I, an investor, think about Biotech's "way of living" in the hospital

When VCs and PEs flocked to universities to grab professors, Zeng Yu basically spent every weekend in the hospital and stayed with clinicians all day
.

Soaking in the clinical front line to understand and feel the real clinical needs has given Zeng Yu, the general manager of Phase Finance, a calm that is different from other medical investors
.

Zeng Yu in a hospital research, the interviewee provided a picture around 2015 began to invest in biomedicine, Zeng Yu personally experienced the biomedical capital "roller coaster", in the market madness, he is more willing to gaze at the 50 times, 100 times the return of the success of the case behind the larger shadow - that a large number of To VC, relying on PPT to continue to live pharmaceutical companies and pipelines will inevitably go to death, biomedicine is not as easy to make money
as imagined.

In 2018, the Hong Kong stock 18A ignited Biotech's financing and listing enthusiasm, and now, under the cold winter, Zeng Yu wants to lead everyone to recognize the reality and explore the tortuous way
forward together.
Is this cold winter? Zeng Yu's answer was categorical, he mentioned the "horizontal siphon" of the secondary market - hot money flowed to chips, semiconductors, new energy and even the meta-universe, all of which refused to patronize medical care, and first-level investors were ultimately powerless
to face the secondary market that did not buy it.

But for the coldness of capital, Zeng Yu did not comment at the
same time.
In fact, Zeng Yu even believes that the entire primary market is not short of money
.
The change of name of wealth owners has no effect on GP is nothing more than a longer fundraising time or a change in a wave of LPs
.
Ultimately, it's an element called "confidence" that binds this group of wealth managers
.

What is the purpose of insisting on biomedical investment? Zeng Yu was silent for a long time, and then gave an answer that surprised me a little - "If you really want to pursue something, it is still to invest in goodness, benefit patients, and let patients have medicines available
.
" The answer itself is unremarkable, and what surprises me is that it doesn't quite fit the pragmatic style he embodies throughout the interview, where idealism has always been a postcard for entrepreneurs, and among the investing population, it often comes
in the form of "scientist/entrepreneur is too idealistic" with a helpless tone.

But perhaps, this is the ultimate proposition of biomedical investment: every investment decision is full of various calculations and disputes, and even like buying vegetables in the vegetable market, it will be as calculating and bargaining as buying vegetables in the wet market, but when the interests and hilarity are exhausted, the future is full of uncertainty and challenges, but it is the ideal of "saving the world" that supports people to persist
on the road of biomedical investment.
Fortunately, in the face of the cold winter, Zeng Yu did not feel pessimistic, he has a unique and firm set of investment logic
.

The following is the conversation with Zeng Yu:

It won't be easy to shoot, and To VC's Biotech will die

It won't be easy to shoot, and To VC's Biotech will die

Pharmaceutical Cube Invest: In response to the cold winter of the industry, have investors reached a certain consensus?

Medical Cube Invest:

Yu Zeng: In China, LPs of different backgrounds have different demands and risk preferences, which will affect the decisions of GPs, and there are various investment topics in the capital market, so it is difficult for each family to form a consensus
on ideas.
But everyone tacitly formed a "consensus in action", that is, slow down, will not be easy to shoot
.
Fortunately, the exit channel is still there, and the science and technology innovation board and Hong Kong stocks are still open, but for us (including biotech), the last round of investment window is close to closing
.

Zeng Yu slowed down and would not shoot easily

Pharmaceutical Cube Invest: You said before that the current gold standard for capital to measure a biotech is cash flow, how did this small consensus come about?

Medicine Cube Invest

Zeng Yu: Under the cold winter of capital, the endogenous hematopoiesis of the enterprise is very important
.
Capital is not always patiently standing by the side of Biotech scientists and entrepreneurs, capital also has to obtain benefits for the LPs behind it, and the competitors of Biotech financing are in addition to other kinds of Biotech, next to a bunch of new energy, semiconductor projects are competing, which may be ignored by many Biotech
.
Since financing is more difficult, the company must have enough cash reserves on its books to "spend the winter"
.
Pharmaceutical Cube Invest: How did Biotech's funds come to an end? Zeng Yu: On the one hand, the capital winter came unexpectedly, the macro environment and market sentiment have undergone great changes, and the financing plan has been completely disrupted or even aborted; On the other hand, drug research and development is indeed burning money, some time ago the epidemic between China and the United States, or to do global multi-center clinical trials, calculate the clinical cost of an overseas patient to more than 100,000 US dollars, superimposed on the impact of the epidemic, patients are slow to join the group, so there is a huge sunk cost in the early stage, all of which is a test
for the cash reserves of biotech.
Pharmaceutical Cube Invest: How are the cash flow problems exposed? Zeng Yu: To be precise, it began
with the breakout of the listed companies of the 18A Hong Kong stock market and the continuous shrinkage of the market value.
Biotech must survive
before the product is successfully commercialized and profitable.
This problem has also attracted the attention of the investment community, before that, Biotech was listed, just like the drug has reached the clinical end point and obtained the listing approval, the investment of the investor will also land safely, just wait until the ban period to sell the stock, but did not expect that they were listed after a large-scale break or a long-term downturn in stock prices, affecting the exit
of capital.
Pharmaceutical Cube Invest: But the target internal volume is not a secret, why wait until the secondary market gives feedback to realize that it has gone astray?

Zeng Yu Pharmaceutical Rubik's Cube Invest Zeng Yu Pharmaceutical Rubik's Cube Invest Zeng Yu Pharmaceutical Rubik's Cube Invest

Zeng Yu: This is because everyone has different positions, resulting in an attention blind spot
.

Zeng Yu

For capital, we are considering the next round or multiple rounds of exit, we are most concerned about the black swan event, and it is the research and development of black swan event, the future sales are not in the scope of
many investors.
For entrepreneurs, the listing of drugs and the listing of companies has already been "meritorious and complete", and from the logic of enterprise development, listing originally meant that it had more financing tools to use, and could continue to develop pipelines or promote marketing investment
in listed drugs.
But in reality, there is a unique inverted phenomenon in the industry, that is, biotech is not very good before the listing, because you have a story to tell, but after going to the market, the secondary market does not listen to your story, and it can only compete for commercialization capabilities
.
The enterprise went to the market, in fact, lost the ability to raise funds, and the commercialization did not keep up, resulting in the company's survival crisis, and the market value continued to innovate low, which affected the investors to lift the ban and exit, which caused many concerns
.
Of course, there are many influencing factors in the secondary market, for example, market sentiment and money-making effects have led to a considerable part of the hot money turning to new energy vehicles, and the stock funds that have shrunk themselves have been drawn; In addition, global inflation, debt crisis, exchange rate fluctuations, etc.
, these are not our individual investors can influence or predict
.

Biotech did not raise funds well before going public, because you have a story to tell, but after going to the market, the secondary market does not listen to your story, and it can only compete for commercialization capabilities

Pharmaceutical Cube Invest: Following China's biomedicine from hot to cold, what enlightenment has the capital side obtained?

Medicine Cube Invest

Zeng Yu: I have followed around 2015 in the past few years, the biggest revelation is that this line is not as easy to make money as imagined, the story is 50 times, 100 times the income, but behind these successful cases there are many To VC but no transaction value of the pharmaceutical companies and pipelines to die
。 Moreover, we must not ignore the social attributes of the biomedical industry, which makes Chinese investors and Biotech consider the two-vote system, medical insurance negotiations, etc.
It is significantly different from the complete market-oriented pricing of European and American medicine, because of this difference in social attributes, so we have medical insurance control fees and
collections.
At the same time, our ability to pay is also different from Europe and the United States, we do not currently have a strong commercial insurance to cover and support the commercialization of some drugs, such as rare disease drugs, cell therapy drugs, etc
.
Whether it is Biotech or investors, we certainly cherish the differences between Chinese and foreign markets, but the specific impact of these differences before was not so deeply felt
.
In the past, we thought that a drug to achieve NDA has been completed, but now we find that after a drug is listed, the Biotech it belongs to is far from success, not to mention the net profit, and it can't even form the revenue
predicted at that time.
Third, our value judgment of Biotech has gradually transitioned from a combination of products and pipelines to a technology platform
.

Behind these several successful cases, Zeng Yu has many To VC pharmaceutical companies and pipelines that have no transaction value to die

Invest: Why is there such a shift?

Medicine Cube Invest

Zeng Yu: Let's first look back at why China has the embarrassment of target involution, one of the reasons is that we are too pursuing new targets in the first class, but there are fewer new targets for medicine, our basic research and exploration of disease mechanisms are relatively weak, and companies habitually choose fast follow, so some Biotech FIC is actually fast follow, but some old targets are simply recombined
。 But since the end of 2019, many biomedical funds, including us, have noticed that in fact, technology platform companies like Rongchang Bio can break this barrier, and its ADC platform has been very successful
.
However, in contrast, the platform enterprises that are not very smooth have not formed a real platform, but the new bottle of old wine, taking the old path of combining targets, so there is a fundamental difference between
the platform of combination targets and the platform of source innovation.
That's why
we want to make a validation judgment on the platform.

Zeng Yu

Winter Dafa: delay listing, optimize pipelines, suspend overseas clinics, and exert BD

Winter Dafa: delay listing, optimize pipelines, suspend overseas clinics, and exert BD

Pharmaceutical Cube Invest: Have you affected your own fundraising?

Medicine Cube Invest

Zeng Yu: Our fundraising is relatively smooth, we are a veteran new fund, the performance is relatively stable, and the LP is more assured
.

Zeng Yu

Pharmaceutical Cube Invest: So GPs are not short of money?

Medicine Cube Invest

Zeng Yu: Yes, the owners of wealth will change, LPs may change their names, but the market is not short of money
.
The excellent GPs in the market are still constantly reporting the news of
over-recruitment.

Zeng Yu

Pharmaceutical Cube Invest: So why not have money?

Medicine Cube Invest

Zeng Yu: The market is not short of money, but the mood and confidence of the market have changed
.
Wait-and-see itself is a risk-averse act
.
What we value most as investors is exit
.
Commercialization can only be a consideration
for us when it comes to going public or exiting.
A few years ago, I participated in a company, from the perspective of capital, the listing needs compliance sales, we suggested that the company cut the gray channel, less than 5% of the revenue, of course, the follow-up through the new compliance channel to
make up for it.
But in the final analysis, my performance is to earn income by turning into old stocks, the secondary market is sluggish, the market value is affected, the income from exit is discounted, the performance is affected, the money-making effect is weak, the fundraising is becoming more and more difficult, there is no way to replenish ammunition, and it will naturally be tied
.

Zeng Yu, as an investor, is the most important thing for us to exit

Medicine Cube Invest: What about timing? Last year, there was a voice urging companies to go public quickly, otherwise they would not be able to go public
.

Medicine Cube Invest

Zeng Yu: There is never a shortage of stories of "killing chickens and taking eggs" in the
market.
Now that Biotechs are generally underperforming on the secondary market, my suggestion is to delay the market
first.
This is the consensus of many investment institutions and Biotech, at this point, the interests of both sides are the same, because you can't raise funds when you go up, it's easy to hang upside down, Davis double kill is not scratching the itch
.

Zeng Yu because you can't raise funds because you went up, it's easy to hang upside down, and Davis double killing is not scratching an itch

Pharmaceutical Cube Invest: Originally the company should have been listed and raised according to the schedule, but now it is spent here, where does the expenditure come from?

Medicine Cube Invest

Zeng Yu: This is a very real problem, as an investment institution, we will advise enterprises to optimize pipelines, highlight the key points, save expenses, in addition, we will also suggest that they temporarily close overseas clinics to save the next part of the funds, which is a very common practice, and enterprises themselves will take the initiative to adjust
.
Since open source is difficult, let's throttle first
.

Zeng Yu

Pharmaceutical Cube Invest: If you close overseas clinics, for companies that want to go global, isn't his story a lot less?

Medicine Cube Invest

Zeng Yu: I don't think so
.
The temporary adjustment of international multi-center clinical is only an adjustment of business strategy, and will not affect the value of pipelines
.
Stubbornly insisting on doing international multi-center clinical practice in the current financing environment is unrealistic, and in the end it may lead to the inability to promote domestic and foreign clinics, it is possible that the money is gone, the team is disbanded, and the people and money are empty
.
On the other hand, companies can spend more time and energy on doing BD to form a license out, so that everyone can share the risk and share the cost of
research and development.
I strongly encourage biotech to do license out
.
Investors also check the quality
of transactions at the board level.

Zeng Yu

Pharmaceutical Cube Invest: Why do you want to do BD? In your opinion, what kind of transaction is of good quality and what kind of quality is bad?

Medicine Cube Invest

Zeng Yu: BD is a process of
communication game.
First of all, we must have a rational judgment on the value and risk of the pipeline, such as double antibody, the risk is large, and the research and development cost is high
.
So, if we successfully license out, we share the risk and R&D costs, which can not only bring shareholder benefits but also reduce the burden on
the enterprise.
At the same time, there is also a down payment
.
The down payment is able to obtain cash flow without diluting the equity, which is itself endogenous hematopoiesis
.
Finally, now that your pipeline can license out, the value of the product itself will be verified by the industry, which in turn will make it smoother
in the next round of financing.
Investors also adhere to the same logic
.
Enterprises first license the product out, and then come to finance, investment institutions will have a higher degree of recognition of you
.

Zeng Yu

Pharmaceutical Cube Invest: Will you help companies connect related resources?

Pharmaceutical Cube Invest: Will you help companies connect related resources?

Zeng Yu: It must be needed, and I think this kind of empowering companionship is very critical for biomedical companies
.
It itself requires different resources at different stages, including our portfolio projects, and we will also help him introduce clinical resources
.

Zeng Yu

Pharmaceutical Cube Invest: Is this a circle of friends economy?

Pharmaceutical Cube Invest: Is this a circle of friends economy?

Zeng Yu: This belongs to post-investment empowerment and ecological construction
.
You may only see how our investment institutions approach project investment projects, but as investors, we ourselves are also in large contact with different resources, and we also take the initiative to establish and maintain the ecosystem
needed for the development of biomedical enterprises.
Like my personal weekends, I basically spend time with scientists and doctors to communicate with each other
.
In this ecosystem, we investors sometimes pay more attention to industry trends than clinicians, understand clinical needs better than entrepreneurs, and there are important clinical developments in the industry, and I will communicate
with doctors for the first time.

Zeng Yu

At the same time, communicating more in the hospital will also make me more aware of the urgent need for clinical practice, because I spend more time on the clinical frontline, fieldwork, Field Research is always more grounded
than retrieving literature.
Doing so can make up for the gap in investors' cognition as much as possible, more respect for life sciences, and fear of investment, why do I dare to invest in certain projects? Because I was with the clinician, I could find out if there was a clinical need for the drug and what the current situation of Best Care for this indication was
.

What kind of projects are considered good projects?

What kind of projects are considered good projects?

Pharmaceutical Rubik's Cube Invest: Part of the reason for the internal volume of the industry is the containment of GP, some LPs think that China's GP is too homogeneous and lacks market competitiveness.

Medicine Cube Invest

Zeng Yu: LP is also in the inner volume
.
I think it's the LP's inner volume that causes a structural imbalance in some of the GPs, and if the GPs are too dependent on a certain type of LP, then their projects are relatively homogeneous
.
For example, with the government guidance fund as the main LP part of the fund, in order to complete the investment indicators, state-funded preservation and appreciation requirements or return investment requirements, GP may invest in many low-risk pre-IPO projects or invest in some projects in some areas of the molecular companies
.
This will make a large amount of money concentrated in a specific stage in a specific region, and many potential early projects may not get money, which will eventually lead to a mismatch of funds and a structural imbalance
in the industry.

Zeng Yu

Pharmaceutical Cube Invest: So how do you evaluate the risk tolerance of Phase Finance?

Medicine Cube Invest

Zeng Yu: We are still in the growth stage, but I think our risk tolerance should be medium
.
Why? Because we dare to invest in angel projects, at this stage, we are also very determined to look at early projects, but focus on the areas where I am good at controllable
.
And, we've never invested in a Pre-IPO project
.
Moreover, from the perspective of capital attributes, the LP composition of the financing capital is relatively diversified and the pressure is relatively small
.

Zeng Yu

Invest: You just said that the next step is to look at the early project, how early? Will you go into the lab?

Medicine Cube Invest

Zeng Yu: Recently, there are several phenomena in the industry that have been ridiculed, relying on the periodic table to find projects, punching in major university laboratories to rob professors, what does this mean? Explain the projects on the market, many lack of novelty, capital has aesthetic fatigue
.
So some VCs are looking for another way to do some exploration
.
This is part of the VC's way of playing, we will not save up for the project in this way for the time being, we enter the hospital and laboratory more to maintain the ecosystem
.

Zeng Yu

Invest: Do you lack a project with room for imagination?

Medicine Cube Invest

Zeng Yu: An imaginative project? Imaginary space is not easy to measure, but the disease map in China and around the world is constantly changing, and it will certainly lead to new investment opportunities
.
I also communicated with my peers the other day, saying that this is the time when we have the most opportunities since we were engaged in investment, but at the same time, the worst time in the environment, the so-called crisis and opportunity coexist
.
Now our biomedical infrastructure such as CXO, CDMO, preparations, delivery, model biology, etc.
are already very complete, so it will naturally give birth to a lot of investment opportunities
.

Zeng Yu

Pharmaceutical Rubik's Cube Invest: So if I am an entrepreneur and take the PPT to you for financing, what is your decision-making process and judgment criteria?

Medicine Cube Invest

Zeng Yu: We still start from the main pipeline to judge the value of
the technology platform.
We will also compare similar pipelines or competitors at home and abroad, but the domestic leadership is not convincing, Go Global is attractive
.
At the same time, we will focus on the pharmaceutical process and the mechanism
of action of the drug.
We prefer to adopt a judgment logic based on the mechanism of action of drugs, which is not the same as the investment logic oriented to the "new target" FIC
.
The target combination is only superficial, but the disease mechanism and drug onset mechanism are determined and verifiable, and you cannot say that gastric cancer does not express CLDN18.
2, nor can you say that lymphoma does not express CD19
.
I want to clarify the mechanism of the disease first, the urgent need for clinical needs is ultimately the needs of the disease, and we will verify whether the clinical needs are established
.
Why should I spend my weekends in the hospital and with clinicians, because there is a real clinical need
.
The principles of evidence-based medicine not only apply to clinical research and development, but also guide investment behavior very specifically
.

Zeng Yu

Pharmaceutical Cube Invest: But this set of logic is still cast by CLDN 18.
2 and CD19, which are homogeneous targets
.

Medicine Cube Invest

Zeng Yu: But the clinical application of drugs is likely to be innovative
.
Our logic is very clear: let your platform say the sky, I want to see the pathogenesis of the indications corresponding to your main pipeline
.
We believe that at the application level, any clinical urgent need is false when the disease mechanism is not clear, at least in the short term
.
Some drugs that target diseases with unknown mechanisms have a much
higher probability of failure.
In terms of specific judgments, we are targeting clinical needs, or even just some kind of clinical scenario
.
A drug A we invested in, did not squeeze hot tumor indications with similar products, but turned to a chronic disease, then it corresponds to chronic disease management and precision medicine in the scene, which is separated
from other homes at the application level.

Zeng Yu

Invest: How long is your judgment cycle?

Medicine Cube Invest

Zeng Yu: It takes about two weeks from getting the BP to finally deciding whether to follow up, and there are 8 people in the group, basically all of them online
.
We will consider a variety of risks, such as commercialization prospects, the cost of drugs, application populations, expansion channels, and so on
.

Zeng Yu

Invest: What about gene therapy for rare diseases, how do you judge? What are the current concerns?

Medicine Cube Invest

Zeng Yu: Rare diseases are more special, not so much that we pay attention to rare diseases, but that we are concerned about the gene editing track that has entered the verification stage from rare diseases, which is a new round of technological revolution
.
Gene editing, we are going to throw
early.
But patent issues are a big risk point, and if companies can't solve the intellectual property problems of gene-editing-related products, we won't do it
.
Once intellectual property goes wrong, then our investment and hard work will be lost
.
In addition, the long-term effects of gene editing need to be observed, and safety needs to be tested over time, especially in heart or brain diseases, including off-target effects
.
Embryonic gene editing also involves ethical issues
.

Zeng Yu

Pharmaceutical Cube Invest: If a scientist who wants to start a business comes to you, what is your judgment logic?

Medicine Cube Invest

Zeng Yu: First of all, it depends on whether you are original or license-in
.
License-in is currently not much considered, since the IPO of Haihe Pharmaceutical was rejected, the story of pure license-in has not made sense, of course, if the market space of the product is huge or the company's follow-up research and development capabilities are outstanding, it is another matter
.
Second, look at the scientist's resume
.
In the past, there has been successful research and development experience, such as a doctor in Guangzhou who once sold products to more than 1 billion US dollars, such scientists have a good background and high
gold content.
If this scientist had only been doing research in colleges and universities for decades, his gold content as an entrepreneur would not be high
.
In our view, scientists, clinicians, and entrepreneurs are three types of people, and the strength of scientists is their research ability, but their research tends to focus on a very small area, such as the pharmacokinetics of a compound, then drug toxicology, delivery, APIs and dosage forms may be unfamiliar to him, so they will be highly dependent on CXO
.
It is needless to say that the subsequent commercialization of the drug is used
.
Therefore, scientists naturally have high risks in starting a business, which is why we choose scientists who have been brilliant, and he knows what kind of resources can be used to do laboratory research, clinical, production and commercialization
.

Zeng Yu

Pharmaceutical Cube Invest: So scientists starting a business, or have to put together "capital + scientists who have successful research and development experience + good drugs" to quickly push it to the IPO, right?

Medicine Cube Invest

Zeng Yu: This is a very, very ideal situation, and in reality it is not easy
to put together this combination.
In addition, the original intention of most scientists is not to start an IPO, but to turn their scientific research results into drugs to benefit more patients, and they need to have patient capital to work together
.
Capital needs more patience on this road, scientists need to be more open to capital and other resources, and the IPO is a milestone, not the end
of everyone.

Zeng Yu