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This is the first trough
experienced by China's innovative drug investment.
After nearly a year of malaise, industry sentiment finally began to pull back from the helplessness of mourning greater than death, and the entire secondary market pharmaceutical sector led the market
on Friday.
Many people in the industry began to summarize this round of crisis, and cheered up to think about the past, present and future of Chinese medicine, which may be the starting point
for the power of people to play a role in adversity.
Recently, Li Xiaoqing (a pseudonym, please don't call Li Xiaoqing), an observer who is familiar with the field of Chinese biomedical venture capital, shared her understanding and reflection on the current round of cold wave with Invest, who has gone through 20 years with China Pharmaceutical and is currently engaged in medical investment in
a large comprehensive fund.
Li Xiaoqing has experienced the complete cycle of China's innovative drugs since 2015, maintained close exchanges with many founders and pharmaceutical investors, and has unique thinking
about the current round of crisis.
She analyzed that there are 40% of the better quality assets in the industry, but the industry actually kills 80-90% by mistake, resulting in 20-30% of projects being wrongly killed
.
This point is different from the view of Li Ming (pseudonym), a senior medical practitioner before
.
From a capital perspective, Li Xiaoqing explained why various funds have stood by and watched biotechs who are struggling on the death line, arguing that the bursting of the bubble is not the only factor, and that emotional contagion and human fragility and greed have played an absurd but non-negligible role
.
In the crisis, talent, technology, capital, information, and experience are still circulating and looking for an outlet
.
She observed that there is always a part of contrarian capital in the current trend of social chasing up and killing pan-industry investment, and this kind of medical-centered and long-term value investment-oriented capital is likely to be a new force
to repair Biotech's valuation and lead biotech out of the trough.
In order to preserve the complete view of the interviewee, InvestPharm Cube restored the conversation
as completely as possible.
However, this article only represents the personal views of the interviewees, and aims to discuss and exchange the difficulties and solutions of the industry, and does not constitute any investment advice
.
Here is a conversation with Li Xiaoqing:
.
Reason cannot bind human nature
Reason cannot bind human natureInvest: Now all projects are very low, and some funds still have incomplete KPIs, so why don't you sell? Previously, respondents believed that many funds only look at and do not invest because of emotions, do you agree with this statement?
Invest: Li Xiaoqing: Let's not talk about the industry itself, for the action of "capital cannot make a move", emotions almost play a decisive role, because Chinese funds have always seen the wind and steered, chasing the rise and killing the fall, even if they know that semiconductors, new energy, and the meta-universe are bubbles, and even know that this year is at the highest point of the bubble, they have to chase, because their nature is so, and they can't help themselves
.
Biomedicine, which is in the ebb and flow of the first round of bubbles, its competitors are last year's semiconductors and this year's new energy
.
Invest: Why can't you help yourself? Bubbles, highs, aren't they what to avoid?
Invest Li Xiaoqing: When the wind blows in the circle, as an investment institution that thinks or is considered to have a "head and face", if you don't talk about a hot project or a gathering with friends, you don't talk about it
。 At the dinner, Mr.
Wang said that he invested in new energy, Mr.
Li said that he invested in semiconductors and meta-universe, and talked about it is either Wei Guangzheng, or emerging fashionable hot concepts, you said that I recently invested in xx medicine, the first two also read the news of the drug circle in the circle of friends, and immediately reacted to answer - "Is it the biomedicine that is extremely difficult to lay off employees, sell yourself, bubble, involution, breakage, broken, cold winter, low tide, cost control, price reduction, centralized procurement, and commercialization?" ”
。 How embarrassing
.
The role of emotions is like a silent spiral, biomedicine is in the "cold winter", even if you see a good project, you can't invest
.
The trend means that LPs who have chased up institutions for a considerable period of time have high exposure and like to watch general financial news, and will also come to ask you, "Recently, medicine is not good, new energy is very hot, do you want to take a look?" "The money is from someone, which implies that you can pretend not to understand?"
.
Invest: Investors are extremely smart, why are they so irrational?
Invest Li Xiaoqing: The laws in economics textbooks are just those, and the really unpredictable, controllable, and breakthrough part is human nature
.
Reason cannot bind human nature
.
Investors are both made and bound by the past
.
China's biomedicine has only started in 15 years, 18 years has Hong Kong stocks 18A, in just four or five years, the newcomers are still immature, the old people are addicted to the past, how many people can really lean down and eat through pharmaceutical investment? Moreover, even if the front-line investors can calm down, what about the investment committee? What about LPs? In fact, front-line investors can only dance
in shackles in the tide of chasing the rise and killing.
Invest: Isn't there a contrarian leak like Buffett?
Invest Li Xiaoqing: Yes
.
Industry funds and industry capital that can't run, they can't go to semiconductors, new energy and metaverse, and even if the new crown and industrial situation are no longer uncertain, no matter how difficult it is to be aggrieved, after the fundraising is completed, your KPIs must also be completed, and you must get it
.
So almost everyone in the industry will learn to speak Buffett's words, but almost none of them can make Buffett
.
Therefore, there are indeed some new, small funds or industry capital that have taken the opportunity to occupy the territory, such as an emerging medical front-line institution, the upward momentum is very strong, they shot 20 times in 2020, nearly 40 times last year, is the most sold year since its establishment, this year there are also a lot of shots, and indeed caught a good target, the so-called luck
.
Invest: That chasing the rise and killing the fall is both universal, isn't most investors taking over the market?
Invest Li Xiaoqing: This tests the cognitive level and judgment ability of investors and investment
committees.
Because the ups and downs are relative, you are betting on the growth of
a project.
A simple example, if a project A takes 6 years to reach the clinical phase III listing, the valuation assumption at the time of IPO is 1.
5-2 billion US dollars
.
Let's assume that the project is okay, so when you will enter and how much valuation will be appropriate
for the angel round.
If you come up and give a valuation of 100 million US dollars, the final cost will be diluted to 2-300 million US dollars, and the return will be listed after 6-7 years
.
But this is the status quo of some institutions indiscriminately investing, how do you let the middle rounds live? This is one of the reasons why valuations are now inflated, no one
in the middle is investing, and the bubble is large.
Who doesn't understand
such a simple truth.
But in reality, investors can't control themselves, the atmosphere has been baked here, and who do you love in
the next few rounds.
Enterprises and capital must have a rational understanding of the project, you are not worth so much money
at this stage.
If this project gives a valuation of 200 million to 300 million yuan before IIIT, this will open up about 3 times more space, and everyone will earn
money with different rounds of financing in different clinical stages later.
Invest: Is the founder losing money if the valuation is suppressed?
Invest Li Xiaoqing: It would be nice if you issued more ESOP later, but in this way you share the risks and returns with investors
.
Invest: So why not press it in reality?
Invest Li Xiaoqing: Human nature is greedy, and when the atmosphere is baked here, investors will become blind
.
Invest: Doesn't the investment committee help digest the risk?
Invest Li Xiaoqing: Not all members of the investment committee understand medical care, and I personally believe that they do not help digest the risk, but help "too much", and the investment committee has too low expectations and weak tolerance for medical and pharmaceutical risks
.
The biomedical industry is still high-risk and high-reward in nature, and Chinese LP\GPs want to fight for high returns with 0 risks, either because of good fate, or with wizards, or as they are now, they are hedging all the way, chasing the rise and killing, and collapsing
the whole game.
reset
resetInvest: Financing many mid-to-late-stage projects is indeed very difficult now, do you also think that there is a wrongful killing situation in this cold wave? If so, what would be the percentage?
Invest Li Xiaoqing: This round of bubble is only half, if it kills 890 percent, then about 20%-30% of the projects will be wrongly killed to a certain extent
.
Invest: If you save them, how do you find these wrongfully killed projects?
Invest Li Xiaoqing: Many biotechs are actually good targets after optimizing and trimming
pipelines.
Good projects are very vague, the team is experienced, the market positioning is accurate, and the products are competitive, but the specific judgment process is extremely personalized, and there is no unified formula
.
Invest: After all, the capital that can be sold is limited, if the company lays off employees and cuts salaries and cuts pipelines and lines are all done, or can not be financed?
Invest Li Xiaoqing: Projects that cannot be saved must be prepared for
merger or larger integration.
Integration with each other or mergers and acquisitions
by big pharma.
The integration of
the two small biotechs can further optimize the pipeline and staffing, and it is possible to produce synergistic effects.
I have observed that there are also investors who join pharmaceutical companies as BDs or CIOs, and big pharma companies also have the opportunity to find high-quality assets in this wave of
crisis.
The industry should not look at the transfer, merger and acquisition, and restructuring of projects through colored glasses, judge the situation, and choose the opportunity, which is the business itself
.
In a crisis, talent, technology, capital, information, and experience will flow everywhere, and a shuffle is inevitable
.
Some time ago, there was a transfer of biotech production base and the transfer of late-clinical projects, which I think are very good cooperation optimizations and should not be sneered
.
.
In a crisis, talent, technology, capital, information, and experience will flow everywhere, and a shuffle is inevitable
Invest: So, according to your observations, there are still opportunities in this cold winter, and these opportunities are likely to fall into the hands of industrial funds and industry capital, right?
Invest Li Xiaoqing: I am also familiar with
industrial funds.
Although they are not typical investment funds, they have their own funds, such as stone medicine, which is very good at seizing opportunities
.
Big funds are on the fire, fearing the end, chasing the rise and killing the fall, and although industrial funds and industry capital are forced to enter the game under the pressure of industry position attributes, they happen to pick up leaks at the wrong peak, which is happening
.
Invest: Looking at the present from a medium- to long-term perspective, how should we understand the stage
of China's biomedicine now? There is a view that after 15 years, the time is right, the place is right, the people are there, but your industry is still followed, or has not made anything good?
Li Xiaoqing: Didn't you make something good? As far as the product is concerned, even if the volume is like PD1, do we make the drug? With medicine, there is a price reduction, the people can afford to use special drugs, you must know that when PD1 was first listed, foreign companies are expected to sell 10 billion yuan a year in China, if you do not have a benchmark product, no matter how high the price is, don't you also have to buy? The fast-follow shortening the time difference with foreign products and defending the pricing power of China's oncology drugs should be recorded in
the credit book.
This is the contribution
of our industry to society and people.
Moreover, the average research and development cycle of a new drug is eight to ten years, and China's innovative drugs are less than 7 years now, the median project cycle is only three or four years, and the clinical practice is still done.
Many excellent clinical products will be synchronized internationally in the future, and can also be exported overseas to earn foreign exchange
.
Medicine is the most strictly regulated product, and the characteristics of the industry are so fast
.
Even the criticized license-in, these new pharmacists have made intellectual contributions, if they did not discover good projects, can China's big pharmaceutical companies find it themselves? Before that, how many billions of IQ taxes did a large Chinese pharmaceutical company's BD pay for blindly introducing overseas projects? Moreover, through this round of experience, our software and hardware for research and development, production and sales have risen, isn't this progress? The chip semiconductor industry has invested nearly trillions in recent years, nearly ten times the investment of the entire pharmaceutical industry, and what have they done? The money burned out, but they could hardly even do me-too, and they did not solve many "stuck neck" problems; But our medical industry has looked down on me-too, and are doing me-better, even first-in-class! Therefore, there is no need to completely negate the results of industrial development because of the problems encountered now, and the industry itself should not be arrogant
.
But then again, we are indeed in a period of change and adjustment, and the era of following innovation created by foreign executives and industry leaders using experience to monetize has passed, and the problem we face is how to open the real era of
technological innovation.
Invest: Is there any technological innovation? Doesn't it mean that there are fewer and fewer druggable targets?
Invest Li Xiaoqing: Of course there is
.
Targets are difficult to find, but targets are not all, just like the first three common ADCs, old target new technologies, also amazing the world
.
Others such as PRO-TAC, CGT and nuclear drugs, these are new drugs based on known pathways and targets, through the technology horizontally expand the application prospects, a technological breakthrough will split a new track, it still has a huge imagination space
.
Invest: But it's another new bubble
.
Li Xiaoqing: This is the capital cycle, and skilled investors should use their cognitive judgment to lay out as much as possible before the boom comes, rather than waiting for the water to rise and then go in to chase the hot spot
.
Many funds like to blindly follow the investment, but those super first-line funds, their own amount of funds are there, so much money, they must invest, but can your general fund support this kind of casting net investment? Moreover, the comprehensive fund is not flexible enough, and in this cold wave, it is not that front-line medical investors do not want to invest, nor that there are no good projects, but that the investment committee is dragging down front-line investors by
catching up with the wind.
If other funds don't have the same tightening spell, why should they swing with the wind? It is not advisable to blindly follow the trend, and every investment institution should have a precise strategy
that suits them.
Long-term value investing can't just be
talked.
.
The IPO overdrew expectations, and confidence is the most important thing now
The IPO overdrew expectations, and confidence is the most important thing nowInvest: Just talked about technology-led innovation, but technology is generally in the hands of scientists, and the investment community generally believes that scientists are not suitable for entrepreneurship, how can scientists release the technological dividends of scientists?
Invest Li Xiaoqing: It's
good to find a reliable co-founder.
Of course, scientific founders must at least have an open mind
.
If you want to play the role of science, it is mainly based on the founders of science, supplemented by industrial co-founders, the former responsible for technological innovation, the latter responsible for implementation and transformation
.
Again, the days when industry leaders monetized by experience are over, because you don't have anything original.
Invest: What kind of industry co-founder can be called "reliable"?
Invest Li Xiaoqing: Broad-minded, with more than 5 years of industry experience, at least know how to start the project, and startups should also consider cost performance
.
Invest: How do you understand the conflict between investors and founders? Founders are generally relatively pure, but capital will let companies whose products are not yet mature to buy land, build factories, and do biopharma, are investors' hands stretched too long?
Invest Li Xiaoqing: Of course, products are important, but entrepreneurship is not only products, founders must also control the relationship between enterprises and the environment, take advantage of the trend, and follow the trend
.
When the market was good, you had so much money on your account, if you didn't expand, you would fall behind, which was due to
the environment.
If this boom continues for a few years, the ideals that are now ridiculed may not succeed
.
Now that the environment has changed, it is normal
that you have to lose weight in time.
The founder has the bitterness of the founder, and the investor has the helplessness of the investor, but mature investors are always cautious and take a long-term view, after all, people have real money smashed into it
.
And post-investment management is very important, some projects, if investors do not polish, are likely to be folded in the
halfway.
Invest: Do front-line pharmaceutical investors have such capabilities?
Invest Li Xiaoqing: China's innovative drugs are young, and investment in innovative drugs is younger
than that of the industry.
Except for a few industrial funds, other capital are following this wave of boom from TMT, consumption to kill in, compared with the original track, biomedical assets are indeed cheap, but after the hot money comes in, it drives up prices, the tide rises, and industrial capital cannot be helped
.
Moreover, as far as the front-line investment team is concerned, the problem of "children out of school" mentioned by the founder of Biotech in your article is indeed a reality
.
The industry is expanding rapidly, and the pharmaceutical investment industry has indeed poured in many new people, some funds have not done medical treatment before, and when they see that medicine is on fire, they have recruited several biomedical doctors, postdoctoral and hurriedly formed a group to the front
.
These PhDs who have just left school and have no industry experience are already very "specialized", but the problem is that the children are a little "specialized", too technical, lack of flexible multi-dimensional perspective, and newcomers are eager to make contributions, the project will be relatively rough, and eventually chicken feathers
.
And at present, I have not seen any investment institution with a very standard and mature training process, all of which are masters and apprentices, so in the "apprenticeship" in the previous years, children should not be anxious, their mentality should be flat, do not be arrogant, and they should lean down and follow the project
steadfastly.
Invest: But in the same cold winter, the financing rounds of US pharmaceutical companies are still relatively balanced, why is the difference between the Chinese and American markets so large? How can people get along with the founder, the rounds before and after, the first and second levels?
Invest Li Xiaoqing: The rules of the US market are relatively mature, they have experienced bubbles, the mentality of investors and founders is relatively stable, how many shares should part-time scientific consultants take, how much valuation should be given to animal data, and how much clinical phase should be given, all of which have relatively mature experience
.
Moreover, their exit is also relatively smooth, the company can be listed very early, although the valuation is not high, but the market value will fluctuate significantly with clinical progress and data disclosure.
Different stages have different valuations, coupled with more silky exit channels, so that investors will have more room for operation, I invested from preclinical to clinical phase II, the company is listed, I can sell stocks to earn this wave of money, although the valuation is not high, but if the later phase III clinical results are particularly good, then it can rise another 10 times, this step earns the money
of phase III clinical.
Invest: Why can't China do what the U.
S.
does?
Li Xiaoqing: The exit channel is not smooth
.
In China, the expectations of biopharmaceutical companies at each stage are unreasonable, and IPOs are portrayed as a sign of corporate success, attracting too much attention and overdrawing expectations
of follow-up clinical progress.
Therefore, in China, as long as it is a policy that leads to exit, it can always cause capital carnival, such as this year's equipment
.
But to be honest, as soon as the fifth set of policies of the science and technology innovation board came out, the bubble came, and next year it must be a wave of equipment listing, and then the market value fell and lost blood pre-IPO, because the reasonable market value is around
4-5 billion.
If investors want to obtain excess returns, they still have to predict in advance and make arrangements
before the hot spots.
Invest: To sum up, there are still good projects in the industry, whether it is funds or the industry has money, how should the industry recover from this wave of downturn?
Invest Li Xiaoqing: The most important thing at the moment is confidence, and information is more important
than gold.
Rich funds, if they want to fight for their position in the industry at this time, have a
chance.
I believe that time will prove that now is a good time
to pan for gold.
This is the first big trough after the official start of China's biomedicine, and biomedicine is a long-term cause that benefits mankind, and short-term twists and turns will definitely pass, I hope all parties will give the industry more understanding and confidence
.
