US PE shops brace for supply chain disruption: Quadria’s Dr. Amit Varma

As the healthcare ecosystem grapples with a shortage of critical medical products and equipment, localization of supply is poised to emerge as a major theme for sponsors in the aftermath of covid-19 chaos, one senior healthcare investor told PE Hub.  

Dr. Amit Varma, managing partner and founder of Quadria Capital – which owns 18 healthcare companies across the Asia-Pacific region – said that, based on his firm’s experience and observations, the biggest disruption poised to challenge his counterparts in the US is this: “I never imagined that there would be [this level of] disruption to supply chains.” 

One obvious example is medical masks, a shortage of which nobody foresaw before the covid-19 crisis, Varma said. 

Hospital assets owned by Singapore-based Quadria are doing reasonably well today, but, Varma acknowledged, these portfolio companies have begun to see patient flow come down in the last 10 days. “We are now beginning to see the disruption. Clearly with the lock-downs, it’s become harder to transfer personnel [and transport medical products] to hospitals.” 

In Asia, which was hit by the public health crisis well before the US, front-facing companies, such as those providing healthcare at the home, have had the toughest time operating through the crisis, he said. 

As covid-19-related restrictions lead to difficulties transporting, importing and distributing medical supplies, it will push global healthcare systems to act, Varma said.

“You’re going to see healthcare companies prioritize their own citizens for things like medical equipment. Localization of supply is actually going to become a big investment theme across the globe,” he said.

Healthcare continues

Varma told PE Hub that while he is supportive of a shutdown, it’s unsustainable in the long-term. “The medical damage to patients with other diseases is going to become insurmountable. From a clinical perspective, we will start to see those effects.”  

Still, from a dealmaking perspective, Varma said he remains confident that, as the market and pandemic stabilize, there will not be any distressed healthcare selling and companies will continue to fetch premium valuations when things normalize.

“In our world, if we don’t do anything stupid, as soon as a vaccine, large-scale testing or medicine is approved, the devastation will come back very quickly,” Varma said. “Healthcare will recover the fastest. Healthcare is a fundamental need at the end of the day. While the world focuses on corona, there are a thousand other diseases continuing.”

Although the US and Asian private equity industries have many differences, Varma said he’s already observed a lot of cross-learning. “There’s a lot of interest from our global LPs wanting to understand how the dynamic is changing. It’s happening through the LPs, not through the GPs.”

Call for public-private sector collaboration

As a physician for almost 40 years, Varma said he’s seen many different public health mechanisms across different countries and remains frustrated by the lack of public-private collaboration and seriousness that most countries have demonstrated on this front.

The investor said that although he can understand the government’s inability to dedicate enough money in regions like Asia and Indonesia – because there are other needs – change needs to happen regardless: “This is time to signify the public-private partnership.”

“[In] our minds, healthcare is now at the forefront of everyone’s minds,” the investor said. “People like us have been screaming from the rooftop [that more funding is needed]. Unfortunately it’s taken a crisis to prove it.” 

Last week, the US Department of Health and Human Services announced it had launched a public-private partnership to create US-based, high-speed emergency drug packaging solutions. Yesterday, Jefferies announced that it would be the first private-sector entity to join the initiative to raise up to $1 billion in private capital.  

The new network is called Rapid Aseptic Packaging of Injectable Drugs, or RAPID, and will enable the Strategic National Stockpile to quickly administer hundreds of millions of prefilled syringes, with the goal of responding quickly and efficiently to covid-19 needs when vaccines and drugs become available. 

“As life is going ahead, we have a lot to learn from each other,” Varma said. “Clearly, stabilizing and growing companies to scale is something Asia can learn from the US. And the US is [now] finding out that you don’t live in your own bubble. Things in Asia can affect you too.”

Action Item: Read how some PE shops are repurposing their companies to combat the pandemic.