Daotong Investment: The Next Phase of Opportunities in the Healthcare Sector Revolves Around 'Technology + Security'

In 2023, the capital market continued to clear.

According to the "2023 Global Healthcare Investment and Financing Analysis Report," the total investment and financing in China's healthcare industry in 2023 was $10.9 billion, a significant decrease from $34 billion in 2021 and $15.6 billion in 2022.

In a volatile environment, most investment institutions have chosen to act cautiously and reduce their investment amounts. In contrast, Daotong Investment, a well-known medical investment institution in China, has not held back. Instead, in 2023, which is referred to as a "winter period," it has accelerated its investment frequency. Compared to 2022, the number of investment projects and the investment amount by Daotong Investment in 2023 have both increased.

According to statistics, VCBeat invested in multiple medical companies in 2023, including MacroLux, Bochuang Biotech, ICE, Shanghai Fuyi Medical Technology Co., Ltd., Jingqin Zhizao (Suzhou) Medical Technology Co., Ltd., Chengdu Hanchenguangyi Technology Co., Ltd., and Rhino Health. These investments cover various innovative fields such as neurointervention, endoscopy, medical robotics, seed technology, and high-end ophthalmic surgical equipment.

In addition to numerous high-quality projects, DaoTong Investment has also achieved other gains. In 2023, amid a cooling market environment where quality resources gradually concentrated in leading enterprises, multiple early-stage innovative projects that DaoTong previously invested in successfully completed financing rounds, validating its strategic foresight. For instance, Hanmi Medical (Chengdu Hanchenguangyi Technology Co., Ltd.), which DaoTong invested in during 2021, completed Series D financing of several hundred million yuan and an over 100-million-yuan Series E round within 2023. TRIASTEK, in which DaoTong invested in 2020, completed a 150-million-yuan Pre-Series C round in September 2023.

For 2024, how does DaoTong Investment make its assessment? What strategic adjustments will it implement? To address these questions, VCBeat interviewed Sun Qi, Founding Managing Partner of DaoTong Investment.

In the past two years, the total amount of investment and financing in the medical industry has dropped significantly, while the number of enterprises seeking financing has not decreased. This means that a portion of these enterprises will inevitably close down or shut off.

Sun Qi, the founding managing partner of Daotong Investment, gave an easy-to-understand example: "In the past, there were three bottles of water on the table, just enough for three people to drink. But now, three people only have one bottle of water, which is obviously not enough to share. This requires some people to leave, meaning some companies need to fail. This is a natural clearing process."

As of now, the market clearance in 2023 has not been thorough. Medical companies are relying on previous financing funds to stay afloat while adopting measures such as personnel optimization, cutting pipelines, and commercialization for self-rescue. Meanwhile, against the backdrop of a slowdown in capital market investment and financing, the market is experiencing a tale of two extremes: leading projects are attracting more high-quality resources and funding, while mid-tier and smaller enterprises are facing greater difficulties. Therefore,Dao Tong Investment Predicts Continued Consolidation in the Medical Industry in 2024。

Despite market volatility and challenges, DaoTong Investment remains optimistic about the healthcare industry in the long term.The reason is that Daotong Investment has seen the essence of the medical industry:

First, China's aging situation has not changed. It is expected that the incidence of "elderly diseases" will increase as the degree of aging deepens, and the demand for medical services will also grow.

Secondly, the government's attention and support for the medical industry have not changed. In the past two years, government departments have frequently issued policies to support the development of medical innovation technologies and innovative products.

Finally, the development of China's medical industry has reached a critical juncture for going global. An increasing number of companies are venturing overseas to seek larger and broader stages and opportunities. It is expected that a group of global medical giants from China will emerge in the future.

In addition,Dao Tong Investment believes: At present, the biopharmaceutical industry is generally in the bottom area, and most of the risks have been released.。

In the past, DaoTong Investment's key investment focus was on medical devices, with relatively less allocation in biopharmaceuticals. In 2024, DaoTong Investment believes that the biopharmaceutical sector will present more opportunities, especially with innovative drugs going global on a large scale and multinational corporations (MNCs) acquiring pipelines of domestically produced innovative drugs, all of which will bring new growth opportunities for China's biopharmaceutical enterprises.

Sun Qi stated: "For Dao Tong Investment, now is the right time to make a move. The lower the market, the more rational project valuations become, and the more investable projects there are. Moreover, unlike the secondary market, strategic positioning in the primary market requires 12 to 18 months. Institutions with keen foresight have already started thorough preparations and project investigations."

“My actions have already indicated my views on the future. In 2024, we still haven't chosen to lie flat.".\" Sun Qi told VCBeat.

At the current stage, funds and resources should be prioritized for allocation to areas that are needed by the country. Therefore, the strategy of VCBeat's Daotong Investment for 2024 is to focus on "Technology + Security" in its investment approach. Technology refers to hardcore innovative technologies, while security pertains to the key areas of national concern: "food security, energy security, and supply chain security." Specifically, in the medical field, this includes life science technologies and seed industry technologies related to food security, as well as industries such as biomaterials and scientific instruments that pertain to supply chain security.

Sun Qi believes: "Seeds are the chips of food. Take soybeans as an example. If a new soybean variety can increase the oil yield by 40%, then the area for soybean cultivation can be reduced by 40%. This reduced farmland can be used to grow staple food crops, ensuring food security."

Beyond "Technology + Safety," DaoTong Investment also values the overseas expansion capabilities of innovative enterprises.DaoTong Investment believes: With the development of medical technology, domestic companies have reached the right time to go global.In the past, China's garment industry, toy industry, home appliance industry, mobile phone industry, and new energy vehicle industry reached the pinnacle of product quality and cost-performance after fierce competition and internal refinement, gradually moving towards exports. Now, the innovative drug and medical device industries have also reached this stage.

Specifically, at this stage, competition in China's medical industry has intensified, and the business environment is harsh. Some high-cost companies or those not meeting market demands have already been eliminated. The companies still active in the market possess significant competitiveness. These companies have obvious advantages over foreign enterprises in terms of product performance and cost, giving them a strong chance of success when competing in overseas markets.

At the recently concluded JP Morgan Conference, many industry insiders shared the flourishing situation of China's innovative drug BD going global in 2023. They all believed that the licensing price of China's innovative drugs was significantly lower. This means that China's innovative drugs have tremendous room for future growth and broad prospects.

Therefore, Daotong Investment plans to regard the overseas capability as a standard feature of the invested companies.The global vision of the management team and overseas BD capabilities will become one of the investment evaluation criteria."This is a standard configuration condition, not an added bonus." Sun Qi stated, "For invested enterprises, Daotong Investment will help them address weaknesses and enhance their overseas capabilities."

In terms of overseas markets, VCBeat has observed that: In the past few years, due to changes in international relations, Chinese medical products have been highly favored in markets such as Eastern Europe and the Middle East. For instance, Mindray's growth rate in the Russian market has been notably significant.

For innovative companies about to enter the international market, Sun Qi advises: "First,Do not overly rely on overseas connections. The sale of medical products depends on channels, professionalism, and product performance.. Second,Do not bypass the agent at the beginning.。In fact, even today, some enterprises that have successfully expanded overseas still sell their products globally through cooperation with professional agents. Third, the most recognized feature of Chinese-made products is their cost-performance ratio and performance-to-price ratio. Therefore, innovative enterprises canLeverage cost advantages and product strengths to collaborate with agents and open up the market.。”

In 2024, another key focus of Daotong Investment is to stay close to the industry. In the past two years, national policy benefits have gradually tilted towards high-tech industries. In response, Daotong Investment has chosen to embrace the industry.Let limited resources serve the national strategy and invest in "what the market needs."+ Projects "needed by the country"。

Sun Qi stated, "Embracing the industry is not just about slogans. We will embrace the industry in all aspects of fundraising, investment, management, and exit, engage in in-depth exchanges with industry leaders, and strengthen cooperation."

As the IPO market experiences a phased tightening, mergers and acquisitions have become another important exit channel. "Currently, listed companies are sitting on massive cash flows, but only a small portion of it is being directed towards the real economy.As the investment and financing market cools down and innovative project valuations become more reasonable, it is expected that the M&A activities of listed companies will further increase. This opens another door for exits.". " In the interview, Sun Qi discussed his views on the trends in industry mergers and acquisitions.

In 2024, the market environment remains complex. DaoTong Investment believes that cross-industry integration is a way to self-rescue. At this stage, with scarce resources and the impact of R&D cycle factors, medical companies will face significant difficulties if they do not engage in cross-industry efforts. However, once a company masters a fundamental technology, it can explore various application scenarios.

Under the crisis, DaoTong Investment is still focusing on innovation. For the future, DaoTong Investment's expectation is "all in AI (Artificial Intelligence)."

Sun Qi said: "If there is any exciting systematic variable in the medical industry in the next decade, what we see now is AI."It will bring tremendous changes to all walks of life. AI is not just ChatGPT; AI will profoundly impact industries. In the healthcare sector, in addition to serving medical imaging and surgical navigation, AI products can also empower the research and development of medical devices and drugs."

In 2024, VCBeat continues to focus on the medical device sector while also exploring investment opportunities in upstream pharmaceuticals, scientific instruments, biomaterials, and other niche markets.

Nowadays,As the investment craze fades and the era of incremental growth comes to an end, opportunities still exist in the era of stockpiling.It is reported that there are nearly 10,000 innovative drug companies in China, which will bring structural opportunities to upstream pharmaceutical companies. In the past, pharmaceutical equipment and consumables were monopolized by imported brands, but with the changing market environment, companies urgently need to reduce costs and increase efficiency. In addition, considering supply chain security, domestic innovative drug companies will also consider domestically produced pharmaceutical equipment and consumables. However, all of this will take some time.

Scientific instruments and biomaterials are also markets with promising potential. Currently, both the scientific instrument and biomaterials markets are monopolized by overseas brands, with domestically produced products occupying an absolutely weak position. However, considering supply chain security, domestic companies must make breakthroughs in scientific instruments, biomaterials, and upstream core components to resolve the "bottleneck" challenges.

For innovative companies on how to face 2024, Daotong Investment's advice is "Hold on, focus, and innovate."。

Holding on means that companies should face challenges head-on, endure the tough times without retreating or giving up; focus refers to the need for companies to concentrate on areas where they excel and where there is demand, cultivating these areas deeply without venturing into unfamiliar fields; innovation means that companies must seek new business growth opportunities as well as innovate in their internal operational models.