Investment Logic and New Incubation Models in the Era of Medical Innovation: Insights from Life Capital and Johnson & Johnson Innovation JLABS

Life Capital is a leading financial services institution in China, specializing in the life sciences and healthcare sectors. Its business portfolio encompasses medical investment banking and healthcare funds, with a commitment to cultivating future industry leaders in the health sector. The team comprises professionals from renowned investment banks, academic institutions, and healthcare enterprises, bringing decades of accumulated expertise in the medical and investment and financing fields.

Over the past three years, Life Capital has completed dozens of financing and M&A transactions in the healthcare industry, with a cumulative amount reaching billions of RMB. These deals span various healthcare sub-sectors, including new drug R&D, medical devices, diagnostics, healthcare services, and smart healthcare. Notable success stories include SinoCellTech’s nearly RMB 600 million Pre-IPO financing and Antengene’s USD 120 million financing.

Johnson & Johnson is a comprehensive multinational healthcare corporation with extensive global operations, spanning three core sectors: consumer health, pharmaceuticals, and medical devices. The company established its first joint venture in China in 1985. JLABS, an innovative healthcare incubator under Johnson & Johnson, has expanded to 12 locations worldwide since 2012. JLABS@Shanghai is the first such facility in the Asia-Pacific region and, to date, the largest globally by floor area. To date, more than 30 startups have settled at JLABS@Shanghai.

Amid the continuous rollout of major healthcare reforms, pharmaceutical companies, medical device manufacturers, pharmaceutical distributors, and even medical payment providers and the health insurance industry are all undergoing significant transformations and restructuring.

Amidst a rapidly changing external environment, what strategies should enterprises adopt to ultimately break through and succeed? To inspire, drive, and realize innovation, how can we build an ecosystem that returns to the essence of healthcare? What thresholds must be crossed to transform internal and external innovations from scattered ideas into breakthrough solutions? VCBeat (WeChat ID: vcbeat) recently interviewed Li Hao, CEO of Life Capital, and Sharon Chan, Head of JLABS Shanghai at Johnson & Johnson Innovation. They shared insights on the innovation logic within China’s life sciences and healthcare markets during this era of profound transformation, as well as the principles for building open innovation ecosystems.

Sharon Chan: China is rapidly becoming a global leader in funding and infrastructure investment for healthcare innovation and basic research. Information technology, renewable energy, fintech, robotics, artificial intelligence, engineering, and biotechnology are all critical to China’s success.

As economic growth and personal incomes rise, demand for high-quality healthcare is increasing. Innovation is essential in the search for truly valuable new drugs, medical devices, and consumer health products. Rapid socioeconomic changes and robust economic development in China are driving growing demand for premium medical services, which in turn has spurred a rapidly increasing need for innovative solutions. In the face of these challenges, China’s life sciences ecosystem is well-positioned and ready.

Driven by the emergence of returning overseas talent and local emerging professionals, China’s R&D investment has catalyzed the rise of a new generation of domestic tech giants and startups. These companies are making significant strides in developing and delivering high-tech solutions for China and the world at large, achieving genuine breakthroughs and competing with multinational corporations for the industry’s top talent.

Furthermore, thanks to the convergence of technology and healthcare, China is poised to help bridge the significant gap in meeting healthcare demands through innovative solutions. Major tech companies such as Alibaba, Ping An, and Tencent are increasingly taking the lead.

As China increasingly shifts toward high-tech solutions, 94% of Chinese healthcare professionals report using digital health technologies or mobile health applications, such as “Ping An Good Doctor.” Furthermore, multidisciplinary technological innovation is expanding the frontiers of human health potential. Artificial intelligence, data science, regenerative medicine, gene therapy, microbiomics, and robotics are making significant strides in China.

Li Hao:Overall, the development of China’s life sciences and healthcare sectors far exceeds the global average. In a few areas, Chinese companies have reached or even surpassed the previous global benchmarks. In many more fields, the gap between China and the rest of the world is narrowing. Of course, we must also acknowledge that in certain domains, particularly in basic sciences, this disparity still persists.

Take Rongzhi Biology, whose financing round we just closed, as an example. The company has fundamentally transformed the landscape of time-of-flight mass spectrometry (TOF-MS), which was previously limited to qualitative analysis of sample components. In terms of the measurable mass range, they have raised the upper limit for large-molecule detection in conventional TOF-MS from 20,000 Da to 1,000,000 Da—a breakthrough achievement on a global scale.

Li Hao:Simply put, we can categorize innovation into two types: technological innovation and business model innovation.

Technological innovation, as the term implies, involves leveraging technological breakthroughs to address previously unmet clinical needs or significantly enhance the cost-effectiveness of existing solutions. However, this is a protracted process that must traverse three stages: technology, product, and commodity. Mere technological capability is insufficient; it must be integrated with unmet clinical needs to create valuable products. Furthermore, these valuable products require precise market segmentation, pricing, and promotional strategies to evolve into commodities with broad prospects and strong market competitiveness, ultimately delivering value to the enterprise.

Business model innovation enhances the efficiency of existing markets by restructuring the value chain and establishing a competitive moat for enterprises within the new landscape. It is important to note that the healthcare sector has its own unique characteristics, such as complex stakeholder interests, closed-loop hospital workflows, and stringent government regulations. Consequently, business model innovation in healthcare is significantly more challenging than in the internet, consumer, or entertainment sectors. It is difficult to persuade all major participants across the value chain to alter their traditional operational models based solely on a single benefit point.

Sharon Chan: We see entrepreneurs, scholars, and innovators striving every day to create breakthrough solutions. Confronting risks, overcoming obstacles, and pursuing transformative solutions require not only specific capabilities but also immense passion. This driving force serves as a vital engine for innovation and stands as a powerful testament to the work we do at Johnson & Johnson.

However, bringing new healthcare innovations to market is no easy feat, particularly for companies and entrepreneurs who lack access to the essential elements required for success. These startups need capital, facilities, expertise in regulatory policy and commercialization. Meanwhile, they also require a global network to deliver technologies to patients around the world.

At a broader level, the rising barrier to innovation has impacted the ever-increasing R&D costs. Both startups and large pharmaceutical companies are adapting to the global economic landscape and regulatory requirements to address unmet needs.

Great ideas can come from anywhere, and we are committed to transforming innovative concepts into solutions. To inspire, drive, and realize innovation, Johnson & Johnson has been building infrastructure and fostering partnerships over the past seven years to create an ecosystem where solutions can thrive, addressing some of the most pressing healthcare challenges.

Over the next five years, we will continue to pursue unconventional approaches to stimulate innovation both internally and externally, providing innovators with the networks, resources, and expertise necessary for success, and empowering them to transform great ideas into a new generation of breakthrough solutions.

 Sharon Chan: At Johnson & Johnson Innovation, we recognize that no single company can monopolize innovation or succeed in isolation. We need partners. The industry requires innovation, small and agile teams, and cost efficiency. Entrepreneurs, in turn, need the infrastructure, funding, and expertise necessary for scientific development and commercialization.

J&J Innovation was established to build a robust networking ecosystem that integrates resources, ideas, and technologies in novel ways to better drive, nurture, and accelerate the work of entrepreneurs and academics. We are also dedicated to establishing a global network with maximum efficiency.

Rather than waiting for innovators to come to us, we have chosen to proactively embed ourselves in innovation hubs around the world, such as here in Shanghai. Leveraging Johnson & Johnson Innovation’s extensive resources—including our Innovation Centers and JLABS, as well as Johnson & Johnson Business Development (JBD) and the JJDC internal venture fund—we identify suitable partnerships and deal structures.

We empower innovators to leverage their greatest strengths while collaborating side by side with us to improve the lives of people and patients. Much like personalized medicine, this tailored approach to innovation and collaboration is what sets us apart in supporting startups.

If the company is developing compelling and credible science/technology and addressing unmet medical needs by tackling the most pressing healthcare challenges faced by people around the world, it has enormous potential to benefit from unprecedented resources in a rapidly evolving industry.

Li Hao:Integration capability is the most critical competency for founders. It should encompass at least three dimensions: human resources, financial resources, and material resources—specifically, the integration of internal and external talent and expertise, the consolidation of various forms of capital, and the orchestration of industrial resources.

JLABS has established a global network of healthcare innovation talent, enabling Chinese entrepreneurs to seamlessly connect with the world’s most advanced healthcare innovators. This significantly facilitates companies’ integration of external talent and expertise. Life Capital’s operational and integrative capabilities in equity financing are well recognized within the industry. It is worth noting that Life Capital is no longer limited to equity financing; it also assists enterprises in securing debt financing and other innovative funding solutions. Furthermore, both JLABS and we possess substantial accumulations of industrial resources domestically and internationally. Therefore, we can provide founders with comprehensive support in resource integration.

Li Hao:Life Capital’s mission can be summarized in eight Chinese characters: “Empowering Leaders in the Healthcare Industry.” Regardless of market sentiment, we remain steadfastly focused on identifying and supporting the leading companies in each niche segment. However, it is important to note that the life sciences sector is undergoing the most profound transformation in its history. Many segments are rapidly emerging or disappearing, and today’s leaders may not necessarily remain dominant indefinitely. Our track record with numerous past projects demonstrates our strength in identifying companies with the potential to become segment leaders. By leveraging our deep understanding of industry dynamics and capital markets, as well as our extensive resources in both domains, we enable our partners to achieve sustainable growth and ultimately secure their leadership positions within their respective industries.

In terms of specific attributes, we prioritize people above all else. We seek to partner with founders who possess profound industry insights, ambitious visions, and exceptional leadership capabilities. You previously raised the issue of building an enduring company, a topic extensively discussed by Jim Collins. He argues that founders should act as “clock builders” rather than merely “time tellers.” This capability is highly valued by us. Furthermore, we expect our portfolio companies not only to become leading players in China but also to have the potential to compete for global industry leadership.

Sharon Chan: Since its opening in June, JLABS@Shanghai has successfully signed 35 resident companies. These companies are focused on innovation across the entire healthcare sector, including pharmaceuticals, medical devices, and consumer health products. JLABS@Shanghai can accommodate more than 50 life sciences and healthcare startups, ranging from individual entrepreneurs to large corporations. Therefore, we still have room for growth.

By providing startups and entrepreneurs with top-tier technology and expertise from Johnson & Johnson’s global network, we are confident that JLABS@Shanghai is well-positioned to support this vibrant ecosystem. To this end, we look forward to expanding our footprint and enhancing our impact, with the long-term goal of nurturing the development of the local ecosystem and accelerating breakthroughs in next-generation healthcare.

Holmusk: In June 2019, Holmusk, a company affiliated with JLABS@Shanghai and JLABS@New York, signed a Memorandum of Understanding (MOU) with Janssen China R&D to explore the potential for developing digital mental health strategies in China. The MOU focuses on analyzing real-world data related to depression and other mental disorders to generate insights and develop novel, scalable solutions to address the growing disease burden in China. Holmusk was recently named a Technology Pioneer 2019 by the World Economic Forum.

Bridge Biotherapeutics Inc.: In July 2019, Bridge Biotherapeutics, Inc., a company affiliated with JLABS@Shanghai and JLABS@Texas Medical Center, entered into a collaboration and license agreement with Boehringer Ingelheim to develop BBT-877, an autotaxin inhibitor for patients with fibrotic interstitial lung disease. Bridge Biotherapeutics will receive upfront and near-term payments totaling €45 million ($50.4 million) and will be eligible for payments exceeding €1.1 billion ($1.2 billion) upon the achievement of specified milestones.

NDR Medical: Just last week, NDR Medical, a company affiliated with JLABS@Shanghai, was named the first-place winner in the MedTech Innovator 2019 Med Tech Asia-Pacific competition in Singapore, securing a $150,000 non-dilutive cash award! We are also delighted to announce that eco.ai has joined JLABS@Shanghai after receiving the JLABS Award and the Startup SG Award, along with a S$50,000 cash prize.

These case studies offer a glimpse into some of our work with these startups and highlight the value of the JLABS platform. By enabling resident companies to focus on the groundbreaking science they are developing, the JLABS platform drives their success. We are proud of the latest progress made by our resident companies and honored by the recognition we have received from the broader life sciences ecosystem.

China’s startup ecosystem is flourishing, and we look forward to collaborating with numerous innovators across the Asia-Pacific region who are striving to transform scientific discoveries into commercial products.

Sharon Chan: JLABS@Shanghai stands out among incubators with its unique open innovation model. We provide an internal community composed of like-minded individuals who share an entrepreneurial spirit. Additionally, we offer startups access to a local ecosystem comprising therapeutic area experts, venture capitalists, and deal teams—partners who fully understand the goals that innovators strive to achieve.

Joining the JLABS ecosystem can expand your professional network, providing access to organizations and talent with specialized expertise who can help innovators overcome challenges and successfully deliver transformative solutions to patients.

Just like our JLABS locations in North America and Europe, we provide JLABS@Shanghai resident companies with a capital-efficient and flexible platform that enables them to accelerate the delivery of life-saving, health-enhancing, and care-optimizing solutions to patients in China, the Asia-Pacific region, and around the world.

Li Hao:Despite the prevailing narrative of a “capital winter,” we remain firmly optimistic about the long-term development of China’s life sciences and healthcare industry, and we firmly believe that the current valuation correction presents an excellent investment opportunity for investors.

To better serve outstanding founders and investors during the winter season, we have tripled the scale of our conference this year. Previously, each summit covered only one sector, focusing exclusively on either pharmaceuticals or medical devices.

This year, three parallel sessions will be held consecutively over two days. More than 150 innovative healthcare companies and over 150 top-tier investors in the healthcare sector will attend in person for one-on-one interactions. In addition to the traditional pharmaceuticals and medical devices sectors, new sessions on smart healthcare and health insurance have been added this year.

There are two reasons for adding the fields of smart healthcare and health insurance:

First, the smart healthcare sector, represented by internet-based medical services and medical AI, has undergone a shift from overheated enthusiasm to a cooling-off period over the past two years. Due to challenges in commercialization and valuation, many funds have deliberately avoided the smart healthcare track during this period. However, our observations indicate that some outstanding companies have withstood the challenges of the capital winter, actively explored new avenues, and established viable business models. Moreover, following this downturn, market expectations regarding valuations have become more rational.

Second, as health insurance becomes an increasingly important payer in the future healthcare landscape, it has undoubtedly become a focal point of widespread concern. The market is seeing a growing number of innovative enterprises built around the health insurance industry chain, along with a rising number of investors seeking to position themselves in this sector. The addition of this sub-forum reflects our judgment on the future direction of market development and aligns with the shared interests of founders and investors alike.

Sharon Chan: Johnson & Johnson Innovation was established to provide solutions that address the challenges faced by small companies and entrepreneurs who lack resources and a network of like-minded peers. JLABS in Shanghai not only offers resident companies a combination of shared and private laboratories, office space, equipment, value-added solutions, operational support, education, and business services; it also paves the way for these companies to integrate into the ecosystem, helping them turn concepts into reality.

Joining the JLABS ecosystem can expand your professional network, providing access to organizations and talent with specialized expertise who can help innovators overcome challenges and successfully deliver transformative solutions to patients.

This is the location of our Investor Center network, where nearly 30 venture capitalists have committed to visiting JLABS once a week to meet with startups. Demand for the JLABS Investor Center among startups is high, as they can secure funding and gain valuable expertise from LifeCap and other venture capital firms.

Life Capital is highly respected within the industry, and we are honored to collaborate with them. Janssen Innovation shares Life Capital’s vision of building connections and networks to empower local enterprises to thrive in the life sciences ecosystem. Our two organizations share a common mission.

Li Hao:Driven by our passion for China’s healthcare industry, our commitment to quality, and our mission to serve medical innovation, we have partnered with JLABS to jointly host an annual summit on healthcare investment and financing, setting the highest standard in the industry.

A summit, by definition, is a platform where top-tier experts engage with one another, exchange insights, and learn from each other. At the event, investors can connect with 50 carefully screened, high-quality companies in their field all at once, significantly boosting their efficiency.

Entrepreneurs attending the conference can precisely connect with top-tier investors in the market, engaging in in-depth one-on-one discussions with them in a private setting. In particular, they can exchange insights on business expansion and corporate financing with global healthcare leaders such as Johnson & Johnson and leading healthcare funds, thereby securing suitable capital to fuel future growth. Over the years, many participating companies have successfully secured investment from investors they met at the conference, accelerating their development trajectory.

Limited Spots Available

Founders and Investors

Please scan the QR code below promptly.

Real-Name Verification Registration