From financial investment to mergers and acquisitions, will capital be the accelerator for a new round of development of the medical industry?Text |Ling XinEdWang Xiao
Medical investment in 2024 is not as "cold" as people think.
In the first 19 days of the new year, there were 98 investment events in the primary market of China's medical industry, which is still the most among all industries. On average, there are 5 healthcare investment events per day, which is roughly the same as in 2019.
It is the tenth year since 2015, the "first year of China's medical investment". At that time, Ali Health and Ping An Good Doctor had just been established, and the Internet investment boom led to online medical care. However, people have not yet realized that the reform of the drug and medical device review system in the middle of the year will boost the industry to get off to a wild start.
Ten years of reincarnation, the medical industry at the beginning of 2024, some people are dormant, some people are shrinking, and more people have made their own choices about the new direction of the industry. Leading enterprises regard mergers and acquisitions and spin-offs as a foreshadowing for future development, investment institutions are more deeply involved in enterprises, and invested companies are more actively embedded in the global industrial chain.
Neither the money nor the people left.
It is said that 2023 will be the "capital winter" of medical care, and it depends on who you compare with. This year, there were more than 1,000 transactions in China's primary medical investment market, and there is no second industry to match. It's just that, compared with the medical investment boom from 2020 to 2021, this industry has become still and deep.
Beneath the seemingly calm ice, a wave of "new money" is quietly flowing into medical investment. They come from the old "players" of the medical industry, either the leading enterprises in the industry, or the places that have paid attention to and supported the development of the medical industry for many years**.
From 2022 to 2023, Hengrui Pharmaceutical and Mindray Medical, the two leading pharmaceutical and device leaders, have newly established or jointly established their own industrial investments** with partners.
Warburg Pincus, the international investment institution's first RMB, also chose the big health industry. This is a veteran investment institution founded in 1966, which has invested more than 16 billion yuan in China's medical and health industry, and has settled in Yixing, Jiangsu Province, with a scale of 3 billion yuan.
There is a new medical industry** that has completed fundraising. In 2023, Haoyue China Medical**USD** successfully completed the fundraising, and RMB** completed the first product filing. Many of the investors (LPs) are large pharmaceutical and medical device companies, and there are also familiar financial investment institutions.
The most talked about is state-owned assets. In January 2023, Anhui fired the "first shot"; Subsequently, Xi'an, Guangzhou and other places followed up one after another; In April, Shanghai set up a series of industrial investments with a total scale of 100 billion yuan.
The newly established large-scale **guide** has laid out the medical industry. State-owned assets have been favoring the big health industry for a long time, and the time to enter the market in 2023 has been found. In the fourth quarter of 2023, the proportion of state-owned assets participating in the primary market financing of the medical industry increased from 829% to 1513%, nearly doubled.
Among the top 20 institutions in medical investment in 2023, 6 are local investments, including 3 in Shenzhen and 2 in Suzhou. They have an enviable track record in the field of healthcare investment.
After 15 years of development, Biobay, a biomedical industrial park in Suzhou, has become the "Silicon Valley" of China's medical field. More than 500 biomedical innovation enterprises of various types have gathered to form multiple industrial clusters such as genes, cells, nucleic acid drugs, IVD, implantable cardiovascular and cerebrovascular diseases, and surgical robots. BeiGene, Innovent Biologics, CStone, Alphamab Oncology, Ascentage Pharma and other companies achieved IPOs (initial public offerings).
In Shenzhen, Pingshan District alone has nearly 1,000 biomedical enterprises, with more than 100 new enterprises added every year, and the average annual growth rate of industrial output value is more than 20%. This city has gathered industry leaders, such as Sanofi Pasteur, Sinopharm Zhijun, New Industry, Lipon Precision, etc.; It has also cultivated small, medium and micro innovative enterprises, such as Puruijin, Huaxian Pharmaceutical, Aixindawei, etc., and initially formed a gradient innovation microecology of large and medium-sized enterprises.
In order to make their city the next Suzhou or Shenzhen, local state-owned assets and investment managers in charge of the medical track are "pivoting", traveling from Monday to Friday to see projects, and internal reports can only be placed on Saturdays and Sundays. Someone bluntly said, "We have to carry the KPI of this year's investment amount and project promotion."
Venture capital firms are also busy in early 2024, heading to the U.S. to attend the JPMorgan Chase & Co. Healthcare Conference (JMP Conference). It is one of the largest industry conferences in the world, with an estimated 8,000 people attending in person. There are especially many Chinese, and in the words of Wang Junfeng, co-chief investment officer of Legend Capital, "you will meet an acquaintance in three steps and five steps".
Some Chinese companies have set up their own venues near the home stadium to attract business and investors to negotiate. It will take time for the impact of the bursting of the healthcare investment bubble to clear up, and people are looking for new opportunities to attract investment, or continue to invest.
We will continue to invest. Huang Lu, general manager of Morningside Ventures China, said that the old companies have experienced financial changes and industry cycles, China's medical industry has experienced twenty or thirty years of development, and a large number of entrepreneurial and managerial talents have emerged.
Wang Junfeng told Caijing, "We are firmly optimistic about China's innovation and China's manufacturing service global ** chain", and the first in class (industry's first) in China's medical and health industry will continue to appear in the next ten years.
After ten years of development, China has many medical companies, but they are not big enough and not strong enough, and there is still a lot of room for development in this industry.
The industry ceiling is far from coming. ”Hao Liu, founder and CEO (CEO) of Haoyue Capitaltold Caijing that the combined market value of 800 listed companies in China's medical industry is not comparable to the total market value of Novo Nordisk and Eli Lilly; There are about 100 companies with a market value of more than 20 billion yuan.
Investors who dare to make a move when they are in extreme panic will definitely get excess returns. Liu Hao had such an experience after the outbreak of the global financial crisis in 2008. He assisted in the financing of Dean Diagnostics, survived the crisis and achieved the IPO, creating a return on investment of more than 100 times for investors. Another company, Pharmaron, has also become a leading international life sciences R&D service company.
With a large influx of "new money", industrial investors and local state-owned assets are guiding the transformation of the medical industry into the next decade with a completely different pursuit from traditional financial investors. They not only make money, but also earn the coordination of the upstream and downstream of the industrial chain, and even the take-off of the local economy.
The way of thinking is different. Liu Hao introduced that the investment of industrial capital is not only calculated as financial accounts, but also as industrial accounts. They don't care so much about whether the company can achieve an IPO in the short term, but pay more attention to whether the medium and long-term development of the enterprise can create value for the development of the industry. First, whether the product can meet a huge, unmet clinical need; Secondly, the marketing risk corresponding to the mechanism of the product, the resources and time required for clinical practice, the cost of large-scale production after approval, and whether the future market access will be based on medical insurance, commercial insurance or self-payment; Finally, whether it can have a synergistic effect with the channels owned by industrial capital and many other factors.
ipoIt is a simple financial investment logic, and the company will cash out when it goes public, just like buying and selling a house, earning the difference; Listing products to earn sales revenue is more like buying a shop to do business, and what you want is to live for a long time.
Local **financial guidance** needs more. Ding Yameng, Founding Managing Partner and Chief Operating Officer of Haoyue Capital"They hope that the invested companies can drive the local economy, and the tax revenue after the expansion of the enterprise, the promotion of local employment, and even the development of the entire industrial chain and industrial clusters are all factors they consider." The "formula" of state-owned assets and industrial investment is much more complex than PE and VC, and it is also very different from their "high-risk, high-return" investment style.
Both state-owned assets and industrial investors pay more attention to "certainty" and favor enterprises with income, profits and growth rates. Especially state-owned assets, according to Ding Yameng's observation, some ** do not set up a separate post-investment management team, but are managed by the decision-makers of the main investment, so they often take the word "stability" first.
For example, Lingke Pharmaceutical, which will introduce "new money" in 2023, has completed nearly 1,000 early clinical trials of its main products, and the data is more than the phase II clinical trials of some listed companies' new drug projects. For the indication of atopic dermatitis, the commercialization prospect is also relatively clear.
A new drug or a presentation alone is far from enough to make investors decide to pay for it. Investments that point to the real market also require a mature helmsman and a sound team. At the end of September 2023, the sports medicine device company Ligotai received hundreds of millions of yuan in financing, and it was led by the "national team". Yang Zhenjun, managing partner of Haoyue Capital, found that the company's founder's more than 30 years of management and operation experience and many entrepreneurial successes have fully absorbed senior management teams in R&D, production, and sales for the company, which is the key to investment.
For the exit, state-owned assets and industrial investors do not pay so much attention and are not in a hurry. Of course, IPOs are good, and they are also willing to transfer industrial mergers and acquisitions or old shares.
Their investment cycle can often be longer than that of traditional financial investors. Even, some industrial investors do not withdraw, but directly acquire the invested company, and will stay with them for a long time, as long as the company can supplement its own internal industrial chain.
State-owned investment in medical care should be further extended to the entire local economy, and the company's own taxation and employment are only a part, so they also value the coordinated development of banking, insurance and other businesses.
Desano will complete the pre-IPO round of financing in 2023, and it is such a company that continues to expand its industrial chain. Since its establishment more than 20 years ago, the revenue of this integrated enterprise of API preparations has focused on the core business of antiviral API preparations, and has continuously expanded new industrial chains such as nucleic acid drug raw materials and steroid drugs, which has driven a large number of jobs. In the pre-IPO round of financing, Desano attracted a large amount of state-owned assets to participate. "The multi-point layout of the production base has made it gain the goodwill of these local state-owned assets. Liu Hao analyzed.
From calculating financial account investment to calculating industrial account capital, from 2023 to 2024, the old players who come with "new money" are very clear about what they want, and eventually they will form industrial empowerment and promote industry upgrading.
It is not appropriate to want, want, and want", Liu Hao once advised the founder of an innovative pharmaceutical company to "break away".
Just like an army, if someone is a general, someone must be a soldier; There are people who are pioneers, and there are also people who are auxiliary. In the next decade, if medical companies want to be favored by investors, they must either have the strength to be a leader in mergers and acquisitions, or have the empowerment potential to complement the industrial chain, or have real cutting-edge innovation capabilities.
He entered the industry in 1997, turned to investment after ten years of immersion in the medical industry, and founded Haoyue Capital in 2014, which has developed into the largest investment bank in the medical industry today. The global financial crisis in 2008 and the last round of "capital winter" in 2018, even in 2015, some people have left a lot of chicken feathers due to blind cross-border mergers and acquisitions, and the impairment of goodwill has not yet been completed. Now, many innovative biopharmaceutical companies and device founders understand that a new node has arrived.
Persuaded by Liu Hao, he is an entrepreneur who has been transformed from a scientist. Originally, the company had at least ten product pipelines, "and every one of them was like his child, and he wanted it." We say that a more mature product is like a boss, who goes to college in the United States, graduates, and finds a job on his own, so he can stay away from his parents, live independently and even start his own family in the future." Liu Hao continued to make an analogy, "Those earlier and more optimistic product lines are like young children of entrepreneurs, who are still in kindergarten and primary school, and need to be cared for at close range." ”
The scientist listened to the persuasion and spun off and reorganized some of the well-developed core assets, and obtained new capital injection support from the old shareholders, while he only acted as a minority shareholder in the above-mentioned spin-off enterprises, focusing more energy on the subdivisions he preferred. The cash proceeds from the sale of shares in the original company can be used to support the entrepreneur's earlier assets.
Spin-offs, restructurings, and mergers and acquisitions are all transactions that are much more complex than simple financial financing. For such changes, Ding Yameng believes that in the new decade of medical investment, it means a broader future. "Doing business solely on information asymmetry can be done if the efficiency is high enough. But in the new decade, what we have to accept is the test of the industry. ”
Complex transactions need to solve some difficult problems, and there are high requirements for managing the interests of multiple parties and the ability to design and conclude transactions. ”Wang Junfeng believes that the change in the role of investment banks to provide services for enterprises and investment institutions reflects the future trend of mergers and acquisitions and integration in this industry.
CVC**'s comprehensive acquisition of Xi'an Yikang is such a transaction. It is the largest pharmacy chain in Northwest China, with more than 1,600 stores by 2023, ranking eighth on the list of China's top 100 pharmacies. However, due to funding and other reasons, the development once encountered problems. In 2021, CVC** became a strategic investor in the company; In 2023, after concentrating on optimizing the shareholding structure of major shareholders, CVC acquired it 100%. Ding Yameng and his team followed up on both transactions throughout the process. "Now the company is doing well, the number of chain pharmacies has expanded to 1,700, and the number of registered members has exceeded 16 million. Ding Yameng said.
Morningside Ventures, which entered China in the 90s of the last century, is evaluating whether to hand over some of the companies it has invested in to industry integration. "Morningside has always been a long-term strategy, but realistically, not all companies are suitable for long-term ownership by a pure investment institution like ours. For example, some companies have drugs on the market, and I can't sell them at a big price, maybe Hengrui and Haosen can, so it is necessary to 'marry' it. Huang Lu said frankly to Caijing.
Although the capital winter, the leading enterprises still dare to make a move. Kangenbei, the largest traditional Chinese medicine company in Zhejiang Province, is looking for M&A opportunities. Hu Jiqiang, chairman of Kangenbei, said that the growth rate of China's pharmaceutical and health industry will enter a relatively flat era, and enterprises must go hand in hand with endogenous and external extensions, give full play to the power of capital, and accelerate development through mergers and acquisitions.
Conbay has stockpiled "ammunition" for mergers and acquisitions. In mid-2021, the company approached Haoyue Capital to seek to spin off its business segment Zhenzhiming, which is mainly engaged in ophthalmic drugs and consumer eye health. In December of the same year, cherished Ming to 16800 million yuan ** transfer of 42% equity, valuation of 4 billion yuan. It is reported that Zhenzhiming will launch an independent listing.
Seeking development through mergers and acquisitions has long been in place. In 2009, shortly after the global financial crisis, Aier Ophthalmology, which had just IPOs, started frequent mergers and acquisitions, from 19 hospitals at the time of listing to more than 700 ophthalmology hospitals and centers in 2021, with an annual outpatient volume of more than 10 million.
Similarly, there will be more mergers and acquisitions led by Chinese medical companies from 2023 to 2024. This time, they have gone further and moved to emerging markets such as South America, the Middle East, and Southeast Asia.
In 2023, in vitro diagnostics company Yikun Bio acquired Brazil's largest in vitro diagnostics company to fully accept its team, brand, and customer base. Zhang Sheng, the founder of the company, told Caijing, "After joining, we will transfer our chemiluminescence product line to Brazil, and we can complete the conversion of instrument reagents in mid-2024." It will also be the first local company to have such a production line. ”
In Southeast Asia, Yikun Biotech chose to build its own factory in Indonesia, localized from scratch and obtained the country's Good Manufacturing Practice Certificate, and it will also become the most complete and largest in vitro diagnostic company in Indonesia. "When there is a surplus of domestic supply and demand, it will definitely form a trend of collective overseas and global layout of enterprises. Wang Junfeng believes that both overseas licensing and mergers and acquisitions will become a new trend in China's medical investment in the next decade. At the end of 2023, Legend Capital, Pharmaron and CMS jointly completed the acquisition of a formulation R&D and manufacturing cooperation (CDMO) business facility in Singapore. The layout of business development (BD) in Southeast Asia and overseas began two years ago, which is also a plan for integration.
As Liu Hao said, medical investment in the past ten years has been an incremental opportunity; In the next ten years, the integration of increment and stock will be parallel, which will bring about the value reshaping of the entire industry and promote the overall value of the industry to be greatly improved. This will be the future road of China's medical industry in a new decade.