 were made in providers.

With varying health care ecosystems and separate demographic needs, investing in health care in Southeast Asia requires both local knowledge and a regional outlook. Dr. Amit Varma of Quadria Capital states, “While the language changes, the cuisine changes, the religion changes, the problems in health care are universal.

It needs to be affordable and it needs to reach huge volumes of patients—whose needs are changing from acute care to chronic care. But our core belief is that health care solutions need to be local. You need to be able to do whatever you do locally and to not be dependent upon transporting patients miles and miles away.

It helps if you have operating experience in these markets, as it provides you deep understanding of what works and what does not work in these markets. Entrepreneurs are turning smarter and they judge investors on their ability to add tangible value before they decide to strike a deal.” While care is local, ambitions are not.

Given the size of the region’s economies, especially relative to China and India, regional expansion is a common goal. As Dr. Varma explains, “Our goal is to provide long term value-added growth capital to scale up and transform our investee companies. We like to invest in fundamentally strong, high-growth companies having stable cash flows and use our health care operating experience and global relationship network to transform them into regional

leaders. That makes them highly attractive partners or targets for large strategics, who are looking at South and Southeast Asia for their next purchase.”

Indeed, the fractured nature of markets in Southeast Asia provide opportunities for consolidation and expansion strategies for fund managers that can navigate such markets. Playing on such a strategy, South and Southeast Asia-focused fund manager Creador acquired D’Apotic Pharmacy, a retail pharmacy chain in Malaysia, which Creador rebranded RedCap Pharmacy before setting out on an aggressive expansion trajectory. Committing MYR100 million (US$25 million) to finance the company’s growth in 1H 2016, Creador plans to grow the chain from a small group of stores concentrated in southern Peninsular Malaysia to 70 stores by the end of 2016 and more than 300 stores across the market by 2019.

Of course, regional expansion requires in-depth knowledge of individual regulatory regimes. As Hoda Abou-Jamra, Founding Partner of TVM Capital Healthcare Partners, explains, “Regulatory challenges will always exist. It is up to the general partner to mitigate risks and to leverage the health care industry network in the respective market.” Dr. Varma echoes similar sentiments, but notes that many of the local governments have become conducive to the private sector in recent years. “There is this trend toward globalization, trying to get best of class regulation even in the smaller countries, and the regulators having been tuned into how to make things work better. All governments in the region have failed to provide adequate public health care infrastructure, but private players are leading the way by building more than two-thirds of new capacity across the region. Thankfully, most governments are supporting them via favorable policy initiatives and by fostering increased insurance penetration.” Continued support and collaboration from government regulators will only hasten the growth of an already fast-moving market.

Exhibit 16: Notable Exits and IPOs in Emerging Asia Health Care, 2012-1H 2016 Company Name

Fund Manager(s)

Subsector

Year(s) of Investment

Capital Invested (US$m)

Transaction Date

China

China Biologic Products

Warburg Pincus

Biotechnology

2010, 2011

N/A

Mar-16, Jun-16

China

BeiGene

CITIC Private Equity Funds Management

Biotechnology

2014, 2015

N/A

Feb-16

IPO on NASDAQ raised US$158m; CITIC did not dispose of any shares

India

CARE Hospitals

Advent International

Providers

2012, 2015

105

Jan-16

Secondary sale of 72% stake to The Abraaj Group generated INR13B (US$195m)

Asiri Hospital Holdings

Actis

Providers

2012

32

Dec-15

Secondary sale of 28% stake to TPG for LKR7.6B (US$54m)

India

Mankind Pharma

ChrysCapital

Pharmaceuticals

2007

24

Aug-15

Secondary sale of 11% stake to Capital Group Private Markets for US$200m

China

CSPC Pharmaceutical Group

Hony Capital

Pharmaceuticals

2007, 2008

88

Apr-15

Share sale of remaining 23% stake on Hong Kong Stock Exchange returned HKD9.8B (US$1.3B); Hony had previously sold its stake in CSPC over several secondary offerings from 2013 to 2015

Thailand

Vejthani Hospital

The Abraaj Group

Providers

2009

4

Nov-12

Strategic sale to KPJ Healthcare for US$13m

Malaysia

IHH Healthcare

The Abraaj Group

Providers

2012

N/A

Jul-12

IPO on Bursa Malaysia and Singapore Stock Exchange raises US$2B; Abraaj disposed of 7.02% stake and returned US$383.5m; Abraaj originally invested in IHH through Acibadem Healthcare

Country

Sri Lanka

Exit and Return Detail Share sales in March and June on NASDAQ returning US$426m and US$308m, respectively

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

17

Ex 16 is a table

Regional Profile: CEE and CIS Ex 16 is a table

2011

7 2012

2013

2011

EMPEA

2012

2013

Capital Invested

Source: EMPEA. Data as of 30 June 2016. $1,200

$900

EMPEA

2014

9 15 2015

2.2 6 1H 2016

10 0 5

Total No. of Deals 138 15 2014

2015

Total No. of Deals

2.2 1H 2016

0

US$ Millions

US$ Millions

$600 $900 $300

US$ Millions

US$ Millions US$ Millions

138

532

15 5

Source:$0EMPEA. Data as of 30 June 2016.

18

6

269

269 Capital Invested

18

15

No. of Deals

20 10

No. of Deals

$0 $200

$900 $1,200 No. of Deals

$200 $400

$1,200

15

9 7

Total No. of Deals

Exhibit 18: Health Care Spending per Capita, 2006-2014

19 532 15

Capital Invested

Health 18: careHealth PE deal activity in CEEper and CIS has also exhibited Exhibit Care Spending Capita, 2006-2014 geographic diversity. Sixteen different countries in the region have received private equity investments in their respective health care

20

Exhibit 17: CEE and CIS Health Care Investment, 15 15 2011-1H 2016 $400 $600

No. of Deals

19

$600

EBRD’s Anne Hutton, generalist funds in EBRD’s portfolio have built significant exposure to the health care sector, often pursuing the same basic theses. “The investments in health care that we have seen are typically in assets such as pharmaceuticals, hospitals or clinics that balance rising consumer finance and approach health, EBRD’s Anne Hutton, generalist funds in EBRD’s portfolio to have built as well as balancing relating to the budgets of the significant exposure considerations to the health care sector, often pursuing the respective public health systems.

While this is a broad 19 $600basic same theses.

“The investments in health caregeneralization, that we20have itseen is a theme that’s running across and acrosshospitals the region are typically in assets suchthe asportfolio pharmaceuticals, or 15 15 where we can invest.”

Indeed, since 2008, 26% of CEE and CISclinics that balance rising consumer finance and approach to health, focused funds reaching a final close relating have also at15 least as well as balancing considerations to completed the budgets of the $400 one deal inpublic the health sector.While Thesethis funds’ approach to health respective health systems. is a broad generalization, 19care 20 $600 care onthat’s rising consumer in much the same way it is aplays theme running acrossspending the portfolio and across the region 9 10 investments in consumer goods and services investments might.

532 15 invest.” Indeed, where we can since 152008, 26% of CEE and CIS7 6 However, fund managers sector’s resilience in focused funds reaching aalso finalappreciate close havethe also completed at15least $200 $400 times of crisis. explains, “ItThese seemsfunds’ like every private equity one deal in theLoening health care sector. approach to health 5 269 fund to have least one health careinproject as part of their care wants plays on risingatconsumer spending much the same way 9 138 10 portfolio.

And why is that?

Because health care seems to be pretty investments532in consumer goods and services15 investments might.

2.2 7 $0resilient 0 much tomanagers economic also downturns, andthe it also catersresilience 6to current However, fund appreciate sector’s in $200 2011 2012 2013 2014 2015 1H 2016 demographic trends.” times of crisis.

Loening explains, “It seems like every private equity 5 269 fund wants to haveCapital at least one health care project Invested Total No. of Deals as part of their 138 Health care PEwhy dealis activity in CEEhealth and CIS has alsotoexhibited portfolio.

And that? Because care seems be pretty 15 2.2 geographic diversity.

Sixteendownturns, different countries in the region have 0 much$0resilient to economic and it also caters to current 2011 equity 2012 2013 2014 2015 1H 2016 received private demographic trends.” investments in their respective health care US$ Millions

Regional Profile: CEE and CIS

In CEE and CIS, private equity fund managers are finding opportunities to fill gaps in the market for health care goods and services as demand has outstripped the capacity of existing state health care systems making the sector a relatively popular investment destination for theequity region’s fundmanagers managers. are Fromfinding 2008 In CEE and CIS, private fund through 1H 2016, care for for approximately of opportunities to health fill gaps inaccounted the market health care10% goods all deals in CEEasand CIS, with billionthe invested in the sector. and services demand has US$1.9 outstripped capacity of existing Though the number of dealsmaking completed the sector has fluctuated state health care systems the insector a relatively popular in recent years and disclosed capital invested has fallen off since investment destination for the region’s fund managers. From 2008 2013, investors active in care the region suggest that the underlying through 1H 2016, health accounted for approximately 10% of opportunity is still Matthias Loening, Senior Advisor, all deals in CEE and growing.

CIS, with US$1.9 billion invested in the sector.

Health Sector, at EBRDofdescribes the drivers of the opportunity: “It’s Though the number deals completed in the sector has fluctuated crystal clear that demand for health care is growing.

As a result, in recent years and disclosed capital invested has fallen off since the private sectoractive is complementing offerings onunderlying both the 2013, investors in the regionpublic suggest that the finance side and the delivery side.

Not onlyLoening, are someSenior governments opportunity is still growing.

Matthias Advisor, trying figureat out howdescribes to bring the in more private funding into their HealthtoSector, EBRD drivers of the opportunity: “It’s Ex 16 is a table systems, but also to use private sector in terms As of delivery crystal clear that how demand forthe health care is growing. a result, of publicly-funded to get morepublic ‘bang offerings for their buck.’” the private sector services is complementing on both the finance side and the delivery side. Not only are some governments In contrast to theout deeper health PE markets Emerging trying to figure how to bringcare in more privatein funding intoAsia, their Ex 16 is a table only two CEE and CIS-focused health care-specific funds have systems, but also how to use the private sector in terms of delivery reached closes since 2008—investment in thefor sector has instead of publicly-funded services to get more ‘bang their buck.’” largely come from generalist funds in the region. As noted by In contrast to the deeper health care PE markets in Emerging Asia, only two health care-specific funds have Exhibit 17:CEE CEEand and CIS-focused CIS Health Care Investment, reached closes since 2008—investment in the sector has instead 2011-1H 2016 largely come from generalist funds in the region. As noted by

$600 $0 $300

2006

2007

2008

2009 Poland

2010

2011

2012

2013

2014

Turkey

Russia

Source:$0 World Bank. Accessed September 2016.

2006

2007

2008

2009 Poland

2010

2011

Russia

Source: World Bank. Accessed September 2016.

2012 Turkey

2013

2014

Regional Profile: CEE and CIS, continued sectors between 2008 and 1H 2016. Poland and Turkey have proven to be the most popular countries for health care investment in the region over this time period. Poland leads all countries in the region in terms of number of deals at 24 and also accounts for the region’s largest health care deal—EQT’s 2009 acquisition of medical equipment manufacturer HTL-Strefa for PLN885 million (US$322 million). However, Poland ranks second behind Turkey in total capital invested in the sector. Managers have invested nearly US$700 million in Turkey’s health care industry since 2008, including three of the largest four health care deals in the region overall.

Russia, the largest economy in the region, ranks a distant third in terms of both number of deals and capital invested, at 13 deals and US$199 million, respectively. As the number of deals across all sectors in Russia have dropped in recent years, deals in the health care sector have also declined. Managers have not completed a publicly-disclosed investment in the Russian health care sector since October 2014, when Baring Vostok Capital Partners acquired a 30% stake in Russian retail pharmacy chain A5 Group.

Central and Eastern Europe

are often able to provide higher quality and more modern care to their patients than the public system. Furthermore, argues Rusiecki, “there are clear gaps in capacity in certain areas, especially related to more advanced or more modern diagnostic and treatment methods” within the public system. Facing budgetary pressures and shortfalls, public health care systems in Poland and elsewhere often struggle to invest in new or advanced technologies and keep pace with the most up-to-date treatment methods. Private providers are well-suited to offer more specific and technologically advanced care than the public system is able to deliver.

Indeed, of the 80 investments in the health care sector in Central and Eastern Europe since 2008, 65% of investments, or 52 total deals, have been in health care providers, with the pharmaceuticals subsector a distant second at only nine investments in CEE over the same time period. These health care providers range from largescale hospitals and clinic networks, such as Advent International and Mid Europa Group portfolio company Regina Maria in Romania, to specialist care networks, such as the Center for Cancer Diagnostics and Therapy in Poland, which Enterprise Investors acquired in 2012.

The health care sectors in Poland, Romania and other countries in CEE tend to be dominated by robust public health care systems.

However, these systems do not necessarily crowd out private investment. Private health care providers in markets such as Poland and Romania operate in conjunction with their public systems, receiving contracts and outsourced work from the state.

This relationship between the public health care system and the private sector is attractive from an investment standpoint for many reasons. First, the public health systems in CEE are increasingly unable to grow at the pace necessary to keep up with the demand for health care services in the region. Michal Rusiecki, Managing Partner at Central and Eastern Europe-focused fund manager Enterprise Investors, explains, “What characterizes these markets is a general level of dissatisfaction with the public system. So quite a large supplementary or alternative health care system fills in the perceived gaps in the public system.” Private health care providers

Pursuing a strategy dependent on cooperation with the government is not without risks. As Bill Watson, Managing Partner at Value4Capital, puts it, “It remains very country-specific regarding 13% the opportunities for private health care. In example, 23%Romania, forPoland 4% Turkey for the state has underinvested for years, which creates an opening 4% by contrast, the national systemRussia private care. In Poland, is much Serbia better. So, you have to 4% look at the specific country. Politics also gets Hungary into this, as in some markets there is a strong political sentiment Ukraine 6% that health care should be something provided by the state, making Slovenia 18% some private services 6% vulnerable to changing funding priorities.”

Lithuania Czech Republic Unfortunately, recent policy changes in Poland specifically have 7% Otherin the hurt the health care sector’s attractiveness there, at least 15% near term. Enterprise Investors’ Rusiecki explains, “The challenge in Poland has unfortunately turned out to be the instability of the regulatory scheme. Over the last few years the government has been changing the way the public system contracts with private

Exhibit 19: CEE and CIS Health Care Investment by Country, 2011-1H 2016 (% of No. of Deals)

Exhibit 20: CEE and CIS Health Care Investment by Subsector, 2011-1H 2016

13% 23%

Poland

4%

Turkey Russia

4%

Serbia

4%

Hungary Ukraine

6% 18%

6%

Slovenia

Other

15%

80%

60%

8% 8% 8%

5% 5% 12% 7% 7%

27%

15% 18%

40% 61%

62% 45%

20%

0% CEE (ex-Turkey)

Turkey

Providers Biotechnology Medical Supplies Retail Pharmacy and Vision

Source: EMPEA. Data as of 30 June 2016.

9%

Lithuania Czech Republic

7%

% of Total Capital Invested

100%

Russia Pharmaceuticals Medical Equipment Health IT

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets 100%

5% 5%

8% 8%

9%

19

Regional Profile: CEE and CIS, continued providers. There’s probably too much regulatory turmoil to make the case for that investment model of filling in the gaps of the capacity of the public system through private investment. I think it’s become too risky to be a viable option for the next few years at least in Poland.” Managers investing in the region must therefore take care to understand the nuances of each country’s health care market.

Turkey

Turkey has taken a more positive approach to cultivating private health care providers within its borders than many of its regional peers. In order to modernize its aging health care system and increase the country’s insufficient number of hospital beds, Turkey’s government has in recent years adopted measures to catalyze private investment in its health care sector. In 2010, the government launched its Health PPP Program, aimed at modernizing hospital services for those receiving health care from state insurance.11 Furthermore, in 2013, the Turkish government passed further regulations streamlining private investment in the health care sector.12 These regulations further built the government’s hospital PPP program and also provide insurance to international project financing.

Over the last several years, fund managers have invested in several major hospital systems in the country. In 2009, The Carlyle Group invested US$110 million in Istanbul-based hospital system Medical Park, with Turkish private equity firm Turkven investing in 2011 and then acquiring a majority stake in 2014. Also in 2011, Hong Kongbased ADM Capital acquired minority stakes in two hospital groups in Turkey, Universal Hospitals Group (along with IFC) and Anadolu Hospitals Group. However, this string of investments in large hospital groups in Turkey seems to have come to a standstill, as no such deals have been completed since 2014. Furthermore, only one deal in Turkey’s overall health care industry has been recorded since 2014, with the Abraaj Group investing in medical supplies manufacturer Yu-Ce Medical in August of 2015. In 2011, managers completed eight deals in Turkey’s health care sector, but only five in the years since then. It remains to be seen whether any further

action by Turkey’s government may once again catalyze private investment into its health care industry.

Russia

Private investment in the health care sector has not proven to be quite as popular in Russia as in Central and Eastern Europe, with managers completing 13 health care deals in Russia for a total of US$199 million in disclosed capital invested since 2008. However, similar to CEE, investments in health care providers have proven to be most popular with fund managers, accounting for six of the 13 total health care deals in Russia. Pharmaceutical companies and pharmaceutical retailers account for a further four total deals in Russia, with biotechnology companies comprising the remaining three investments.

Since the Ukraine Crisis in 2014 and the resulting political and economic fallout, Russia’s economy has been under fire on several fronts, including falling oil revenue, the weakening of the ruble and international sanctions from the United States and the European Union. As a result, the state health care system has faced substantial budgetary pressures. Notably, the oil and gas sector is the most significant source of funding for the Russian state health care system.13 Despite, or perhaps due to, these difficulties, managers continue to see Russia’s health care sector as a comparatively attractive investment opportunity. As Maria Solovieva, Investment Director at UFG Private Equity, the buyout and growth capital arm of Russia-based alternative investment group UFG Asset Management, reports, “Sectors like health care are growing materially in the crisis, even with the currency volatility. The sector growth has been higher in most cases than the decline in the ruble, and the short-term effects of the ruble decline have been mitigated. The growth is there in sectors like health care. You won’t really find double-digit growth like that in other sectors.” As in other regions and countries, health care in Russia can serve as a “defensive” sector in a manager’s portfolio, proving resilient amid crises that might cripple companies in other industry verticals.

Exhibit 21: Largest Disclosed Health Care Investments in CEE and CIS, 2008-1H 2016 Fund Manager(s) EQT ADM Capital Global Capital Management (GIH) The Carlyle Group Montagu Private Equity The Rohatyn Group

Company Name

Country

Subsector

Investment Type

Investment Amount (US$m)

HTL-Strefa

Poland

Medical Supplies

Buyout

322

Nov-09

Universal Hospitals Group

Turkey

Providers

Growth

140

May-11

Investment Date

Bicakcilar

Turkey

Medical Equipment

Buyout

111

Feb-11

Medical Park

Turkey

Providers

Growth

110

Dec-09

Euromedic International

Hungary

Providers

Buyout

109

Jun-08

Huvepharma

Bulgaria

Pharmaceuticals

Growth

105

Nov-10

European Medical Center (EMC)

Russia

Providers

Growth

100

Apr-12

Mid Europa Partners

Kent Hospital Group

Turkey

Providers

Growth

100

Oct-11

Advent International

American Heart of Poland

Poland

Providers

Growth

80

Oct-11

OJSC Pharmacy Chain

Russia

Retail Pharmacy and Vision

Growth

60

Mar-09

Baring Vostok Capital Partners

Marshall Capital Partners

Source: EMPEA. Data as of 30 June 2016.

“Private Healthcare in Emerging Markets.” International Finance Corporation. December 2015. http://www.ifc.org/wps/wcm/connect/429828804afc52feb3cab380f77e8c05/HealthNewsletter_issue1_FINAL.pdf?MOD=AJPERES. “Turkey Seeks to Boost Healthcare with New Investment Rules.” Reuters. 22 February 2016. http://www.reuters.com/article/turkey-healthcare-idUSL6N0BM1WR20130222.

13 “Russian Federation: Health System Review.” European Observatory on Health Systems and Policies. 2011. http://www.euro.who.int/__data/assets/pdf_file/0006/157092/HiT-Russia_EN_web-with-links.pdf.

11

12

20

EMPEA

Regional Profile: CEE and CIS, continued While private health care providers continue to represent a small share of the overall health care industry in Russia, managers report a growing utilization of private providers by the state, such as outsourcing of lab diagnostic services to the private sector. This more recent reliance by the state on private health care providers offers an attractive opportunity for private equity investors, as “the market in the private sector remains very unconsolidated. There is very limited foreign strategic presence in the medical services sector.

That obviously leads us to believe that in the future there should be good exit opportunities because generally for strategics, it’s going to be a lot easier for them to buy a well-run, transparent, healthy business as opposed to setting one up themselves,” according to Robert Sasson, Senior Managing Partner of UFG Private Equity.

Russia’s pharmaceuticals sector is similarly ripe for consolidation, especially amid the current political and economic situation in Russia. Within Russia, the pharmaceuticals industry continues to grow despite the current crisis, with some segments such as generics experiencing double-digit growth. UFG’s Sasson explains that despite this growth, no one pharmaceuticals company holds more than 5% market share in Russia, with the largest domestic producer and UFG portfolio company OTC Pharm holding only 3%.

However, it is precisely these domestic producers that are best poised to grow and gain market share in the current climate, according to Ivan Litvintsev, Managing Director of UFG Private Equity. He explains, “we see a lot of opportunities for consolidation in the

market, as well as the potential for import substitution. The share of imported products is still very high, approximately 73% last year.

We see a clear trend in the growth of the share of local products.

For example, the share of imported products in 2014 was 75%, when last year it was 73%. So we can see a clear dynamic growth of local products. In addition, the recent ruble devaluation helps local producers, and the Russian government has also offered its support in the form of loans from state banks as well as direct investment in pharmaceutical plants.” Private equity is well-suited to grow and develop Russia’s pharmaceuticals sector, creating value through the more traditional channels of corporate governance, transparency and reporting, as well as through pursuit of M&A opportunities and negotiation with third parties such as government entities, foreign suppliers and targets.

While private equity investment in Russia’s health care sector seems compelling on many levels, managers haven’t demonstrated the viability of investment in the sector through recent exit activity.

While managers in Central and Eastern Europe have found some success in exiting their health care investments, with Enterprise Investors even listing stem cell bank PBKM on the Warsaw Stock Exchange earlier this year, EMPEA has yet to record even a single exit in Russia’s health care sector. If more private equity is to be invested in Russia’s health care industry, it must first be proven that this capital can be returned with attractive risk-adjusted returns at the end of a fund’s life cycle.

Exhibit 22: Notable Health Care Exits and IPOs in CEE and CIS, 2008-1H 2016 Company Name

Fund Manager(s)

Subsector

Year(s) of Investment

Capital Invested (US$m)

Transaction Date

Polski Bank Komorek Macierzystych (PBKM)

Enterprise Investors

Providers

2009

7

Apr-16

IPO on Warsaw Stock Exchange; partial exit of 17.3% stake generating EUR8.7m (US$9.9m) for reported 6.7x gross multiple return

Hungary

Diatron

The Riverside Company

Medical Equipment

2005

N/A

Mar-16

Strategic sale to STRATEC Biomedical

Romania

Centrul Medial Unirea (Regina Maria)

Advent International

Providers

2010

N/A

Oct-15

Secondary sale to Mid Europa Partners for undisclosed sum

Turkey

Dem Pharmaceuticals (Dem Ilac)

NBK Capital Partners

Pharmaceuticals

2012

N/A

Mar-15

Completed the realization of 2013 mezzanine investment, further exit details not disclosed

Bulgaria

Huvepharma

The Rohatyn Group

Pharmaceuticals

2010

105

Nov-14

Strategic sale of 36.6% stake to Advance Properties holding company controlled by Bulgarian entrepreneurs Kiril and Georgi Domuschiev

Turkey

Medical Park

The Carlyle Group

Providers

2009

110

May-14

Secondary sale of 40% stake to Turkven for US$260m

Estonia

Medicap (Quattromed)

Baltcap Management

Providers

2008

N/A

Jul-13

Turkey

Dunya Goz Group

NBK Capital Partners

Providers

2010

41

May-13

Exit via management buyout to Dunya Goz founding shareholder for undisclosed sum

Poland

Lux Med

Mid Europa Partners

Providers

N/A

N/A

Apr-13

Strategic sale of 100% stake to Bupa for EUR400m (US$512m)

Lexum Group

ARX Equity Partners

Providers

2009, 2010

N/A

Dec-12

Strategic sale to Moonray Healthcare for undisclosed amount

Acibadem Healthcare

The Abraaj Group

Providers

2008

N/A

Jan-12

Strategic sale to Integrated Healthcare Holdings and Khazanah Nasional for total transaction value of US$516m

Sanitas Pharma

The Rohatyn Group

Pharmaceuticals

2006, 2009

40

May-11

Strategic sale to Sanitas for undisclosed amount

Turkey

DentIstanbul

Global Environment Fund (GEF)

Providers

2007

17

Nov-10

Secondary sale to RHEA Venture Capital Investment Trust

Poland

Polmed

Krokus Private Equity

Providers

2009

5

Oct-10

IPO on Warsaw Stock Exchange; Krokus did not dispose of any shares

Euromedic International

Warburg Pincus

Providers

2005

N/A

Jun-08

Secondary sale to Merril Lynch Global Private Equity, Ares Life Sciences and Montagu Private Equity for total of EUR800m (US$1.2B)

Country Poland

Czech Republic Turkey

Lithuania

Hungary

Exit and Return Detail

Strategic sale to Synlab for undisclosed return

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

21

Junior Braz / Shutterstock.com

Regional Profile: Latin America Junior Braz / Shutterstock.com

Private equity investment in the health care sector in Latin America has been inconsistent in recent years, reaching highs of 16 deals in 2013 and over US$1 billion invested in 2015, while also falling to lows of 8 deals and US$47 million invested in 2014 and 2012, respectively. Through the first half of 2016, managers have completed onlyinvestment three dealsinin the health care sector acrossAmerica all of Private equity the health care sector in Latin Latin America, on paceinfor the lowest total since EMPEA began has been inconsistent recent years, reaching highs of 16 deals recording investment statistics 2008 (see 23). also falling in 2013 and over US$1 billionininvested in Exhibit 2015, while

Regional Profile: Latin America

care deals went to Mexico16over the same time span, with seven

to lows of 8 deals and US$47 million invested in 2014 and 2012, As in other EM Through regions, the most popular private equity respectively. the first half subsector of 2016, for managers have investment Latin American over thesector past five yearsall has completedinonly three deals health in the care health care across of been health care providers subsector, both largeLatinthe America, on pace for the lowestwhich total includes since EMPEA began scale hospital networksstatistics as well asinsmaller clinics and diagnostic labs. recording investment 2008 (see Exhibit 23).

In total, health care providers represent 35% of the number of deals, but 57% of EM capital invested (see Exhibit The bulk this capital As in other regions, the most popular26). subsector forofprivate equity comes from in a handful of largehealth deals care in Brazilian networks, investment Latin American over thehospital past five years has most Thecare Carlyle Group’s 2015 investment into Rede D’Or beennotably the health providers subsector, which includes both largeSao Luiz.

The medical equipment and retail subsectors have scale hospital networks as well as smaller clinics and diagnostic also labs. proven accounting for 16 and 12 deals, respectively, In total,popular, health care providers represent 35% of the number of since deals, 2008.

Investment other subsectors pharmaceuticals, but 57% of capitalininvested (see Exhibitincluding 26). The bulk of this capital biotechnology health IT have proven to be less popular, with comes from a and handful of large deals in Brazilian hospital networks, only one deal between theGroup’s three subsectors since 2015. most notably The Carlyle 2015 investment into Rede D’Or

Brazil other American countries making up 1,016 the remaining 28%, or $900 Latin 15 13

US$ Millions

16

12

16 $300 $900

1,016

13

12

$0 $600

174

47

2011

2012

2013

Capital Invested

$300

8 2014

12 2015

Total No. of Deals

274

Source: EMPEA.296 Data as of 30 June 2016.

47

22

$0

EMPEA 2011

2012

2013

Capital Invested

86 1H 2016

3

010

6% 6%

86 2015

1H 2016

0

25%

Total No. of Deals

Source: EMPEA. Data as of 30 June 2016.

60

200

3% Brazil

ands)

6% 6%

47%

5

EMPEA 3%

25%

6%

Source: EMPEA. Data as of 30 June 2016.

22

3%

Source: EMPEA. Data as of 30 June 2016.

174 2014

3%

515

3

47%

6%

No. of Deals

US$ Millions

296

274

Brazil Mexico Peru Colombia Chile Uruguay Argentina Brazil Guatemala Mexico El Salvador Peru Colombia Chile Uruguay Argentina Guatemala El Salvador

6%

10 20

160

43

45

46

48

50

51

19

49

49 45

ns)

US$ Millions

8

3% Exhibit 24: Latin 3%America Health Care Investment by 6% Country, 2011-1H 2016 (% of No. of Deals)

15

No. of Deals

$600 $1,200

No. of Deals

in general, these macro-level statistics alone do not 86 fully explain $0 0 2011 2014 2015 2016 the opportunity for2012 health 2013 care investment in Brazil.1HIn particular, Exhibit 24: Latin America Health Carecare Investment by made it recent developments in Brazil’s health industry have Capital Invested Total No. of Deals Country, 2011-1H 2016 (% of No. of Deals) an increasingly attractive destination for health care investment going forward.

20

Exhibit Latin America Health Care Investment, 1,016 $900 23: 13 2011-1H 2016 12

174

47

Exhibit 22 is a table

Exhibit 22 is a table

No. of Deals

US$ Millions

In18recent Brazil to be thedistribution most popular 12has proven total years, deals (see Exhibit 24). This wide of destination deals across for health care investment in Latin America.

In addition to sector makingis several countries within Latin America suggests that the 12 $600 10 $1,200 20 up the bulk of deals number and capital invested in the region, popular among fundbymanagers throughout the region.

8 Brazil attracted the seven largest health care deals in the sector in 16 Latin America since 2008.

While these statistics are not altogether Brazil 1,016 $300 515 $900 3 13 surprising given Brazil’s position asto the economy in the region In recent years, Brazil belargest the most popular destination 12has proven 274 and most 296 common destination for private equity in LatintoAmerica for health care investment in Latin America.

In addition making 174 47 86 12 not fully explain inupgeneral, macro-level statistics aloneinvested do $0 bulkthese 010 $600 the of deals by number and capital in the region, 8 2011 2013 2014 2015 2016 the opportunity for2012 health care investment in Brazil.1H particular, Brazil attracted the seven largest health care deals inInthe sector in recent developments in Brazil’s care industry have made it Latin America since 2008.

Whilehealth these Capital Invested Totalstatistics No. of Dealsare not altogether $300 5 an increasingly attractive destination for health care 3investment surprising given Brazil’s position as the largest economy in the region 274 going forward. and most 296 common destination for private equity in Latin America

Sao Luiz. The medical equipment and retail subsectors have also proven popular, accounting for 16 and 12 deals, respectively, since Exhibit 23: Latin America Careincluding Investment, 2008. Investment in other Health subsectors pharmaceuticals, 2011-1H 2016 and health IT have proven to be less popular, with biotechnology only one deal between the three subsectors since 2015. $1,200

Among Latin American countries, Brazil accounts for nearly half of the total number of deals in Latin America since 2011, and over Exhibit 22 is a table three-fourths of the capital invested. An additional 25% of health care deals went to Mexico over the same time span, with seven other Latin American countries making up the remaining 28%, or 18 total deals Exhibitcountries, 24). This wide ofnearly deals across Among Latin (see American Brazildistribution accounts for half of several countries Latin suggests that the sector is the total numberwithin of deals in America Latin America since 2011, and over $1,200 among fund managers 20 Exhibit 22throughout is a table popular the region. three-fourths of the capital invested. An additional 25% of health

Exhibit 22 is a table

$1,200

20

Regional Profile: Latin America, continued 16 $900

1,016

13

15

12

US$ Millions

6%

Mexico

Peru According to The Carlyle Group, there are currently about 50 million 47% Colombia 6% people in Brazil with private health care plans, representing a twoChile Uruguay fold increase over the past decade and nearly a quarter of Brazil’s Argentina there overall population (see Exhibit 25). Under current conditions, Guatemala are not enough hospital beds within Brazil’s private health care El Salvador 25% system to accommodate all 50 million citizens with private plans.

As Peli notes, “The World Health Organization recommends that a country should have three to five hospital beds per 1,000 inhabitants.

If we are to adhere to this guideline with a population of 50 million beneficiaries of private health plans, we should then have close to 150,000 private beds, but today we have about 125,000. We have a significant deficit of beds within the private system.”

Exhibit 25: Deficit of Private Hospital Beds in Brazil, 2009-Q1 2016

5

45 7

46 11

14

18

19

49 18

17% 45

19

80 123

128

127

130

131

133

130

127

40

15

80%

20%

8% 6%

60%

20%

11%

5% 40%

14% 57%

2009

2010

2011

2012

2013

2014

2015

Q1 2016

0

Supply of Private Beds Deficit of Private Beds Private Health Plan Beneficiaries

Source: ANS, DataSUS, World Health Organization. Compiled by The Carlyle Group, July 2016.

14

100%

49

% of Total

43

48

51

30

0

Brazil’s biotechnology and pharmaceuticals subsectors have been less popular historically, with the two subsectors combining for five deals since 2008. However, these subsectors have shown promise in recent years, with managers creating value through increasing

60 50

Beneficiaries (Millions)

Private Beds (Thousands)

120

Often frustrated with the mismanagement and inefficiency in the public health system but unable or unwilling to afford private health insurance, many people increasingly see switching to smaller, low-cost clinics as a third option. According to Guilherme Berardo, founder and president of the Dr. Agora clinics, in countries like Brazil “an estimated 70% of services performed at emergency rooms could be performed at clinics”,14 so this development is a welcome response to the supply gap in the sector. With the pent-up demand for efficient quality care, the sector is ripe for a consolidation play by investors. Despite the relative newness of this subset of low-cost clinics, the demands of the market will likely cause it to grow in tandem pace with the overall health care sector.

Exhibit 26: Latin America Health Care Investment by Subsector, 2011-1H 2016

200

160

Furthermore, many of the private hospitals that do exist are too subscale to be financially practical. Peli further explains, “The hospital business is a business of scale, so for a hospital to be financially viable, generate cash, and offer attractive returns for its investors or shareholders, a hospital should have at least 150 beds. The average size of the Brazilian hospital is 60 beds, which is almost one third of the minimum scale that a hospital should have. This means that most of the existing hospitals in Brazil are sub-scale and are facing serious financial difficulties due to the economic crisis, resulting in the reduction of beds offered in the private system and taking the deficit of private beds to record highs.” Going forward, this gap between the number of private beds demanded and the number of beds actually available is only expected to increase, as Brazil’s middle class continues to grow and more and more Brazilians move from the often under-funded and overcrowded public health system to the private health system.

No. of Deals

The opportunity for private equity investment in Brazil’s hospital 12 $600 10 8 networks has become significantly more attractive to international private equity fund managers recently, as the Brazilian government has eased$300 restrictions on foreign ownership of the country’s health 5 3 274 Brazil did not allow foreign care industry. Until January 2015, 296 174 47 stakes in hospitals investors to directly own and health86 care $0 services providers. has allowed fund 0 2011The lifting 2012 of this 2013 restriction 2014 2015 1H 2016 managers to enter the market and tap into its massive potential. As a consequence, Brazil received largest health care investment in Capital the Invested Total No. of Deals Latin America since EMPEA began recording investment in statistics in 2008. In May of 2015, The Carlyle Group invested BRL1.75 billion (US$580m) in Brazilian hospital operator Rede D’Or Sao Luiz, the biggest independent private hospital operator in the country. Edson Peli, Director at The Carlyle Group explains, “Before 2015, the sector had been suffering from a lack of investment for many decades, resulting in a deficit of beds and sub-scale hospitals. After the law changed, we made our investment in Rede D’Or. Currently, there’s a great opportunity to put 3% capital to work in the sector, which 3% is poised for consolidation and scale rebalancing of the private 6% hospitals in Brazil.”

Brazil

20%

Retail Pharmacy and Vision Health IT Medical Equipment Biotechnology Pharmaceuticals Providers

36%

0% No. of Deals

Capital Invested

Source: EMPEA. Data as of 30 June 2016.

Quoted in: Koike, Beth. “Crisis in health industry drives expansion of low-cost clinics”. Valor International. 10 May 2016. http://www.valor.com.br/international/news/4555121/crisis-health-industry-drives-expansion-low-cost-clinics.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets Exhibit 27-28 are tables

23

Regional Profile: Latin America, continued

well as retailers. Firms such as General Atlantic, WAMEX Private Equity and EMX Capital have acquired stakes in prominent Mexican pharmaceutical manufacturers Sanfer, MEDEX and Farmapiel, respectively, indicating interest in the sector from both international and Mexican fund managers.

efficiency of manufacturing and expanding domestic production of vital products. The importance of pharmaceutical products such as insulin is only highlighted by existing demographic trends, including the increase in prevalence of lifestyle diseases such as diabetes. Private equity investment into the local manufacture and distribution of pharmaceuticals is best suited to taking advantage of economies of scale.

Outside of Brazil and Mexico, the health care sector appears to be waning in popularity among fund managers active in Latin America.

Only two deals have been completed since 2014 in countries other than Brazil or Mexico, with Axon Partners Group investing in Colombian online pharmacy ordering service Pidefarma and LAFISE Investment Management acquiring a stake in Salvadorian health care provider GIM SAL. A lack of exits, at least publicly-reported ones, may be part of the reason for the dearth of new investments in the sector. LAFISE exited Costa Rican medical equipment manufacturer Tecno Diagnostica in February of 2014, but since then all exits in the health care industry have come from either Brazil or Mexico. While earlier deal activity in the health care space indicates that good investment opportunities are available throughout Latin America, this apparent lack of liquidity may be preventing managers from executing on further opportunities in the smaller markets within the region.

Beyond Brazil

While Brazil leads the region in terms of capital invested and number of deals in the health care sector, significant health care investments have been made throughout Latin America. Besides Brazil, nine other countries have received private equity investments in their health care sectors, accounting for 49 deals and US$603 million in capital invested since 2008. Mexico alone represents about half of these totals at 22 deals and US$377 million invested.

Interest in Mexicoâ&#x20AC;&#x2122;s health care sector appears to be gaining steam, as ten of these deals were completed in 2014 and 2015, compared to 12 deals completed in the six years from 2008 and 2013. Many of the more recent deals in Mexico have targeted the pharmaceuticals industry broadly, including both pharmaceutical manufacturers as

Exhibit 27: Largest Disclosed Health Care Investments in Latin America, 2008-1H 2016 Fund Manager(s)

Company Name

Country

Subsector

Investment Type

Investment Amount (US$m)

Investment Date

The Carlyle Group

Rede Dâ&#x20AC;&#x2122;Or Sao Luiz

Brazil

Providers

Growth

580

May-15

Empreendimentos Pague Menos

Brazil

Retail Pharmacy and Vision

Growth

149

Dec-15

Hermes Pardini

Brazil

Providers

Growth

110

Nov-11

Advent International

Fleury

Brazil

Providers

PIPE

101

Oct-15

GP Investments

Imbra

Brazil

Providers

Buyout

98

Sep-08 Nov-15

General Atlantic Gavea Investimentos

The Carlyle Group General Atlantic Moench Cooperatief The Carlyle Group 3i Group Advent International Enfoca Inversiones CELFIN Capital Kinea Private Equity Investimentos

Tempo Participacoes

Brazil

Providers

Buyout

83

Ouro Fino Saude Animal

Brazil

Pharmaceuticals

PIPE

81

Oct-14

Grupo Marzam

Mexico

Retail Pharmacy and Vision

Buyout

80

Sep-15

Tempo Participacoes

Brazil

Providers

Buyout

65

Mar-16

Oticas Carol

Brazil

Retail Pharmacy and Vision

Buyout

56

Mar-13

Laboratorio LKM

Argentina

Pharmaceuticals

Buyout

50

Aug-11

Grupo Salud Del Peru

Peru

Providers

Growth

47

Jul-13

Clinicas Las Condes

Chile

Providers

Growth

37

Feb-10

Clinica Delfin

Brazil

Providers

Buyout

35

Jan-13

Source: EMPEA. Data as of 30 June 2016.

Exhibit 28: Notable Health Care Exits and IPOs in Latin America, 2008-1H 2016 Company Name

Fund Manager(s)

Subsector

Year(s) of Investment

Capital Invested (US$m)

Transaction Date

Brazil

Tempo Participacoes

GP Investments

Providers

2007

40

Mar-16, Nov-15, Dec-08

Brazil

Medquimica

Graycliff Partners

Pharmaceuticals

2011

14

Jun-15

Exit via strategic sale to Indian pharmaceutical company Lupin

Country

Mexico Peru Argentina

Brazil

Partial exit via share sale for BRL2.9m in 2008; secondary sale to The Carlyle Group in 2015 and 2016; GP reported a gross BRL79m return, with a 2.9x multiple and an IRR of 14.3%

Amerimed

Alta Growth Capital

Providers

2009

9

Nov-14

Strategic sale of 49% stake

Corporacion Infarmasa

The Rohatyn Group

Pharmaceuticals

N/A

N/A

Jan-11

Exit via strategic sale to Teva Pharmaceutical Industries

Northia

Southern Cross Group

Pharmaceuticals

2002

N/A

Jan-11

Exit via strategic sale of 62% stake to Chilean pharmaceutical company Corporacion Farmaceutica Recalcine (CFR) for reported US$25m

Raia Drogasil

Gavea Investimentos

Retail Pharmacy and Vision

2008

N/A

Dec-10

Exit via IPO of Raia Drogasil on Brazilian bourse Bovespa raised BRL569m (US$331m)

Source: EMPEA. Data as of 30 June 2016.

24

Exit and Return Detail

EMPEA

EMPEA Market Map Identifying 1,000 global emerging markets private capital fund managers, while generating targeted lists customized to your VSHFLĆŠF VHDUFK WHUPV EMPEA Market Map The EMPEA Market Map provides Members exclusive access to interactive, searchable listings of private investment fund managers active in emerging markets and EM-focused private investment funds currently raising capital. The Market Map supplements EMPEAâ&#x20AC;&#x2122;s quarterly Industry Statistics and Data Insights and is powered by our proprietary database, FundLink.

Discover our recently released beta version for Members-only, where you can access regional searches, advanced custom searches and funds in the market.

To get started, visit EMPEA.org and login.

All Market Map data is exportable via a link at the bottom of each dashboard.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

Visit us at EMPEA.org25

eFesenko / Shutterstock.com

Regional Profile: MENA eFesenko / Shutterstock.com

The defensive nature of health care is not the only factor attracting capital to sector in MENA’s varied markets.

Morocco, Exhibit 29:the MENA Health Care Investment, 2011-1H 2016Egypt and United Arab Emirates received both the largest number of

$0

8

Exhibit 29: MENA Health Care Investment, 2011-1H 2016

2

US$ Millions

24% 1365

45

119

145

11

2012

4 2013

2014

4 2015

1H 2016

2

Capital Invested

Total No. of Deals

05

2

136

45

119

145

11

2013

2014

2015

1H 2016

32%

4%

4%

Egypt Tunisia Afghanistan

4%

8%

32% 23%

2012

EMPEA 4%

2013

11

2014

2015

1H 2016

4% 4% Capital Invested

Total No. of Deals

EMPEA 24%

8%

4%

30%

24.1%

25% 16.2%

$150

4%

Morocco United Arab Emirates Egypt Tunisia Afghanistan

4%

32%

North Africa Regional Investment Algeria

23%

$200

8% Data as of 30 June 2016.32% Source: EMPEA.

26

0

North Africa Regional Investment Algeria Morocco United Arab Emirates Egypt Tunisia Afghanistan

Source: EMPEA. Data as of 30 June 2016.

US$ Billions

26

2011

145

16.8%

20% 15%

Source: EMPEA. Data as of 30 June 2016.

9.0%

$100 $200

10% 2.5%

24.1%

$50

$150 North Africa Regional Investment Algeria Morocco $0 ions

$0

119

0

Morocco United Arab Emirates

24%

Source: EMPEA. Data as 136 of 30 June 45 2016.

05

2012

8%

No. of Deals

$50

11

1H 2016

-3.4% -10.1%

100

114

16.2%

16.8%

125

147

162 9.0%

163

167

5% 30% 0% 25% -5% 20% -10% 15% -15%

Change in GDP

US$ Millions

8 2

2011

145

4 2015

510

4

$100 $0

119

2014

2011

No. of Deals

$50

4

45

4 2013

4% Capital Invested Total No. of Deals Exhibit 30:4% MENA Health Care Investment

by Country, 20111H 20164%(% of No. of Deals)

$100 5

136

2012

Data substantiate that Egypt has a large supply gap. The country’s $50 health2care has just 0.5 hospital beds per people—only 2 Country, Capital Invested Total No. of Deals Exhibit 30: system MENA Health Care Investment by1,000 2011one third of the 1.5 beds per 1,000 average across MENA countries 1H 2016 (% of No. of Deals)

10

$150

2011

n GDP

$150

$0

No. of Deals

US$ Millions

US$ Millions

Regional Profile: MENA

health care deals and the most capital invested in recent years (see Exhibit 30), but the health care opportunities in such markets vary broadly. In Egypt, which has a population of more than 90 million people, demographics overwhelm the public sector’s health care delivery system. The Abraaj Group has taken clear advantage of this supply separate care providers in (see the health caregap, dealsbacking and thefour most capital health invested in recent years country sincebut 2008, addition its US$145 million Exhibit 30), the in health careto opportunities in suchcommitment, markets vary alongside series which of development financeofinstitutions, to million North broadly. Ina Egypt, has a population more than 90 Africa Hospital Holdingsoverwhelm Group, which hospitals in both people, demographics the operates public sector’s health care Egypt Tunisia. manager Partners, deliveryand system.

TheEgypt-focused Abraaj Group fund has taken clear BPE advantage of which has also exposure the health care space, is similarly this supply gap,built backing four to separate health care providers in the $150 10 optimistic regarding opportunity.

Omarmillion El Labban, Principal country since 2008, the in addition to its As US$145 commitment, at BPE Partners, notes, health care sectorinstitutions, is vastly underserved 8 alongside a series of “The development finance to North in Egypt.

The majority of health provision is still state-owned, Africa Hospital Holdings Group,care which operates hospitals in both and there significant opportunity fund for private investment, given Egypt andis Tunisia.

Egypt-focused manager BPE Partners, $100 the country’s demographics.”

5 built exposure to the health care space, is similarly which has also 510 $150 optimistic regarding the Principal 4 opportunity. As 4 Omar El Labban, Data substantiate that Egypt has a large supply gap.

The country’s at BPE Partners, notes, “The health care sector is vastly underserved 8 $50 health system has just 0.5 hospital beds per 1,000 in Egypt. majority of health care provision state-owned, 2careThe 2is stillpeople—only one 1.5 beds opportunity per 1,000 average acrossinvestment, MENA countries andthird thereofisthe significant for private given $100 the country’s demographics.”

5 No. of Deals

As several of the countries that make up the MENA region face macroeconomic challenges related to low oil and gas prices, investors in the region are employing defensive strategies to deploy capital. Indeed, in 2014 and 2015, as oil prices sank, fund managers deployed 16% and 15%, respectively, of all disclosed capital invested in in of thethe health care sector.

Both figures higher than any AsMENA several countries that make up theare MENA region face other annual sharechallenges of health related care investment EMPEA macroeconomic to low since oil and gas began prices, tracking activity in are 2008, and both dwarf health care’s share investorsthis in the region employing defensive strategies to deploy of capital invested across all2015, EM geographies, at 4.7% 8.6% capital.

Indeed, in 2014 and as oil prices sank, fundand managers in 2014 and 2015. in MENA’s care have reason to deployed 16% and Investors 15%, respectively, of health all disclosed capital invested appreciate nature. the figures years following 2008 in MENA inits thedefensive health care sector.InBoth are higherthe than any Global Financial Crisisofand the 2011 Arab Spring, the EMPEA MENA region other annual share health care investment since began experienced GDP shrunk 2009share and tracking thispainful activityvolatility—the in 2008, andregion’s both dwarf health in care’s 2013.

Throughout however, health care and spending of capital invested both acrossperiods, all EM geographies, at 4.7% 8.6% continued to 2015. grow steadily region—by 2008 in 2014 and Investorsininthe MENA’s health25% care between have reason to and 2010, and between 2011Inand Exhibit 31). appreciate its 11% defensive nature. the2013 years(see following the 2008 Global Financial Crisis and the 2011 Arab Spring, the MENA region The defensivepainful naturevolatility—the of health careregion’s is not the only factorinattracting experienced GDP shrunk 2009 and capital to the sectorboth in MENA’s markets.

Morocco, Egypt 2013. Throughout periods,varied however, health care spending and UnitedtoArab both the 25% largest number of continued growEmirates steadily received in the region—by between 2008 and 2010, and 11% between 2011 and 2013 (see Exhibit 31).

8

5

4 $50

$0

Regional Profile: MENA, continued

2

2

2011

136

45

119

145

11

2012

2013

2014

2015

1H 2016

Capital Invested

8%

32%

Morocco

United Arab Emirates While there are similarities to the health care systems across MENA, Egypt and across emerging markets more broadly, there are also major Tunisia differences in the size and shape each market takes—and the Afghanistan resulting set24% of opportunities available in each market.

Perhaps the North Africa Regional Investment Algeria For example, most notable difference within MENA is economic: U.A.E. and Qatar—small Gulf states with large public sector 23%

Exhibit 31: MENA Health Care Spending, 2008-2014

16.2%

16.8%

8%

20% 15%

9.0%

10%

$100

2.5% -3.4%

5% 0% -5%

-10.1% 100

114

125

147

162

163

167

2008

2009

2010

2011

2012

2013

2014

Arab Spring, Dec 2010-mid 2012 Health Care Spending

16

60%

Retail Pharmacy and Vision Medical Supplies 82%

40% 60%

Medical Equipment Pharmaceuticals Providers

20%

0%

GDP Growth

Source: World Health Organization, World Bank. Accessed September 2016.

15

24%

-10% -15%

13%

80%

% of Total

US$ Billions

100%

25%

$150

$0

Correlated with the increased spending on health care of Gulf countries is another important factor: such markets have developed financial infrastructure for paying for health care. The broad use of formal health insurance systems to pay for private health care in the $200 30% 24.1% within the MENA region, and even within emerging Gulf is unique 25% markets. In much of 16.2% North Africa and the Levant, health 16.8% 20% care $150 provision is still paid for primarily out of pocket. In the Gulf, 15%while 9.0% insurance and health care payments systems vary across countries 10% $100 and emirates, structures tend to be broad and well established.

2.5% 5% Health insurance is commonly compulsory, with employers required -3.4% 0% 15 $50 in some geographies to provide health insurance for employees; -5% -10.1% 16 many global insurers are active in the markets; and insurance -10% for 100 114 125 147 162 163 167 coverage at private health care providers is often subsidized or $0 -15% 2010 2011 2013 2014 covered 2008 entirely2009 by governments.

Such2012 systems expand the market for private health care, deepening access such services beyond Arab Spring, Dec 2010-midto 2012 those that have the ability to pay out of pocket. Moving away from Health Care Spending GDP Growth the cash-based system also simplifies the opportunity for fund

30%

24.1%

$50

incomes from oil and gas exports—spent US$1,611 and US$2,106 per capita, respectively, on health care in 2014. By contrast, the two most populous markets 4% in the region, Pakistan and Egypt, spent 4% US$178 and US$36 per capita. The spending differences within 4% the region alone demonstrate the variance of different markets 8% 32% Morocco in the region. For investors, this has significant implications for United Arab Emirates how best to approach the different markets: large-scale plays on Egypt capacity expansion, such as those undertaken Tunisia

by Abraaj in Egypt may be best suited in such markets, where spending tends to be Afghanistan 24% Norththe Africa Regional Investment low but demand for basic health care is high. On other hand, Algeria such as those investments in high quality specialist care providers, backed by TVM Capital in U.A.E., may be more appropriate for 23% private equity in such markets.

Exhibit 32: MENA Health Care Investment by Subsector, 2011-1H 2016

Change in GDP

$200

Total No. of Deals

Change in GDP

No. of Deals

US$ Millions

Fund$100 managers in MENA are directly addressing this broad deficit.

5 2016, 72% of all health care investment in Between 2008 and 1H 5 the region has gone to health4care providers—a 4 higher percentage than any other EM region. Even when narrowed to the health care $50 provider subsector, however, opportunities vary between markets 2 2 in MENA. Open spaces in wealthy, but often nascent markets in the Gulf provide opportunities for experienced players to develop 136 45 119 145 11 $0 0 world-class facilities and services from scratch. Hoda Abou-Jamra, 2011 2012 2013 2014 2015 1H 2016 Founding Partner of U.A.E.-based fund manager TVM Capital Healthcare Partners, Capital notes,Invested “we wereTotal theNo.first ones to develop of Deals private, post-acute long-term care facilities, including rehabilitation and therapy, to complement the acute-care hospitals run by the government in the U.A.E. In the U.S., post-acute long-term care has been around for many years and evolved through several stages.

However, we have identified such specialty care as a gap in the 4% 4% we operate, and we are building companies geographies in which 4% to meet demand for such services.”

0

US$ Billions

and far below the 4.6 beds per 1,000 average across EM countries.

However, even in the smaller, wealthier markets of the Gulf, many services remain un- or under-supplied, and capacity for health care delivery still has ample room to grow. The U.A.E., for example, has $150 10 just 1.1 hospital beds per 1,000 people—also far below emerging 8 and developed market averages (see Exhibit 5).

5

4

No. of Deals

US$ Millions

$100

No. of Deals

Capital Invested

Source: EMPEA. Data as of 30 June 2016.

Health insurance is compulsory in Dubai, for example, and required to be covered by employers.

See: http://www.dubai.ae/en/Lists/Articles/DispForm.aspx?ID=83&event=Getting%20medical%20treatment%20in%20Dubai&category=Citizens.

100% In Dubai, for example, global insurers AXA and Metlife compete with local and public-sector insurers.

8% 80%

13%

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

f Total

24%

60%

Retail Pharmacy and Vision Medical Supplies

27

Regional Profile: MENA, continued

managers. While markets without such infrastructure certainly generate opportunities and attract investment opportunities, TVM Capital’s Abou-Jamra notes that, where it is in place, health care payment systems and insurances greatly improves the opportunity: “One of the issues we face is the reimbursement issue in environments where the majority of patients are required to pay for their own health care and health care insurance schemes are not very common. An investor will ideally look at opportunities in an environment where reimbursement issues are somewhat calculable.”

The public markets and strategic buyers that provide the majority of liquidity to private equity investors in MENA health care assets appear to have appetite for flagship assets in both the region’s large, poorly-developed markets and small, sophisticated markets.

While there have not been many exits in the region (EMPEA has reported just 14 exits from ten companies in MENA’s health care sector since 2008), many of the exits that have taken place have been large and high-profile. U.A.E-based Al Noor Hospitals Group, backed by Ithmar Capital, and Egypt-based diagnostics provider Al Borg, backed by Actis and The Abraaj Group, were listed on the London Stock Exchange (Al Borg also listed on the Egyptian Stock Exchange); Cleopatra Hospital, also backed by Abraaj, was listed on

the Egyptian Stock Exchange; and Tunisia-based pharmaceuticals company Unimed Laboratories, another Abraaj portfolio company, was listed on the Tunis Stock Exchange. Strategic buyers have also bought assets in marquee deals: TVM Capital sold U.A.E.based ProVita Medical Center to NMC Health as part of a US$161 million deal; and Capital Group Private Markets, Concord International Investments Group and The Rohatyn Group sold Egypt-based Amoun Pharmaceutical to Valeant Pharmaceuticals in a US$800 million deal. If exits are not frequent in the market, such deals demonstrate that opportunities for successful exits are nonetheless present.

Alas, many of the factors that drive demand for health care in the Gulf are tied to oil and gas exports. As public incomes recede, governments are rethinking the subsidies they offer their citizens and residents for health care coverage; indeed, subsidies for health care in U.A.E. were scaled back in 1H 2016. Health care may be more defensive than other sectors in times of macroeconomic downturn—the sick and injured are likely to continue using health care services—but as patient co-payments become larger or public spending is pressured downwards, the sector may not be fully immune to such downturns.

Exhibit 33: Largest Disclosed Health Care Investments in MENA, 2008-1H 2016 Company Name

Country

Subsector

Investment Type

Investment Amount (US$m)

Investment Date

The Abraaj Group

Integrated Diagnostics Holdings (Al Borg)

Egypt

Providers

Buyout

151

May-08

The Abraaj Group

North Africa Hospital Holdings Group (NAHHG)

North Africa Regional Investment

Providers

Growth

145

Mar-15

Fund Manager(s)

The Abraaj Group

Cairo Medical Tower Laboratory

Egypt

Providers

Buyout

145

Apr-08

The Abraaj Group

Saudi Tadawi Health Care Company (TADAWI)

Saudi Arabia

Retail Pharmacy and Vision

Buyout

137

Jan-08

Olympus Capital Asia

Aster DM Healthcare

United Arab Emirates

Providers

Growth

100

Jan-12

Olympus Capital Asia, India Value Fund Advisors (IVFA)

Aster DM Healthcare

United Arab Emirates

Providers

Growth

60

Apr-14

Sigma Pharmaceutical Industries

Egypt

Pharmaceuticals

Growth

40

Mar-09

Amana Healthcare

United Arab Emirates

Providers

Mezzanine

25

Apr-14

Cairo Medical Center

Egypt

Providers

PIPE

15

Jul-14

Polymedic

Morocco

Pharmaceuticals

Buyout

14

Dec-12 Apr-12

Eastgate Capital Group Gulf Capital The Abraaj Group AfricInvest The EuroMena Funds

Al Oyoun Al Dawli

Egypt

Providers

Buyout

11

Best Health

Morocco

Medical Equipment

Growth

11

Jan-16

Orchidia Pharmaceutical Industries

Egypt

Pharmaceuticals

Growth

10

Feb-13

AfricInvest

Medis

Tunisia

Pharmaceuticals

Venture Capital

7

Mar-09

AfricInvest

THCC

Tunisia

Providers

Venture Capital

6

Jul-08

AfricInvest

Inpha-Medis

Algeria

Pharmaceuticals

Venture Capital

3

Dec-08

Capital Invest Swicorp

Source: EMPEA. Data as of 30 June 2016.

28

EMPEA

Regional Profile: MENA, continued

Exhibit 34: Notable Exits and IPOs in MENA, 2008-1H 2016 Country

Company Name

Fund Manager(s)

Subsector

Year(s) of Investment

Capital Invested (US$m)

Transaction Date

Egypt

Cleopatra Hospital

The Abraaj Group

Providers

2014

N/A

Jun-16

Tunisia

Unimed Laboratories

The Abraaj Group

Pharmaceuticals

2011

N/A

Dec-15, May-16

Egypt

Amoun Pharmaceutical

Capital Group Private Markets, Concord International Investments Group, The Rohatyn Group

Pharmaceuticals

2006, 2007, 2009

454

Oct-15

Trade sale to Valeant Pharmaceuticals; total transaction amount was US$800m

ProVita International Medical Center

TVM Capital Healthcare Partners

Providers

2010

N/A

Aug-15

Trade sale to NMC Health; total transaction amount was US$161m

Integrated Diagnostics Holdings (Al Borg)

Actis, The Abraaj Group

Providers

2008, 2014

264

May-15, Nov-15

IPO on London Stock Exchange and Egyptian Stock Exchange returned US$203m for Abraaj; Actis did not dispose of shares; Abraaj sold remaining shares in November 2015

Al Noor Hospitals Group

Ithmar Capital

Providers

2010

N/A

Jun-13, Apr-15

IPO on London Stock Exchange; Ithmar sold shares worth GBP216m (US$319m) in April 2015

United Arab Emirates Egypt

United Arab Emirates

Exit and Return Detail IPO on Egyptian Stock Exchange returned EGP360m (US$40.5m); Abraaj retained 80% of outstanding shares December 2015 sale of partial stake to investors including SQM, Blakeney Asset Management and the Tunisian-Kuwaiti Consortium of Development; Abraaj fully exited in May 2016 IPO on Tunis Stock Exchange

Source: EMPEA. Data as of 30 June 2016.

eFesenko / Shutterstock.com

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

29

Nataly Reinch / Shutterstock.com

Regional Profile: Sub-Saharan Africa

Nataly Reinch / Shutterstock.com

markets accounted for approximately 10% of the total across all Regional Profile: Sub-Saharan Africa

$30 35: Sub-Saharan Africa Health Care Investment,10 Exhibit 2011-1H 2016 8 $25

6

US$ Millions US$ Millions

$10 $20

8

$5 $15 $0 $10

29

5

6.7

8.0

26

21

6

3

2011

2012

8 4 6 2

26

2013

2014

US$ Millions US$ Millions

15%

N/A 3

2015

2016

4 0

2011

2012

2013

Capital Invested

Total No. of Deals 2014

2015

N/A 2016

South Africa Cote d'Ivoire 15%

6%

21%

Democratic Republic of the Congo Kenya Senegal South Africa Uganda Cote d'Ivoire Angola Democratic Republic of Ghana the Congo Nigeria Senegal Other Uganda

12%

6%6% 6%6%

12% 9%

6%

$1,000

12%

9%

6% 0

Kenya

21%

6%

2 8.0

6.7 Capital Invested

Source: EMPEA. Data as of 30 June 2016.

17

7

21

$5 $0

5

Exhibit 36: Sub-Saharan Africa Health Care Investment by Country, 2011-1H 2016 (% of No. of Deals)

10 6

5

29

volatility and low commodity prices in recent years, exposure to Capital Invested Total No. of Deals defensive health care assets in Sub-Saharan Africa provides stability Exhibit 36: Sub-Saharan Africa Health Care Investment by for fund managers invested in the sector.

Country, 2011-1H 2016 (% of No. of Deals)

No. of Deals No. of Deals

$15 $25

5

markets accounted for approximately 10% of the total across all Fund managers’ lack of investment activity in the sector may stem sectors from 2015 through 1H 2016, it accounted for just 1.4% of $30 10 from several overlapping concerns.

Worries about size of the capital invested in Sub-Saharan Africa over the samethe period.

8the region’s generally poor payments infrastructure and market, $25 8 7 potential for regulatory toinhave private Fund managers’ lack of uncertainty investment seem activity the deterred sector may stem $20 $30 10 equity firms from venturing further Worries into 6health care. from several overlapping concerns. about theMeanwhile, size of the 6 5 5 the perception of a generally limited pool ofpayments fund managers with and the 8the region’s market, poor infrastructure $15 $25 8 expertise and track record to approach the LPs. 7 26 sector deters some potential private 4 29 for regulatory uncertainty seem to have3deterred 21 6 However, given the degree to which sector is underinvested and $10 $20 equity firms from venturing furtherthe into health care. Meanwhile, 6 5are finding creative ways to mitigate underserved, early5ofmovers the perception a limited pool of fund managers2 withsuch the $5 $15 8.0 challenges andtrack are with the belief that the sector 6.7 deploying expertise and record to capital approach the sector deters some LPs. 26 4 N/A 29 3 has to generate returns.

21 the $0 the potential 0in markets However, given the degree tooutsized which sectorMoreover, is underinvested and $10 2011 faced 2012 2013 2014 2015 2016 that have macroeconomic challenges currency underserved, early movers are finding creativearising ways tofrom mitigate such 2 $5 volatility and low commodity prices with in recent years,that exposure to 8.0 challenges and are capital the belief the sector 6.7 deploying Capital Invested Total No. of Deals N/A defensive health care assets inoutsized Sub-Saharan Africa provides stability has the potential to generate returns.

Moreover, in markets $0 0 2011 2013 in the 2014 2016from currency for fund managers invested sector. 2015 arising that have faced2012 macroeconomic challenges

8

7

$20 $30

sectors from 2015 through 1H 2016, it accounted for just 1.4% of capital invested in Sub-Saharan Africa over the same period.

No. of Deals No. of Deals

The supply gap for health care provision is perhaps greater in SubSaharan Africa than in any other region. The countries that constitute the region simultaneously bear the heaviest portion of the global disease burden and have among the lowest capacity for health care The supply gap for health care provision is perhaps greater in Subdelivery,17 and spend less per capita on health care than any other Saharan Africa than in any other region. The countries that constitute region. When one considers such a gap amid a new generation of the region simultaneously bear the heaviest portion of the global African consumers, health care would appear to present significant disease burden and have among the lowest capacity for health care opportunity for the private sector, and private equity, to seize. delivery,17 and spend less per capita on health care than any other region. When one considers such a gap amid a new generation of Yet the private equity industry has yet to invest deeply into the African consumers, health care would appear to present significant Sub-Saharan Africa health care market. The region attracted just opportunity for the private sector, and private equity, to seize. six health care investments in 2015 and three in the first half of 2016; health care has consistently represented only approximately Yet the private equity industry has yet to invest deeply into the 5% of both the number of deals and an even smaller fraction of Sub-Saharan Africa health care market. The region attracted just capital invested in Sub-Saharan Africa in recent years. From 2015 six health care investments in 2015 and three in the first half of through 1H 2016, fund managers invested US$26 million in the 2016; health care has consistently represented only approximately region’s health care assets—a far cry from the more than US$3 5% of both the number of deals and an even smaller fraction of billion invested in Emerging Asia, more than US$1 billion in Latin capital invested in Sub-Saharan Africa in recent years. From 2015 America and more than US$150 million in MENA over the same through 1H 2016, fund managers invested US$26 million in the time period. While capital invested in health care assets in emerging region’s health care assets—a far cry from the more than US$3 billion invested in Emerging Asia, more than US$1 billion in Latin America and more than US$150 million in MENA over the same Exhibit 35: Sub-Saharan Africa Health Care Investment, time period. While capital invested in health care assets in emerging 2011-1H 2016

Angola Ghana Nigeria Other

12% 9%

9%

Source: EMPEA. Data as of 30 June 2016. $800

Total No. of Deals

As measured by hospital beds per capita. Source: World Bank. Accessed September 2016.

$1,000 $600

$800

$400 As measured by hospital beds per capita. Source: World Bank. Accessed September 2016.

30

$600

EMPEA

15%

21%

Kenya South Africa

6%

Cote d'Ivoire

US$

17

910

Source: EMPEA. Data as of 30 June 2016.

US$

Source: EMPEA. Data as of 30 June 2016.

30 EMPEA

748 910

630

687

$200 $400 $0

748 Emerging Asia

CEE & CIS

630 Latin America

687 MENA

131 SSA

$30

10 8

$25

6

5 $15

26

29

$10

Total No. of Deals

While many governments in the region attempt to provide basic health care services to address the disease burden, public health care systems frequently fall short of the demand for health care provision. Private equity has begun to invest in closing this gap.

From 2008 through 1H 2016, 59% of capital invested in the health care sector in Sub-Saharan Africa accrued to providers. In particular, women’s and maternal health care—which is severely lacking in many markets in the region—has attracted a number of private equity backers. In 2013, for example, The Abraaj Group 15% and development finance institution Swedfund partnered to invest Kenya 21% US$6.5 million in Kenya’s Nairobi Women’s Hospital.South Investisseurs & Africa Cote d'Ivoire 6% Partenaires backed Nest for All, a Senegal-based clinic that focuses Democratic Republic of its services on women and children, in 2014. VitaltheCapital’s work Congo 6% with its portfolio company Luanda Medical Center in Angola has Senegal 12% expanded its 6% operations in women’s health as well.Uganda 6%

12% 9%

9% Exhibit 37: Healthcare Expenditure per Capita

Angola Ghana Nigeria byOther Region,

4

2 6.7

8.0

N/A While$0non-communicable diseases account for a smaller share of 0 2011 2012 2013 2014 2015 2016 causes of death, they still represent 28% of deaths in Africa. As the communicable disease burden falls, they constitute a rising share Capital Invested as African Total No.economies of Deals of causes of mortality.

Moreover, grow, rising levels of income and urbanization bring about lifestyle diseases and a corresponding demand for quality medical care. Such diseases lend themselves to investment from the private sector, which can bring in private hospitals, clinics and pharmacies. In 2014, for example, Catalyst Principal Partners invested in Goodlife Pharmacy, to address such ailments. The company offers a range of products from heart health products and diabetes products to fitness and nutrition, as well as skin care products in Kenya. Kenya’s Eagle Eye Laser Centre, backed in 2011 by Jacana Partners, provides specialty 15% eye care and refractive surgery.

Kenya tap into the 21% Such investments South Africa products, increased consumption of pharmaceutical and personal d'Ivoire 6% health care in Sub-Saharan Africa,Cote and specialty facilitated by the Democratic Republic of rising middle class. the Congo 6%

Senegal

12%

Sub-Saharan Uganda health care 6% Africa’s fractured markets and sub-scale providers offer fund managers opportunities to Angola create economies of scale in the6%distribution of health care. To scaleGhana many health care 12% Nigeria companies, and reach new potential consumers, fund managers 9% Other 9% must also consider geography. This often means scaling up in major metros with concentrated health care infrastructure and a built-in consumer $1,000 base. From 2008 to 1H 2016, 35% of deals were made in Nairobi, Johannesburg and Abidjan alone. However, fund managers are increasingly finding opportunity to scale in under-served $800 second-tier cities. By expanding the geographical reach of their portfolio companies, GPs begin to correct the skewed distribution of 910 $600 health care delivery facilities across Sub-Saharan Africa and attract additional customers. Haltons, a retail pharmacy based in Kenya, $400 748 provides an excellent example of how private 687 equity can expand 630 access and generate value. In September 2013, when Fanisi Capital $200 invested US$1.5 million in the company, Haltons operated just four US$

US$ Millions

No. of Deals

Capital Invested

3

21

$5

Many of the trends driving health care opportunities across emerging markets are present in Sub-Saharan Africa—albeit to varying degrees or stages. For example, while Sub-Saharan Africa has experienced a rise in non-communicable “lifestyle” diseases, such as diabetes, heart disease and hypertension that should drive demand $30 10 for health care, spending has grown to a more limited extent than 8 in other $25emerging markets. The continent’s disease burden remains 8 7 maternal and perinatal dominated by communicable diseases, 6 $20 conditions and nutritional deficiencies, which represent 65% of 6 5 causes of death.18 Kenya, which5has received 35% of capital invested $15 and 21% of deals in the health care sector from 26 2011 through 1H 4 29 3 21 2016, $10 the highest percentages across Sub-Saharan Africa, provides a telling example. According to the WHO, HIV and AIDS cause up 2 to $5 8.0 and Malaria is not only responsible 29.3% of deaths in in the 6.7 country N/A for 30%$0of patient morbidity, but also the leading cause of death 0 for 2011 2012 2014 2015 2016 192013 children under five years old.

6

5

No. of Deals

US$ Millions

$20

Regional Profile: Sub-Saharan Africa, continued

8

7

131 $0

2014

Emerging Asia

CEE & CIS

Latin America

MENA

SSA

Exhibit 38: Sub-Saharan Africa Health Care Investment by Healthcare Expenditure per Capita Subsector, 2011-1H 2016

$1,000 100% $800

6% 21%

80% 36% % of Total

910

US$

$600

$400

748

630

687

$200

60%

Retail Pharmacy and Vision Medical Supplies

21%

Medical Equipment Biotechnology

40% 20%

Pharmaceuticals 50%

55%

No. of Deals

Capital Invested

Providers

131 $0

Emerging Asia

CEE & CIS

Latin America

MENA

SSA

0%

Healthcare Expenditure per Capita

Source: World Bank. Accessed September 2016.

19

100%

6%http://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/Documents/The-State-of-Healthcare-in-Africa.pdf.

“The State of Healthcare in Africa.” KPMG. 21% “Country Cooperation Strategy at a Glance: Kenya.” World Health Organization. http://www.who.int/countryfocus/cooperation_strategy/ccsbrief_ken_en.pdf.

80% 36% % of Total

18

Source: EMPEA. Data as of 30 June 2016.

60%

21%

Retail Pharmacy and Vision SPECIAL REPORT: Private Equity and Health Care in Emerging Markets Medical Supplies Medical Equipment

40%

Biotechnology Pharmaceuticals

31

Regional Profile: Sub-Saharan Africa, continued

retail outlets in Nairobi. The company has since grown its network of outlets to over 50 in 2015, and plans to expand its portfolio to more than 150 outlets in key towns in Kenya including Mombasa, Nakuru, Nyeri, Eldoret and Kisumu.20 Fund managers are also hopeful that new technologies, from basic applications of telemedicine to drone delivery of medical supplies, will further break down geographic divides in quality and quantity of health care provision in coming years. However, while these and other quality- and efficiency-improving technologies have the potential to reshape health care in coming years, most professionals concede that such technologies are still in early stages and broad adoption will take time.

While achieving scale and consolidation within and across markets can generate significant value in many health care companies, other mechanisms for value creation, in health care in particular, require technical expertise and specialized clinical knowledge, beyond the expertise of most private equity professionals. In EM regions with the most mature health care sectors, several health care-specific funds and fund managers fill this role, but in Sub-Saharan Africa’s shallower health care market, these managers are less common.

From 2006 through the first half of 2016, only two GPs raised specialist funds for the region. However, generalist fund managers seeking to gain exposure to the sector have bridged the knowledge gap by following the example of specialist funds and recruiting professionals with extensive experience in the health care sector and operational understanding of underlying assets.

For example, when impact investment fund manager Vital Capital backed development of Angola’s Luanda Medical Center (LMC) in 2014, they recruited Dr. Michael Averbukh, a medical professional and hospital administrator with previous experience working in the region, to lead the hospital. Dr. Averbukh has since scaled up the hospital’s services, and done so in a manner consistent with global standards of quality, but catered to local needs. Women’s health, gynecology and obstetrics had been severely lacking in the market, and became an early—and quickly successful—focus of LMC. “The approach differs tremendously from what I would have done had I been running the same medical center in the United States, Europe or Israel,” notes Dr. Averbukh. “This makes us unique and successful—bringing highly professional services, without any compromise in evidence-based medicine, together with the needs and the will and the perception of the local population.”

An intrinsic benefit of specialized knowledge is that it outlines a clear exit route for the fund manager. As GPs gear up for exits, being a market leader in a particular segment makes them attractive to large health care firms looking to extract synergies from acquisitions.

While there have been few PE exits in Sub-Saharan Africa, strategic sales are most prominent. Ascendis Health, a manufacturer and distributor of health care products, went on a spree of acquisitions after its listing in 2013 and serves as a compelling example. In 2015, Capitalworks and Brimstone sold the diagnostics business of The Scientific Group, a supplier of instrumentation and consumables for pathology laboratories, to Ascendis Health for ZAR284 million

Exhibit 39: Largest Disclosed Health Care Investments in Sub-Saharan Africa, 2008-1H 2016 Company Name

Country

Subsector

Investment Type

Investment Amount (US$m)

Vital Capital Investments

Luanda Medical Center

Angola

Providers

Growth

17

Sep-14

Seven Seas Capital

Healthcare-focused PPP

Kenya

Providers

Growth

16

Aug-09

Kiboko

Kenya

Pharmaceuticals

Growth

14

May-11

AAR

East Africa Regional Investment

Providers

Growth

10

Nov-10 Nov-13

Fund Manager(s)

AfricInvest African Health Systems Management The Abraaj Group

Nairobi Women’s Hospital

Kenya

Providers

Growth

7

Lagray Chemicals

Ghana

Pharmaceuticals

Venture Capital

6

Feb-09

Luanda Medical Center

Angola

Providers

Growth

5

May-15

AfricInvest, Jacana Partners Vital Capital Investments The Abraaj Group Metier

Therapia Health

Nigeria

Providers

Growth

5

Apr-12

Surgical Innovations

South Africa

Medical Equipment

Growth

5

Aug-08 Jan-11

AfricInvest The Abraaj Group Cauris Management Phoenix Capital Management

Alminko

Senegal

Providers

Growth

5

C&J Medicare

Ghana

Providers

Growth

5

Jul-11

Cipharm

Cote d’Ivoire

Pharmaceuticals

Growth

4

Apr-14

Ubipharm

Cote d’Ivoire

Retail Pharmacy and Vision

Growth

4

Dec-15

The Abraaj Group

Revital Healthcare

Kenya

Medical Supplies

Growth

3

Dec-11

The Abraaj Group

Nairobi Women’s Hospital

Kenya

Providers

Growth

3

Jan-10

Ascent

Medpharm Holdings Africa

Ethiopia

Providers

Growth

3

Feb-15

The Abraaj Group

Avenue Group

Kenya

Providers

Growth

3

Nov-11

Cauris Management

SOCOPHARM

Togo

Retail Pharmacy and Vision

Growth

2

May-09

The Abraaj Group Fanisi Capital

Clinique Biasa

Togo

Providers

Growth

2

Jul-12

Haltons Pharma

Kenya

Retail Pharmacy and Vision

Growth

2

Sep-13

Source: EMPEA. Data as of 30 June 2016.

20

Investment Date

“Haltons Pharmacy Signs SH2bn Expansion Deal with Vivo Energy.” Daily Nation. 9 October 2016. http://www.nation.co.ke/business/Haltons-Pharmacy-to-open-outlets-countrywide/996-2906302-sqiqq1/index.html.

32

EMPEA

Regional Profile: Sub-Saharan Africa, continued

(US$24 million). SG Diagnostics was the third medical devices business bought by Ascendis within the last 12 months, as the firm aimed to position itself as a leading provider of specialized medical products.

In addition to expertise, on the ground presence and deep knowledge of the markets they work in put fund managers in a favorable position. Such GPs can pinpoint specific needs of their consumers.

“One cannot simply fly into Lagos and build a business, you need deep expertise, partnerships and experience built over many years to succeed,” suggests Jonathan Louw, Managing Director of The Abraaj Group. In addition to catering to local consumers’ needs, as the LMC case exemplifies, Louw suggests that permanent local presence provides fund managers a clearer perspective on the risks associated with investing in emerging and frontier markets, and allows fund managers access to a pipeline of deals that others might not have access to.

Some challenges still persist for those with specialized local knowledge. Health care spending in Sub-Saharan Africa is predominantly out of pocket, which can make treatments or procedures financially disastrous or outright inaccessible to much of the region’s population. From a private equity point of view, Africa’s low health insurance coverage severely limits the ability to pay for health care—and therefore stunts the overall growth of the service delivery market. Solving this problem isn’t as easy as investing more in private insurance companies. You have to take

care of both the insurance and provision if one is to achieve scale.

As LeapFrog’s Felix Olale explains, “it’s a bit of a chicken and egg situation: Insurers can’t find networks of hospitals or clinics that are large enough and have in place the quality systems that could allow for efficient payments and network management. The challenge for the provider is in finding insurance packages that are well designed to meet the needs of the consumer for the health services offered.

The result is that today over 70% of healthcare payments are out of pocket.” LeapFrog is approaching this challenge from both sides—it invests in both health insurance and health service providers, with the plan to build integrated payer-provider systems in the region.

The payments side of health care may also be improving as governments prioritize health care access—even via strategies grounded in public sector delivery. Public investment plays a central role in the sector, and according to LeapFrog’s Olale, is growing in influence. “There is an encouraging trend toward universal health coverage in the region. Ghana and Rwanda, for example, have made significant progress. This additional coverage, if tailored well, feeds demand for private healthcare,” notes Olale. “You have a domino effect in that first, more people can now afford access to health services. So those who can afford a bit more or are looking for additional convenience will end up opting for a private facility.

This leads to an overall beneficial effect to the health system. The private sector also benefits.”

Exhibit 40: Notable Exits and IPOs in Sub-Saharan Africa, 2008-1H 2016 Country

Company Name

Fund Manager(s)

Subsector

Year(s) of Investment

Capital Invested (US$m)

Transaction Date

Uganda

International Medical Group (IMG)

Kibo Capital Partners

Providers

2012

N/A

Jul-15

Kibo exited a 40% stake via a strategic sale to a consortium led by Ciel Group

South Africa

The Scientific Group

Capitalworks Equity Partners

Medical Equipment

2011

N/A

Jan-15

Strategic sale by Capitalworks Equity Partners and Brimstone to Ascendis Health for reported ZAR284m (US$24m)

South Africa

Surgical Innovations

Metier

Medical Equipment

2008

4.88

Jan-14

Strategic sale to Ascendis Health

South Africa

Vitalaire

Medu Capital

Medical Supplies

2004

N/A

Feb-09

Exit of unknown type

Exit and Return Detail

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

33

Appendix Exhibit 41: Sampling of Health Care-specific Fund Managers Active in Emerging Asia Website

Fund Manager

Fund Name(s) (Final Close Year, Amount Raised)

Geographic Focus

Firm Type

Ally Bridge Group

Ally Bridge Group Capital Partners II (2015, US$186m)

China, United States, Europe

Growth

Asian Healthcare Fund II (Fundraising), Asian Healthcare Fund (2013, US$40m)

India

Venture Capital

asianhealthcarefund.com

BVCF IV (Fundraising), BVCF III (2014, US$188m), BVCF II (2008, US$90m), BVCF (2005, US$40m)

China

Venture Capital

bvcf.com

Asian Healthcare Fund BVCF

-

CCBI Healthcare Fund (2009, US$395m)

China

Growth

ccbintl.com.hk

Decheng Capital

Decheng Capital China Life Sciences Fund II (Fundraising), Decheng Capital China Life Sciences Fund I (2013, US$125m)

China

Venture Capital

decheng.com

HighLight Capital

HighLight Capital Fund II (Fundraising), HighLight Capital Fund (2014, US$300m)

China

Growth, Venture Capital

highlightcapital.com

IDG China Healthcare Fund (2016), IDG-Accel China Growth Fund III (2011, US$550m), IDG-Accel China Capital Fund II (2011, US$750m)

China

Growth, Venture Capital

idgvc.com

Tianjin Israel Life Science Fund (2010, US$15m), Shijiazhuang Infinity (2010, US$29m)

China

Growth, Venture Capital

infinity-equity.com

India Life Sciences Fund II (2014, US$146m), Evolvence India Life Sciences Fund (2008, US$84m)

India

Growth

invascent.com kailaiinvestments.com

CCB International (CCBI)

IDG Capital Partners (IDGVC) Infinity Group InvAscent Kailai Investments

Clarity Partners China II (US$234m), Clarity China Partners I (2007, US$220m)

China

Growth

Lightstone Ventures

Lightstone Singapore (2016, US$50m), Lightstone Ventures (2014, US$250m)

Singapore

Venture Capital

lightstonevc.com

Lilly Asia Ventures Fund III (2015, US$300m)

Asia, China

Venture Capital

lillyasiaventures.com

Lyfe Capital (USD) (2015, US$210m), Lyfe Capital (RMB) (2015, US$87m)

China

Venture Capital

lyfecapital.com

OrbiMed Asia Partners II (2014, US$325m), OrbiMed Asia Partners (2008, US$185m)

Asia, China, India

Growth, Venture Capital

orbimed.com

Qiming Venture Partners V (2016, US$648m), Qiming Venture Partners IV (2014, US$500m), Qiming Venture Partners Biomedical RMB Fund (2010, US$37m), Qiming Venture Partners II (2008, US$320m)

China

Venture Capital

qimingventures.com

HealthQuad (Fundraising), Quadria Capital Fund (2015, US$304m)

South Asia, Southeast Asia

Growth

quadriacapital.com

Lilly Asia Ventures Lyfe Capital OrbiMed Advisors Qiming Venture Partners

Quadria Capital Investment Management

Sabre Partners Fund IV (Fundraising, US$29m)

India

Growth

sabre-partners.com

Somerset Indus Healthcare Fund II (Fundraising), Somerset Indus Healthcare Fund I (US$25m)

India

Growth

somersetinduscap.com

Tata Capital Healthcare Fund I (2014, US$74m), Tata Capital Innovations Fund (2012, US$59m), Tata Capital Growth Fund I (2011, US$240m)

India

Growth

tatacapital.com

Abraaj Growth Markets Health Fund (Fundraising)

Pan-Emerging Markets

Buyout, Growth, Real Estate

abraaj.com

TriRiver Biomedical Industry Angel Investment Fund (2013, US$16m)

China

Venture Capital

tririvercapital.com

Sabre Partners Somerset Indus Capital Partners Tata Capital Private Equity The Abraaj Group TriRiver Capital

Source: EMPEA. Data as of 30 June 2016.

Exhibit 42: Sampling of Fund Managers Active in the Health Care Sector in CEE and CIS Website

Fund Name(s) (Final Close Year, Amount Raised)

Geographic Focus

Firm Type

ADM Capital CEECAT Recovery Fund (2010, US$371m), ADM Kazakhstan Capital Restructuring Fund (KCRF) (2010, US$100m), Kazakhstan Growth Fund (2008, US$80m)

Asia, CEE & CIS

Growth, Direct Lending, Mezzanine, Special Situations

admcap.com

Baltcap Management

BaltCap Private Equity Fund II (Fundraising), BaltCap Lithuania SME Fund (2010, US$27m), BaltCap Latvia Venture Capital Fund (2010, US$42m), BaltCap Private Equity Fund (2009, US$92m)

Central & Eastern Europe (CEE)

Growth, Venture Capital

baltcap.com

Baring Vostok Capital Partners

Baring Vostok Private Equity Fund V (2012,US$1.3B), Baring Vostok Private Equity Fund IV (2007, US$1.1B)

Commonwealth of Independent States (CIS), Russia

Buyout, Growth

Enterprise Investors

Polish Enterprise Fund VI (2006, US$834m), Enterprise Venture Fund I (2008, US$143m), Polish Enterprise Fund VII (2013, US$415m)

Central & Eastern Europe (CEE)

Buyout, Venture Capital

Horizon Capital

Emerging Europe Growth Fund II (2008, US$370m), Emerging Europe Growth Fund (2006, US$132m)

Belarus, Moldova, Ukraine

Buyout, Growth

Innova Capital

Fund Manager ADM Capital

Innova/5 (2009, US$484m), Innova/4, (2006, US$291m)

Central & Eastern Europe (CEE)

Buyout

Joint Polish Investment Fund Management (JPIF)

Joint Polish Investment Fund I (Fundraising)

Poland

Venture Capital

Mezzanine Capital Partners

Accession Mezzanine Capital III (2012, US$265m), Accession Mezzanine Capital II (2008, US$385m)

CEE & CIS

Growth, Mezzanine

Mid Europa Partners PineBridge Investments

jpifund.com mezzmanagement.com

Buyout

mideuropa.com

Global

Growth, Direct Lending, Hedge

pinebridge.com

Russia Partners III (2009, US$626m)

Commonwealth of Independent States (CIS), Russia

Growth

Abraaj Turkey Fund I (2016, US$486m), Anatolia Growth Capital Fund (AGCF) (2013, US$27m)

Pan-Emerging Markets

Buyout, Growth, Real Estate

abraaj.com

Turkish Private Equity Fund III (2012, US$840m), Turkish Private Equity Fund II (2007, US$431m)

Turkey

Buyout, Growth

turkven.com

UFG Private Equity Fund III (2014, US$204m), UFG Private Equity Fund II (2010, US$225m), UFG Private Equity Fund I (2006, US$280m)

Commonwealth of Independent States (CIS), Russia

Buyout, Growth, Special Situations, Hedge, Real Estate

ufgam.com

V4C Poland Plus Fund (Fundraising), V4C Eastern Europe II (2007, US$198m)

Central & Eastern Europe (CEE)

Buyout, Growth

Source: EMPEA. Data as of 30 June 2016.

EMPEA

innovacap.com

CEE & CIS

Turkven

34

horizoncapital.com.ua

Mid Europa Fund IV (2014, US$1.1B), Mid Europa Fund III (2007, US$2.1B)

The Abraaj Group

Value4Capital

ei.com.pl

PineBridge New Europe Partners III (Fundraising), PineBridge New Europe Partners II (2007, US$672m)

Russia Partners

UFG Asset Management

baring-vostok.com

russiapartners.com

value4capital.com

Appendix, continued Exhibit 43: Sampling of Fund Managers Active in the Health Care Sector in Latin America Fund Manager

Fund Name(s) (Final Close Year, Amount Raised)

Geographic Focus

Firm Type

Advent International

Latin American Private Equity Fund VI (2014, US$2.1B), Latin American Private Equity Fund V (2010, US$1.7B), Latin American Private Equity Fund IV (2007, US$1.3B), Latin American Private Equity Fund III (2005, US$375m)

Latin America

Buyout

adventinternational.com

Alta Growth Capital

Alta Growth Capital Mexico Fund II (2014, US$152m), Alta Growth Capital Mexico Fund (2009, US$75m)

Mexico

Growth

agcmexico.com

Aurus Ventures III (Fundraising), Aurus Bios (2010, US$32m), Aurus Tecnologia (2010, US$32m)

Chile

Venture Capital

BTG Pactual

BTG Pactual Brazil Investment Fund II (Fundraising), BTG Pactual Brazil Investment Fund I (2011, US$1.5B)

Brazil

Buyout

btgpactual.com

EMX Capital

EMX Capital Partners I (2011, US$126m), EMX Capital Partners I (USD) (2011, US$68m), Carlyle Mexico Partners (2007, US$134m)

Mexico

Buyout

emxcapital.com

Aurus

FIR Capital Partners

Website

aurus.com

Fundo Sul Inovacao (Fundraising), FUNDOTEC II (2007)

Brazil

Venture Capital

GIF V (2014, US$1.1B), GIF IV (2011, US$1.9B), GIF III (2008, US$1.2B)

Brazil

Growth

gaveainvest.com.br

GP Capital Partners V (2010, US$1.1B), GP Capital Partners IV (2007, US$1.3B), GP Capital Partners III (2006, US$250m),

Brazil

Buyout

gp.com.br

Linzor Capital Partners

Linzor Capital Partners III (2015, US$621m), Linzor Capital Partners II (2011, US$465m), Linzor Capital Partners I (2006, US$182m)

Latin America

Buyout

linzorcapital.com

LIV Capital

LIV Mexico Growth IV (Fundraising), LIV Mexico Growth IV CKD (2015, US$168m), LIVE Fund I (2014, US$7m), Latin Idea Mexico Venture Capital Fund III (2012, US$56m), Latin Idea Mexico Venture Capital Fund III (CKD) (2012, US$46m)

Mexico, Latin America

Growth, Venture Capital

Gavea Investimentos GP Investments

fircapital.com

livcapital.mx

Nexxus Capital

Nexxus Capital VI (2013, US$550m), Nexxus Capital IV & V (2011, US$315m), Nexxus Capital III (2008, US$146m)

Mexico

Growth

nexxuscapital.com

Southern Cross Group

Southern Cross Latin America Private Equity V (Fundraising), Southern Cross Latin America Private Equity IV (2010, US$1.7B), Southern Cross Latin America Private Equity III (2007, US$751m)

Latin America

Buyout

southerncrossgroup.com

The Abraaj Group

Abraaj Growth Markets Health Fund (Fundraising), Abraaj Latin America Fund II (Fundraising), Abraaj CKD (2015, US$191m), Aureos Latin America Fund (2009, US$182m), EMERGE Central America Growth Fund (2007, US$21m)

Central America, Latin America

Growth

abraaj.com

The Carlyle Group

Fundo Brasil de Internacionalizacao de Empresas II (2015, US$276m), Carlyle Peru Fund (2013, US$308m), Carlyle South America Buyout Fund (2011, US$776m), Fundo Brasil de Internacionalizacao de Empresas (2010)

Brazil, South America

Buyout

carlyle.com

TMG Co-Investment Fund III (2010), TMG Private Equity Fund II (2009, US$275m)

Brazil

Growth

tmg.com.br

Victoria South American Partners II (2012, US$850m), Victoria South American Partners I (2008, US$304m)

South America

Buyout

victoriacp.com

TMG Capital Victoria Capital Partners

Source: EMPEA. Data as of 30 June 2016.

Exhibit 44: Sampling of Fund Managers Active in the Health Care Sector in MENA Fund Manager

Fund Name(s) (Final Close Year, Amount Raised)

Geographic Focus

Firm Type

Maghreb Private Equity Fund III (2013, US$167m), PME Croissance (2012, US$50m), Maghreb Private Equity Fund II (2008, US$178m)

North Africa, Sub-Saharan Africa

Buyout, Growth, Venture Capital

Attijari Invest

3P Fund (2012, US$47m)

Morocco

Growth

attijariwafabank.com

BPE Partners

BPE Egypt Mid-Market Growth Fund (Fundraising), Beltone MidCap Fund (2010, US$39m)

Egypt

Growth

beltonepe.com

Capital Invest

Capital North Africa Venture Fund II (Fundraising)

Algeria, Morocco, Tunisia

Growth

capitalinvest.co.ma

Global Buyout Fund (2008, US$527m)

Asia, Middle East, Turkey

Buyout, Growth

globalinv.net

GC Credit Opportunities Fund II (Fundraising), GC Equity Partners Fund III (2014, US$750m), GC Credit Opportunities Fund I (2013, US$221m), GC Equity Partners Fund II (2010, US$533m)

MENA, Sub-Saharan Africa, Turkey

Buyout, Growth, Direct Lending, Mezzanine, Real Estate

gulfcapital.com

Mediterrania Capital II (2015, US$161m), Mediterrania Capital I (2010, US$83m)

Algeria, Egypt, Morocco, North Africa, Sub-Saharan Africa, Tunisia

Growth

mcapitalp.com

NBK Capital Partners Mezzanine Fund II (Fundraising), NBK Capital Equity Partners Fund II (2014, US$310m), NBK Capital Mezzanine Fund I (2009, US$157m), NBK Capital Equity Partners Fund I (2007, US$250m)

MENA, Turkey

Buyout, Growth, Mezzanine

Intaj Capital II (2012, US$89m)

MENA, Sub-Saharan Africa

Growth

The Abraaj Group

Abraaj North Africa Fund II (2015, US$375m)

Pan-Emerging Markets

Buyout, Growth, Real Estate

abraaj.com

The Carlyle Group

Carlyle MENA Partners (2009, US$285m)

Global

Buyout, Growth, Venture Capital, Direct Lending, Real Estate

carlyle.com

EuroMena III (Fundraising), EuroMena II (2009, US$90m)

MENA, Sub-Saharan Africa

Growth

TVM Healthcare MENA III (Fundraising), TVM Healthcare MENA II (2015, US$23m), TVM Healthcare MENA I (2012, US$50m)

India, MENA, Southeast Asia, Turkey

Buyout, Growth

AfricInvest

Global Capital Management (GIH) Gulf Capital

Mediterrania Capital Partners

NBK Capital Partners Swicorp

The EuroMena Funds TVM Capital Healthcare Partners

Website africinvest.com

nbkcpartners.com swicorp.com

capitaltrustltd.com tvm-capital.ae

Source: EMPEA. Data as of 30 June 2016.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

35

Appendix, continued Exhibit 45: Sampling of Fund Managers Active in the Health Care Sector in Sub-Saharan Africa Fund Manager African Health Systems Management AfricInvest Amethis Finance

Fund Name(s) (Final Close Year, Amount Raised)

Geographic Focus

Firm Type

Investment Fund for Health in Africa II (Fundraising), Investment Fund for Health in Africa

Sub-Saharan Africa

Growth

AfricInvest Fund III (Fundraising), AfricInvest Fund II (2010, US$207m)

North Africa, Sub-Saharan Africa

Growth, Venture Capital, Buyout

Website ifhafund.com africinvest.com

Amethis West Africa (Fundraising), Amethis Finance Fund (2014, US$530m)

Sub-Saharan Africa

Growth, Direct Lending

amethisfinance.com

Ascent Rift Valley Fund (2015, US$80m)

East Africa, Ethiopia, Kenya, Uganda

Growth, Venture Capital

ascent-africa.com

Capitalworks Private Equity Fund II (2013, US$268m), Capitalworks Private Equity Fund I (2009, US$200m)

South Africa

Growth

capitalworksip.com

Fonds Cauris Croissance II (FCC II) (2012, US$82m), Fonds Cauris Croissance (FCC) (2008, US$20m)

West Africa

Growth

caurismanagement.com

Development Partners International

African Development Partners II (2015, US$725m), African Development Partners I (2009, US$416m)

North Africa, Sub-Saharan Africa

Growth

dpi-llp.com

Emerging Capital Partners (ECP)

ECP Africa Fund IV (Fundraising), Central Africa Growth (2007, US$29m)

Sub-Saharan Africa

Growth

ecpinvestments.com

Fanisi Venture Capital Fund II (Fundraising), Fanisi Venture Capital Fund (US$40m)

East Africa

Venture Capital

I&P Africa Infrastructure (Fundraising), I&P Afrique Entrepreneurs Fund (2013, US$68m)

Cameroon, Madagascar, Mauritius, Cote dâ&#x20AC;&#x2122;Ivoire, Ghana, Senegal

Growth

InReturn East Africa Fund I (2012, US$28m), Fidelity Equity Fund II (2007, US$23m)

Sub-Saharan Africa

Growth, Venture Capital

The Kibo Fund II (Fundraising), The Kibo Fund I (2008, US$37m)

East Africa, Southern Africa

Growth

kibo-capital.com leapfroginvest.com

Ascent Capitalworks Equity Partners Cauris Management

Fanisi Capital Investisseurs & Partenaires (I&P) Jacana Partners Kibo Capital Partners Leapfrog Investments

Leapfrog Emerging Consumer Fund III (Fundraising)

Sub-Saharan Africa

Growth

Metier Capital Growth Fund II (Fundraising), Lereko Metier Capital Growth Fund (2007, US$496m)

Sub-Saharan Africa

Growth, Infrastructure

Synergy Private Equity Fund (SPEF) (2015, US$100m)

Sub-Saharan Africa, West Africa, Ghana, Nigeria

Growth

Abraaj Growth Markets Health Fund Africa (Fundraising), Abraaj Africa Fund III (2015, US$990m), Africa Health Fund (2011, US$105m)

Pan-Emerging Markets

Growth, Buyout, Real Estate

TRG Africa Fund (2006, US$100m)

Pan-Emerging Markets

Growth, Hedge, Buyout, Infrastructure, Real Estate, Special Situations

Venture Partners Botswana III Growth Fund (Fundraising), VPB Namibia Fund (2010, US$22m)

Southern Africa

Growth

Metier Synergy Capital Managers The Abraaj Group The Rohatyn Group

Venture Partners Botswana (VPB)

fanisi.com ietp.com jacanapartners.com

metier.co.za synergycapitalmanagers.com abraaj.com rohatyngroup.com

venture-p.com

Vital Capital Investments

Vital Capital Fund II (Fundraising), Vital Capital Fund I (2012, US$350m)

Sub-Saharan Africa

Growth, Buyout

vital-capital.com

XSML

African Rivers Fund (Fundraising), Central Africa SME Fund (CASF) (2013, US$19m)

Central Africa, Central African Republic, Congo, Democratic Republic of the Congo, Burundi, Uganda

Growth, Mezzanine

xsmlcapital.com

Source: EMPEA. Data as of 30 June 2016.

36

EMPEA

EMPEA Methodology This report provides an overview of trends in fundraising and investment among private equity fund managers active in the health care sector of the emerging markets of Africa, Asia, Europe, Latin America and the Middle East. The data and statistics presented here are drawn from EMPEA’s database of funds and transactions, FundLink, and are based on information obtained from press releases and trade publications, as well as from communications with industry participants and regional and country-focused venture capital associations. Fundraising, investment and exit amounts in EMPEA reports have been confirmed wherever possible directly by fund managers. EMPEA updates historical data on a quarterly basis as new data from fund managers and other sources is compiled in FundLink.

Any discrepancies between the aggregate statistics published by EMPEA and the constituent data on individual funds and transactions included in tables and raw data files can be attributed to confidential information that has been omitted from public reporting.

For the purposes of this report, EMPEA’s industry data includes activity from long-term, fixed-life, private, direct private equity investment funds, as well as select additional debt and mezzanine investments from PE-style private credit funds.

EMPEA data and statistics exclude activity from real estate funds, funds of funds, secondaries funds, traditional investment holding companies, corporate strategic investors, government-owned or managed entities and captive investment vehicles, as well as funds investing primarily in publicly-traded equity or debt securities.

Reported fundraising totals reflect only official closes (interim and/or final) as reported in primary and secondary sources or directly by fund managers. Capital commitments accruing prior to or between official closes are not included in reporting.

Investment data in this report includes activity by private fund managers in the following health care subsectors: providers (including hospitals, clinics and diagnostics labs), pharmaceuticals, biotechnology, medical equipment, medical supplies, health IT and retail pharmacy and vision. Investments are also classified by deal type: buyout, growth, venture capital, PIPE, mezzanine or debt.

Venture capital includes seed, early-stage and late-stage investments.

When determining how an investment should be classified, EMPEA takes into account the typical investment strategy of the fund manager(s) involved, the type of security acquired, the reported round number or type of transaction, the development stage of the company at the time of investment, the company’s business model and the type of product or service that the company provides.

Secondary investments (both traditional and direct) are excluded from reporting. In addition, wherever possible, bank (acquisition) financing and co-investment from excluded entities (mentioned in the first section of this note) are excluded from reported investment

values, both to ensure continuity across regions and to provide a more accurate picture of the scale and pace of capital deployment by the funds that are the primary focus of EMPEA’s research.

The statistics in this report are based on the “market” approach.

Fundraising activity is categorized based on the countries, sub-regions or regions in which fund managers intend to invest, while investment activity is categorized based on the country headquarters of investee companies. For companies registered in offshore financial centers or developed markets, but operating exclusively or predominately in emerging markets, investment activity is categorized based on the geographic footprint of the operations of investee companies. In the case of global or multi-regional funds, only those funds investing primarily in emerging markets are included in fundraising totals (e.g., pan-Asia funds with a significant portion of capital intended for investment in China and India). Country-dedicated fundraising data and statistics reflect only those funds with a single-country strategy or mandate. Target allocations to individual markets within a broader global or regional fund are not attributed to single-country fundraising totals.

Regions in this report are defined as:

• Emerging Asia: Asia Pacific, excluding Japan, Australia and New Zealand.

• Central and Eastern Europe (CEE) and Commonwealth of Independent States (CIS): European Union accession countries (2004), Southeastern Europe (excluding Greece) and Turkey, as well as Russia and other CIS countries.

• Latin America: Mexico, Central and South America and the Caribbean (excluding Puerto Rico and other overseas territories and departments).

• Middle East and North Africa (MENA): Gulf Cooperation Council (GCC), Afghanistan, Iran, Iraq, Jordan, Lebanon, Pakistan, Palestinian Territories, Syria and Yemen, as well as North Africa (Algeria, Egypt, Libya, Morocco, Sudan and Tunisia).

• Sub-Saharan Africa: Africa, excluding North Africa as defined above.

Additional Notes

Abbreviations commonly used in this report: EM – Emerging markets PE – Private equity VC – Venture capital GP – General partner (fund manager) LP – Limited partner (fund investor) In some exhibits, percentage labels may not sum to 100% due to rounding. In all tables in which it appears, “N/A” denotes a confidential or otherwise undisclosed value.

Disclaimer: This information is intended to provide an indication of industry activity based on best information available from public and proprietary sources. EMPEA has taken measures to validate the information presented herein but cannot guarantee the ultimate accuracy or completeness of the data provided. EMPEA is not responsible for any decision made or action taken based on information drawn from this report.

SPECIAL REPORT: Private Equity and Health Care in Emerging Markets

37

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016 A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

Major acquiring nations and attractive destin

US, China and the UK are top of the league in terms of the most prolific acquirers a

8% US

deals as acquiring nation

34% 37% as target deals as acquiring nation

destination

Deal values Global M&A fell by 22% in the first nine months of 2016 with 398 deals recorded. Major factors were a slowdown in tax inversion deals, elections in the US and Europe, and the effects of Brexit.

Deals completed over the past 12 months A 12% decrease on the previous 12-month figure

Shire/Baxalta

€28.8bn Pfizer/ Medivation

Teva/Allergan’s generic business

€12.6bn

€36.5bn

€171bn

Past 12 months represents data for Oct 2015 – Sep 2016 Previous 12 months represents data for Oct 2014 – Sep 2015

601

6%

as targe destinat

nations

and favourite target destinations over the past 12 months.

UK

et tion China

10%

deals as acquiring nation

11%

as target destination

Segment breakdown Top four segments that recorded the most M&A activity over the past 12 months Outsourcing services Generics

Financial investor deals

27%

29%

31%

25% 3%

Biotech Pharma

16% 15%

Within outsourcing, CRO was the most attractive sub-segment.

Driven by the growth of R&D spending, the rise in share of R&D spend that biopharma sponsors outsource and increasing complexity of clinical trials that requires niche specialisms.

4% 4%

12% 7%

10%

US

CEE

India and China

Scandinavia

France and Germany

UK

Iberia

RoW

There are several forces at play for M&A growth in the generics segment, outside of payers looking for low-cost medicines: Increasing competition is driving consolidation Economies of scale and access to a broad product portfolio is essential to manage margins The need to build niche and specialist generics portfolios to maintain margins Biopharma innovators are acquiring generic firms to diversify and have a balanced mix of low-cost and originator product portfolio matching the market

33% ofweredeals in

outsourcing

Contents GLOBAL MARKET

Welcome 6

Major deal drivers Highlights Top 10 global deals US

12

UK

14

IRELAND

17

IBERIA

18

FRANCE AND GERMANY

20

SCANDINAVIA

22

CEE

24

INDIA AND CHINA

25

RECENT CLEARWATER INTERNATIONAL DEALS

27

For the purposes of this report, we have quoted all figures in Euros using the following average exchange rates: Oct 2015 – Sep 2016 USD to EUR: 0.901 Oct 2014 – Sep 2015 USD to EUR: 0.873 Oct 2015 – Sep 2016 GBP to EUR: 1.287 Oct 2014 – Sep 2015 GBP to EUR: 1.348 Oct 2015 – Sep 2016 CNY to EUR: 0.138 Oct 2014 – Sep 2015 CNY to EUR: 0.140 Oct 2015 – Sep 2016 INR to EUR: 0.013 Oct 2014 – Sep 2015 INR to EUR: 0.014

This report is published by Clearwater International Editors: Ruth Farrington and Jim Pendrill Design: www.creative-bridge.com Subscription: ruth.farrington@cwicf.com No part of this publication may be reproduced or used in any form without prior permission of Clearwater International

4

The total deals inked by pharma & biotech companies in the first nine months of 2016 indicate a decline in deal volume by 22% compared to 2015. This, however, is not surprising given the state of markets and the withdrawal of many serial acquirers. The Brexit ripple effect across Europe, the slowdown in tax inversion practices, and elections in the US and Europe have slowed down the pace of M&A activity in 2016.

Only time will tell what impact the shock result of the US election will have amid fears that more protectionist trade policies may restrict access to the US pharma market.

Given that global M&A was again dominated by the US in 2016 this becomes even more significant. The US remains both the top acquirer and the most popular target for M&A activity in the pharma and biotech space.

For instance we have recently seen Quintiles Transnational's merger with IMS Health; Cambrex's acquisition of API manufacturer Pharmacore; and the sale of Actavis' generic assets and operations in the UK and Ireland to Accord Healthcare.

Meanwhile a recent trend has been the acquisition of biotech firms by pharma companies to strengthen their market share, and this has continued this year.

Shire spent €28.9bn on buying Baxalta and €5.9bn on Dyax Corp, while Pfizer recently completed its €12.6bn acquisition of Medivation. Other deals include AbbVie’s €5.5bn acquisition of Stemcentrx, and AstraZeneca’s €3.6bn purchase of Acerta Pharma and €2.4bn acquisition of ZS Pharma.

General M&A activity has remained strong in recent weeks. For instance, Elanco acquired Boehringer Ingelheim Vetmedica Inc, and AstraZeneca announced that MedImmune, its global biologics research and development arm, had entered into a licensing agreement with Allergan for the global rights to MEDI2070.

In this report we take an in-depth look at the performance of different markets globally, while also capturing the segments within the pharma & biotech sector that are likely to witness the strongest growth over the next few years.

We hope you enjoy the read. @CWICF /company/clearwater-international-corporate-finance

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

Meet the team Ramesh Jassal

International Head of Healthcare, UK +44 845 052 0374 ramesh.jassal@cwicf.com

Franc Kaiser Partner, China

+ 86 21 6341 0699 x 850 franc.kaiser@cwicf.com

Philippe Guezenec Partner, France

+33 1 53 89 0504 philippe.guezenec@cwicf.com

Markus Otto

Partner, Germany +49 611 360 39 24 markus.otto@cwicf.com

John Curtin

Partner, Ireland +353 1 517 58 42 john.curtin@cwicf.com

Rui Miranda

Partner, Portugal +351 918 766 799 rui.miranda@cwicf.com

Miguel Ángel Lorenzo Director, Spain

+34 659 094 041 miguelangel.lorenzo@cwicf.com

Louise Kamp Nørbæk Associate Director, Denmark

+45 40 17 86 90 louise.kamp.norbak@cwicf.com

Segment breakdown Outsourcing services Provides contract outsourcing services to others. Includes contract research organisation (CRO), contract manufacturing organisation (CMO), contract development and manufacturing organisation (CDMO), contract sales organisation (CSO), logistics and distribution, packaging and labelling, as well as other outsourcing services such as consulting, testing, auditing, medical communications, regulatory, compliance and safety.

Generics Includes manufacturers and distributors of drugs, finished dose formulations and active pharmaceutical ingredients (non-innovator). The drug is identical or bioequivalent to a branded drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use. These drugs are typically sold at discounts from the intellectual property (IP) protected branded drugs.

Biotech Firms engaged in research and development (R&D) and manufacturing of IP protected drugs, pharmaceutical or biological drugs using a biological basis, live organisms or derivatives such as bacteria or enzymes, also known as biopharmaceuticals.

Pharma Firms engaged in R&D and manufacturing of IP protected pharmaceuticals using a chemical basis and artificial materials.

OTC Includes manufacturers and distributors of over-the-counter (OTC) drugs. These drugs are safe and effective for use by the general public without a prescription and may be available in non-pharmacy outlets.

Most common OTC drugs are allergy medicines, pain relievers, weight loss products, vitamins, minerals and supplements, and nutraceutical products.

Animal health Offers IP and non IP protected pharmaceuticals, vaccines and nutritional products for animals including poultry, swine, beef and dairy cattle, and aquaculture.

Others Companies offering infusion products, compounding services, reagents, radiopharma agents and pharma IT solutions.

A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

5

Global market So far 2016 has recorded 398 deals in the pharma & biotech market, with the most activity taking place in the outsourcing services sector.

Global M&A witnessed a slowdown in 2016 after posting record numbers of deals in 2014 and 2015. In the first nine months of 2016, global M&A was down 22%, compared with 2015, with total deal value falling from €271bn to €138bn.

Stringent regulatory changes, a slowdown in tax inversion practices and other macro events and uncertainties - including the Brexit vote and US and European elections - have caused M&A activity to move at a steady pace.

However, after a slow start to the year deal volumes are expected to rebound in the latter part of 2016. The past 12 months have seen an at-par performance in terms of deal volume, but lower values than the preceding 12 months.

Oct 14 - Sep 15

Oct 15 - Sep 16

Deal count

684

601

Total value (€bn)

304

171

M&A acquirer by country Over the past year the US has been the most prolific acquirer and led the way with 34% of total closed transactions, compared to 32% in the preceding 12 months. China represented 10%, followed by the UK (8%).

In terms of acquisition targets, the US again led the way with 37% of total global M&A activity, followed by China (11%) and the UK (6%).

6

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

4%

4%

6% US 8%

Others

34%

China UK 10%

India Canada France

34%

Apart from the US, the UK and Ireland have emerged as attractive target destinations as companies, mainly based in the US, relocate their headquarters to countries with lower corporate taxes.

This practise, known as ‘tax inversion’, has been a major driver of cross-border transactions in recent years. However, the US government has now curbed the practice by passing legislation that limits the size of the foreign entity. One of the deal casualties was the collapse of Pfizer and Allergan’s €134bn merger in April 2016.

The patent cliff also led to a new wave of mega-mergers and consolidation in the pharma & biotech sector. In the last 12 months we have seen 24 deals above the €1bn transaction value mark.

Whilst mergers between pharmaceutical firms have been taking place for years, a more recent trend has been the emergence of pharma moving into the biotech sector to bolster its business model. Examples include:

M&A targets by country

4%

4%

5%

� S hire completed a €28.8bn (15x EBITDA)

merger with Baxalta, a leading global biotechnology company focused on serving patients with rare diseases and other highly specialised conditions. The combined company will generate around 65% of its annual revenues from rare disease products.

6%

US Others

37%

China 11%

UK India

� P fizer completed the acquisition

Canada

of Medivation, the listed US-based biopharmaceutical company focused on making therapies to treat serious diseases for which there are limited treatment options, for €12.6bn (30.7x EBITDA).

Germany

33%

� T he NYSE-listed Bristol-Myers Squibb

Company acquired Padlock Therapeutics, the US-based biotechnology company that creates new medicines to treat destructive autoimmune diseases, for €540m. The acquisition expands BristolMyers Squibb’s immunoscience pipeline with a potentially transformational approach to treating rheumatoid arthritis and other autoimmune diseases.

Top 10 largest transactions by deal size (Oct 2015 – Sep 2016) 36.5 28.8 12.6 6.5 5.9 5.5 4.7 3.6 3.2 2.8

Enterprise value (€bn) Note: *Financial investors includes private equity, family office, and other funds.

The top 10 deals accounted for around 65% of the total disclosed deal value in the last 12 months.

Most of these were trade deals, emphasising pharma companies’ need for strategic repositioning.

Interestingly only one deal involved a financial investor.

A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

7

Deals by investor type - trade vs. financial

Global financial investor deals Investor confidence remains strong with a wall of money to invest in companies with strong management teams. Despite lower M&A activity, deals involving financial investors have increased by 29% compared with the previous 12 months.

13%

Trade Financial investors

With 31% of total deals, the US remains the most favoured destination for financial investors, followed by India and China (12%), and France and Germany (10%). Outsourcing remains the most attractive segment for financial investors accounting for 33% of total deals in the last 12 months, followed by generics (26%) and pharma (14%).

80

Despite the slowdown in global M&A, both trade and financial investors are making acquisitions. Trade buyers remain by far the most active, representing 87% of the total transactions that took place in the last 12 months, compared with 91% in the 12 months before.

No. of financial investor deals

87%

80

70 60

62

50 40 30 20 10 0

Oct 14 - Sep 15

Oct 15 - Sep 16

Recent notable financial investor deals: � W uxi Pharmatech, the contract

research organisation (CRO), was acquired by a consortium of investors, from Shanghai Fosun Pharmaceutical Group, HOPU Investments and China Everbright Limited’s healthcare fund, for €2.8bn (21.6x EBITDA).

� T he €1.6bn acquisition of eResearch

Technology, the US-based provider of patient safety and efficacy endpoint data collection and related consulting

8

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

services, by Nordic Capital and Novo A/S was completed in May this year.

The acquisition enables eResearch to further enhance its business operations in both existing and adjacent market segments. � C VC Capital Partners acquired Italian

generic drug firm Doc Generici from UK private equity firm Charterhouse Capital Partners, for €650m.

Segment breakdown 4%

Outsourcing services and generics were the most active segments, accounting for 27% and 24% respectively of total deals in the last 12 months.

Within outsourcing, we noticed significant activity in contract manufacturing organisation/contract development and manufacturing organisation (CMO/CDMO) and CRO deals, which together accounted for around two thirds of transactions. Over the last few years the pharma outsourcing industry has really come of age and a series of strategic alliances with big pharma companies have established large CROs/CMOs. CROs have particularly expanded their offerings to better service pharma companies and support them beyond clinical trial. At the same time, CMO/CDMO consolidation is reviving the all-underone-roof manufacturing model supplying innovator and non-innovator services.

With unpredictable product pipelines, increasingly competitive markets, and uncertain policy and regulatory environments, there is a growing trend of outsourcing non-core activity related to regulations, compliance, safety, testing, and consulting to specialised firms.

The outsourcing services segment is likely to continue to grow as cost conscious pharma companies move out of non-core services like drug manufacturing, packaging and

3%

11% Outsourcing services

27%

Generics Biotech 15%

Pharma OTC Animal health Others 24% 16%

labelling, distribution, storage and healthcare communications, and concentrate on products and services that provide a better return on capital.

At the same time, the outsourcing marketplace is becoming increasingly competitive — mergers and partnerships enhance larger companies’ full-service capabilities and international reach. Smaller and medium sized players are focusing on niche services/sectors which allow clients to contract out these types of services.

Recent notable outsourcing deals include: � M ylan N.V. acquired Renaissance

Acquisition Holdings for €901m. The acquisition enabled Mylan to add around 25 branded and generic topical products. It also adds an integrated manufacturing and development platform and a leading CDMO to Mylan’s portfolio.

� A lbany Molecular Research (AMRI),

the US-based developer and supplier of API to the pharmaceutical industry, acquired Euticals SpA, the Italy-based contract manufacturer of API and other pharmaceutical products, for €323m (13.2x EBITDA).

� C harles River Laboratories acquired

WIL Research, the provider of safety assessment and CDMO services to biopharmaceutical, agricultural and industrial chemical companies worldwide, for €527m (12.9x EBITDA).

� P harmaceutical Product Development

(PPD) a leading global CRO providing comprehensive, integrated drug development, laboratory and lifecycle management services, completed the acquisition of Evidera, a provider of evidence-based solutions to demonstrate the realworld effectiveness and value of biopharmaceutical products.

A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

9

Biosimilar growth

Low-cost off patent medicines

Biosimilars – drugs designed to have properties similar to ones previously licensed - generated global revenues of just €76m in 2014. However it is estimated that by 20191, 50% of the biologics market will belong to off-patent drugs, creating a high market potential for biosimilars.

There has been continued patent expiry of blockbuster drugs. In April 2016, AstraZeneca lost its monopoly on cholesterol drug Crestor (rosuvastatin) as a generic was approved after much litigation. The following IP protected medicines are up for generic competition:

The top five biologics, targeted mostly by biosimilar developers, were Avastin, Enbrel, Herceptin, Humira and Rituxan, which together generate revenues of around €44bn annually.

� V iiV’s – Epzicom (abacavir and

In the EU, where biosimilars are already competing with biologics, they are sold at a 30% discount compared to branded biologic drugs. Despite the approval of 21 biosimilars in Europe, it is thought that physicians are still largely unaware of these similar versions of biologics.

� M erck's – Zetia (ezetimibe)

While the US is the largest biosimilar market globally, it has lagged behind Europe. The US finally saw the first launch of a biosimilar in 2015 and authorities have since approved four biosimilars. These unlock new opportunities for low-cost off patent medicine providers, but pose challenges for originators.

Company Brand

Launch Date

FDA Approved Biosimilars

AbbVie

Humira

March 2017*

Amgen (Amjevita)

Amgen

Enbrel

Feb 2017 Novartis (Erelzi)

J&J

Remicade

End of 2016

Amgen

Neupogen Sep 2015 Novartis (Zarxio)

� D aiichi Sankyo's – Benicar (olmesartan)

� A bbott's – Kaletra (lopinavir/ritonavir)

and Novir (ritonavir)

Against this backdrop - and with the expected patent expiration of 12 biologics by 2020 - the US biosimilar market is set to prosper.

1

PRNewswire.com

Revenue losses by big pharma with patent expiry in 2016 (€bn) 6.5

2.7 2.3

Pfizer (Inflectra)

*Subject to no infringement claims

10

lamivudine) and Trizivir (abacavir sulfate, lamivudine, and zidovudine)

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

1.8 0.9

ViiV Healthcare

Daiichi Sankyo

Merck

AstraZeneca

Abbott

Animal health The sector has recorded 25 deals globally with a total value of €2bn in the last 12 months, compared to 32 deals with a deal value of €8bn in the 12 months before.

The US was the most active market with 36% of total deals. However, there was a significant growth in deals in the Indian and Chinese markets which saw six deals compared to just two in the preceding 12 months.

At the same time, we saw a significant drop in M&A activity in animal health in France and Germany with just one transaction in the past year, compared to six in the preceding 12 months.

4%

� E li Lilly consolidated its market share

4%

8% US 8%

India and China

36%

RoW Iberia Scandinavia CEE

16%

Recent notable animal health deals include:

France and Germany

24%

However, the animal health sector is ripe for consolidation as big pharma groups, such as Bayer of Germany, Merck of the US and Sanofi of France, push for a greater share of the sector. Increased medication of pets in the developed world, and rising pet ownership in emerging markets, are just part of the sector’s appeal.

At the same time growing wealth in markets such as China will lead to more protein-rich diets. As such, agriculture in these countries is shifting from small holdings to industrial farming in which pharmaceuticals are used routinely to fend off disease and increase yields.

by acquiring Novartis Animal Health India for €11.7m, through its Elanco division. Elanco has more than 100 product development projects focused on the life extension of pets, disease prevention, and protection from parasites.

� G uangdong Dahuanong Animal

Health Products Co., the animal health products manufacturer of veterinary vaccines, drugs and feed additives, completed the €801m merger with WENS Group, a transregional livestock farming company.

� C eva Santé Animale, the French

pharmaceutical manufacturer of vaccines for pets, livestock, swine and poultry, acquired Polchem Hygiene Laboratories, the India-based biosecurity and biotechnology company offering innovative solutions for the poultry, livestock, food processing and healthcare industries.

� Z ydus Animal Health, the India-

based animal healthcare solutions provider, acquired the Indian manufacturing operations of Zoetis Inc., for €26m. The manufacturing operations at Haridwar include medicated feed additives, antiinfectives, parasiticides, and nutritionals for livestock.

A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

11

US market 2016 so far has recorded 152 deals with a combined value of around €114bn.

Major deal drivers Cheap debt financing has particularly pushed the pharma deal environment in the US. Corporate debt offerings have become the go-to option for pharmaceutical companies looking to fund deals. Some debt financed pharma and biotech deals include: Pfizer’s acquisition of Hospira; Actavis’ acquisition of Allergan; Teva’s acquisition of Allergan’s generic business; and Valeant’s acquisition of Salix Pharmaceuticals.

Apart from consolidation and mega mergers, pharma companies are also looking for therapeutics and smaller biotech companies through targeted acquisitions and partnerships designed to strengthen innovative drug portfolios. Pfizer's acquisition of Anacor and Bristol-Myers Squibb's acquisition of Padlock Therapeutics exemplify this trend.

Deals by investor type - trade vs. financial Trade buyers constituted the biggest share, representing 89% of total transactions in the last 12 months, a slight decline compared to 93% in the previous 12-month period. Despite lower M&A activity, investor confidence remains strong in the US market, and we recorded 25 deals compared with 17 deals in the previous 12 months.

25 25

No. of financial investor deals

We have seen 225 deals worth €127bn in the last 12 months, compared to 229 deals worth €222bn in the previous 12-month period. Continued low interest rates and the intention of big pharma to buy biotech and smaller firms to bolster their pipelines were the main reasons for deal activity.

20

15

17

10

5

0

Oct 14 - Sep 15

Oct 15 - Sep 16

Some notable financial investor deals include: � PaxVax, the US-based vaccine company

that develops and commercialises vaccine candidates against various infectious diseases, was acquired by Cerberus Capital Management for €95m.

� Sofinnova Partners, the France-based

venture capital firm, and Novo, the Denmark-based private equity firm, acquired stakes in RGenix, the US-based cancer therapeutics company focused on the discovery and development of novel cancer drugs, for €30m.

12

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

� Cinven, the UK private equity firm,

announced it is acquiring BioClinica from two other buyout firms, Water Street Healthcare Partners and JLL Partners, for €1.1bn. The sale underscores private equity’s appetite for CROs that have benefited in recent years from pharmaceutical companies' drive to cut costs, reduce clinical trial times and expand their research and development presence globally.

Segment breakdown Outsourcing services (27%) and biotech (23%) accounted for half of the deals completed in the last 12 months. Of the outsourcing deals, 44% were related to CRO, 18% to CMO/CDMO, and 28% deals were related to the sub-segment which includes companies providing other outsourcing services such as consulting, testing, auditing, certification, medical communications, regulatory, compliance, and safety.

Oncology is a particular growth segment.

Deals in the sector have gained prominence and the market is projected to more than double by 2022, with global revenues expected to increase from €75bn in 2015 to €168bn.

4%

4%

10% Outsourcing services

27%

Biotech Pharma

13%

OTC Generics Animal health Others 19%

23%

Recent deals include AbbVie’s acquisition of the US-based cancer drug biotech firm Stemcentrx for €5.5bn, and Jazz Pharmaceuticals’ €1.4bn acquisition of Celator Pharmaceuticals, the listed USbased oncology-focused biopharmaceutical company.

Notable transactions: � S hire plc acquired the rare disease

specialist Dyax Corp. for €5.9bn, securing Shire’s hereditary angioedema portfolio.

Its lead fast track, breakthrough therapy and orphan drug-designated Phase IIIready product, DX- 290, is considered to have blockbuster potential.

� P fizer acquired Anacor Pharmaceuticals,

the US-based developer of smallmolecule therapeutics, for €4.7bn.

Anacor’s drugs will complement Pfizer’s line-up of inflammation and immunology products.

� B ristol-Myers Squibb acquired Cardioxyl

Pharmaceuticals, the US-based biotechnology company focused on the discovery and development of novel therapeutic agents for the treatment of cardiovascular diseases, for €1.9bn.

� A straZeneca acquired ZS Pharma Inc.

for €2.4bn to bolster its cardiovascular and metabolic disease portfolio through accessing ZS-9, a possible best-in-class speciality treatment for hyperkalaemia.

� G ermany's Boehringer Ingelheim Corp.

completed the sale of Roxane Labs, the US speciality generics company, to UK-based Hikma Pharmaceuticals for €1.6bn. Hikma becomes the sixth largest player in the US generics market by value and the third largest supplier of generic injectables by volume.

� P rivate investment company Ardian,

in collaboration with GHO Capital and the management team, acquired the US-based outsourcer and life-sciences scientific communications company Envision Pharma.

A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

13

UK market 2016 has seen a strong start with 20 deals so far.

Europe is the second largest pharma & biotech market, led by the UK, France and Germany. In terms of acquisition targets, the UK has seen 34 deals in the last 12 months – a decrease of 24% compared to the previous 12 months. As an acquirer nation the UK remained quite active, sealing 49 deals compared to 48 in the preceding 12-month period.

In the wake of Brexit, dealmaking in the industry has slowed down a little, but it is too early to make any firm conclusions. Much of the M&A is happening within specialised companies that have good domestic reach and international upside, and this is evident from companies which are currently exploring possible sales options.

These include: Martindale Pharma, the drug-maker which provides medicines used in emergency rooms and which recently bought Viridian Pharma, another UKbased firm, to expand its product portfolio; drug-maker Morningside Pharmaceuticals, which makes generic medicines for the NHS and international markets; and Ziarco Pharma, the biotechnology company whose investors include Pfizer’s venture capital arm. GW Pharmaceuticals is also rumoured to be considering bids.

Deals by investor type - trade vs. financial

Trade buyers constituted the majority of deals, accounting for 94% of the total transactions in the last 12 months compared to 91% in the previous 12 months.

In comparison, financial investor interest seemed to dwindle with only two deals in the last 12 months compared to four in the previous 12-month period. Quotient Clinical, the UK-based pharmaceutical drug development service provider, was acquired

by GHO Capital Partners from Bridgepoint Development Capital, for €212m. And Synova Capital exited from its investment in Kinapse to private equity firm HgCapital for €13m, realising a return of 16.1x.

Segment breakdown

3% 15%

Outsourcing services

38%

Pharma 18%

Generics Biotech OTC

4

No. of financial investor deals

4 26%

3

2 2

1

0

14

Oct 14 - Sep 15

Oct 15 - Sep 16

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

The outsourcing services and pharma segments have accounted for 64% of closed deals in the last 12 months. Within outsourcing, we noticed significant activity in CRO (69%) and CMO/CDMO (15%), together accounting for 84% of total outsourcing deals.

Notable transactions: � V ectura merged with Skyepharma in

a €568m (11.6x EBITDA) deal that will create an industry-leading specialist in inhalation devices for people with respiratory diseases such as asthma.

Their respective product portfolios and areas of expertise - including dry powder inhalers, pressurised metered dose inhalers and nebulisers for asthma patients and other airways-related illnesses - are complementary.

� A karna Therapeutics, the

biopharmaceutical company, was acquired by Allergan, for €45m.

Allergan obtains rights to AKN-083, Akarna’s lead product candidate for the potential treatment of non-alcoholic steatohepatitis (NASH) and other liver diseases.

� P harmaceutical Product Development

(PPD), the US-based CRO, together with Jaguar Holding Company Luxembourg S.a.r.l., acquired Synexus, a clinical research company with expertise in patient recruitment, for €229m (16.2x EBITDA). Earlier this year Synexus acquired US-based Research Across America, expanding its reach to over 79 million potential patients.

� M erck & Co., the listed US-based

company, acquired IOmet Pharma, the UK-based developer of novel small molecules for the treatment of cancer, for €360m.

� N ovartis Pharma acquired all the

remaining rights of biological therapeutic Ofatumumab from GlaxoSmithKline for €931m.

� G enzyme, the Sanofi company,

acquired the rare cancer therapy Caprelsa from AstraZeneca for €270m, in a deal designed to bolster the Genzyme endocrinology portfolio.

Caprelsa is an oral kinase inhibitor for symptomatic or progressive medullary thyroid carcinoma in patients.

� S inclair IS Pharma sold its non-

aesthetics business to Alliance Pharma for €170m (14.7x EBITDA).

The transaction includes wound and skin care products and other hospital products.

� N ASDAQ-listed Concordia Healthcare

acquired Amdipharm Mercury for €3.2bn. The acquisition enables Concordia to become a leading international speciality pharmaceutical company with commercial reach in over 100 countries.

� C linigen Group, the specialty

pharmaceutical company, acquired Link Healthcare, a specialist pharmaceutical and medical technology business, for €129m (23.8x EBITDA).

Brexit The Brexit vote in June 2016 has led to considerable uncertainty in the sector.

A loss of regulatory harmonisation across Europe and new tariff charges, for instance, could increase production costs and delay the entry of new drugs into the UK market.

These changes can potentially threaten drug makers' margins and could push major global players to prioritise investment operations elsewhere. However, it is too early to make any firm conclusions as to the true impact until formal negotiations over Brexit begin.

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“The UK has a strong pedigree in contract outsourcing, generics, R&D and manufacturing complex innovator and non-innovator pharma and biopharmaceuticals, and the market is an attractive and strong source of M&A activity in the mid-market. Combined with the scarcity level of these types of assets, the UK will continue to be a very contested market…it is a good time to sell.”

Ramesh Jassal, Head of Healthcare, Clearwater International, UK

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GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

Irish market Ireland is a leading pharmaceutical and biotechnology location with nine of the 10 largest pharmaceutical companies in the world having a significant presence in the country, including Allergan, Novartis and Perrigo.

Pharmaceutical products make up half of total Irish goods exports by value and the country is the eighth largest producer and fifth largest exporter of pharmaceutical products globally, and the largest net exporter of pharmaceutical products in Europe.

Ireland has developed a reputation as an attractive hub for pharma and biotech companies due to the friendly foreign direct investment structures, a highly educated workforce, and a competitive tax regime.

The country also has a strong network of indigenous pharma and biotech companies that have been developed through its strong clinical and academic research ecosystem.

Therapeutics Inc., the US-based clinical-stage biotechnology company developing therapies for dermatology and medical aesthetics.

There were six deals in which Irish companies were the target, compared to seven deals in the preceding 12 months.

Notable transactions: � B axter Healthcare, the UK company

that develops, manufactures, and markets products for the treatment of hemophilia, immune disorders, infectious diseases, and other chronic conditions, acquired Fannin Compounding, the manufacturer of compounded medicines, from Fannin, a DCC plc company.

� F astnet Equity, which last year

announced a switch of focus from oil exploration to pharmaceuticals, acquired orphan drug development firm Amryt Pharmaceuticals, for €38m.

M&A activity In recent years the high value of transactions in the market has been particularly driven by tax inversions with international pharmaceutical companies taking advantage of attractive corporate tax rates to acquire Irish domiciled companies.

� N YSE-listed Spark Therapeutics

acquired Genable Technologies, the bio-pharmaceutical company that develops gene therapies for the treatment of genetic diseases.

Genable was spun out of Trinity College Dublin and had been partnering with Spark to develop gene therapies to treat inherited diseases.

However, over the past 12 months we have seen just 15 deals by Irish companies, a decrease of 42% compared to the preceding 12 months. Total deal value fell from €81.6bn to just €10.3bn.

Despite the slowdown in M&A activity, Irish big pharma companies like Allergan and Shire continue to strengthen their market share through biotech and pipeline deals. For instance, Allergan acquired Kythera Biopharmaceuticals, the US-based biopharmaceutical aesthetic product research company for €1.9bn, and also

� 4 D Pharma plc acquired Tucana

Health, the biotech company that investigates the use of microbiome signatures to aid the diagnosis and treatment of diseases, for €14m.

“Ireland has a fundamentally strong position as a hub for global biotechnology and pharmaceutical companies. The majority of large international manufacturers have invested heavily in facilities and a thriving indigenous sector has developed. While we will see more mega deals into the future, the rationale for future M&A will need to be based on sound commercial logic and not be solely driven through potential tax efficiencies.”

John Curtin, Partner, Clearwater International, Ireland

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Iberian market There were 15 deals in the pharma & biotech sector in the last 12 months with 80% of acquisition targets located in Spain and 20% in Portugal.

The Iberian pharma & biotech sector is on a consolidation spree. Out of the 15 deals recorded in the Iberia region, seven featured acquirers also located within the region.

Outsourcing services gained particular traction, accounting for seven of the total closed transactions in the last 12 months. Of these, five were related to CMO/CDMO and CRO. We also saw a significant fall in generics transactions, falling from eight to three.

Spain During 2015 the Spanish internal pharma market grew significantly due mainly to a rise in public spending boosted by the introduction of new therapies to treat Hepatitis C. Sales in pharmacies have also increased leading to a total increase in

pharma sales of 10.6%, compared with 2014, with total revenues reaching €15.6bn.

The increase has not been even across all segments. Sales of branded medicines have remained constant while average prices have suffered a small decrease. However, generics sales have increased by 3.6% with a price rise of 2.4%. Imports grew at a rate of 15.4%, while export levels increased by 7.9% to €11.1bn.

This increase in price is a consequence of the growing demand for prevention products, as well as strong marketing campaigns carried out by large consumer health corporations. The development of new product portfolios, mainly in the food supplements segment, has also driven up prices.

Notable transactions: � A pax Partners, the UK-based private

equity firm, acquired Invent Farma, a developer and manufacturer of Active Pharmaceutical Ingredients (APIs) and pharmaceuticals specialities, for €221m (8.8x EBITDA). The deal shows PE interest in the European generics and contract outsourcing market.

� E uromed, the producer of herbal

extracts and natural active substances for pharmaceutical, health food and cosmetics, was acquired by The Riverside Company, the US PE firm, from Meda AB, the Sweden-based

pharmaceutical company, for €82m (5.0x EBITDA). � A n undisclosed investment vehicle

acquired a 69.6% stake in Laboratorios Farmaceuticos ROVI SA, the pharma outsourcer, for €492m.

� P roA Capital de Inversiones, the Spain-

based PE firm, acquired a majority stake in Suanfarma SA, the biopharmaceutical developer, for €25m. It also acquired Avizorex Pharma SL, the dry eye syndrome therapy research services provider, for an estimated €25m.

“Interestingly, we recorded six financial investor deals, compared to just one in the preceding 12 months, indicating high investor confidence in Iberia’s pharma & biotech market.”

Miguel Ángel Lorenzo, Director, Clearwater International, Spain

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GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

Portugal Pharma sales totalled €2.8bn in 2014 with generics accounting for 22%1 of total sales. The recession and debt crisis has led to substantial growth in the generics market over the last few years, particularly in terms of volume. Indeed, the development of generic drugs has been the cornerstone of a series of government austerity measures to reduce healthcare spending.

1

European Federation of Pharmaceutical Industries and Associations: The Pharmaceutical Industry in Figures

Notable transactions: � L usosuan, the manufacturer of

antibiotics and pharmaceutical ingredients, acquired an 85.4% stake in CIPAN, the manufacturer of pharmaceutical preparations.

� M edifarma S.A., the Peru-based

developer and manufacturer of pharmaceutical products and drugs, acquired Portuguese outsourcer and manufacturer of finished dosage forms Laboratorios Atral from Atral Cipan SGPS.

“For the last decade the market has been adjusting to changes on pricing and reimbursement applied by the government, and the need for consolidation has created M&A opportunities for international pharmaceutical groups already present in the market. The adjustments will continue to have an effect on the industry and M&A opportunities will arise, especially in the mid-market.”

Afonso Lima, Associate, Clearwater International, Portugal

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French and German markets 2016 has seen 32 deals in the pharma & biotech sector with 14 acquisition targets located in France and 18 in Germany.

Total deal count has declined by 27% with 41 deals in the last 12 months, compared to 56 over the previous year. With 22 (54%) cross-border deals, US and UK-based companies were the most active acquirers.

There were eight deals by financial investors, an increase of 33% compared to the preceding 12 month period.

Until a few years ago most of the drug R&D and production was carried out by the largest French pharma companies, but this trend is now shifting. For instance, in 2015 French biotech companies had more products in development in their pipeline than the four largest pharma players combined—Sanofi, Ipsen, Servier and Pierre Fabre.

France

Over the past 10 years the French biotech R&D market has emerged as the leading European market, exemplified by the number of companies listed on the Euronext market. From just a handful in 2006 with a combined market cap below €500m, the market now has more than 50 life sciences companies listed with a combined market cap of more than €10bn.

France is the second largest European market and one of the world’s largest consumers of pharmaceutical products.

The market is expected to grow by 0.7% CAGR, from €40bn in 2014 to €42bn by 20201, mostly due to an increasing focus on generic drugs. The market will also be boosted by the ageing population, tax incentives, a skilled workforce, and high public healthcare expenditure.

In terms of M&A, France has recorded 18 deals worth €1.6bn in the last 12 months, compared to 27 deals worth €1.4bn in the preceding 12-month period.

Notable transactions: � E thypharm, the pharmaceutical

company that specialises in pain and addiction treatment, was acquired by PAI Partners, for €750m (12.5x EBITDA).

� N ASDAQ-listed Avalanche

� R ecipharm AB, the listed Sweden-

� O nxeo S.A. acquired DNA Therapeutics

� P orsolt SAS, the preclinical in-vivo

Biotechnologies acquired Annapurna Therapeutics, the gene therapy company focused on discovering and developing new therapeutic products, for €98m. and its signal-interfering DNA (siDNA) repair technology and lead product candidate AsiDNA, for €28m. The acquisition shows Onxeo’s commitment

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to developing novel orphan oncology drugs which position the company at the forefront of scientific research for rare cancers.

GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

based CDMO, acquired Kaysersberg Pharmaceuticals, the owner and operator of pharmaceutical manufacturing facilities, from Alcon, for €18m. efficacy and safety CRO, acquired Fluofarma, a company focused on the provision of cell-based assays and in-vitro screening services.

Germany Notable transactions:

Germany has the largest pharmaceutical industry output in Europe with sales of approximately €50.4bn (+5.3% YOY growth). The revenues are largely exportdriven with around 66% of sales generated abroad. The market is characterised by a strong R&D competency and a large number of clinical trials.

� 7 Life, a subsidiary of ProSiebenSat.1

Media, the German media company, acquired a 92% stake in Windstar Medical, the provider of private label and branded pharmaceuticals, for €80m (10.0x EBITDA).

� A pax Partners, the UK PE firm,

Generic drugs account for 81% of value and 36% of the volume of the pharma market, while branded products hold the remainder.

In the distribution channel pharmacy prescribed medicine accounts for 87% of sales with OTC medicine the remainder.

There has been significant M&A activity in generics with five deals in the last 12 months compared to just two in the preceding 12-month period. This year has also seen a number of smaller sized transactions. For instance, Irish pharmaceutical company Amryt Pharmaceuticals acquired Birken AG, the pharmaceutical products manufacturer, and Sompharmaceuticals SA, the Switzerland-based anti-tumour medicines and diagnostic preparations developer, for €38m.

acquired neuraxpharm Arzneimittel, the manufacturer of generic medicines for treating disorders of the central nervous system.

� C harles River Laboratories acquired

Oncotest GmbH, the contract oncology research services provider, for €36m (11.0x EBITDA).

Market outlook The local market is expected to grow at a slower rate due to pricing restrictions.

However, the cumulative sales of German companies might experience higher growth rates due to strong exposure to foreign markets.

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PharmaVoice.com

“We see M&A potential particularly in the mid-market segment as research-oriented German companies are seen as targets for international pharmaceutical companies.”

Markus Otto, Partner, Clearwater International, Germany

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Scandinavian market So far in 2016 there have been 13 deals in the region – predominantly in Sweden.

There have been 18 deals in Scandinavia in the last 12 months with the majority of the acquisition targets located in Sweden (67%), followed by Denmark (22%) and Norway (11%).

The OTC segment registered six deals in the last 12 months, compared to just three in the previous 12-month period due to increasing adoption rates of OTC drugs.

Sweden The Swedish life science industry consists of 1,5001 companies within pharma, biotech and medtech. Of these, around 800 are engaged in R&D programmes in the country.

Generics have held a low revenue share of around 15% over the last few years due to their low prices, but the prices of branded products with high-volume sales fell between 80% and 95% over the same time period following patent expiries.

This depicts the level of price competition between generics manufacturers. This will somewhat restrict the market’s growth and lead to a stagnation in terms of innovation

at pharmaceutical and biotechnology companies which are now unable to post handsome profits. However, this trend works well for Sweden as it needs to cut its healthcare costs.

In the last 12 months we recorded 12 deals, the same as in the previous 12-month period.

There was significant growth in the biotech and OTC segments.

Norway A particular growth market is aquatic health products serving aquaculture which has been rising at 7–8% annually and is worth around €450m. This growth rate is faster than the overall livestock segment, which is growing at 6% CAGR, and the animal segment, which is growing at 5% CAGR. NYSE-listed Zoetis Inc. acquired PHARMAQ Holding, the Norway-based leading aquatic health group, for €689m (33x EBITDA).

Acquiring PHARMAQ strengthens Zoetis’ core livestock business, giving the company a market-leading presence in this fast growing segment.

Notable transactions: � M ylan acquired Meda AB, the Sweden-

based generic and OTC drugs manufacturer and wholesaler, for €6.5bn (13.3x EBITDA). The deal opens up a number of new opportunities for Mylan, such as significantly expanding its OTC presence and accelerating its expansion into markets such as China, Southeast Asia, Russia and the Middle East. The deal makes the combined company a leader in the global respiratory and allergy market.

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GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

� C ormorant Pharmaceuticals,

the Sweden-based developer of therapeutics including the HuMaxIL8 antibody programme for the treatment of cancer and rare diseases, was acquired by Bristol-Myers Squibb, for €468m. The acquisition broadens Bristol-Myers Squibb’s oncology pipeline focus in tumour microenvironment and combination therapy.

Denmark Due to strong historical roots, the Danish pharmaceutical and biotechnology industry is one of the world’s leaders. Major industry players include Novo Nordisk, Lundbeck, Leo Pharma, AlkAbelló, GenMab, and Bavarian Nordic. In 2015 the country saw exports of medicinal products reach 13.5% of total Danish exports – making it the country’s largest export industry. Paired with more than €1.5bn in R&D investments, the pharmaceutical industry is also the country’s largest private research area, in one of the most R&D intensive countries in the world.

Medicon Valley is home to the Danish life science industry and one of Europe’s top three clusters for biotech innovation alongside Cambridge in the UK and Basel in Switzerland. The Danish biotechnology cluster is a particularly dominant world player within enzymes, accounting for more than 70% of total production. Denmark is now home to more than 160 dedicated biotech companies and more than 300 biotech service providers.

In the last 12 months we have recorded four transactions, two of them by financial investors.

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SwedenBIO: The Swedish Drug Development Pipeline 2015

Notable transactions: � L EO Pharma, the Danish

pharmaceutical company focused on developing and manufacturing dermatology and parenteral treatments of thromboembolism, acquired the global dermatology business of Japan-based Astellas Pharma, for €675m.

� U S-based Savara Pharmaceuticals

acquired Serendex Pharmaceuticals, the developer of drugs to treat respiratory diseases through inhalation.

� A n investor group comprising of

Lundbeckfonden and Novo A/S, acquired a 43% stake in IO Biotech ApS, the manufacturer of biological products, for €10.7m.

“Healthcare and biotechnology M&A activity is likely to continue as several of the large national players have expressed their interest in acquisitions.

Also, inbound M&A activity will continue as global players acquire new programmes to their pipelines from innovative Danish biotech companies.”

Louise Kamp Nørbæk, Associate Director, Clearwater International, Denmark

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CEE market Poland, Romania, Hungary and the Czech Republic are the most promising CEE markets based on market size and potential revenue.

They are host to a number of developed companies like Zentiva (Sanofi), Gedeon Richter, Polpharma, Egis and other subsidiaries of larger multinational corporations.

Poland is the largest pharma market in the CEE region valued at €8bn–10bn, while other CEE countries continue to witness growth in the sector as a result of improving macroeconomic environments.

Romania is likely to be the region’s fastestgrowing economy with a predicted 4.5% growth rate, followed by Poland and Slovakia with 3.2%. Croatia, Estonia, Hungary and Slovenia are expected to witness 2.0% growth rates.

The region also serves as a contract manufacturing and research hub. There are currently some 1,618 clinical trials in phases I-III within this region. The leading CRO locations are Poland with 682; Czech Republic with 505; and Hungary with 431 ongoing trials.

M&A activity There was a slight decrease in deal volumes over the past 12 months with 14 deals compared to 17 deals in the previous 12 months. Outsourcing was the largest segment accounting for half the deals, compared to 24% in the previous 12 months.

Acquisition targets were primarily from Poland (seven), followed by the Czech Republic (four) and Slovenia, Estonia and Croatia with one each.

The OTC market is growing dynamically, consistent with a global trend for OTC sales to grow faster in developing markets as disposable incomes increase. Due to the socioeconomic impetus, pharmaceutical companies operating in these countries have turned their focus to the OTC market segment in a strategic way. This is, to an extent, a response to the genericisation of many top-selling molecules, leading to considerable price cuts and a challenging regulatory environment.

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GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

Notable transactions: � V alosun, the Czech Republic-

based probiotics manufacturer, was acquired by Walmark, a major consumer healthcare player in the CEE region with a leading position in dietary supplements. The acquisition extends its presence in digestive health and strengthens its position in female urinary health.

� P elion acquired a stake in Poland-

based Pharmena, the dermocosmetics manufacturer. Pharmena sells skin and hair care products under the Dermena, Allerco, and other brands. It is also involved in the production and sale of dietary supplements.

� I n an outsourcing deal Kantar

Health, the US-based leading global healthcare consulting and market research firm, acquired CEEOR, the research and consulting firm that operates across Europe. The firm specialises in delivering realtime competitive intelligence data, analytical solutions, and advisory and implementation services to the pharmaceutical, biotechnology and healthcare industries.

� M arifarm, proizvodnja in storitve

d.o.o., the Slovenia-based pharmaceuticals producer, was acquired by Arterium, the Ukrainebased company that manufactures, markets, sells and distributes original and generic pharmaceutical products, antibacterial drugs, and herbal-based and veterinary medications, for €7m.

� P oland-based Maspex Wadowice

Group, a producer and seller of food products and beverages, acquired Sequoia Sp. z o.o., the Poland-based vitamin and generic drug maker.

Indian and Chinese markets 2016 so far has recorded 49 deals with a combined value of €2.1bn.

India and China together saw 89 deals in the last 12 months compared with 99 in the previous 12-month period. China accounted for 66 deals worth €10.9bn, while India recorded the remaining 23 deals worth €1.2bn. Domestic players were clearly on an acquisition spree as 91% of the targets were acquired by companies located within the two countries.

India The pharmaceuticals market is the third largest in volume and thirteenth largest in terms of value. The market is expected to grow at a CAGR of 15%, from €26bn in 20151 to €48bn by 2020.

With a 70% market share (in terms of revenue), generic drugs form the largest segment of the market, followed by OTC and patented drugs. India is also the largest manufacturer of generic drugs globally, with generics accounting for 20% of global exports in terms of volume.

Notable transactions: � S trides Arcolab acquired Shasun

Pharmaceuticals, the manufacturer of APIs, intermediates and formulations for €243m (11.7x EBITDA). This creates a vertically integrated pharma company with presence in regulated markets’ finished dosages, emerging markets’ branded generics, institutional businesses, APIs, and outsourcing services.

� T ake Solutions, the life sciences

By 2020, India is likely to be among the top three pharmaceutical markets by incremental growth and sixth largest market globally in absolute size. Production costs are significantly lower than in the US and many countries in Europe which gives India a competitive advantage.

The biotech industry, comprising of about 800 companies, was valued at €4.4bn in 2015. It holds around 2% share of the global market.

Driven by growing demand, intensive R&D activities and strong government initiatives, the growth in the biotech sector is likely to continue. It is expected to grow from €6bn in 2015 to €10bn by 2017 – a CAGR of 29%. The bio pharmaceutical segment accounted for the largest share of the biotech industry, with 62% of total revenue in 2015, followed by contract outsourcing (18%) and bio-agri (14%).

Acunova from the US-based private equity fund, OrbiMed in order to boost its life sciences technology business.

Take Solutions will gain technological expertise and key clients in the field of research in biosimilars, stem cell therapy and in developing diagnostic imaging devices. � S wedish CDMO Recipharm AB acquired

a 74% stake in Nitin Lifesciences, the sterile injectables CMO, for €93m (12.4x EBITDA).

technology provider, acquired Manipal

“The domestic market continues to see healthy growth of 12-15% and is expected to maintain these growth rates in the near term. Large players are re-evaluating their growth strategies, with some companies refocusing on the domestic market or acquiring companies and products in the export market.”

Prashant Jain, Director, o3 Capital, India

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China China is the world's largest producer of pharma ingredients and the world’s second largest pharma market. The market size is expected to account for €142bn worldwide in 20162.

Population growth and increasing medical needs make it the world’s largest producer and exporter of pharmaceutical ingredients.

Covering 40% of the global API production, the pharma market presents huge growth opportunities.

With the government’s increasing investment in healthcare and R&D, China presents great opportunities for innovative products and technologies, and collaboration between international and domestic pharmaceutical companies.

Low prices with good quality and bulk production are the main advantages for China being a global leader in API production. At present, a majority of Chinese manufacturers are looking into deepening ties with European and Indian markets by investing in APIs, generics,

biologics, biosimilars, finished formulation and packaging.

Interestingly China has seen some mid-sized local companies formulating aggressive overseas expansion plans. These cashrich companies, some fuelled by recent IPOs, are starting to invest into product development and registration overseas as well as acquiring European or American players, and will further elevate the Chinese outbound investment trend.

In addition, to alleviate weak local portfolios, local pharma companies are in-licensing a high volume of international assets. At the same time, many international pharma players, including generics makers, are looking to support growth in the Chinese market by buying local companies. Rather than expanding local portfolios, their objectives are the addition of local production capacity, regulatory expertise and market access.

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IBEF: Indian Pharmaceutical Industry

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CPhI.com

Notable transactions: � S haanxi Bicon Pharmaceutical

Group Holding, the pharmaceuticals manufacturing holding company, was acquired by Jiangsu Jiujiujiu Technology, the developer and distributor of pharmaceutical intermediates and nitrogen fertilizer, for €1.4bn.

� G uizhou Chitianhua acquired the

entire share capital of Guizhou Salvage Pharmaceutical, the manufacturer and wholesaler of pharmaceutical preparations, for €317m.

� L ianYunGang HuangHai Machinery

acquired Changchun Changsheng Biotechnology, the biological vaccines manufacturer, from Wuhu Zhuorui Innovation Investment Management Centre, for €978m.

� C hina Resources Sanjiu Medical &

Pharmaceutical acquired the entire share capital of Kunming Shenghuo Pharmaceutical, the manufacturer and wholesaler of pharmaceutical preparations, for €255m.

“The Chinese pharma market continues to consolidate both horizontally and vertically, driven by a domestic market that is growing at a moderate pace of 6–7% year on year.”

Franc Kaiser, Partner, InterChina Partners, China

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GLOBAL PHARMACEUTICAL AND BIOTECHNOLOGY REPORT 2016

Sunlight Pharma

Merz Pharma

Peckforton

Chinese manufacturer of pharmaceuticals

Pharmaceutical company

Fast-growing manufacturer, distributor and seller of prescription and OTC products

Clearwater International advised Group Uriach on its investment

Clearwater International advised Merz Pharma on the sale of Merz Dental to SHOFU

Clearwater International advised the shareholders of Peckforton on the sale to Abbey Pharma

Farmalider

Neolab

Recruitment and CSO services to pharmaceutical and healthcare clients

Spanish pharmaceutical group involved in the development and production of generic drugs

Undertakes registration and marketing of generic pharmaceuticals

Clearwater International advised Chase on its recapitalisation, with investment provided by Vespa Capital

Clearwater International advised the shareholders of Farmalider on the sale

Clearwater International advised Neolab on its sale to DCC plc

Lausitzer Analytik GmbH

Nutramino

BAC BV

Leading laboratory service provider

Leading sports nutrition products business

Manufacturer of protein purification products used in discovery and development

Clearwater International advised palero capital on the sale of Lausitzer Analytik Gmbh to SYNLAB

Clearwater International advised the company on its cross-border sale to Glanbia

Clearwater International advised Unilever on the sale to Life Technologies Corporation

Chase Search and Selection

A CLEARWATER INTERNATIONAL HEALTHCARE REPORT

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