Fosun Rejuvenation New Drug Fund's Cui Zhiping: Secondary Market Poised for Recovery, Strategic Windows Critical in Times of Crisis

“For innovative drugs, each round of financing needs to cover the funding requirements for the next 1 to 1.5 years, ensuring the normal progress of R&D. Therefore, during the capital winter of the past few years, half of our fund team’s time was spent helping our 10 portfolio biotech companies secure financing, basically at a pace of one round per year. Thanks to various measures, our portfolio biotechs now maintain healthy cash flows, with several having enough reserves to support 1.5 years of R&D.”"Looking back at healthcare investments in recent years," emphasized Cui Zhiping, Global Partner of Fosun and General Manager of the New Drug Innovation Fund under Fosun Health Capital.

Established in June 2020, the Fosun Health Capital New Drug Innovation Fund (hereinafter referred to as the “Fosun New Drug Fund”) has an initial size of RMB 1.5 billion. Focusing on significant unmet clinical needs, it is dedicated to translating potentially breakthrough therapies in fields such as gene therapy, cell therapy, and large-molecule drugs, with the goal of becoming a benchmark for corporate venture capital (CVC) in China’s biopharmaceutical industry. Within three years, the Fosun New Drug Fund incubated ten biotech companies in the innovative drug and medical aesthetics sectors at a “3-2-5” pace. Portfolio companies include BioMingSai, Xingming Youjian, and Xingao Tuowei, among others, with multiple products already having entered clinical trials.

As internal R&D innovation, represented by Henlius, steadily gains momentum, the New Drug Innovation Fund has enabled Fosun Pharma to explore a new model of external innovation, termed the “Greenfield Incubation Model.” Cui Zhiping stated, “Domestic incubators have actually undergone several rounds of upgrading, from Version 1.0 focused on space leasing, to Version 2.0 offering administrative services, and then to Version 3.0 involving participation in corporate governance. The Version 4.0 model we have launched is essentially an incubation model empowered by the combined forces of industrial investment and industrial operations.”

As a “young” fund, how does Fosun Health Capital’s New Drug Innovation Fund implement its distinctive incubation model? Amidst the contrasting realities of a capital winter, stalled IPOs, and the surging tide of business development (BD) deals for innovative drugs, how will the New Drug Fund team seize opportunities during this new cycle of crisis? VCBeat engages in an in-depth dialogue with Cui Zhiping, reflecting on the path traveled while embarking on a new journey.

VCBeat:From what perspectives does the “Greenfield Incubation Model” approach the enhancement of incubation success rates and industrial operation conversion efficiency?

Cui Zhiping:The greenfield incubation model is actually aDeep Incubation and Strengthening Post-Investment Value-Added Services. We work in the same building as our portfolio companies, with our dedicated fund teams deeply involved in every aspect of their operations—from major strategic matters such as financing planning, pipeline development, and commercialization strategies, to minor administrative tasks like logo design and bank account opening. From a macro perspective, we primarily provide empowerment in three key areas:

First and foremost,Help These 10 Biotechs Secure Financing in the Market. Each company establishes a “Joint Financing Team” with the fund team, whose members collaborate to ensure R&D funding coverage for one year or even up to 18 months. Secondly,Empowering companies from the perspectives of exit strategies and global expansion, requiring each company to introduce strategic investors to prepare for future exits., we will invite major domestic pharmaceutical companies and relevant strategic investors to attend project roadshows, as they may potentially become exit buyers in the future.

The third point isConnecting Biotech with the Right ResourcesTaking commercialization as an example, most of our projects are rooted in original innovation. We assist enterprises in making informed decisions regarding commercialization pathways, fund selection, and industrial park placement, helping them identify resources with a sci-tech innovation mindset—or what is known as “patient capital”—to support original innovations from 0 to 1 and from 1 to 10. Our fund team has long been at the forefront, possessing in-depth understanding of markets, policies, and partners across various provinces and cities, thereby delivering efficient services to enterprises.

VCBeat:Under the new incubation model, what adjustments have been made to the team structure and professional development of the Fosun Health Capital New Drug Fund?

Cui Zhiping:The essence of team iteration is also an upgrade of the fund’s business model. In the past, the team was structured such that pre-investment, post-investment, and exit activities were handled by three separate teams. However, based on my experience, this approach has shortcomings in execution, division of labor, and performance measurement.Therefore, the current model of the New Drug Innovation Fund is that a single team manages the entire process—investment, financing, management, and exit—for each individual project.

Small teams that are deeply integrated with projects have high demands for professionalism, which will directly impact the development of Biotech companies. WeEstablish a three-person investment and financing team for each project: Lead A is an experienced professional with a comprehensive understanding of the healthcare industry, possessing expertise in both investment and management, and directly oversees the implementation of invested projects; Associate B primarily provides support in transactions and investment; Associate C primarily offers technical assistance.In selecting team members, we strive for a balanced composition that includes expertise in pharmacy, genetics, and immunology. This aligns with the innovative product areas that have been the primary focus in recent years and enables us to cover the majority of current innovative drug development tracks through such a combination.

In practice, small teams have proven to be more effective, with clear accountability systems and transparent performance metrics from investment to exit. Meanwhile, one-on-one, long-term engagement by small investment and financing teams reduces communication costs and enhances management efficiency.

VCBeat: Given the specific context of difficult IPO exits and a capital winter, through which entry points has the Fosun Health Capital fund team helped companies navigate these challenges?

Cui Zhiping:Around mid-2020, we observed a downward trend in U.S. biotech IPOs, while the domestic market remained overheated. Consequently, we decided to apply the brakes ahead of time:

First,The Pause in Biotech’s Capital-Intensive ExpansionAt that time, China was experiencing a surge of interest in cell and gene therapy (CGT). Several portfolio companies planned to build pilot-scale production facilities, but we advised them to halt these plans—a decision that later proved to be extremely prudent. We should now fully leverage China’s cost advantages to conduct R&D. Similarly, the development of startup teams should proceed step by step, rather than starting with the immediate establishment of a high-cost, elite team.

The second point isBalancing the Conflict Between Pipeline Length and Strategic Resource Allocation. A single pipeline must advance at a rapid pace; otherwise, the capital market will not assign valuations to lagging candidates at the time of exit. We engage with biotech companies to manage the pace of pipeline development and strategic layout—for instance, limiting clinical entry to one pipeline per year to adhere to a strict timeline. Some companies already have multiple pipelines,Concentrate limited resources on leading sectors to accelerate the growth of core assets。

The third point isThe investment and financing team must align ideologically and synchronize efforts with the founding team.From a market perspective, investment logic should be integrated into corporate strategy to reflect market-oriented shifts. Investors are agile in the market; by leveraging frontline market intelligence and emerging trends, they help biotech companies adapt to market changes and align their strategic directions with market demands.

The fourth point isTo sell product varieties, it is necessary not only to cut costs but also to expand revenue streams.Through various measures, none of the 10 companies we invested in experienced a cash flow rupture; their cash reserves are essentially sufficient to support R&D for the next year.Certainly, regarding how these companies will develop in the future, the traditional model involved progressing from 0 to 1, then scaling from 1 to 10, and ultimately exiting. We also hope to jointly explore new business models, particularly as we enter the recovery phase of the crisis.

VCBeat: Four years after its establishment, what are the investment results of Fosun Health Capital’s new drug fund? Amid the upsurge in business development (BD) and global expansion, have the criteria for selecting investment targets changed?

Cui Zhiping:Over the past four years, a total of 10 companies have secured Phase I funding. The pace during the three-year period followed a “3-2-5” pattern, which was slightly slower than the previously projected “3-3-4” timeline.Priority will be given to candidates who are overseas returnees, recipients of the National Science Fund for Distinguished Young Scholars, or professors. To help scientific and technological achievements cross the “valley of death” with a 30% failure rate, it is essential to first exercise strict due diligence on partners and technologies, while also identifying large markets and unmet clinical needs in terms of targets and technologies. Finally, the founding team should possess an entrepreneurial spirit or demonstrate the potential to grow into entrepreneurs in the future.

In terms of tapping into existing stock, we still focus more onSource Innovationprojects, such as breakthroughs in disease mechanisms and new technologies. During the initial contact phase, we commission third-party laboratories to conduct validation experiments on preliminary results. Only after these preliminary findings have been successfully replicated do we proceed with project implementation, thereby mitigating, to some extent, the risks associated with the “Valley of Death” in the translation of scientific research outcomes.

From a decision-making perspective, the underlying logic for selecting investment targets has remained unchanged; it is still— Large market, unmet clinical needs, and competitive leadershipThese three points. What differentiates them is,Amid the confluence of the BD boom and the capital winter, biotech companies need to identify key market hotspots.Taking delivery technology as an example, there are many potential avenues to pursue; however, a lack of funding for clinical trials would result in the waste of many early-stage achievements. Therefore, in practiceAlign with investors, adjust strategies promptly in response to market trends and unforeseen events, and rapidly reallocate resources.Incubation involves deeper engagement than early-stage investment; in practice, these adjustments are subtle and occur on a daily basis.

VCBeat: What are the key factors enabling Fosun Health Capital to maintain counter-trend growth amid the industry winter?

Cui Zhiping:Over the past four years, the fund has reached its mid-development stage. Given its lifecycle comprising a four-year investment period and a three-year exit period, we have just completed the investment phase and are gradually transitioning into the exit and post-exit stages.All initially targeted projects have been successfully implemented. We engaged with the majority of these companies at the angel or incubation stages, when their valuations were still low. Consequently, from the perspective of fund performance, the return on investment has been strong, ranging approximately from 40% to 65%. In summary, the key lies in our strategy: maintaining focus rather than adopting a scattered approach, and continuously empowering biotech companies through multi-faceted support.

VCBeat: With exit challenges persisting and diversified exit strategies such as NewCos becoming increasingly prevalent, how does Fosun Health Capital determine the optimal timing for exits? Under what circumstances are diversified exit strategies applicable?

Cui Zhiping:First, the concept of “beginning with the end in mind” must be established at the project initiation stage. At the outset, consideration should be given to the future exit strategy for the project: whether it will be taken public through an IPO, sold to a multinational corporation (MNC), or acquired by a major domestic pharmaceutical company.When pursuing an IPO, or filing an Investigational New Drug (IND) application or a New Drug Application (NDA), achieving a global ranking of second or third and a domestic ranking of first or second is essential to secure a competitive advantage and avoid difficulties during exit. If a drug candidate targets a disease or application scenario where therapies already exist, and merely represents an improvement or iteration on existing treatments, its market share must be captured from the originator drugs and the existing market size, which is inherently limited. Therefore,We require all our portfolio companies to establish their own in-house business development (BD) teams. Our fund has hired a Head of BD in the U.S., who is currently engaging with nearly all multinational corporations (MNCs), with multiple license-out projects under negotiation.

Second, exit. In essence, only multinational corporations (MNCs) possess true global marketing capabilities sufficient to cover the global market, making them the ultimate exit route.For biotech companies, an initial public offering (IPO) is merely a phased financing strategy; ultimately, they may be acquired outright and taken private by multinational corporations (MNCs). I believe that in the future, mergers and acquisitions (M&A), rather than IPOs, will become the mainstream exit route for Chinese biotech firms.Therefore, the fund has targeted approximately 2–3 portfolio companies to pursue initial public offerings (IPOs), with the remaining 70% exiting through mergers and acquisitions.

When certain projects of an enterprise have good data,License-out is undoubtedly the prevailing model at present, as genuine innovation must be accompanied by an internationalization strategy; relying solely on the Chinese market is insufficient.Going global primarily involves several key aspects: conducting clinical trials abroad, securing regulatory approval for market launch, and establishing independent marketing and sales channels. To date, few large Chinese pharmaceutical companies possess such capabilities.

The essence of the NewCo model lies in capital investors stepping in before multinational corporations (MNCs) acquire an innovative drug asset, leveraging financial resources to advance the asset from Milestone A to the next Milestone B or C. This progression ensures the asset meets MNCs’ acquisition criteria, thereby enabling investors to reap returns. Naturally, this approach imposes higher professional demands on investors, such as understanding which disease areas, technological tracks, and development stages MNCs prefer. Otherwise, pursuing the NewCo model would merely entail wasted effort and capital without yielding tangible results.

Furthermore, under new models such as NewCo, there were previously no plans in place for product license-out transactions or the receipt of overseas income. As such deals become more frequent, we are observing that stakeholders are beginning to establish early-stage agreements, such as specifying the proportion of proceeds allocated for exit versus those retained by the company to fund ongoing R&D.

VCBeat: When will the secondary market for innovative drugs recover?

Cui Zhiping:My personal assessment is that interest rate cuts are first and foremost necessary. As the downward trajectory of interest rates emerges, domestic economic revitalization plans will also gain momentum, with priority given to stabilizing the secondary market, the housing market, and the real estate sector. Once many investors from the previous cycle successfully exit, capital will flow back into the primary market through this recycling mechanism. The overall process, transmitting warmth from the secondary market to the primary market, should take six months to a year.Further extrapolating, I believe that private equity and venture capital will enter a recovery phase in Q3 and Q4 of next year.

Our team is composed of veteran Fosun members who collectively navigated the 2008 U.S. financial crisis. During the recovery phase, we consecutively invested in several projects in the United States, achieving substantial returns. With valuations at historic lows upon entry, these companies faced no risk of breaking their issue price during post-crisis IPOs and enjoyed ease in securing financing. It was a highly rewarding experience.Much like the stock market in late September and early October, which experienced a rapid surge, many investors are also fearful of missing out. Numerous secondary market investors have realized that they need to deploy capital before Q2 of next year; otherwise, valuations in the primary market could rise significantly in the second half of next year.

This has become evident to all: having navigated through crises and accumulated increasingly rich experience, we are gradually becoming adept at identifying the phased windows and opportunities that arise under different crisis conditions, which is a positive development.

VCBeat: What new strategic initiatives and trends will Fosun Health Capital’s New Drug Fund pursue in 2025?

Cui Zhiping:We are currently raising funds, targeting venture capital funds.Phase II will commence next year. Compared to the current Phase I, Phase II will feature an expanded scope: in terms of technical direction, it will extend into additional foundational tracks and disease areas (such as cardiovascular and CNS disorders), while strengthening presence in high-demand sectors already established during Phase I (including oncology, medical aesthetics, immunology, and metabolism). Furthermore, it will achieve deeper coverage within therapeutic areas where prior experience has been accumulated., for instance, we already have a single-product siRNA offering, but we have not yet invested in siRNA platform technologies or other niche segments within the oligonucleotide therapeutics space.

Expanding coverage to new technology platforms also serves to continuously enhance the team’s judgment and professional expertise. Leveraging our practical experience and industry insights, we are better positioned to precisely identify the most promising technological pathways for specific diseases. Furthermore, as the fund enters its exit phase this year, we have already achieved partial exits from one portfolio company, while negotiations for a second exit are underway. These developments serve as strong motivation for our team.

Based on the greenfield incubation model, the development of Phase I and Phase II represents a process of gradual accumulation leading to significant breakthroughs. By consistently operating under the unified brand of the Fosun Health New Drug Fund, performance achievements will consolidate, thereby establishing an innovative drug ecosystem for Fosun Health Capital across all dimensions.