China Renaissance Insights: Medical and Health Sector Enters a Critical Window of Opportunity Amid Restored Market Confidence
With the Spring Festival holiday just concluded, the Year of the Rabbit (Guimao) has officially begun.
As we step into a new year, countless professionals in the healthcare venture capital and investment sector are filled with anticipation, making plans, and taking action. After all, 2022 was undeniably challenging: whether it was the shifting global landscape amid the Russia-Ukraine war, economic fluctuations worldwide driven by the Federal Reserve’s consecutive interest rate hikes, or the pivotal transition at year-end when China reopened its borders after enduring the pandemic, the healthcare VC/PE industry entered a period of accelerated change under the influence of these broader macroeconomic factors.
In particular, the volatility and decline of pharmaceutical stocks in the secondary market, which began in mid-2021 and continued into 2022, have led to a reshaping of the valuation systems for healthcare venture capital across both primary and secondary markets amid prolonged adjustments, with capital markets gradually returning to rationality.
During this process, China’s healthcare industry has undergone active transformation, marked by breakthroughs in the global expansion of domestically developed innovative products, Chinese original technologies leading worldwide, and frequent high-quality cross-border transactions. “Made in China” innovations are increasingly being exported globally. For instance, in early 2022, Liminopharma entered into a product licensing agreement worth over $1 billion with Turning Point Therapeutics. By year-end, Akeso and Kelun Pharmaceutical had each signed major collaboration deals with multinational pharmaceutical companies for their innovative products.
These achievements have been made possible by the perseverance and patience of China’s healthcare industry, which has forged ahead over the years, accumulating small steps to reach a thousand miles.
At a critical juncture in the industry’s development, which trends are worth seizing? How can we draw lessons from 2022, and how should we chart the course for the future? In light of these questions, VCBeat held discussions with Dr. Luo Xi, Executive Director of the Healthcare Technology Group at China Renaissance New Economy Fund, and Jiang Jiajia, Managing Director of the Healthcare and Life Sciences Division at China Renaissance Capital, to review 2022 and look ahead to 2023.
VCBeat:Dear Dr. Luo,As 2022 has passed, the healthcare venture capital industry faced significant challenges last year. In particular, under the combined impact of multiple factors—including pandemic control measures, geopolitical tensions, policy expectations, and the macroeconomic environment—the sector underwent a valuation correction and rebalancing. How does China Renaissance view the healthcare venture capital industry in 2022? What key terms would you use to summarize it?
Luo Xi of China Renaissance Capital:Thank you for the invitation. I believe there are two key terms: one is normal regression, and the other is exit strategy.
Let’s first discuss mean reversion, a term that requires the qualifier “mean reversion amid volatility.” Why is this the case? Because from mid-2020 to late 2022, we experienced a relatively complete industry capital cycle. During the period from the second half of 2020 to mid-2021, the healthcare sector was exceptionally hot: a wave of companies went public in the secondary market, and heightened trading activity and valuation bubbles spilled over into the primary market. This led to excessively high expectations that healthcare startups could rapidly list and generate short-term gains, thereby creating a “boom” in the primary healthcare investment market.
However, over the past year and a half since mid-2021, with the cumulative impact of various internal and external factors mentioned in the previous question, the fundamentals and confidence of the entire market have undergone significant changes. The industry has experienced a notable period of adjustment, and stakeholders have begun to view the industry’s development patterns more objectively and rationally, namelyThe healthcare industry is, at its core, a “slow” industry. While capital support is certainly beneficial, the sector should not be driven solely by capital."As the broader environment stabilizes and market sentiment recovers, I believe the value of our industry will ultimately return to its normal range, paving the way for more sustainable future development."
Furthermore, as an institution focused on investments in companies from the growth to mature stages, we also closely monitor evolving trends in exit pathways. The industry witnessed significant changes last year. In particular, geopolitical factors have posed substantial challenges for Chinese enterprises seeking overseas listings. Meanwhile, domestic IPOs have been affected by fundamental factors such as market conditions and investor sentiment, leading many companies to delay their initial public offerings or face pressure to maintain stock prices after listing.
Therefore, people have also begun to realize that,In the future, a more diversified strategy should be adopted for the exit of certain portfolio companies.In addition to the traditional listings on Hong Kong and U.S. stock exchanges, as well as China’s A-share Main Board, ChiNext, and STAR Market, companies specializing in niche, innovative, and sophisticated fields should carefully explore the possibility of listing on the Beijing Stock Exchange (BSE). Furthermore, for enterprises operating in specialized segments of the industrial chain, mergers and acquisitions (M&A) are gradually becoming one of the primary exit routes.
VCBeat:Thank you, Mr. Luo. Our next question is for Mr. Jiang. In 2022, according to China Renaissance’s observations, what adjustments and changes did investment institutions make to their investment strategies in response to macroeconomic shifts?
Jiang Jiajia, China Renaissance:The changes we observed include:First, in an uncertain macro environment, seek out projects with greater certainty.
Returning to the fundamentals of value, sectors and targets with higher commercial certainty have garnered greater attention from the capital markets. A case in point is the life sciences tools sector upstream of diagnostics. Although the total disclosed amount of private financing transactions in the diagnostics industry decreased by approximately 30% year-over-year in 2022, the upstream life sciences segment experienced a surge in financing activities, with both the number of disclosed transactions and the total disclosed transaction value showing significant year-over-year increases.
Second, seek differentiated innovation in early-stage projects.Embracing innovation remains the fundamental logic of venture capital, while investing in early-stage and innovative ventures has become a major trend in the capital market over the past year.
Looking at private equity financing transactions in the healthcare industry throughout 2022, early-stage rounds (Series B and earlier) accounted for approximately 73%, a significant increase from about 58% in 2021. This trend was particularly pronounced in emerging technology sectors. For instance, in the gene and cell therapy segment of the innovative drug sector, there were as many as 100 early-stage deals (Series B and earlier) completed last year, compared to only seven mid-to-late stage deals (Series C and later) during the same period. Meanwhile, investors have shown a stronger preference for companies with foundational innovations and clear differentiation when evaluating early-stage opportunities.
VCBeat:"Returning to the various sub-sectors, which medical niche did you find most surprising in 2022, Mr. Luo?"
Luo Xi, China Renaissance:The first sector that pleasantly surprised me was the diagnostic antigen testing field., as well as the emerging field of self-testing. In retrospect, earlier last year, many may not have anticipated that self-test products would enter the market so rapidly. At the time, it was widely believed that the performance metrics of self-test products (such as antigen tests) could not match those of gold-standard assays (such as nucleic acid tests), and thus their scope of use would be significantly limited.
However, the reality is that as the pandemic evolved and there was a need to optimize epidemic control measures, antigen test products were rapidly rolled out nationwide, completing the entire process from regulatory approval to capturing public mindshare at an extraordinary pace. I believe that antigen testing represents more than just a transient opportunity.
On the one hand, due to the rapid mutation of viruses, there is a high probability of future fluctuations in the epidemic, and the need for routine self-health monitoring remains; on the other hand, self-testing products have rapidly overcome multiple bottlenecks ranging from market launch and consumer education to sales, laying a solid foundation for similar products in the future. This may become a landmark event ushering in a broad market for home-testing products.
The second area that pleasantly surprised me is the field of brain science and brain-computer interfaces, which China Renaissance Capital closely monitors.Whether for the treatment of organic or functional brain disorders, or for recovery following brain function impairment, there remains a substantial unmet clinical need. Brain-computer interfaces (BCIs) are poised to emerge as a novel class of products capable of achieving breakthroughs in these areas. In terms of technological approaches, BCIs are categorized into non-invasive and invasive modalities, with invasive BCIs—particularly fully implantable systems—entailing higher technical barriers. Consequently, when we initiated our research on the BCI industry in mid-2021, we found that only a limited number of companies, both domestically and internationally, had opted for the invasive technical route, and these were predominantly overseas firms.
It is encouraging to note that since 2022, Chinese companies have been catching up rapidly. According to our research and analysis, approximately ten domestic companies have entered the invasive brain-computer interface (BCI) field. This development has significantly boosted the industry’s growth both in China and globally, particularly as the immense potential of invasive BCIs in clinical applications has gained widespread recognition. Moreover, these Chinese companies have each pursued unique technological innovation pathways to overcome technical bottlenecks.
It goes without saying that the journey from technological R&D to clinical application and commercialization in neuroscience and brain-computer interfaces is fraught with challenges. Nevertheless, we must applaud the researchers and entrepreneurs who dare to confront these challenges, admiring their efforts, courage, and sense of responsibility.
The third area that pleasantly surprised me is the breakthrough in medical AI.Last year, the field of AI-driven drug discovery witnessed breakthrough advancements in protein structure elucidation, dynamic modeling of protein-protein interactions, and generative AI for protein design, enabling the targeting of previously undruggable sites; Chinese innovative enterprises have made significant contributions to these achievements.
Furthermore, in the realm of AI-assisted diagnosis and treatment, natural language AI models led by ChatGPT have already achieved accurate human-computer interaction through natural language. This has revealed the immense potential of such AI products in clinical workflows, promising to reshape future diagnostic and therapeutic processes as well as the prospects of telemedicine.
VCBeat:Following up on the previous question, has Huaxing’s medical investment team structure undergone any changes or iterations during these years of frontline practice? Or are there any key insights to share?
Luo Xi, China Renaissance:Over the past two years, we have been striving to systematize and differentiate our investment approach. For instance, in terms of our research framework, we have developed two distinct areas of expertise: one focuses on in-depth industry analysis of technologies and business models across various healthcare sub-sectors, while the other concentrates on policy and payment-side research.
In in-depth industry research within niche sectors, China Renaissance aims to uncover unique insights that can help us better identify investment targets and guide our investment decisions. Additionally, through such research, we seek to more accurately grasp the fundamental development patterns of industries and determine their current position in the business cycle, thereby enabling us to more precisely identify companies that meet our investment criteria and select optimal timing for investments.
In our policy-oriented research, we believe that industry and target selection must align with national industrial policies and healthcare reform objectives. A critical aspect is,To deeply understand the underlying logic of our healthcare system, namely its inclusiveness and fairness.
In terms of differentiation, it can be summarized into two main points overall.
The first point is China Renaissance’s investment philosophy: we engage with companies in our target sectors at a very early stage and maintain long-term tracking. Throughout this process, we also provide sustained value-added support to the companies we favor, ultimately creating transaction opportunities. Therefore, our overall strategy tends to be more medium- to long-term oriented.
Another point of differentiation is that, leveraging China Renaissance Group’s diversified business ecosystem, China Renaissance excels in providing full-lifecycle corporate services, including financing, direct investment, IPO underwriting, and post-listing services. A typical approach involves the China Renaissance Healthcare FA team, the investment team, and the China Renaissance Securities team frequently “joining forces” to serve our clients.
Taking MGI Tech as an example, the CRP Healthcare FA team helped the company successfully complete its Series B financing, with the CRP Fund team also actively participating in this round of investment. Both teams continued to engage with the company on development strategies post-financing, providing multi-dimensional resource support. In the subsequent development phase, CRP facilitated connections for MGI Tech’s parent company, BGI Group, with various high-quality resources in Shanghai, assisting BGI Group in integrating its existing business segments in the city and continuously unlocking growth momentum.
VCBeat:Looking Ahead: Which Healthcare Subsectors Will Attract More Attention in 2023, and Why?
Jiang Jiajia, China Renaissance:Across the four major sectors—innovative drugs, innovative medical devices, diagnostics and genetic testing, and smart healthcare—we observe the following industry trends:
Innovative Drug Sector:
· In 2022, cell and gene therapy accounted for the largest share of financing in the pharmaceutical sector ($1.7 billion, approximately 18%); after nearly half a century of development, cell and gene therapy has entered a period of rapid growth, with oncology cell therapy representing the largest sub-segment ($800 million, approximately 49%),In 2023, cell and gene therapy remained the sector most worthy of attention.。
· Last year, financing for large- and small-molecule therapies and technologies totaled approximately $1.6 billion, each accounting for 16% of the total funding in the pharmaceutical sector. As relatively mature technological avenues, large and small molecules remain a major force in the innovative drug landscape, with targets and mechanisms exhibiting higher druggability attracting greater market attention. Among large-molecule therapeutics, antibody drugs accounted for the largest share ($600 million, ~38%), followed by XDC conjugates ($500 million, 32%). For small-molecule therapeutics, fast-follow targets dominated, representing $1 billion, or approximately 65%, of the total.
With the successive global approvals of multiple antibody-drug conjugate (ADC) therapies, conjugated drugs have emerged as one of the most promising sectors in the pharmaceutical industry. Not only is interest in traditional ADC development continuing to surge, but a diverse array of XDC conjugates are also flourishing, reflecting the trend that “everything can be conjugated.”XDC is a Sub-Sector Worth Watching in 2023。
· The COVID-19 pandemic has brought historical opportunities for mRNA therapies. In 2022, the financing amount for next-generation therapies and delivery sectors was $600 million, accounting for approximately 6%; among them, the financing amount for nucleic acid drugs was $500 million, accounting for approximately 75%.Breakthroughs and innovations in key technologies have driven the rapid development of nucleic acid drugs, which exhibit high druggability and strong growth potential., has demonstrated significant therapeutic potential and broad market prospects, making it a key area to watch in 2023.
Innovative Medical Device Sector:
·In 2023, the non-vascular interventional field, including tumor ablation, surgical manual robots, and specialty devices, will attract more capital attention.With clearly defined clinical diagnosis and treatment scenarios, existing therapies in need of upgrading, and opportunities for systematic pipeline optimization, the sector is poised to attract a surge of capital interest. In 2022, both the total financing amount and the average deal size in the non-vascular interventional track surpassed those of previously prominent sectors such as orthopedics and cerebrovascular disease treatment, ranking second only to cardiovascular-related fields.
·In early 2023, with the implementation of the winning bids from the centralized procurement of dental implants,Oral Care Sector Companies to Enter a Year of Greater Certainty, commercial evaluations are becoming more objective, and the valuation system is expected to be reshaped and corrected.
· The ophthalmology segment has benefited from favorable objective policy conditions, as well as a large patient population (including those with cataracts, myopia, glaucoma, etc.),Innovative ophthalmic products are expected to emerge in large numbers in 2023., given the relatively stable market capitalization and sales growth of publicly listed ophthalmology companies, we anticipate more breakthroughs and explosive growth from entrepreneurs in the primary market.
Diagnostics and Genetic Testing Sector:
The life sciences tools sector will continue to maintain the high momentum seen since 2020, with supply chain security and domestic substitution remaining perennial investment themes. However, domestic substitution has entered its 2.0 phase. In an environment where “internal competition” is intensifying across most sectors, only high-end domestically produced products will have the opportunity to sustain high growth, high profitability, and high valuations, thereby imposing higher demands on industry players’ continuous R&D capabilities.
On the other hand, investors need to understand the industry characteristics of the life sciences sector—namely its “small-scale, fragmented, and specialized” nature—which is fundamentally different from the “high ceiling, many competitors” landscape seen in most other sectors previously. Under this overarching logic,High-barrier automation solutions, raw materials, supply chains, omics, and clinical translation are all areas worthy of continued focused attention.。
·Another noteworthy aspect of the diagnostics industry this year is mergers and acquisitions.. Since the outbreak of the pandemic, mergers and acquisitions in the diagnostics sector have remained sluggish. Due to a lack of investment experience and limited allocation of resources, only a small number of companies that benefited from COVID-19 have adopted proactive investment strategies.
As the pandemic comes to an end, companies holding substantial cash reserves are poised to actively engage in market capitalization management and long-term development. They will likely pursue outward investment, mergers, and acquisitions to further strengthen their product portfolios, business quality, and scale. Consequently, early-stage companies with high-barrier technologies, as well as enterprises with significant profit margins, are expected to become focal points of investor interest.
Smart Healthcare Sector: As this sector is relatively new, it relies more heavily on policy guidance. Despite the broader cooling of investment in the overall health and wellness industry, certain innovative sub-sectors have continued to attract significant investor interest. Among them:
·The brain science sector maintained strong momentum in 2022, with a wave of enterprises emerging in brain-computer interfaces and innovative interventions for brain disorders. Decades of sustained global investment in brain science have begun to yield translational results, with some research findings entering clinical practice and a surge of overseas companies entering the field. Meanwhile, China has accelerated its investment in brain science, with certain teams making rapid progress in clinical applications and speeding up industrialization.The brain science sector is expected to maintain its positive development momentum in 2023.。
· The surgical robotics sector, which saw a surge in popularity in 2021, maintained considerable momentum in 2022. Leading companies, primarily those specializing in laparoscopic and orthopedic surgical robots, progressively entered the IPO pipeline, and products from top domestic manufacturers began to achieve initial commercial installations. However, pricing guidelines issued by certain regions mid-year introduced new pricing structure requirements for the surgical robotics industry.
·Furthermore, the digital therapeutics sector saw a wave of startups emerge in 2022; in addition to indications already approved overseas, many new therapeutic areas were explored.Under the pressure of electronic medical record (EMR) grading, hospitals are accelerating their digital transformation and upgrades, creating new opportunities for some digital therapeutics companies.. This digital-driven new trend will also continue into 2023.
VCBeat:So, which specific healthcare subsectors is CRP expected to focus on in its investment strategy?
Luo Xi of China Renaissance:Starting from 2023, medical order and the number of patients seeking care will gradually return to normal. Regarding future investment strategies, I believe a very important point is that,Focus on products with genuine clinical necessity., meaning that the product must address critical pain points in clinical diagnosis and treatment, significantly improve the efficiency of healthcare resource utilization, or reduce overall health insurance expenditures.
Furthermore,We will focus on companies with the capability to expand overseas., their products demonstrate strong innovativeness, possess unique intellectual property (IP), or exhibit world-class competitiveness. For example, MGI Tech, a portfolio company previously invested in by China Renaissance, boasts global IP and distinct innovative advantages. By fully leveraging the strengths of China’s supply chain and manufacturing capabilities, it is poised to reshape the industry landscape both domestically and internationally, thereby enabling more inclusive access for a broader population.
Regarding the specific sub-sectors we focus on for investment, we primarily prioritize innovative medical products represented by multi-omics testing technologies. This is because multi-omics testing enables more comprehensive information acquisition and quantitative assessment in disease evaluation, thereby catering to a broader population, particularly patients with chronic diseases.
Second is synthetic biology, an industry currently undergoing a regression to the mean. As institutions develop deeper and more rational perspectives on the synthetic biology sector, the market will gradually stabilize. Furthermore, evaluations of companies in this field will encompass more comprehensive dimensions, covering product selection, R&D, manufacturing, market education, and sales.
Third, new therapies—including cell and gene therapies and small nucleic acid drugs—have significantly expanded the range of disease targets that pharmaceuticals can address. Previously, small-molecule and biologic drugs could effectively target only about 15% of known disease-related targets. Therefore, developing innovative drugs aimed at historically “undruggable” targets using these novel modalities presents a substantial market opportunity.
VCBeat:Final Question: How should companies respond to market changes in 2023? Given that CRP’s healthcare investment banking team has long-standing engagement with investors and entrepreneurs, what specific recommendations do you have?
Jiang Jiajia of China Renaissance:We firmly believe that,“No winter is insurmountable, and no spring will fail to arrive.”. Amid the rebuilding of market confidence, 2023 is filled with expectations; however, the gradual recovery following adjustments will also be accompanied by proactive challenges.
Therefore, I would like to share the following insights and summaries related to corporate development.
① Adhere to independent innovation and differentiated competitive advantages that return to the essence of business.
② Begin with the end in mind: formulate product strategies and plans based on both actual clinical needs and commercialization pathways, guiding current development initiatives by the company’s long-term objectives.
③ Formulate medium-to-long-term strategies and short-term tactics that complement each other, balancing visionary aspirations with pragmatic execution.
④ Strengthen execution capabilities, enhance corporate resilience, optimize capital utilization efficiency, and maintain high flexibility to respond agilely to external changes and volatility.
⑤ Internally, foster team cohesion; externally, leverage our competitive platform to continuously attract and integrate new talent and capabilities.
Finally, striving with vigor and pursuing excellence remain eternal themes. In the coming year, we look forward to working side by side with entrepreneurs, leveraging the power of capital to develop high-quality innovative products that continue to benefit patients and society.