Where Do We Find the Next Big Opportunity? — Yang Jin of Songhe Capital on Medical Investment Trends [VB100]

2019 marked a minor peak in healthcare investment. Within China’s private equity market, investment amounts in the financial sector fell by 85% and in the culture and media sector by 78%, whereas the healthcare sector bucked the trend with a 10% increase. (Data source: Zero2IPO Research Center)

The healthcare sector has long been regarded as a stable and counter-cyclical industry. As capital markets cool, more investors are inclined to allocate their resources to this sector. However, the high technological complexity and stringent regulatory environment of the healthcare industry create natural barriers for investors.

Although there are natural technical barriers, valuation bubbles have also been inflated by market trends. This applies to the earliest internet healthcare models, later physician groups and big data healthcare, as well as the currently hot innovative drugs sector.

As one of China’s longest-established venture capital firms, Sinovest Capital has amassed extensive expertise across multiple sectors, including biopharmaceuticals, new energy and advanced materials, advanced manufacturing, and artificial intelligence. In the healthcare sector, it has invested in numerous prominent companies such as BGI Genomics, Pumen Technology, Lanyu Biotechnology, Sudao Technology, Sansure Biotech, and Boya Gene.

Currently, Sinopharm Capital manages assets exceeding RMB 18 billion, has established 23 specialized investment funds covering the entire corporate lifecycle, invested over RMB 9 billion, cumulatively invested in 412 projects, with 14 portfolio companies listed on the National Equities Exchange and Quotations (NEEQ) and 50 instances of companies going public or being acquired by listed firms.

Between 2017 and 2019, Sinopharm Capital invested in 21 pharmaceutical project companies, many of which were star enterprises. After more than a decade of deep engagement in the healthcare sector, what insights has Sinopharm Capital accumulated regarding healthcare investment? Following the Top 100 Future Healthcare Forum, VCBeat conducted an exclusive interview with Ms. Yang Jin, Partner at Sinopharm Capital.

For investors in the healthcare sector, there is neither a glamorous “gold rush” narrative nor a blind faith in trending opportunities. They are cautious about claiming to disrupt the industry, believing instead that technological incremental improvements offer greater reliability. In medicine, some technologies have remained unchanged for centuries, while others evolve at a breakneck pace. Amidst this interplay of change and stability, only exceptional venture capitalists can strike the right balance, identifying nascent technologies with the potential to take root in clinical practice. Sinocapital is one such firm.

Yang Jin, a former clinical oncologist, has deep insights into medical technology. In an interview, she openly discussed with the reporter Songhe Capital’s investment logic in the healthcare sector.

She stated that Sinovation Capital has consistently focused on hard technology, and in the healthcare sector, it will continue to place significant bets on hard-tech medical innovations. From a more specific investment strategy perspective, Sinovation focuses on two curves in the healthcare field: one is the technology maturity curve, and the other is the curve of changing clinical needs. The firm aims to identify the intersection point of these two curves.

“Songhe Capital has consistently adhered to an investment strategy focused on hard technology. However, we no longer evaluate projects solely from a research and development (R&D) perspective as we did in the past. From an R&D standpoint, many current investors come from technical backgrounds and possess a solid understanding of technology. Yet, we believe it is not enough to merely understand the technology; we must also deeply understand the diseases.”

She used Songhe Capital’s approach to rare genetic diseases to illustrate this methodology.

“After focusing on the field of rare disease genetics, we conducted in-depth exploration along the upstream and downstream segments of this sector. From an upstream and downstream perspective, the industry features a service chain for managing reproductive defects, encompassing in vitro fertilization (IVF) technology and reproductive health management. By delving deeper into this industrial landscape, we found that, on the demand side, a large number of infertility cases still lack technical solutions.”

According to data released by the China Population Association and the National Health Commission, the infertility rate among couples of childbearing age in China has risen from 2.5%–3% two decades ago to approximately 12%–15% in recent years, affecting around 50 million individuals. Amid the ongoing decline in the number of births in China, approximately 200,000 babies are born each year through in vitro fertilization (IVF).

It is estimated that approximately 70%–80% of patients with infertility can achieve pregnancy through interventions such as lifestyle counseling and pharmacological treatment, while the remaining 20% of infertile couples require assisted reproductive technology (ART) for treatment.

“In vitro fertilization (IVF) addresses only a small fraction of infertility cases, while substantial efforts are still needed to prevent birth defects. Focusing on the sector of reproductive infections, we have invested in BGI Genomics and Sansure Biotech.”

Meanwhile, on the technical front, genetic diagnostic technologies are currently entering a phase of maturity.

“Why didn’t the genetics sector take off in the past? Because next-generation sequencing (NGS) technology only began to see large-scale industrial application around 2010–2012. Its development and maturation took another 5–10 years; only when the technological foundation reached maturity did genetics truly come into our spotlight.”

Therefore, investors need to anticipate the technology maturity curve in advance and act preemptively.

“Take our investment in Kuantai Genomics as an example. In 2016, Sinopharm Capital invested in Kuantai Genomics during its Series A financing round. Yang Jin candidly stated that the company’s early fundraising efforts were not smooth, as many investors failed to understand methylation technology at that time. It was not until last year, when GRAIL’s multi-cancer early detection liquid biopsy product received the FDA’s Breakthrough Device Designation, that the industry began to gain significant momentum.”

Moving forward, Songhe Capital will continue to adopt this strategy: targeting cutting-edge hard-tech solutions within specific sectors. Rather than “looking for nails everywhere with a hammer in hand,” it identifies industrializable solutions based on clinical needs.

As an investor who has backed countless star startups, Yang Jin is so strikingly beautiful that one might underestimate her formidable prowess. Transitioning from a physician to an investor, she has witnessed the ebb and flow of medical investment trends, where certain sectors once basked in the spotlight yet yielded only a handful of successful ventures. After several years in the investment industry, she says she still remains cautious and treads on thin ice.

“Our understanding, diagnosis, and treatment of diseases have all undergone changes. We are redefining diseases from a genetic perspective, and there are emerging opportunities at every stage of the disease course. For investors, continuous learning is essential.”

Over the past five years, driven by loose liquidity and favorable policy factors, China’s primary market entered an unprecedented period of prosperity. The influx of capital fueled asset price bubbles, with so-called hotspots and emerging trends proliferating endlessly. However, since the third quarter of last year, the tightening of capital supply under the new asset management regulations has plunged the market into a winter phase, causing a wave of investment institutions that chased these trends to pay a heavy price as the bubble burst.

In Yang Jin’s view, the capital winter has actually compelled investment institutions to exercise greater self-discipline. Large investment firms will continue to favor companies that have established strong brands and demonstrated stable performance. For fund managers, this environment demands a heightened appreciation of their reputation and track record, as well as greater emphasis on the selection and growth management of each investment target.

In her view, investment is not merely about financial capital; post-investment management is equally important. This perspective stems from the long-standing philosophy of Sinoway Capital. Beyond providing funding, Sinoway offers high-quality post-investment services, effective resource integration, and proactive public relations building to its portfolio companies.

“Professionalism across the industry is continuously improving. However, for us, we will place emphasis not only on post-investment management but also on pre-investment value creation. At times, our pre-investment efforts may not yield immediate results, yet they generate substantial benefits for us. Such efforts do more than just potentially uncover an investment opportunity. For individual companies, pre-investment engagement fosters greater alignment between both parties; for the industry as a whole, it helps establish consensus.”

She added, “In fact, we still lag far behind Europe and the United States. Western investment institutions have the capability to transform a research-oriented project, by adding an operational team, into a commercialized company. I believe China’s private equity industry has just entered its second phase; although it is currently winter, spring will inevitably come.”

A good investor should drive the healthy development of an industry through rationality, rather than disrupting it with enthusiasm and overextending corporate valuations.

For entrepreneurs, starting a business used to require burning one’s bridges; now, it demands burning them while crossing an icy river. At the end of the interview, Yang Jin also offered some advice to entrepreneurs.

“In the field of innovative drugs, the cost of starting a business is particularly high. Start-up companies should not blindly pursue targets but instead focus on what clinical doctors, especially major Principal Investigators (PIs), want to address. They should broaden their perspective by examining the clinical landscape. Oncologists have told us that while there has been significant progress in lung cancer and rapid advancements in hematologic diseases, certain cancers such as nasopharyngeal carcinoma and hepatobiliary cancers remain largely neglected.”

Corporate valuations will gradually return to rational levels, and entrepreneurs must remain calm.