Asia Pacific remains a prominent innovation hub and magnet for investment in Healthcare and Life Sciences, according to Baker McKenzie's new digital report “Unlocking and Accelerating Growth: Healthcare and Life Sciences in Asia Pacific.”
As governments and key market players strive to expand healthcare access, quality and affordability in the region, the market is experiencing an increase in transformation-focused investment activity. Healthcare organisations are refocussing product portfolios and divesting non-core assets to release capital and build flexibility into their supply chains, and create further investment opportunities.
Transformation-focused investment draws great significant interest from private capital investors
Global pharmaceutical and medical device companies are feeling the effects of inflation, pricing pressure, patent cliffs and trade shocks. Healthcare companies continue to look to build their pipeline and achieve growth in new technologies and products via collaborations and licensing agreements. At the same time, faced with higher interest rates and tightening credit conditions, biotechs urgently need to source funding to advance drug approvals, run clinical trials and go to market. These dynamics, combined with lower valuations for many of these innovative players, offer abundant opportunities to multinationals that are looking to use M&A and commercial collaboration to bridge the innovation deficit, and to private capital and institutional investors who are seeking investment opportunities with robust returns.
"With spending constraints curtailing further transformation, governments are increasingly looking to the private sector investment to fill the gap. As a result, private capital investors — including the superannuation, pension and infrastructure funds, private equity and venture capital firms, and high net worth individuals are driving much of the healthcare and life sciences transactional activity in Asia Pacific," Tracy Wut, China Managing Partner, said.
Despite slowdown in global activity, private equity deal value in the region has experienced a strong multi-year growth trajectory. As private equity players face greater competition for assets in the healthcare sector, this drives up demand for creative financing strategies. Private credit arrangements, joint ventures that include private equity, and strategic player and club deals, where multiple private equity buyers pool capital, are becoming more common.
“Private equity interest in healthcare assets, particularly ‘core plus’ assets, remains strong in Asia Pacific. Some Asian healthcare focused private equity firms are engaged in capital raising for new funds focused on investing in the healthcare sector in southeast Asia. Moreover, continuation funds are being deployed by some private equity firms to roll over the ownership of existing well performing healthcare assets,” Zhang Hong, Head of Private Equity at Baker McKenzie FenXun* in China, said.
Complex therapies and emerging product areas demand more innovative collaboration structures, partnerships and licensing agreements
Joint ventures, strategic alliances, licensing transactions and collaboration agreements have a long history in the healthcare and life sciences industry. However, with more complex therapies and product areas coming to market, including biosimilars, cell and gene therapies, vaccines, hybrid medical devices, gamification therapeutics and other mobile health (mHealth) solutions, collaboration and licensing agreements are becoming more complex.
Dual licensing is growing ever more popular as a means of driving co-creation and transformation in the industry. We also expect to see continuing use of Co-Development, Co-Marketing and Co-Promotion Agreements, Co-operative Research Agreements and other innovative forms of collaborative structures moving forward.
In this increasingly fluid deal-making environment, considerations for licensing and collaboration structures extend beyond the development of the therapeutic product into other considerations such as IP, antitrust compliance, cybersecurity, liability and indemnification, regulatory and more.
Rise in AI deals on the horizon; embrace ethics-based governance to mitigate regulatory complexity
Lured by the benefits of AI, pharmaceutical and medical devices companies, biotech and healthtech companies, digital service providers and others are using M&A and collaboration to gain access to the technology and to build industry specific solutions. Global pharmaceutical companies and public institutions are collaborating with digital players in the areas of behavior monitoring, workflow management, data compliance and electronic health record solutions. Collaboration with AI healthtech start-ups to transform drug discovery, bioinformatics, diagnosis, treatment, monitoring and outcome predictions is also picking up pace.
Asia Pacific is home to almost 600 AI Healthtech start-ups, most of which are based in Australia, China, Japan and Singapore. We anticipate that deal activities in these markets will rise as AI matures, existing applications scale and new use cases are discovered.
As companies deploy AI for a growing range of tasks, adhering to laws, regulations and ethical standards will be critical to building a sound AI foundation. However, AI regulation lags behind the technology, and we are seeing a patchwork of national AI policies, sectorial codes of conduct and corporate responsibility standards. Until AI regulations are harmonized, organizations can look to "soft law" principles and adopt ethical governance frameworks to guide AI adoption.
"As AI is integrated into drug and patient pathways, risks and uncertainties are emerging. Regulation is evolving piecemeal behind the technology; data privacy, accuracy and bias are significant concerns; and existing frameworks around IP and competition are being challenged by the new. Managing these issues will be critical to realizing safe and sustainable growth," Isabella Liu, partner in the IP Practice in Hong Kong SAR, said.
Telehealth and hospital-at-home-solutions drive deals; managing greater disputes and litigation risks become a pivotal issue
Asia Pacific is primed for transformation in the delivery of healthcare, driven by an aging population, rising consumer expectations and an understaffed, under-resourced healthcare infrastructure. Telehealth and hospital-at-home innovation not only offers a pathway to delivering healthcare services in increasingly scalable, sustainable and personalized ways, but also provides a fertile ground for deal activities. We are seeing large players acquiring local telehealth platforms to access new markets and grow the user base, and virtual providers buying up in-person clinical facilities to augment their offerings to generate new growth opportunities.
“Improving accessibility to healthcare has been a key priority for governments across Asia Pacific. Governments have increasingly invested in telehealth infrastructure and put in place regulatory and reimbursement frameworks to encourage its use – with resulting advantages to patients, healthcare providers and Governments around the region. These shifts recognize the importance of equitable healthcare access and affordability of healthcare," Elisabeth White, Head of Asia Pacific Healthcare and Life Sciences Industry Group, said.
Virtual and at-home care is not without risks, which include misdiagnosis, poor quality advice and inconsistent treatment. Furthermore, data sharing challenges and lack of interoperability between digital platforms, electronic health records and hospital providers can compound these risk factors, exposing organizations to greater disputes and litigation risks associated with patient safety or data breach. Therefore, companies’ ability to take a proactive approach to mitigate these potential risks will be critical.
Resilience-driven investment to protect the bottom line; divestiture of non-core assets remains top of mind
Global pharmaceutical and life sciences companies are building resilience through transactions, partnerships and inward investment in the region. They are prioritizing healthy balance sheets and new revenue streams to maintain a strong growth trajectory. They are leveraging carve-outs and spin-offs to divest unprofitable or non-strategic assets to unleash capital, which is driving significant transactional and investment activity in the region. As some pharmaceutical companies shift from "blockbuster" to "nichebuster" product strategies, this is adding further impetus for more M&A, minority investment and licensing deals targeting biotechs and healthtechs.
"A variety of strategies are being adopted by companies to ensure operational resilience, including M&A. Some are shedding 'non-core' business units to focus on building specialty platforms. Others are using M&A to acquire expertise and R&D for innovative treatments and patient experience solutions. An analysis of how to maximize the advantages of technology and digital capabilities is also fueling resilience-driven activity," Kate Jefferson, partner in the Healthcare and Life Sciences Industry Group in Australia, said.
Supply chain diversification fuels dealmaking in CDMO and CLP but also increases risks
Asia Pacific's medical market is expected to reach USD 138 billion in spending by 2027. As a result, global organizations are bringing clinical trials, manufacturing and distribution closer to patients in high-demand markets to maximize speed and agility, while minimizing cost and supply chain risk. For many, flexible supply chains that tap into regional manufacturing and distribution capabilities are a source of competitive advantage.
According to a Baker McKenzie survey, almost half of companies have kicked off a transformational supply chain deal in the last 12 months and 30% plan to do so in the next 12 months. These efforts to diversify from single-source suppliers and capitalize on local, digital approaches to manufacturing and logistics is driving outsourcing deals and collaborations across the region, offering new opportunities for Contract Development and Manufacturing Organizations (CDMOs) and Contract Logistic Providers (CLPs).
With pharmaceutical companies increasingly turning to CDMOs to access specialist knowledge, mitigate manufacturing bottlenecks and make regional supply chains quicker, CDMOs are using M&A to build out capabilities and scale capacity along the entire value chain to offer one-stop-shop services. As businesses seek specialized partners to optimize their operations, this has also triggered the surge in demand for contract logistics services in the region, which could provide the backdrop for more dealmaking.
As outsourcing picks up pace and supply chains become more complex, there is mounting pressure on global pharmaceutical and life sciences companies to get a better handle on the risk exposure they are facing. Intellectual property protection, quality control and product safety, to name a few, are some of the common third-party risks companies must consider. As scrutiny of tariff classification, customs valuations, duties and product origin verification rises, getting up to speed on what is driving audit activity and taking a proactive, localized approach will promote operational resilience.
ESG is key to driving long-term resilience
ESG considerations are also gaining strategic importance among pharmaceutical and life sciences companies, as sound ESG practice can help open up investment opportunities, build corporate brands and promote long-term growth. Against the backdrop of rising disclosure obligation and accountability on ESG, companies are facing growing risk in contractual disputes, false advertising suits and class actions, as a result of failing to meet their ambitious diversity and climate targets. According to a Baker McKenzie survey, 46% of global organizations report that environmental litigation is their greatest source of contentious risk. For pharmaceutical companies, operational ESG claims are likely to be a larger concern compared to product-related ones (e.g. reducing water consumption, carbon emissions and hazardous waste). Miscommunication and misunderstanding around “natural” versus “chemical” compounds is also emerging as an area of greenwashing risk.
Therefore, having a clear view of ESG obligations and performance, operational risks and litigation hotspots, together with a robust ESG compliance program, will be key to mitigate this risk. Having a clear oversight of partner activities in the supply chain by mapping out potential risk hotspots across the supply chain ─ for example, environmental issues such as medical waste and pollution arising from processing APIs and social considerations like healthcare equity and access to affordable health ─ will enable healthcare and life sciences companies to be better prepared for potential disputes and reputational issues that may arise.
Moreover, with authorities stepping up disclosure requirements and large industry players placing stronger focus on sustainability, strong ESG practice will give local manufacturing and distribution players a competitive advantage over their peers and win market share in an increasingly competitive landscape.
“Companies must address contractual risks. Mitigation of such risks involves ensuring that a company can in fact comply with the specific terms and obligations before agreeing to them. It is also advisable to seek to include limitation of liability provisions to manage risks of breach,” Celeste Ang, principal in Baker McKenzie Wong & Leow’s Dispute Resolution Group in Singapore, said.
*Baker McKenzie FenXun (FTZ) Joint Operation Office is a joint operation between Baker McKenzie and FenXun Partners, which was approved by the Shanghai Justice Bureau in 2015.
As governments and key market players strive to expand healthcare access, quality and affordability in the region, the market is experiencing an increase in transformation-focused investment activity. Healthcare organisations are refocussing product portfolios and divesting non-core assets to release capital and build flexibility into their supply chains, and create further investment opportunities.
Transformation-focused investment draws great significant interest from private capital investors
Global pharmaceutical and medical device companies are feeling the effects of inflation, pricing pressure, patent cliffs and trade shocks. Healthcare companies continue to look to build their pipeline and achieve growth in new technologies and products via collaborations and licensing agreements. At the same time, faced with higher interest rates and tightening credit conditions, biotechs urgently need to source funding to advance drug approvals, run clinical trials and go to market. These dynamics, combined with lower valuations for many of these innovative players, offer abundant opportunities to multinationals that are looking to use M&A and commercial collaboration to bridge the innovation deficit, and to private capital and institutional investors who are seeking investment opportunities with robust returns.
"With spending constraints curtailing further transformation, governments are increasingly looking to the private sector investment to fill the gap. As a result, private capital investors — including the superannuation, pension and infrastructure funds, private equity and venture capital firms, and high net worth individuals are driving much of the healthcare and life sciences transactional activity in Asia Pacific," Tracy Wut, China Managing Partner, said.
Despite slowdown in global activity, private equity deal value in the region has experienced a strong multi-year growth trajectory. As private equity players face greater competition for assets in the healthcare sector, this drives up demand for creative financing strategies. Private credit arrangements, joint ventures that include private equity, and strategic player and club deals, where multiple private equity buyers pool capital, are becoming more common.
“Private equity interest in healthcare assets, particularly ‘core plus’ assets, remains strong in Asia Pacific. Some Asian healthcare focused private equity firms are engaged in capital raising for new funds focused on investing in the healthcare sector in southeast Asia. Moreover, continuation funds are being deployed by some private equity firms to roll over the ownership of existing well performing healthcare assets,” Zhang Hong, Head of Private Equity at Baker McKenzie FenXun* in China, said.
Complex therapies and emerging product areas demand more innovative collaboration structures, partnerships and licensing agreements
Joint ventures, strategic alliances, licensing transactions and collaboration agreements have a long history in the healthcare and life sciences industry. However, with more complex therapies and product areas coming to market, including biosimilars, cell and gene therapies, vaccines, hybrid medical devices, gamification therapeutics and other mobile health (mHealth) solutions, collaboration and licensing agreements are becoming more complex.
Dual licensing is growing ever more popular as a means of driving co-creation and transformation in the industry. We also expect to see continuing use of Co-Development, Co-Marketing and Co-Promotion Agreements, Co-operative Research Agreements and other innovative forms of collaborative structures moving forward.
In this increasingly fluid deal-making environment, considerations for licensing and collaboration structures extend beyond the development of the therapeutic product into other considerations such as IP, antitrust compliance, cybersecurity, liability and indemnification, regulatory and more.
Rise in AI deals on the horizon; embrace ethics-based governance to mitigate regulatory complexity
Lured by the benefits of AI, pharmaceutical and medical devices companies, biotech and healthtech companies, digital service providers and others are using M&A and collaboration to gain access to the technology and to build industry specific solutions. Global pharmaceutical companies and public institutions are collaborating with digital players in the areas of behavior monitoring, workflow management, data compliance and electronic health record solutions. Collaboration with AI healthtech start-ups to transform drug discovery, bioinformatics, diagnosis, treatment, monitoring and outcome predictions is also picking up pace.
Asia Pacific is home to almost 600 AI Healthtech start-ups, most of which are based in Australia, China, Japan and Singapore. We anticipate that deal activities in these markets will rise as AI matures, existing applications scale and new use cases are discovered.
As companies deploy AI for a growing range of tasks, adhering to laws, regulations and ethical standards will be critical to building a sound AI foundation. However, AI regulation lags behind the technology, and we are seeing a patchwork of national AI policies, sectorial codes of conduct and corporate responsibility standards. Until AI regulations are harmonized, organizations can look to "soft law" principles and adopt ethical governance frameworks to guide AI adoption.
"As AI is integrated into drug and patient pathways, risks and uncertainties are emerging. Regulation is evolving piecemeal behind the technology; data privacy, accuracy and bias are significant concerns; and existing frameworks around IP and competition are being challenged by the new. Managing these issues will be critical to realizing safe and sustainable growth," Isabella Liu, partner in the IP Practice in Hong Kong SAR, said.
Telehealth and hospital-at-home-solutions drive deals; managing greater disputes and litigation risks become a pivotal issue
Asia Pacific is primed for transformation in the delivery of healthcare, driven by an aging population, rising consumer expectations and an understaffed, under-resourced healthcare infrastructure. Telehealth and hospital-at-home innovation not only offers a pathway to delivering healthcare services in increasingly scalable, sustainable and personalized ways, but also provides a fertile ground for deal activities. We are seeing large players acquiring local telehealth platforms to access new markets and grow the user base, and virtual providers buying up in-person clinical facilities to augment their offerings to generate new growth opportunities.
“Improving accessibility to healthcare has been a key priority for governments across Asia Pacific. Governments have increasingly invested in telehealth infrastructure and put in place regulatory and reimbursement frameworks to encourage its use – with resulting advantages to patients, healthcare providers and Governments around the region. These shifts recognize the importance of equitable healthcare access and affordability of healthcare," Elisabeth White, Head of Asia Pacific Healthcare and Life Sciences Industry Group, said.
Virtual and at-home care is not without risks, which include misdiagnosis, poor quality advice and inconsistent treatment. Furthermore, data sharing challenges and lack of interoperability between digital platforms, electronic health records and hospital providers can compound these risk factors, exposing organizations to greater disputes and litigation risks associated with patient safety or data breach. Therefore, companies’ ability to take a proactive approach to mitigate these potential risks will be critical.
Resilience-driven investment to protect the bottom line; divestiture of non-core assets remains top of mind
Global pharmaceutical and life sciences companies are building resilience through transactions, partnerships and inward investment in the region. They are prioritizing healthy balance sheets and new revenue streams to maintain a strong growth trajectory. They are leveraging carve-outs and spin-offs to divest unprofitable or non-strategic assets to unleash capital, which is driving significant transactional and investment activity in the region. As some pharmaceutical companies shift from "blockbuster" to "nichebuster" product strategies, this is adding further impetus for more M&A, minority investment and licensing deals targeting biotechs and healthtechs.
"A variety of strategies are being adopted by companies to ensure operational resilience, including M&A. Some are shedding 'non-core' business units to focus on building specialty platforms. Others are using M&A to acquire expertise and R&D for innovative treatments and patient experience solutions. An analysis of how to maximize the advantages of technology and digital capabilities is also fueling resilience-driven activity," Kate Jefferson, partner in the Healthcare and Life Sciences Industry Group in Australia, said.
Supply chain diversification fuels dealmaking in CDMO and CLP but also increases risks
Asia Pacific's medical market is expected to reach USD 138 billion in spending by 2027. As a result, global organizations are bringing clinical trials, manufacturing and distribution closer to patients in high-demand markets to maximize speed and agility, while minimizing cost and supply chain risk. For many, flexible supply chains that tap into regional manufacturing and distribution capabilities are a source of competitive advantage.
According to a Baker McKenzie survey, almost half of companies have kicked off a transformational supply chain deal in the last 12 months and 30% plan to do so in the next 12 months. These efforts to diversify from single-source suppliers and capitalize on local, digital approaches to manufacturing and logistics is driving outsourcing deals and collaborations across the region, offering new opportunities for Contract Development and Manufacturing Organizations (CDMOs) and Contract Logistic Providers (CLPs).
With pharmaceutical companies increasingly turning to CDMOs to access specialist knowledge, mitigate manufacturing bottlenecks and make regional supply chains quicker, CDMOs are using M&A to build out capabilities and scale capacity along the entire value chain to offer one-stop-shop services. As businesses seek specialized partners to optimize their operations, this has also triggered the surge in demand for contract logistics services in the region, which could provide the backdrop for more dealmaking.
As outsourcing picks up pace and supply chains become more complex, there is mounting pressure on global pharmaceutical and life sciences companies to get a better handle on the risk exposure they are facing. Intellectual property protection, quality control and product safety, to name a few, are some of the common third-party risks companies must consider. As scrutiny of tariff classification, customs valuations, duties and product origin verification rises, getting up to speed on what is driving audit activity and taking a proactive, localized approach will promote operational resilience.
ESG is key to driving long-term resilience
ESG considerations are also gaining strategic importance among pharmaceutical and life sciences companies, as sound ESG practice can help open up investment opportunities, build corporate brands and promote long-term growth. Against the backdrop of rising disclosure obligation and accountability on ESG, companies are facing growing risk in contractual disputes, false advertising suits and class actions, as a result of failing to meet their ambitious diversity and climate targets. According to a Baker McKenzie survey, 46% of global organizations report that environmental litigation is their greatest source of contentious risk. For pharmaceutical companies, operational ESG claims are likely to be a larger concern compared to product-related ones (e.g. reducing water consumption, carbon emissions and hazardous waste). Miscommunication and misunderstanding around “natural” versus “chemical” compounds is also emerging as an area of greenwashing risk.
Therefore, having a clear view of ESG obligations and performance, operational risks and litigation hotspots, together with a robust ESG compliance program, will be key to mitigate this risk. Having a clear oversight of partner activities in the supply chain by mapping out potential risk hotspots across the supply chain ─ for example, environmental issues such as medical waste and pollution arising from processing APIs and social considerations like healthcare equity and access to affordable health ─ will enable healthcare and life sciences companies to be better prepared for potential disputes and reputational issues that may arise.
Moreover, with authorities stepping up disclosure requirements and large industry players placing stronger focus on sustainability, strong ESG practice will give local manufacturing and distribution players a competitive advantage over their peers and win market share in an increasingly competitive landscape.
“Companies must address contractual risks. Mitigation of such risks involves ensuring that a company can in fact comply with the specific terms and obligations before agreeing to them. It is also advisable to seek to include limitation of liability provisions to manage risks of breach,” Celeste Ang, principal in Baker McKenzie Wong & Leow’s Dispute Resolution Group in Singapore, said.
*Baker McKenzie FenXun (FTZ) Joint Operation Office is a joint operation between Baker McKenzie and FenXun Partners, which was approved by the Shanghai Justice Bureau in 2015.
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