GenFund Capital's Qianye Liu: Seeking 'Ahead of the Curve' Opportunities in a Downturn

Over the past two years, the biopharmaceutical sector has endured a dismal downturn. It is easy to go with the flow and remain passive, but it is particularly challenging to filter out macroeconomic noise and maintain momentum against headwinds. In this environment, uncovering value not only tests investors’ strategic logic but also their courage.

Among the many venture capital firms in healthcare, Bencao Capital is one of the few institutions that have managed to maintain their own pace during an economic downturn.

During the challenging winters of 2022 and 2023, Bencao Capital successfully closed investments in numerous projects, including high-quality ventures such as Naxi Optoelectronics, Junhemeng Biotechnology, and Qingyuan Nongguan. These achievements not only marked breakthroughs in cutting-edge technologies but also facilitated the large-scale commercialization of multiple products.

Recently, VCBeat held a dialogue with Liu Qianye, Founding Partner of Bencao Capital, in an effort to clear the fog surrounding the healthcare sector and chart a course for the year ahead.

Q: Amid headwinds, how does Bencao Capital strategize its investment layout?

A: The healthcare sector is vast and deep. Our focus primarily centers on two major categories: one is “Biotech,” which, as the name suggests, refers to companies involved in innovative drug development; the other is “TechBio,” representing cross-disciplinary technological integration, particularly the convergence of IT and AI technologies with life sciences in recent years. Neither category takes precedence over the other; what matters most is whether the companies within these sectors can maintain cutting-edge, high-barrier, globally leading technologies while tangibly improving efficiency in practical applications. Since we are not overly fixated on specific niche subsectors, we can still identify and invest in promising companies even when the broader macroeconomic environment is less than ideal.

In the TechBio sector, take super-resolution microscopy—a critical research tool—as an example. Eikon, a U.S.-based company, has developed this technology into a proprietary platform for its pharmaceutical R&D, securing over $700 million in investment and attracting prominent figures such as Roger Perlmutter. Nearly simultaneously, Dr. Li Dong of the Chinese Academy of Sciences founded Naxi Technology, which independently developed and designed high-end microscopic imaging systems supporting super-resolution live-cell imaging. This innovation addressed a key weakness in China’s high-end optical microscopy equipment sector and made the technology accessible to major Chinese research institutions, thereby advancing biological research in China.

Revisiting Generative AI, Which Gained Prominence in Late 2022. Before this technology became widely known, Subtle Medical had already applied it to reconstruct MRI and PET images, focusing on AI-enhanced medical imaging. The company achieved notable commercial success by offering SaaS services for existing large-scale imaging equipment in North America and Europe. Another example is the AI-powered medical device platform invested in last year.

We have maintained continuous investment in the biopharmaceutical sector. Although our investment pace has moderated slightly over the past two years, we remain actively engaged in strategic positioning, including incubating and founding innovative small-molecule drug companies focused on CNS disorders, chronic diseases, and other areas. Furthermore, we have begun to expand into synthetic biology, bio-agriculture, and consumer-oriented medical-grade products, such as recombinant botulinum toxin for aesthetic medicine. The recombinant protein technology used in recombinant botulinum toxin falls within the scope of biopharmaceuticals; however, its application scenarios differ from those of traditional biopharmaceuticals and possess certain consumer attributes, which may help mitigate some of the payment challenges associated with centralized volume-based procurement under national health insurance.

If we lay out the projects invested by Bencao Capital over the past two years, we may not find any particularly trend-driven layout. When the macro environment is unfavorable, few sectors can deliver outstanding performance. The current strong performance of GLP-1 drugs required strategic positioning four to five years in advance. Regardless of the sector, we focus more on whether individual companies can build high barriers to innovation and move forward against the market trend.

Q: Amid the bubble, is Biotech still worth investing in?

A: There was indeed some bubble in the first two years of the pandemic, with companies of all kinds going public. It is normal to see some correction now, but this correction cannot obscure the broader trend. In the long run, both Biotech and TechBio remain in an upward cycle. This is because, after years of development, R&D tools have continued to improve, the mysteries of life are being rapidly unveiled, and new drug modalities are emerging, leading to ever-greater innovation.

Therefore, while genuine hard technology may experience a temporary stagnation due to the broader macroeconomic environment, it will ultimately stand out from the crowd.

Q: Should companies rebalance R&D and sales, shifting more focus toward profit generation?

A: Under the current circumstances, companies indeed need to devote more effort to profit-driven manufacturing, but they must not neglect R&D due to blind expansion. I believe that companies should not drastically slash R&D budgets for the sake of short-term profits amounting to only ten or twenty million yuan. The fruits of R&D may take three to five years to materialize; companies must avoid shortsighted practices that sacrifice future growth for immediate gains and should adhere to long-termism while ensuring their survival.

So, how can companies survive during this period? I have two suggestions. First, focus. In the past, many biotech companies listed in Hong Kong had pipelines that filled an entire A4 page, with 10 to 20 projects. In reality, such a large number is unnecessary. It is better to retain two or three key pipelines and concentrate resources on their development. This is precisely the path taken by overseas enterprises.

Secondly, it is essential to improve the efficiency of capital utilization. Since competitors cannot be easily displaced, it is necessary to explore new approaches, such as closely studying research initiated by other scholars and securing access to critical data at an early stage through collaborations. For startups, this represents a significant test, requiring not only R&D capabilities but also strong decision-making, management, and adaptability skills.

Q: Centralized procurement, cutthroat competition, and overcapacity... Must enterprises go global in 2024?

A: For Bencao Capital, global expansion capability is one of the key criteria we evaluate in our portfolio companies. This includes assessing whether the product’s intellectual property is robust enough for international markets, as well as whether the team possesses sufficient vision and resources to expand overseas.

Take the pharmaceutical industry as an example. Commercialization in this sector typically targets a specific disease indication or a particular patient population, which is rarely influenced by race. Therefore, once a promising innovative drug is developed, companies do not limit their sales to their home country; instead, they strive to expand globally, with Europe and the United States often representing the largest markets for innovative drugs.

Over the past two years, there has been a growing number of high-value transactions between domestic biotech companies and NMCs. Licensing deals are increasingly visible across North America, Europe, Japan, and even some Southeast Asian countries. Therefore, both Biotech and TechBio firms must possess the capability to expand into global markets.

Q: Have Southeast Asia and countries along the “Belt and Road Initiative” become the top choice for Chinese enterprises expanding overseas?
A: For a high-quality startup aiming to develop cutting-edge products, the primary choice should be Europe, the United States, and Japan, as these regions boast the most developed and largest markets.

Certainly, many business opportunities can also be found in Southeast Asia; however, products exported to this region are not necessarily the most advanced globally. For instance, numerous Chinese vaccines and in vitro diagnostic (IVD) products are actively expanding into Southeast Asia and countries along the Belt and Road Initiative. This presents a significant opportunity, although the market’s full potential remains to be tapped.

Q: What investment strategy did Bencao Capital formulate in 2024?

A: In the current market environment, it is quite challenging for investment firms to focus solely on a single sector. We pay close attention to cross-disciplinary technological convergence within TechBio and are willing to explore new areas. Since the pandemic, we have invested in fields such as brain science and life science tools, and we also conducted thorough evaluations of bio-agriculture in the past two years. Emerging domains hold significant opportunities, and we must consistently step out of our comfort zone.

As for the development of this year’s landscape, it is still difficult to make a judgment at this point. When it comes to strategy, I can only say that everyone should work harder, read as many in-depth industry research reports as possible, carefully consider potential directions, and then position themselves before new technologies and new targets become hotspots. What we want is to be “Ahead of the Curve,” not wait until the track becomes hot and then look back with regret.