Balancing R&D and Revenue: The Strategic Tightrope for Medical Innovation Enterprises

With scientific research ambitions in one hand and commercial revenue in the other, medical innovation enterprises are forging ahead under a heavy burden on their entrepreneurial journey.

R&D is the driving force behind technological innovation, while the degree of such innovation serves as a company’s competitive moat. However, R&D also entails cost investment; the deeper the research, the higher the expenditure. R&D and revenue interact and influence each other in this manner. A slight misstep can plunge many enterprises into a crisis of collapse amid this delicate balancing act.

At every stage of entrepreneurship, this balancing act poses a critical question to founders: Should we invest in R&D? How much should we invest? To what stage should the investment extend? And how can we achieve a balance between input and output?

To gather diverse insights and experiences on balancing R&D with revenue from the perspectives of researchers, entrepreneurs, and investors, VCBeat Orange Bureau held an online panel themed “R&D and Revenue” on July 27, specially invitingMa Dong, Researcher and Doctoral Supervisor at the Department of Biomedical Engineering, Jinan University; Wang Yingqi, CEO of Topcare Medical; Li Ning, Executive Director at Gaorong CapitalCentered on"The Art of Balancing R&D Investment and Revenue"A roundtable discussion on this topic.

Front row (top), from left to right: Mengya Zhou, Senior Researcher at VBInsight; Yingqi Wang, CEO of TopEye Medical

Second row (bottom), from left to right: Li Ning, Executive Director at Gaorong Capital; Ma Dong, Researcher and Doctoral Supervisor in the Department of Biomedical Engineering at Jinan University

The following is a transcript of the speech. To facilitate reading, VCBeat has made editorial adjustments to the text without altering its original meaning:

Zhou Mengya (Moderator):What Exactly Is the Difference Between Scientific Research and Product R&D That We Often Hear About? From the Perspective of Innovation-Driven Enterprises, To What Extent Should Technology and Product Development Be Pursued?

Ma Dong:First, the R&D and scientific research we often refer to areTwo Distinct Concepts：Scientific ResearchMust beFrontier,R&Dmust beLanding. However, scientific research is the foundation of R&D; without resolving theoretical issues, technological breakthroughs cannot be achieved. This is also why our country has been placing increasing emphasis on basic and theoretical research in recent years.

R&D commences on the foundation of mature theories; typically, only after scientific theories have undergone a substantial period of consolidation and validation does product development ensue. Since products are profit-oriented, they are grounded in market demand. At this stage, arbitrary decision-making is impermissible; development must be based on thorough R&D. Consequently, neither the technological pathway nor the objectives afford much flexibility. These are all critical considerations in product R&D—It is essential to have a solid theoretical foundation and conduct thorough market research.

Wang Yingqi:I believe this is a question that frequently tests entrepreneurs’ decision-making: to what extent should R&D or the technology itself be refined, and what kind of product should be developed, to serve as a milestone? I think this is closely related to market demand and product positioning.It is not the case that all products must pursue cutting-edge technology, require substantial investment, or target the high-end market; this is by no means the only path. The first consideration should be the company’s own strategic positioning.

Taking clinical medical care as an example, if we aim to develop a product targeted at the lower-tier market, such as primary healthcare centers or grassroots hospitals, we should prioritize cost, reliability, mass production capabilities, and cost competitiveness against rival products. Consequently, investment in narrow-sense R&D would be relatively reduced, while greater resources would be allocated to supply chain management and manufacturing processes. I believe it is essential to balance the ratio between R&D investment and revenue generation based on market demand.

Li Ning:Operational techniques in the entrepreneurial process represent an accumulation at the level of “methods.”Balancing R&D and Revenue: A Matter of Strategic Vision—What Is the Ultimate Destination a Startup Envisions at Its Inception?In simpler terms,Are you raising “pigs” or raising a “son”?

If the goal is to “raise a pig,” it will inevitably be sold off sooner or later. If, however, the aim is to “raise a son,” you must cultivate it as a large-scale platform. Of course, the latter has a lower success rate, as its victory entails more than just the triumph of a single product. This places higher demands on a company’s operational capabilities, and thus the pace and rhythm of financing differ accordingly. Correspondingly, if the objective is merely to “raise a pig,” fundraising becomes relatively straightforward—focusing primarily on the research and development, production, and sales of the product itself. But if the ambition is to build a major publicly listed company, fundraising serves to create a platform, where technological accumulation is paramount.

Therefore, while there may be some pacing adjustments in the “tactical” dimension during the long haul of entrepreneurship, your starting point ultimately determines your “philosophy.”

Zhou Mengya (Host):As foundational technologies evolve toward applications and products, multiple product forms and possibilities emerge. During pipeline planning and selection, as well as the dynamic process of bringing technologies and products to market, what strategies can help achieve a balance between R&D and revenue?

Wang Yingqi:In fact, we need to emphasizeR&D Cost-Effectiveness，Don’t just look at the investmentFor instance, does an investment of RMB 50 million necessarily yield higher efficiency than an investment of RMB 100 million? Not necessarily. If you invest RMB 100 million but are able to develop four, five, or even six or seven derivative products, the overall return on investment will be higher. Therefore, I would like to share my first piece of advice with entrepreneurs: Once a stable R&D model has been established and you have gained successful R&D experience with several products, it is essential to prioritize the expansion of horizontal pipelines or vertical short-term projects. This approach will fully leverage your company’s R&D capabilities and generate greater marginal revenue for the enterprise.

The second lesson isTimely loss-cutting.When it comes to cutting losses, many people assume that companies only consider this in extreme situations. In reality, loss mitigation is a dynamic process that occurs daily. When we finalize a product definition, if we discover that it requires substantial investment—and even with such significant input, the desired outcomes are not guaranteed—we must dynamically adjust our product strategy. This tests our entrepreneurial mindset.

Li Ning:The question of how to balance R&D and revenue is quite timely. As we know, while it may not necessarily be a “capital winter,” the secondary market has suffered significant declines, and the primary market outlook is also far from optimistic—a reality evident to all. Therefore, striking a balance between R&D and revenue is indeed crucial for startups. However, in the healthcare industry, it is largely unrealistic to expect products to generate revenue within a short or even a defined period, as this contradicts historical development patterns, becauseCapital itself cannot force an industry to mature prematurely,It can only provide some support to enterprises when they need funding.

Six or seven years ago, we could hardly imagine that Chinese pharmaceutical companies would license their products to overseas firms. However, in recent years, this trend has become increasingly evident. Notably, we have also observed a continuous increase in upfront payment amounts. While these upfront payments are certainly insufficient to fully fund independent R&D efforts, they can still generate short-term book revenue. Such income helps balance the R&D expenditures of startup teams at certain stages and may also offset a significant portion of future commercialization and sales costs. Chinese enterprises now possess the necessary technological accumulation and foundation, soMaintaining an open mindset is highly beneficial for balancing our inputs and outputs during periods of relative capital constraint.

Ma Dong:From my experience,Enterprises should identify a profitable business model as soon as possible.For example, a friend of mine is working on biomedical hemostatic materials, which are classified as Class III medical devices. The development cycle for such products is notoriously long. It is difficult to predict exactly how many years the process will take. Although capital continues to be invested, without a clear path to profitability, investors face significant pressure and may become impatient. Therefore, my friend applied the underlying technology to cosmetic product development, generating cash flow that helps alleviate financial strain.

Mr. Li Ning just mentioned the environment, and I fully agree with his point of view.Even in the best of times, there are companies that lose money; even in the worst of times, there are companies that make profits.This reminds me of a parable: two people encounter a bear in the forest; one starts running immediately, while the other stops to tie his shoelaces. In such a life-or-death moment, what matters most is who runs faster.

Zhou Mengya (Host):We have observed that technologies and concepts such as smart laboratories, automation, and CROs are increasingly permeating the R&D process. Which of these warrant close attention? Furthermore, from an enterprise operations perspective, how can companies leverage these tools to achieve balance? We invite open discussion on this topic.

Wang Yingqi:I believe that, on the one hand, as Professor Ma Dong just mentioned, we do need to actively seek ways to rapidly replenish our cash flow. On the other hand, we must alsoSeize the right timing for financing and fully leverage the power of capital, to help oneself rapidly complete the technical accumulation and R&D prior to product launch, which severely tests the founder’s wisdom—they must proactively embrace the capital market and carefully manage the pace of their fundraising.

We often say that for startups, “one step fast leads to every step fast.” This is because their progress is closely tied to the rhythm of the capital markets. Achieving certain milestones early—such as going public, generating sales, reaching a specific sales scale, or listing on the STAR Market or ChiNext—can have significant ripple effects. In many cases, hitting these key nodes just one year ahead of schedule can accelerate the entire financing timeline by more than a year, and even bring forward the overall IPO timeline by three to five years, thereby triggering a chain reaction.

Ma Dong:We can categorize these current innovative concepts into two groups,One category is new technologies.. For instance, labor-intensive enterprises in the Pearl River Delta are grappling with labor shortages, whereas technology-intensive firms, including Huawei and BYD, are adopting robotics to replace human workers, with some factories even achieving a 70% substitution rate. Such technological innovation inevitably drives cost reduction and efficiency improvement.

Another category is innovation in business models., this type of model represented by CROs. I often joke that CROs are doing increasingly well and becoming more standardized, essentially taking jobs away from universities. They are indeed efficient and standardized in various processes. We should pay ample attention to this kind of model innovation.

Li Ning:From an industry development perspective, many innovative technologies can indeed improve efficiency, including the CRO models mentioned by Mr. Ma Dong and Mr. Wang. In fact, for a startup, a Contract Research Organization (CRO) serves as a key lever for integrating external resources. How can you effectively utilize this lever? Making good use of a CRO is not simply about “having them do a lot of work for you.” Since each CRO has its own characteristics, factors such as quality, delivery capabilities, and staffing must be carefully evaluated to ensure they align with your project’s needs.

Entrepreneurs should clearly understand which CRO to engage at different stages, a decision that requires substantial industry knowledge and accumulated experience. We have encountered many overseas returnees who struggled to adapt upon returning to China, precisely because they were unfamiliar with the domestic ecosystem.For a startup to stand out at the same technological level, it must rely on its ability to mobilize and integrate resources across various domains, including government relations, investor communications, and commercial implementation.