Backed by industry titans, this fundie is leveraging Australia's healthcare innovation

This interview was filmed 23 April 2024.

Fund Profile

• Name of the fund: KP Rx Healthcare Opportunities Fund
• Asset Class: Venture Capital
• Year started and size: 2024
• Description of strategy: A closed-ended VC fund designed to strategically invest in the most promising healthcare and health-tech companies across ANZ, targeting both private and early-stage public companies at the inflection point of valuation creation
• Investment objective: Target net IRR of 20% over the life of the fund. Aim to return the majority of the capital 4-6 years into the fund's life, with a formal 10-year cap providing flexibility to unlock greater value by investing in companies that benefit from staying private longer.
• Link to fund page

Highly specialised

There are many fund managers that I’ve spoken to, who will not touch healthcare companies – particularly those conducting clinical trials and/or seeking FDA and other regulatory approvals for drugs and products.

They steer clear of these investments because, being self-aware, they know that they lack the requisite skillset and, therefore, the competitive edge to make them viable.

So, what does the requisite skillset look like?

A medical degree, a Masters of Commerce, and being recognised as a CFA charter holder is probably a good place to start. Throw in working for Eli Lilly on the commercialisation of new and existing pharmaceuticals, and as a healthcare analyst for CLSA and Macquarie for good measure, and you’re starting to get the picture of what it takes to be successful in this highly specialised arena.

That’s the profile of Hashan De Silva, who is launching the KP Rx Healthcare Opportunities Fund. Whilst we wouldn't normally profile a fund manager's background and track record this way, it provides important context as it has attracted some of Australia’s most successful healthcare entrepreneurs who are backing the fund as investors, including; 

• Dr Chris Behrenbruch (CEO of TLX), 
• Dr David Cade (CMO of Telix)
• Patrick Davies (Chairman of Neuren), 
• Lou Panaccio (Chair/NED of various healthcare companies)
• Dr Glenn Haifer (healthcare entrepreneur)

Australia, the lucky country

De Silva points to a unique set of circumstances that have created what he sees as huge opportunities in Australian and New Zealand healthcare.

• Incentives for R&D: Innovation is driven by one of the most generous R&D incentives in the world, with Australia refunding 43.5% of R&D spend for companies with revenue below A$20 million
• Lower cost: The cost to run clinical trials in Australia is significantly below the United States, yet Australia’s ethnically diverse population makes study populations a good match for many Western markets
• Much simpler ethics approvals and governance: In Australia, companies can initiate human trials without filing an Investigational New Drug (IND) application. In the US, companies must receive IND approval from the FDA, which requires extensive pre-clinical animal testing and investment in manufacturing. Instead, Australia takes a decentralised approach, requiring a Human Research Ethics Committee (HREC) to determine if the trial is being conducted in an ethical and responsible manner
• Australia has world-class research institutions such as WEHI, Garvin, and Peter Mac and excellent infrastructure to conduct Phase 1 healthy volunteer studies. Many global pharma companies conduct early-stage clinical trials in Australia.
• Stable intellectual property and political environment is an important consideration

A real-world example

All of the factors above are incredibly important in creating a conducive environment for healthcare innovation and we should all be very proud as Australians that we’re leading the world in this arena.

But there is one more factor that makes these opportunities particularly attractive for investors – valuation.

As De Silva explains, when he is talking to international investors, he tells them that “what differentiates the Australian market is that you get series B - so later stage companies - for the same or similar valuation as a pre-seed in the US”.

De Silva highlights ASX-listed Neuren Pharmaceuticals (ASX: NEU) as an example - a company he invested in when working at Karst Peak (the firm providing seed capital for his new fund).

“We invested in Neuren after they'd done a phase-2B, after they'd partnered the drug to a multi-billion dollar NASDAQ listed company who was funding all future development, and the market cap was US$50 million.

You don’t get that kind of valuation [in the US] – a $50 million valuation in the US is a pre-seed stage company.

Due diligence

Karst Peak is known to conduct some of the most extensive due diligence of anyone in this space prior to investing. And while De Silva is going out on his own, he both helped foster those due diligence standards and is taking the principles to KP Rx.

He adds that while no two opportunities are the same, instead saying “that every one of them is like a fingerprint”, there are some general ways of thinking about them.

First and foremost, a company must have intellectual property—what are its claims, and what is its freedom to operate?

Secondly, it is important to look at how a company’s drug or device fits into the investment landscape.

“What their drug does in comparison to everything else that is available to treat that patient and everything that is being developed, and understand how that will fit in versus the efficacy and also the side effects”.

And finally, always look at what else is in development to avoid what De Silva calls “innovation in isolation”.

“There are no borders in healthcare. Something being developed in Estonia could make what you are looking at in Australia obsolete. So have a global view, look at everything in development. Do not look at just the company or just that asset in isolation”.

Watch the video

In the interview above, as part of Livewire’s Undiscovered Series, you will also learn about the other successful investments De Silva has participated in, how and why he puts together specialised teams when assessing any opportunity, and why he is particularly bullish on the opportunity in healthcare right now. 

Your access to some of Australia's best healthcare opportunities

Karst Peak Rx (KP Rx) is a healthcare investor, backed by Karst Peak Capital, specialising in healthcare and health tech investments in Australia and New Zealand (ANZ). Hashan and the team focus on investments in private and early-stage public companies, with an emphasis on biotech, medical devices, diagnostics and healthtech. Find out more.

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KP Rx Healthcare Opportunities Fund

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