HONG KONG – Orbimed said it raised around $551 million in its third Asia-focused private equity fund, Orbimed Asia Partners III (OAP3), nearly doubling the $325 million raised for the previous fund in September 2014.

Orbimed's first Asian fund was launched in 2008 and was worth $188 million.

The U.S.-based venture capital firm said it would "focus on growth-stage product and services-oriented companies in China and India," which was the case with its predecessor funds.

The fund will benefit anywhere from 15 to 20 "entrepreneurs, institutions and companies seeking to shape the future of Asia's health care markets" with promising developments. Orbimed projects an investment range from $10 million to $75 million per company but will work together to co-invest with its global team for investments requiring more resources.

"China and India will represent 90 percent or more of our targeted investment, given their large economies, high growth rates, and surging demand for health care from the growing middle classes in both countries," Carter Neild, general partner at Orbimed, told BioWorld Asia.

"We expect about one-third of the fund to be invested in biopharma, with the remainder spread across medical devices, diagnostics, health care IT and health care services," he added. "We are open to making investments across a wide range of companies, including more innovative companies. But high innovation content is not a prerequisite for us to potentially invest."

Orbimed has set aside part of the new fund for innovation, particularly for drugs.

"We plan to invest between to 10 to 20 percent of OAP3 in innovation, mostly in the realm of drug development," said Jonathan Wang, co-founder and senior managing director at the Shanghai office.

Wang cited better drug candidates for large unmet medical needs and cross-border opportunities as attractive factors.

Orbimed has a $14 billion investment platform globally and now has more than $2 billion invested in Asian health care companies. The firm operates from two offices in the region, one in Shanghai since 2007 and another in Mumbai that opened the following year.

"With over one-third of the world's population, China and India are rapidly growing markets with health care demand greatly exceeding supply. With different strengths, the two countries are complementary and present different investment opportunities," Wang told BioWorld Asia. "China is growing to be the second largest health care market in the world and is rapidly becoming an innovation center. India has been a worldwide leader in generics and manufacturing capabilities; it has presented a robust deal flow in health care services sector as well."

Previous gambles by Orbimed in China include partaking in a $100 million series B and $30 million series C funding for Zai Lab Ltd., a Chinese innovative drug developer that recently launched a $115 million U.S. IPO.

In May, Orbimed also led a $19 million series B financing round for Inventisbio Inc., which has four drug candidates in the therapeutic areas of oncology and gout treatment. Three are expected to enter phase I trials in the U.S. and China this year.

Orbimed's Indian ventures include a $20 million investment in the Asian Institute of Medical Sciences, a hospital in North India. It also invested $40 million in Suraksha Diagnostics Pvt. Ltd., a Kolkata-based diagnostic chain specializing in pathology and radiology services.

'Compelling opportunities'

Health care remains a viable and attractive option for venture investors in China. The size of the Chinese pharmaceutical sector reached ¥1.4 trillion (US$210 billion) in 2016, up 7.3 percent in a year-over-year comparison.

According to data from investment banking firm CEC Capital Group, the Chinese health care tech and medical equipment sector had an annual compound growth rate of 20.7 percent, almost seven times faster than the global average of approximately 3 percent.

"The government's health care initiatives, as reflected in China's 13th Five-Year Plan (2016-2020) to integrate rural and urban health insurance schemes, will boost demand for medicines over the long term," said Sakshi Sikka, a pharmaceuticals and health care analyst at BMI Research.

But despite the demand for innovative pharmaceuticals in the country, she cautioned that "the need to increase the cost-efficiency of its health care system will exacerbate the challenging pricing environment."

That could translate to pricing pressures that will limit patented drug sales in China. The same is already happening in Orbimed's other investment target – India – where the government has been rolling out price caps in the industry on a piecemeal basis.

"While there is an increased prevalence of chronic diseases in India, the focus on cost-efficiency within the health care sector will limit the market's growth potential," Sikka said.

Sunny Sharma, a senior managing director who leads Orbimed's team in India, said he remains optimistic about the market.

"With India still spending less than 5 percent of its GDP on health care and boasting the fastest growth rate of all major economies, we see compelling opportunities for investments across health care services, pharmaceuticals and diagnostics," he said.

Orbimed is not the only investing firm with an eye on those two markets.

Eight Roads Ventures, the investment arm of Fidelity International Ltd., has just launched a $250 million China health care fund. The firm will concentrate on four investment areas, namely therapeutics, health care services, digital health and med tech. It seems to be counting on a boom in Chinese drug innovation, as 40 percent of the capital has been allocated for therapeutics.

Just last month, Lilly Asia Ventures, a health care venture capital firm backed by global pharmaceutical giant Eli Lilly and Co., announced a $450 million cap on its fourth health care fund.

Though Orbimed has said China and India "have health care market growth rates far superior to most developed countries," the venture capital firm did not rule out investing in other countries in the region.

"We will opportunistically invest up to 10 percent of OAP3 in regions outside of China and India," said Wang.

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