Hefei Bets on Nearly 60 Early-Stage Biopharma Targets: Can It Land a 'NIO' in Healthcare?

Recently,Marathon PharmaSuccessfully listed on the ChiNext Board of the Shenzhen Stock Exchange,This is the first listed company in Anhui's CRO field, and also the fifth listed pharmaceutical enterprise in Hefei in the past three years.。

Compared to the secondary market, the pharmaceutical field in Hefei is even more active in the primary market. According to incomplete statistics from the VCBeat database,In the past three years, Hefei has completed 60 financings in the pharmaceutical field, covering more than 50 pharmaceutical enterprises.. However, this is just the tip of the iceberg, with many more investment projects beneath the surface. According to a person from a state-owned enterprise in Hefei, "Our pharmaceutical team currently has nearly 10 investment managers, each of whom basically handles three or four pharmaceutical projects.”

It is not difficult to see from this that Hefei has invested heavily in the pharmaceutical field in recent years. However, in fact, Hefei's reputation in recent years has not been due to pharmaceuticals, but rather thanks to three "bold bets" on BOE, Changxin Storage, and NIO. It is precisely because of this that Hefei has earned the reputation of being a "venture capital city." Rapidly replicating the "Hefei Model" has also become something that some provinces and cities hope to achieve in recent years.

However, so far, there haven't been any particularly successful cases reported. On the contrary, there are quite a few盲目上马 (blindly initiated) projects. This is because good investment and business attraction must be a specific product of a particular time. A business attraction officer who has handled several investment projects in Hefei stated,Even in Hefei, if given another chance, there's no guarantee of certain success.。

Therefore, when Hefei shifts its investment focus heavily towards the pharmaceutical industry, everyone has a question in mind, namelyCan Hefei's "immense prosperity" extend to the pharmaceutical field? This is highly anticipated.。

Over the past decade, Hefei has made significant investments such as delaying subway construction to bet on BOE, injecting billions into Changxin Memory Technologies, and partnering with strategic investors to take over NIO. These moves have not only rapidly elevated the city into the trillion-yuan output club but also nurtured three national-level strategic emerging industry clusters: new display devices, integrated circuits, and artificial intelligence.

However, after several years of rapid development, many leading industries have now become mature at this stage. Taking new display devices as an example, with the gathering of leading enterprises such as BOE, Visionox, and Corning, Hefei has now become the most complete industrial chain and the most advanced technology cluster in China's new display industry. The annual output value has exceeded 100 billion yuan, of which the main business revenue of liquid crystal display devices accounts for more than one-fifth of China.

As the advantageous industries are gradually approaching their ceiling, Hefei is also actively seeking the next potential market, and the focus quickly turned to the biopharmaceutical field. This is partly because the pharmaceutical industry possesses strong hard-tech attributes.On the other hand, its massive market volume can fully support Hefei to move forward further.。

So, how did Hefei manage to break through in the pharmaceutical industry? It all started with a "failed case."

In 2013, Hefei announced a collaboration with PKU Vcan Group to jointly invest 20 billion yuan in building a pharmaceutical industrial park in Hefei. Reportedly, one significant reason for Hefei’s choice to partner with Vcan was its association with the backing of Peking University and the prestige of being a listed company. However, things did not go as planned. In 2019, due to a broken capital chain, Vcan Group declared bankruptcy reorganization. The latest update on what remains for Hefei came in January this year when Vcan Pharmaceuticals’ wholly-owned subsidiary, Hefei Vcan, proposed selling real estate and parking spaces to revitalize inefficient assets.

Hefei, after hitting a wall at Weiming, gradually realized that relying solely on a halo to drive investment in the pharmaceutical industry is clearly unworkable. This is because the unique characteristics of the pharmaceutical industry make it difficult for any single star company to drive the horizontal development of the entire industrial chain.

In this regard, Huang Kaixian, CEO of Dentafilm, which has been established in Hefei for five years, has deep feelings. He told VCBeat, "Biomedicine is somewhat different from semiconductors and new energy vehicles. Although the market size is large for all of them, biomedicine covers a wider range of fields. In other words..."The industry dimension is broader and more complex. Unlike semiconductors or new energy vehicles, their upstream and downstream industries are very clear and vertical, making them relatively easier to construct.。”

Therefore,For Hefei, if it wants to develop the pharmaceuticals industry, it cannot simply replicate the introduction models of BOE and NIO. Instead, it should integrate local industrial resources and incubate startup projects from scratch., which the investment community has been mentioning in recent years" Invest Early, Invest Small, Invest in Hard Tech "。

By observing the data, VCBeat found that Hefei has been consistently following this industrial logic for focused deployment in recent years. According to incomplete statistics,In nearly 60 financings completed in the pharmaceuticals field in Hefei over the past three years, the proportion of investments prior to Series A reached 68.21%, with coverage of drugs and medical devices accounting for 95%., and most of them are popular fields in recent years, including AI healthcare, innovative drugs, imaging equipment, and so on.

In this regard, a person from Hefei State-owned Assets Holding Company Limited mentioned, "Currently, in the pharmaceutical sector, Hefei is not putting significant effort into relocating the headquarters of a large enterprise. The reasons are twofold: the operational difficulty is high, and the risks are substantial. In the past year or two, Hefei has focused more on itself, primarily nurturing its own pharmaceutical industry ecosystem. Within this ecosystem, it aims to cultivate promising companies and promote them to become industry leaders, thereby integrating the upstream and downstream industrial chains."

And behind this, the presence of Hefei State-owned Assets Holding Company Limited cannot be ignored. According to incomplete statistics from the VCBeat database,Hefei Industrial Investment, Hefei Venture Capital, Hefei High Tech InvestmentA group of local state-owned enterprises in Hefei, represented by [specific entity if needed], have completed 30 financings in the pharmaceuticals sector over the past three years, accounting for more than half of their total investments.And most of them are early-stage investments prior to Series A.。

Figure 1. Hefei State-owned Assets Pharmaceutical Investment Situation in the Past Three Years (Data Source: VCBeat)

Recently, the Hefei Industry Investment Science and Innovation Seed Fund, with a total scale of 500 million yuan, has been officially inaugurated. The first batch of 13 fund partners have signed agreements collectively, marking another expansion of Hefei's seed fund. The total scale of the fund has increased to 1 billion yuan and will focus on the construction of industrial clusters such as biomedicine and healthcare. This indicates that Hefei's state-owned capital continues to strengthen its investment in the pharmaceutical field.

“Hefei started a bit late in the pharmaceuticals sector." ", this is a sigh from a state-owned assets person about the current state of Hefei's pharmaceuticals industry.

However, the fact is indeed so. Suzhou, a city adjacent to Hefei, now has a pharmaceutical industry output value exceeding 200 billion yuan and has given birth to a world-class biopharmaceutical industrial park like BioBAY. Tracing back to its origin, the starting point lies in the establishment of Yuanhe Holdings in 2007. During the same period, Hefei was still entangled in the "love-hate relationship" with BOE.

Fast forward to 2020, China's pharmaceutical industry is ushering in its second wave of development. However, by this time, Hefei had already focused all its energy on NIO, as the company’s funding chain had broken and its lowest stock price was only $1.19, nearly touching the delisting red line. Hence, even founder Li Bin joked multiple times that Hefei had moved NIO from the "intensive care unit" to a "general ward."

Although, from the final results, both BOE and NIO have become typical investment cases for Hefei, the city missed two development opportunities. Looking at the pharmaceutical industry now, the situation has completely changed. Entering 2023, the entire pharmaceutical market continues to be sluggish. Startups are struggling to secure financing, while companies in the medium-to-late stages face significant challenges in going public. Recently, multiple pharmaceutical enterprises have announced the termination of their IPOs. Of course, investors are not faring much better either—fundraising difficulties have intensified, good projects are scarce and highly competitive, and it has become common for investment decision meetings to not be held for half a year.

Therefore, Hefei, going against the wind, must demonstrate more genuine capabilities if it wants to gain the upper hand by tackling the hard bone of the pharmaceutical industry.

Looking at the core elements of pharmaceutical industry development, Hefei's first key advantage is the University of Science and Technology of China.As the only "Double First Class" university directly under the Chinese Academy of Sciences in China, USTC represents超强的科研实力以及全球顶尖的科研资源. It is reported that USTC has maintained the first place among C9 universities for 11 consecutive years in terms of the average citation of SCI papers. Additionally, its NI index has consistently ranked among the top ten universities globally and reached fifth place in 2022.

In addition, the University of Science and Technology of China (USTC) has been strengthening its cooperation with hospitals in recent years. In 2017, it incorporated the Anhui Provincial Hospital as an affiliated hospital, establishing the First Affiliated Hospital of the University of Science and Technology of China. This not only provides clinical scenarios for pharmaceutical research and development but also promotes the cultivation of more high-end versatile talents in the medical field. All of this means that a large number of pharmaceutical projects will enter the market in the future, which, to a certain extent, ensures the source of projects.

But good projects ultimately require talent to support them, so Hefei's second trump card in the pharmaceuticals industry is its talent resources.According to the recently released "2022 Annual Report on Urban Vitality in China," Hefei is the city with the highest resident population growth rate among new first-tier cities over the past three years, with an increase of 13.3%. Specifically, regarding growth methods, one aspect is migration growth, with Hefei's migration growth reaching 135,000 people in 2022; on the other hand, it is local retention. Taking college graduates as an example, according to government data, the employment rate of graduates who stayed in Anhui Province reached 74.2% in 2022, hitting a record high.

In this VCBeat survey of multiple pharmaceutical companies in Hefei, when discussing why they chose to establish themselves in Hefei, all mentioned the city's advantages in talent density and depth, which are largely due to Hefei's recent understanding of talent demand.

Dentafilm CEO Huang Kaixian told VCBeat, "In recent years, I personally feel that the entire employment landscape in Hefei is becoming broader. On one hand, various national-level research institutions have been established, providing platforms for R&D talent. On the industrial side, there are not only leading companies but also a large number of emerging startups to choose from. In addition, Hefei's talent policies, supporting measures, and benefits are continuously improving, enhancing its appeal to top talents."

However, having good projects and talented people is not enough. For the pharmaceutical industry, a favorable industrial environment and supporting facilities are also crucial. This happens to be Hefei's final trump card, but it needs to be viewed from multiple dimensions.

On the one hand, at the government level, through the successful cases of BOE and NIO, the industry not only feels the boldness and determination of the Hefei government in investment projects but also recognizes its professionalism and efficiency. According to insiders, the Hefei Investment Promotion Bureau compiles a report every year.《Hefei Key Industry Investment Promotion Guide》, which not only references a large number of literature and industry reports, providing professional and detailed analysis for each细分 industry, but also annually adjusts its content based on industrial trends.

Besides self-improvement, the Hefei government is also highly adept at leveraging external forces to enhance its professional capabilities. In order to involve individuals who truly understand technology and industry in the operation of investment projects, Hefei has pioneered the introduction of university talent on temporary assignment. Over 20 professors and associate professors from universities in Hefei have been directly appointed as investment advisors. Additionally, a top expert database in target industries has been established to provide intellectual support for scientific decision-making.

Figure 2. Number of registered funds in Hefei from 2018 to 2023 (Data source: Zero2IPO)

It is precisely because of this that Hefei has more confidence and flexibility when investing in pharmaceutical projects. In Dentafilm Medical's past several investment events, Hefei State-owned Assets Holding Company Limited has almost always been involved. Regarding this, Huang Kaixian expressed deep feelings: "Compared with other institutions, Hefei State-owned Assets Holding Company Limited is quite different."The first point is that they are more aggressive than market-oriented institutions, with a very high level of desire for projects; the second point is that they are highly professional, having corresponding funds for projects at different stages, and the entire operation process—from pre-investment, during investment, to post-investment—fully adheres to market principles; the third point is that they have strong inclusiveness towards projects, especially when projects encounter difficulties, they will do their utmost to provide support.。”

In other words, Hefei has already formed"State Funding + Professional Operation + Market Exit"The advanced model.

In this regard, other provinces and cities might also be able to learn by gritting their teeth and making an effort.But one thing about Hefei cannot be learned by other provinces and cities, which is its unique geographical advantage.。

It is reported that Hefei is currently participating in the cooperative action plan for the capital cities of the middle reaches of the Yangtze River urban agglomeration, while also being incorporated into the national strategy for the integrated development of the Yangtze River Delta. It stands alongside Nanjing and Hangzhou as a sub-central city in the Yangtze River Delta urban agglomeration. In short,Hefei Has a "High-quality Circle of Friends", which will inevitably have a synergistic effect on the development of Hefei's pharmaceuticals industry.

In recent years, as the pharmaceutical markets in Shanghai and Suzhou have reached a certain height, they have gradually become saturated. A large number of projects are rapidly relocating to inland cities. Hefei, which is within the "circle of friends," undoubtedly has a first-mover advantage, making it more attractive to pharmaceutical projects from Shanghai and Suzhou.

Taking a specific scenario as an example, from the perspective of population geography, Hefei is located at the central position east of the Hu Huanyong Line. The most direct significance of this central location is the reduction of logistics costs. Before establishing a base in Hefei, Wang Dongsheng, the founder of BOE, calculated that producing in Hefei could save about 4,000 yuan per vehicle in logistics expenses, including inbound logistics and complete vehicle logistics. Thus, for 1 million vehicles, it would save up to 4 billion yuan.The reason behind this is that the average distance from Hefei to the destinations of mainstream consumers is the shortest.。

Therefore, the outward attraction of Hefei's pharmaceutical industry is becoming increasingly evident, and a person from Hefei State-owned Assets Holding Company Limited deeply agrees with this.In the past year or two, a number of pharmaceutical projects from Shanghai and Suzhou have ultimately chosen to settle in Hefei. The considerations behind this include proximity to the core customer base and effective control of operating costs. However, the most crucial factor is that, compared to Shanghai and Suzhou, Hefei currently offers greater and more focused support for these projects.。”

Of course, in addition to these, Hefei also has the support of carriers in the pharmaceuticals industry, such as incubators and pharmaceutical industrial parks. Moreover, "USTC Silicon Valley," which was established last year and focuses on the transformation of innovative achievements, is also one of Hefei's important advantages in promoting the pharmaceuticals industry.

Looking at things should not be one-sided; in the development of the pharmaceuticals industry, Hefei also has some concerns and anxieties.。

According to insiders, although Hefei currently lists the pharmaceuticals industry as a key development direction and has also incorporated it into..."Chip-Screen-Auto-Integration" "Urgent-Lifelong-Intelligence"An important part of the phenomenal industrial landmark, but due to the high risk and long return cycle of the pharmaceutical industry, coupled with Hefei's insufficient professional capabilities and industrial accumulation in this field,Therefore, Hefei will not aggressively promote this industry at this stage but will remain cautious, continue to observe, and mainly follow up on investments., hoping to find opportunities amidst constant market changes.

 Figure 3. Analysis of Hefei's "Chip, Screen, Auto, Integration" and "Urgent, Lifelong, Intelligence" Industries

This also means that, on the storyline of Hefei's pharmaceutical industry development, there may not be dramatic episodes like BOE or NIO. Instead, it is more likely to involve gradual adjustments and steady accumulation.

However, this also happens to fit the industrial logic of Hefei itself.Although many people believe that Hefei's recent success was achieved overnight and resulted from an "all-in" gamble, the fact is that Hefei carefully considered its moves before taking any risks and had already made strategic preparations in advance.。

Taking Hefei's introduction of the University of Science and Technology of China (USTC) as an exampleIn 1970, as key universities in Beijing were relocating, the University of Science and Technology of China (USTC) eventually settled in Hefei. However, at that time, Hefei faced shortages of materials and harsh conditions, often unable to meet USTC's needs. Therefore, during the first few years after moving to Hefei, USTC continuously considered relocating again.

Even so, Hefei has always shown the utmost sincerity to the University of Science and Technology of China (USTC). Not only did it build a railway directly to the university's entrance, but even amid power shortages, Hefei still prioritized USTC for electricity supply over the provincial government. Moreover, although Hefei, located south of the Huai River, does not have central heating, it still ensured heating for the USTC campus. In the end, USTC remained in Hefei and later became the best university in Hefei and even Anhui Province. This is considered the most successful investment in Hefei's investment history, with multiple industries in Hefei owing their development to this pivotal investment.

In fact, Hefei's "bet" on BOE was no different. Although at that time, what everyone saw was a loss-making and poorly selling "hot potato," for Hefei, if it didn't take a firm grip on this production line, those TV enterprises might relocate closer to the LCD production base to reduce logistics costs, which would be a fatal blow to Hefei's position in the home appliance manufacturing industry. Hence, the determination of the Hefei Municipal Committee: "Even if we have to sell everything we own, we must make this happen."

Therefore, at present, standing in the pharmaceuticals market, rather than saying Hefei is waiting for a "NIO" or a "BOE" in the pharmaceutical field, it is more accurate to say that Hefei is waiting for another opportunity to take a "big gamble."。

1. "By Skill or By Luck? The Rise of Hefei, the Venture Capital City" — Caijing Xinzhi;

2. "Becoming China's 'Venture Capital City,' Hefei Isn't Just Relying on Bold Bets" — VCBeat;

3. "Jianghuai Hasn't Turned a Profit, but Hefei Is Already Winning Big" —— Far-River Research Institute.