Tata Capital Healthcare Fund to increase investment ticket size to $25 million

The fund is also betting on domestic pharmaceutical companies that target global markets.

The healthcare and life sciences-focused PE fund has raised a total $200 million across its two funds – TCHF I (2012) and TCHF II (2022). So far, it has deployed 90% of its $130 million second fund corpus. TCHF II has so far invested in nine companies across diverse segments of the healthcare sector, and is in the process of concluding a tenth investment in the medical consumables segment, Chandramouli told Mint.

“This is a business where the macro theme is essentially the India indigenization story, where we are looking at local production for global products,” Chandramouli said, adding that local players for global markets is a big shift happening in the medical technology space in India. “This is a company which is a leader in the select medical consumables category, having a very strong regulatory know-how, exports to over 50 countries, and reasonable growth as well as profitability,” she said. Chandramouli declined to name the company or share more details, but said they plan to conclude the investment soon.

Increasing capital

Going forward, TCHF is looking at increasing the capital deployed to address India’s unmet healthcare needs. “The size of capital we’ve been deploying so far has been in the $10-18 million range…now potentially we should be looking at a much larger ticket size going forward, given the fact that the need is much more,” Chandramouli said, adding that it would be in the over $25 million range in the future.

The fund looks at bridging the gaps in India’s healthcare space when building its portfolio. One of the fund’s key focuses is on demographics, Chandramouli said. “There’s a huge population which is above 60, nearly 160-170 million people, and there is no formal institutional care on that,” she said.

Spending on healthcare is also set to increase. “Even the middle income households…there will be an at least three-to-four times increase in health expenditure. So one needs to address that,” she added.

India’s healthcare sector has been growing at a rapid pace. It grew at a compound annual growth rate (CAGR) of 22% between 2016 and 2022, a 2023 NITI Aayog paper said. The growth has been driven by several factors, including an ageing population, a growing middle class, the rising proportion of lifestyle diseases, an increased emphasis on public-private partnerships as well as accelerated adoption of digital technologies, including telemedicine, besides heightened interest from investors, the paper noted.

In the first five months of 2024, private equity and venture capital investments in the Indian healthcare sector surpassed $ 1 billion, a 220% increase from the previous year, according to the Indian Brand Equity Foundation (IBEF).

Betting on local for global

Pharmaceutical companies make up a large chunk of the company’s portfolio. In its second fund, pharmaceuticals make up 50% of the fund, healthcare services make up for 30%, and the remaining 20% is for healthtech and medtech, Chandramouli said. One of the key areas of focus for the fund within pharma is companies catering to the regulated markets.

Of the existing four pharma companies in its portfolio, two are India-focused – Noble Plus Pharmacy and Skin Care and Linux Laboratories, which focuses on domestic formulations – while two are focused on global markets. This includes Sakar Healthcare, which is focused on branded exports and contract manufacturing, and complex generics maker Orbicular Pharmaceutical Technologies.

TCHF invested up to $20 million in Orbicular in May 2024. Orbicular is a contract development and manufacturing company, which focuses on complex generics formulations for the regulated markets like the US.

Complex and specialty generics is a key focus for the industry, and Chandramouli anticipates secular growth for the segment over the next decade, “given the fact that a whole host of patents are expiring in the complex generics space,” she said. “Especially in the ones for the GLP (Glucagon-like Peptide) analogue space, that’s one of the complex generics that Orbicular is targeting, which is for both diabetes as well as weight loss products,” she added.

Glucagon-like peptide-1 (GLP-1) drugs are used to treat type-2 diabetes and obesity. The patent for semaglutide, a GLP-1 receptor antagonist, is set to expire in several countries in 2026. Semaglutide is patented by Danish drugmaker Novo Nordisk, which sells it under brand names Ozempic and Wegovy and has seen phenomenal demand. The GLP-1 market is expected to exceed $100 billion by 2030, according to JP Morgan.

Indian pharma majors like Dr. Reddy’s, Cipla, Zydus, Lupin and Sun Pharma are gearing up to launch generic versions of GLP-1 drugs as patents expire to cash in on the burgeoning market.

The fund will continue to focus on companies that have the potential to scale up and target regulated markets, she said.

Slow on healthtech

Mint reported earlier this year that TCHF was wary of healthtech bets. The fund has one healthtech investment in its portfolio – when it poured $10 million in Deeptek Inc, an artificial intelligence-backed radiology imaging business, in 2022.

“Healthtech, by nature of the business itself, it’s not something which, at least at an investment level, will be an Ebitda positive,” Chandramouli said. “If you look at our fund two, nine of our 10 investments are mid-sized revenue companies with a strong growth as well as with solid Ebitda margins. Even our healthtech portfolio has a very strong growth, but it’s the only one which is not yet Ebitda positive,” she added. Ebitda is earnings before interest, taxes, depreciation, and amortization, and is a key measure of a company’s profitability.

Chandramouli reiterated that they hadn’t changed their stance, especially for online pharmacies, which is the biggest segment within healthtech. “It’s still a model which is yet to evolve in a very sustainable way,” she said. “One is watching how some of the large players are going to scale up, how they are going to move towards profitability…So they are all in a wait-and-watch mode,” she said.