Over the past few years, Asian lifescience sector has witnessed rapid growth and development making it a hot-bed for investors. Asian healthcare sector is roughly growing at a rate of 15 percent per annum which is faster than the US and Europe.

The continent represents nearly 40 percent of the world's population and 50 percent of the world's disease burden, thus offering opportunities for lifescience companies and investors to cash-in on the potential of these emerging markets.

Rising income levels, an ageing population, increasing prevalence and awareness of lifestyle diseases have led to a strong demand for health-care services, garnering the attention of lifescience companies and venture capitalists. Mr Abrar Mir, managing partner, Quadria Capital, said, "Asia has a very large qualified scientific talent, geography of much lower costs in comparison to the US, and high quality technology, making Asia a great destination for lifescience investments."

Long a hub of innovation, Japan has always led the way for biotechnology development and investments in Asia. China, South Korea and India with their huge population and healthcare challenges are emerging as biotech clusters and are successful in attracting the attention of venture capitalists.

New entrepreneurship communities have also emerged in Malaysia and Indonesia. The implementation of Universal Health Coverage in Indonesia has spurred the demand for quality healthcare services in the country, thus attracting investments from companies and investors alike. Australia, too, is an emerging market for health opportunities and is considered as a global leader for e-health. It is one of the very few countries that has integrated e-health into its health systems. Taiwan has exhibited very strong medical devices R&D capability that attracts investment opportunities. E-health is considered as one of the highlights by government in Taiwan and it has set funding to attract foreign medical devices & e-health companies to set up in Taiwan.

"Currently, in a bid to cut costs and improve health standards, the Chinese government is encouraging domestic lifescience companies over foreign MNCs, observed, Dr Zhi Yang, founding partner, BVCF, a lifescience venture capitalist firm focused on China investments. "With the Chinese economy developing many Chinese are returning from foreign countries and setting up operations in the country. Government is putting a lot of money to attract people back to China and set up companies. This has fueled healthcare investments and has created a big opportunity for venture capital industry in the country."

Singapore, due to its strategic location, top-notch infrastructure and political stability is considered the gate way to Asian markets. Particularly known for its medical device and diagnostic industry, Singapore has positioned itself as the biotech hub for Southeast Asia. Mr Mir noted, "Though it is a small economy, Singapore has been successful in creating a very good biotech cluster by bringing together the key elements- scientific talent, finance, and government support. This has helped the country build a successful biotech hub that attracts investments. Singapore runs established government linked firms like BioOne capital that invests in biotech entities."

Low-risk sectors attract investments
Immuno-oncology, cancer metabolism, gene therapy, orphan diseases, autoimmune disorders - there are a broad range of disease settings that are capturing the excitement and imagination of investors today. Despite recent trends that suggest mobile health, nanotechnology and personalized medicine to be the future of healthcare, it is the pharmaceutical sector that attracts nearly 70 percent of the capital funding in Asia. Historically, most of the venture capitalists investments in this sector tend to go in late stage drug development companies and generics and funds are mostly concentrated on low-risk growth capital opportunities. "Investors generally prefer investing in late stage Asian pharmaceutical companies that are developing drugs for non-communicable diseases like oncology, diabetes and cardiac diseases. Late stage drug development business is less risky and returns, though lesser, are more or less guaranteed," observed, Dr Yang.

Vaccines, molecular diagnostics and biosimilars are other burgeoning sectors in lifesciences that are attracting huge amounts of investments. A report by MarketsandMarkets estimates APAC to be the fastest growing market for biosimilars, accounting for nearly 29 percent of the global biosimilars market. Venture Capitalists in countries like Singapore and South Korea have invested significantly in manufacturing capacity in the biosimilars space. India, Taiwan and China are displaying a strong potential to emerge as prominent players and many companies from these countries have already launched their products in the market. Government initiatives in these countries is also fuelling investments into biosimilars.

"Biosimilars is a space where Asia can dominate," mentioned, Mr Mir. "Both India and China have made big investments in biosimilars. Currently, there are about 80 biosimilars in development and most of them are from Asia. Patent cliff has fueled the development of biosimilars and many Asian companies are displaying a strong potential to emerge as prominent players in this sector."

As reported by total biopharma, it is estimated that biological patents worth $67 billion is due to expire by 2020. With many blockbuster drugs losing protection, Asian pharma companies have now gravitated towards specialty drugs, orphan drugs, and the biologics market. Asian countries have realized the potential of orphan drugs and have enacted special legislations to encourage their discovery and development. This has attracted many drugmakers and investors to venture into orphan business.

Asia needs to innovate
Recently the World Health Organization made an alarming revelation-over the past 30 years global drug makers have developed no new major antibiotic types. The last one developed was carbapenem in the 1980s. Though this can be partly attributed to the complexity of the drug discovery process, it is also due to unavailability of adequate financial assistance to commercialize a lab innovation. It is no secret that both investors and major drug companies are reluctant to invest in early stage drug development or discovery of new molecular entities. The development of a new drug requires a major investment of capital, human resources, and technological expertise. It takes a huge time and lot of money to successfully commercialize a lab innovation and due to the high risks involved, many venture capitalists do not invest in new drug discovery.

Mr Bobba Venkatadri, general partner, Venture East, commented, "There is a pressure for short term profits by the industry which prevents needed R&D funding for biotech. Dalal Street does not respect long term investments. Any company investing in R&D at the expense of near term earnings hit, get penalized."
Also, navigating novel products or technologies through the existing regulatory pathways is challenging, as with new scientific advancements, regulations also continue to evolve. In light of the increasing uncertainty of the regulatory process and possible increases in regulatory requirements throughout the development process, investors shy away from investing in a product before there is clear evidence of its safety and effectiveness. "There is no harmonization of regulations for a variety of products across Asia, said, Dr Yang, "This hinders cross selling of the product across countries. A significant amount of money is invested in obtaining regulatory clearances across different countries and this in turn increases the cost of innovation."

Early stage companies are an important engine for medical innovation and economic growth across Asia. While the lifescience sector has shown astounding growth in terms of scientific talent and government support to foster the biotechnology industry, funding for high risk models that support innovation have continued to be a challenge. In countries like the US and Europe most of early stage drug development is funded by the government, however, Asian countries do not have such backup mechanism and are still reliant on venture capitalists to support early stage R&D.
Dr Yang said, "From development to launch it takes nearly ten years to develop a new drug, involving nearly $1-$2 billion dollar. This calls for significant amount of investment and time risk. Asia has the scientific talent and capability to innovate but at this stage, I don't think the Asian venture capital industry is in a capacity to create that necessary financing infrastructure to capture the opportunity."

Mr Mir underscored, "Given the cost involved and also considering that nearly nine out of ten biotech compounds do not succeed it is inherently a highly risky business. Global pharma industry have not quite worked out what is their right mechanism for funding for the biotech industry. For example, huge amount of capital that global majors like Pfizer, GSK and Merck put into in biotech does not bear financial fruit given the risks involved."

A Frost & Sullivan analysis predicted that the generic market in Asia is expected to grow at a compound annual growth rate of 17-18 percent between 2014 and 2018. Drug manufacturers in the region are looking beyond the patent cliff to focus on market expansion and improving the quality of existing drugs. As a consequence in Asia where the generic opportunity is so apparent, investments are focused on generics. For Asia to innovate and grow it is necessary to build a sustainable cluster by bringing together the key elements- finance, government support and scientific talent. Mr Mir noted, "For the pharmaceutical industry to grow, Asia needs to innovate and for this the region has knowledge, technology, and government support. We only lack funding compared to the US and Europe."

"Asian investments in innovation will increase when the venture capital industry sees the proof," said Dr Yang, "In future we hope to some successes that will come through with some very clear Asian (Singaporean, Chinese, Indian) innovations being discovered and commercialized. When innovations come out of Asia, get approved I really think that will be a huge catalyst to fuel further investments into the sector. Many novel products have been developed in India and China and many are in late stage development; few have been commercialized. Once these products are approved and commercialized it will drive more investments into the sector."

Opportunities and Challenges in VC Funding
Analysts estimate that the rollout of public health care programs combined with growing consumer wealth are anticipated to boost health care spending in Asia by an average of 8.1 percent in 2014-2018. The increase in healthcare spending and the implementation of universal healthcare coverage by many countries has driven the demand for new medicines, new technologies, medical devices and hospitals making Asia an attractive destination for healthcare investments.
Indeed, large pharmaceutical companies such as GlaxoSmithKline (GSK), Pfizer, Novartis, Merck and Sanofi have been investing significantly in the APAC region in recent times. Within the past five years, this region has witnessed various deals involving drug makers, including Sanofi's acquisition of India-based Shantha Biotechnics, GSK's purchase of a stake in South Korea-based Dong-A Socio Holdings, and Novartis' purchase of a stake in China-based Zhejiang Tianyuan Bio-Pharmaceutical. Therefore, it is not surprising that venture capital firms have also caught on to this trend, increasing their focus on the region in the hope that future returns will justify their investments and opportunity costs.

However, the venture capital industry in Asia has not grown phenomenally to support the growth in scientific knowledge and to capitalize on this opportunity. Biotech industry in Asia is very nascent in comparison to the US and Europe and venture investments into the Asian lifescience sector are still emerging. Around $8bn is actively managed in Asia into healthcare investments, while in the US and Europe hundreds of billions of dollars is used to manage healthcare business. Mr Mir observed, "For building a sustainable biotech hub, it is important to build a biotech cluster that involves scientific talent, government support, entrepreneurial spirit and proper funding channels. Asian countries have been successful in bringing together scientific expertise and government support but they lack appropriate funding assistance. The biotech industry in Asia in terms of talent and research has developed faster than VC industry and hence we need more capital to support this growth."

Venture Capitalists opine that by 2020 total healthcare spend in Asia would increase up to $3 trillion, bigger than US and Europe and offering a huge opportunity for both investors and lifescience companies. Mr Mir concluded, "This growth will benefit both pharmaceutical and the service industry including hospital, equipment, medical devices but this trend is diff from biotech investment trend. Asia will emerge as a leader in pharmaceutical space (generic and specialty) and in particular if we get funding opportunity right we have the talent to emerge as an innovative leader too."