Novo Holdings Going Big In Asia, CEO Talks Investment Plans
$65bn In Assets Under Management
Executive Summary
Innovation has come of age in Asia, throwing up investment opportunities in China, Singapore and other Southeast Asian countries that Novo Holdings plans to tap, says CEO Kasim Kutay. The firm's Asia head, Amit Kakar, also outlines therapeutic areas of interest for the company, which is managing $65bn worth of assets.
Novo Holdings A/S, the majority shareholder of Novo Nordisk A/S, is all set to venture out on its own in Asia as an increased focus on innovation and research, as well as the region’s growth and demographics, present compelling investment opportunities.
With an initial focus on China, Singapore and other Southeast Asian countries, the company, which had already tested the waters through an earlier Chinese partnership, will now study prospects across the life sciences spectrum, from biotech innovators to healthcare providers.
CEO Kasim Kutay outlined the region’s promise in an interview with Scrip, while emphasizing that it’s still early days, as Asia head Amit Kakar, a qualified physician and experienced hand at investing, is just settling down in the new role.
Helming operations from Singapore, Kakar will build a team to help cherry pick opportunities for three life sciences investment vehicles: Principal Investments, which makes sizable investments in well-established companies; Novo Growth, which provides expansion capital to high-growth companies; and Novo Ventures, which invests in venture stage biotech and medical technology companies.
Diverse Interests
Investing $1-2bn annually, with the flexibility to acquire stakes in companies from early- to late-stage through these funds, Novo Holdings has its fingers in diverse pies, ranging from oncology and cell and gene therapy to drug discovery automation and biopesticides.
Just this August, Novo Holdings invested in US venture Mission Bio, Inc., which has developed the first single-cell multi-omics (biological analysis) platform with applications in blood cancers, solid tumors and genome editing validation.
Other existing interests include Oxford BioMedica plc, a leading UK gene and cell therapy group focused on life-changing treatments for serious diseases, NodThera Limited, another UK venture creating a next-generation pipeline of small molecules optimized for potency and tissue penetration and Exscientia Ltd., another Oxford, UK pharmatech company helping automate drug discovery.
The adage “Rome wasn’t built in a day” at the heart of its investing style, Novo Holdings manages $65bn worth of funds for the Novo Nordisk Foundation and has generated 17% returns over a 10-year period from 2010 to 2019. It’s now looking to replicate the success in Asia, with eyes set on the high-growth therapeutic areas of oncology and immunology as well as anti-infectives.
Novo Holdings is well established in the west, what encouraged an expansion to Asia?
In 2016, we laid out a very clear and ambitious strategy that we will be a life sciences focused investor and we will continuously strive to build and enhance our presence as a life science investor. So, while we recognize that we are a leader in the field based on the significant amount of dollars we invest every year across all stages and are among the top three global biotech venture investors, we must get to the next level. We really needed to get into white space where we could leverage our extensive healthcare expertise network where we were probably not playing when I joined. One of them was growth equity - Novo Growth did not exist and it was set up in 2017. The other one was digital health and healthcare IT (information technology) - that was an area where Novo Ventures did not play. We are glad we went into that because if you look at COVID-19, that’s really accelerated the trend into digital. One of the investments we made 18 months ago was MD Live, which is the second largest online physician network in the US. As you can imagine with people home-bound, online consultations have gone up. The third and obvious white space was Asia as all of our investment was Europe and US-focused. I must give credit to our board and to a gentleman called Jean-Luc Butel (An advisory group member) who took it forward because our hands were full with so many investments that I said I’m going to leave that for a few more years. In 2018, Butel really pushed us forward saying Asia is really coming of age in terms of an investment ecosystem. In China, venture capital is booming and in Singapore and Southeast Asia healthcare and IT is booming, so you need to go now. So, in 2019, I made a trip with him to the region and we made a commitment. Then it was a question of where to locate the office - it was down to between Singapore and Hong Kong and we made the decision. Then we began the long process of finding the ideal person to lead our office and we were fortunate to find Amit. He’s just started. We are looking to deploy capital across all the life science groups and to build the team out.
Why was Singapore chosen as the base for operations – were any incentives offered by the government?
Singapore’s location, transport hub status and extensive financial and legal services capabilities were among the key ecosystem reasons why we chose Singapore. No incentives were offered.
Do you have any prior investments in Asia?
Yes and no. We made strategic limited partnership investments in other firms in areas where perhaps Novo is new – for example before we made the first digital health investment, we invested in a digital health fund in the US. We used that for nearly a year to really get up to speed on the sector and we’ve done the same in Asia and made an investment in a fund called Vivo nearly 12 months ago as a prelude. The fund is primarily growth and equity focused, with a primary focus on China. We have put in a pretty substantial amount in that fund. Also, we have two legs – life science and non-life science. We made a very substantial investment in a new fund called Convergence by Harsha Raghavan at Fairfax and we’re really happy with that. By far, we are the largest investor in that fund, and they’ve deployed the capital pretty quickly, otherwise COVID-19 would have affected the market. So, in India we’re extremely busy on the non-life side for now but hope over time we may do some investments in life science in India. It’s not a core focus but we cannot have China, SE Asia and India at the same time. So, we decided we would start in Singapore, focus on Southeast Asia and China and then go from there and build a circle to India and hopefully, Japan.
Since you’re talking about China, how do you think President Trump’s “Make in America” and increasing drug nationalism across the world will impact the pharma sector there and particularly the API (active pharmaceutical ingredient) segment?
We’re acutely aware of the trends, of the on-shoring of supply chains, in US in particular and some of the geopolitical and geostrategic issues but as a really long-term investor we really focus on is the long-term secular trends. Of course, we need to navigate those issues but at the end of the day area is so vast that there are always opportunities because innovation for long term medical needs is a humanitarian desire. Look at the level of biotech innovation in certain parts of Asia. Just a few years ago that kind of innovation was taking place in the west and what was taking place in Asia was really more “me too”. I know from my Venture team that there are recently quite a few things in the region and I was actually quite surprised myself – one of them came back and said this is as good as anything we will see in the US, that’s what we are heartened by. You can speak about the wisdom of investing in APIs and manufacturing in Asia given what is happening geopolitically but when you come to unmet medical needs that saves or improves human lives I think the demand regardless of political issues will be there because you’re talking about human life.
Are there any digital healthcare opportunities that you’re looking at in Asia because COVID-19 has brought it to the fore?
Absolutely. We’ve been very busy over the last few days looking at something. I don’t think I can give you the name, but we did a deep dive in Asia for digital health opportunities and one is interesting because that company’s whole growth trajectory and profile has increased exactly because of COVID. We’re really seeing some very creative, entrepreneurial efforts and flair around digital health and healthcare IT in the entire Southeast Asia region including places like Indonesia, Vietnam and particularly out of Singapore. So, we’re very excited by that.
What is the size of funds allocation for Asia in this new independent push and what are the returns targets?
We’re not a private equity fund so we’re not looking to allocate a specific amount or return a specific amount. We are looking to deploy 1.5-2 billion dollars every year as life science investments. I don’t like to box those and say this is for Asia, this is for Europe. I like the best ideas to win. Our individual teams have a budget - Novo Ventures, Principal, Growth have a budget – but, whether they want to spend that in US, Europe or Asia I leave it to them and I focus on the best idea winning. We will be putting in a fair bit of money in Asia though being a conservative organization, you won’t see us going in guns blazing. But, if you monitor our progress over time, you will see us do well gradually and I hope we will be able to convey some success stories in 18 months. We do things gradually, but once we reach a level of confidence we really ramp it up. From a returns' perspective, we have been very successful. Across our life sciences portfolio, the average return for the last 10 years is 15% IRR (internal rate of return). When we do venture deals, we target 20% plus IRRs and in growth equity, it is slightly lower. For Principal, we function more like private equity, so the target is 15-20% IRR range.
How do you cherry pick the companies, what are the investment criteria?
There are certainly areas where we are overweight and we might have to adapt our strategy a little bit for Asia. For example, we haven’t invested traditionally in payers and providers, but I think for the sake of Asia we might have to adapt. We are an innovation, growth-led investor so apart from a few legacy assets, you will not find any investments based on generics, APIs, or on anything that does not have an innovation-driven agenda. A lot of people have made a lot of money in those and there is nothing wrong with it, but it is not in our DNA and our heritage really comes out of Novo Nordisk and Novozymes and both of those companies are high-growth, high-innovation companies, so we tend to be focused on that side of things. However, it’s too early to talk about Asian companies we could invest in at the moment.
For the second part of the interview, Scrip sat down with Amit Kakar to talk a little more in detail about his reading of the Asian environment and investment landscape. The senior executive has had significant investing experience in Asia with previous stints at Everlife Asia, Avenue Capital Group and General Electric, apart from being co-founder and managing partner at Aequus Capital Management.
Amit Kakar, Head of Asia, Novo Holdings
Here is what he had to say.
How has the investing environment changed in Asia?
Asia has been one of the fastest-growing economies. Of late, we are seeing pockets of innovation in the biotech or medtech sector which is very attractive to us. Most significantly, we have seen a dramatic growth in the private equity and venture capital environment.
What are the challenges you foresee?
This is a market where there is a lot of hype and attractiveness for healthcare, so we see valuations at all-time highs…there is a lot of faulty evaluation right now. The other challenge is picking up a great talent pool of people because there is a lot of demand for people in the industry. We’re hoping that given the Novo branding and how active we have been in the life sciences sector for many years, we should be able to build rapidly. Then, each individual country and market has its own demographic and regulatory challenges and there is also the question of how much spend is the government doing in improving public health versus how much investment is going on the private healthcare side.
Within Asia, have you listed any priority markets?
We still need to do our landscaping to determine where we see maximum opportunities. By sheer volume, China is a country where there are larger opportunities. We see similar pockets of opportunities in SE Asia - especially if you look at innovation in biotech and medtech, Singapore is the hub. We are also open to opportunities in the provider space, that is hospitals and clinics, which are fairly active in SE Asia. So, my first mandate will be to understand where and in which vertical we are seeing different kind of activities in the region.
What are the white spaces in biotech you see right now?
We still need to do the landscaping but the mandate is to look at innovation and companies in Phase I and II of drug development – that’s been our focus in markets outside of Asia and that is what our Venture team has been doing. Lot of this will be formulated once I am on the ground, build the team and start assessing the opportunities.
Which therapy areas look good in the long term and why?
Oncology remains the key indication for most of the biotech activity, targeting fast follower strategy but also undertaking a first in class approach. Additional areas of interest are immunology and interestingly also anti-infectives.
If a large acquisition opportunity comes up, will you consider partnerships?
We have done that with Vivo Capital. We like to do co-investments so we will be looking at such opportunities on the ground.