PE, VC investments in healthcare dip

Private equity investment into the country's healthcare and life sciences sector dropped by 75 per cent and 40 per cent, respectively. 

Investment by PEs into HLS sector dropped to $203 million in 2008-09 from $836 million in 2007-08, while the number of deals dropped 51 per cent to 21 from 43 deals.

Similarly, VC investments also declined to $48 million from $80 million. In terms of deals, they dropped to 11 from 14.

Meanwhile, Chennai-based research firm Venture Intelligence, which compiled the figures, stated that it would be a temporary phenomena and the investors were certainly bullish about the Indian HLS companies. He noted over $2 billion (around Rs 10,000 crore) was invested in HLS companies in India over the past five years.

The research firm had released a study titled "Private Equity Pulse on Healthcare & Life Sciences" in which it stated that investors would focus on segments such as diagnostic services, medical devices, hospital chains and wellness products.

The research firm had surveyed more than 60 PE and VC firms.

"Given the fragmented nature of both the hospital and pharmaceutical sectors, investors also see potential for tapping into consolidation opportunities, in partnership with growth-oriented entrepreneurs," said Arun Natarajan, chief executive officer, Venture Intelligence.

"Comparing the data of any industry to FY08 will show only a decline," he added.

On a quarter-on-quarter basis, HLS has probably shown the strongest signs of recovery. During the first quarter of 2009, the industry saw only two deals worth $22 million (around Rs 110 crore) fructifying, whereas in Q2, it was six deals worth $129 million (around Rs 645 crore).

In comparison, IT & ITES saw 14 deals worth $100 million (around Rs 500 crore) in Q1, while in the second quarter 12 deals worth $67 million (around Rs 335 crore).

The report features articles by leading PE/VC investors (like Baring Private Equity India, India Value Fund and IDG Ventures India) as well as advisory firms (like The Parthenon Group, Ernst & Young, KPMG and PwC).

Despite the overall optimism, the report indicates that PE/VC firms have a set of specific concerns, including long gestation period, scalability and talent shortage are among the top concerns in the healthcare sector.