Breaking Boundaries in Health Ecosystem: The Pharmaceutical Industry Values Practical Solutions—Those That Fail to Deliver Will Be Eliminated

2019: Surging Tides, Unrelenting Challenges. On October 18, the 2019 China Entrepreneurship Wulin Conference, hosted by Zero2IPO Group and PEdaily, was held in Beijing. Focusing on industries such as intelligent technology, education, consumer goods, new energy, big health, and enterprise services, innovators and leading investors shared insights on emerging trends and analyzed investment strategies.

Furthermore, several awards were unveiled at the conference, including the “2019 China’s 50 Most Investable Companies – New Sprout List,” the “2019 China’s 50 Most Investable Companies – Fengyun List,” and the 2019 PEdaily “F40 Top Young Chinese Investors List.” As China’s first enterprise evaluation based on an investment perspective, the “China’s 50 Most Investable Companies” selection (Venture50, abbreviated as V50) has supported entrepreneurs for fourteen years and has now become the most authoritative benchmark in the industry for evaluating investments in high-growth companies.

At the event, moderated by Chen Bing, Partner at Honghui Capital, Luo Ying, Partner at Huagai Medical Fund; Wang Lei, Managing Partner at BGI Win-Win; and Yang Ruirong, Partner at Yuanyi Capital, engaged in a lively discussion on the theme “Breaking the Boundaries of the Health Ecosystem ‘Circle’.”

The following is a transcript of the discussion, compiled by Pedaily (ID: pedaily2012):

Chen Bing: Hello, everyone. I am Chen Bing from Honghui Capital. I am very pleased to have this opportunity to exchange views with you all. First, I would like to invite the guests to introduce themselves.

Luo Ying: Hello everyone, I am Luo Ying, a Partner at Huagai Medical Gene. Before joining Huagai, I worked in healthcare consulting for 16 years at BCG. Currently, as a newcomer to the investment industry, I still have much to learn from all of you here. Thank you.

Wang Lei: Hello everyone, I am Wang Lei from BGI Win-Win. Currently, we mainly focus on biopharmaceuticals and bioinformatics technology. Personally, I am primarily responsible for the management of medical projects. Thank you.

Yang Ruirong: Hello, everyone. I am Yang Ruirong from Yuanyi Capital. I believe there are numerous opportunities in the industry; some are driven by consumption upgrades, while others stem from technological advancements. I look forward to having in-depth discussions with you all.

Chen Bing: Thank you to all the guests for your introductions. Allow me to briefly introduce Honghui Capital. Currently, our fund size stands at RMB 1.7 billion, with investment focus centered on pharmaceuticals and innovation. For the first question, I would like to invite each of our guests to share the emerging sectors they are currently most focused on, as well as the changes occurring within these emerging fields.

Luo Ying: Our investment strategy is primarily divided into three major sectors—biopharmaceuticals, medical devices, and healthcare services—with each accounting for approximately one-third of our portfolio. In terms of focus areas, we concentrate on sectors aligned with national policies, particularly emphasizing innovative pharmaceuticals and medical devices. Specifically, within biopharmaceuticals, we target innovative drugs for oncology, rare diseases, and neurological disorders, exemplified by our existing investment in Haihe Pharmaceutical. In the medical device sector, we prioritize innovative products with large market sizes, high profit margins, and alignment with national policy directions, such as high-quality consumables for domestic substitution, including those used in cardiology and minimally invasive surgeries. Regarding healthcare services, we focus on segments characterized by large scale, rapid growth, and a high proportion of out-of-pocket payments, such as dental care, rehabilitation, and medical aesthetics.

Wang Lei: I will use several keywords to describe the key areas of focus for Huagai Win-Win: first, policy support; second, clear demand from banks; and third, high consumption. In short, Huagai Win-Win primarily focuses on three sectors: biopharmaceuticals, medical devices, and information technology.

First, biopharmaceuticals have consistently been a hot investment sector. We primarily focus on small-molecule drugs and innovative therapeutics, with particular emphasis on oncology and cardiovascular diseases, while also monitoring industry opportunities in rare diseases.

Secondly, since 2010, our team has maintained a continuous focus on the medical device sector. This field is characterized by its dual nature: products serve both as devices and as consumables. This business model tends to yield relatively high utilization rates. Consequently, we closely monitor developments across the spectrum, from packaging to small-scale diagnostics. In summary, our strategic focus in medical devices centers on two key areas: one is the IOD direction, and the other is high-quality consumables in niche markets.

Finally, let us address information technology separately. In the field of information technology, we are strategically aligning our layout along Huagai Genetics’ industrial chain, spanning from upstream gene sequencers to midstream services, and even extending to downstream gene editing. We pay close attention to technological advancements and transformations in genetics, such as genomic data analysis and applications in the judicial sector.

Yang Ruirong: A distinguishing feature of Yuanyi Capital is its focus on identifying opportunities at the early stage. In the past, 80% of the nearly 40 projects we invested in were at the angel or Series A round. Our philosophy is to seize forward-looking opportunities that are also driven by structural changes. Fortunately, China’s pharmaceutical industry has undergone significant structural transformations in recent years.

First, the supply chain serving the pharmaceutical and healthcare industry has undergone significant changes. Many services have been outsourced by hospitals, leading to substantial transformations in service providers as well. For instance, many hospitals now offer only basic treatments, omitting procedures deemed unnecessary, which results in relatively incomplete care. Based on my personal experience, when I sought medical attention for a sprained ankle, the doctor prescribed some topical patches after ordering X-rays and an MRI. However, no advice on sports rehabilitation, necessary equipment, or supporting rationale was provided at all.

In the future, the pharmaceutical services sector will undergo two major changes. First, there will be significant structural shifts in the distribution of medical devices and pharmaceuticals. Traditionally, drugs were handed over to distributors, who then supplied them to hospitals, with no direct connection to patients; this model is poised for a fundamental transformation. Second, the health insurance industry will experience notable development. As medical expenditures cannot grow indefinitely and cannot be borne entirely by individuals, commercial insurance has a vital role to play. The key challenge for commercial insurance in China lies in distribution channels, which presents a significant opportunity for investors.

Chen Bing: From the insights shared by our guests, it is evident that investment in the healthcare sector presents significant opportunities. Gene technology is currently one of the most prominent fields. Could you please discuss what types of projects you would consider investing in within this area?

Luo Ying: When it comes to genetic technology, there are two primary applications: genetic diagnosis and therapy. Whether for diagnosis or treatment, the most critical factor we consider in our investment decisions is whether the company possesses core proprietary technologies. For instance, in the field of genetic diagnosis, we recently invested in a startup specializing in big data analytics for genomics, with a current focus on oncology diagnostics. The market currently requires their big data analytics tools to interpret generated genomic data for disease diagnosis. Additionally, genetic technology is being applied to therapeutics. A notable example is BoYa JiYin (EdiGene), a recent portfolio company that specializes in treating diseases using gene-editing technologies. They are currently leveraging cutting-edge genetic technologies to develop treatments for thalassemia.

In summary, the two companies we have invested in possess cutting-edge and highly unique technologies that are unavailable to other enterprises, giving them a significant competitive advantage. Therefore, from the perspective of gene technology investment, our primary focus is on whether a company holds core technologies, including technological and talent advantages.

Wang Lei: In the field of genetic technology, our investment strategy is primarily aligned with the overall industry landscape. First, we invest in the testing instrument sector, particularly in upstream supply chain projects, which is one of our distinctive strengths. Second, guided by BGI’s six-word strategic focus on genetics—reproduction, oncology, and infectious diseases—we invest in related applications and services, such as genomic data analysis and consumer-grade genetic testing for end users. A key future direction for the industry lies in leveraging large-scale data analytics to accelerate new drug development or apply insights within the CIO sector. Furthermore, there are significant opportunities in the judicial field. Although high costs have currently hindered the widespread adoption of gene sequencing in this area—for instance, in paternity testing—the declining cost of sequencing will unlock greater potential in judicial applications. Finally, the agricultural sector also presents numerous investment opportunities, such as the clearly visible prospects in gene-edited crop breeding.

Chen Bing: Thank you both for sharing your insights on gene technology. Could you please elaborate on your business models and current strategic layouts?

Yang Ruirong: Currently, I am also engaged in gene sequencing. The integration of genomics and big data represents a vast opportunity space. This is not only limited to drug development data; it will gradually evolve into a powerful tool for the insurance industry, which is one key direction. Another direction lies in China’s leading position in both artificial intelligence and gene sequencing, driven by its large population and extensive case volumes. At present, China has become the world’s largest source of community-based data. Conducting research based on these data will unleash a wide array of opportunities.

I believe innovation is ubiquitous, and China’s demographic advantages are particularly pronounced. Currently, China ranks among the leaders in gene sequencing, largely thanks to its vast user base—a scale of opportunity unavailable to other countries. In fact, a solid technological foundation, broad application scenarios, and problem-solving products are all indispensable. If one focuses solely on technology and direction without delivering practical solutions, it is highly likely to result in herd-like rushes into the market followed by equally rapid exits. China’s pharmaceutical industry is highly pragmatic; the key lies in solving real problems. Failure to do so will ultimately lead to elimination from the market.

Chen Bing: The last question for today: How will the health and wellness industry develop in the future?

Luo Ying: In the future, the big health market is bound to experience robust growth. First, China’s aging population is becoming increasingly prominent, and rising societal incomes are driving continuous investment into the healthcare industry. Additionally, investment capital will continue to flow into the big health sector.

Regarding investment strategies in the broader health and wellness sector, as several panelists just mentioned, investment should not follow herd mentality. In the future, there will likely be greater emphasis on investing in innovative enterprises with core competitive advantages. It is worth noting that, beyond R&D management, capabilities in talent management, corporate governance, and other operational aspects are becoming increasingly important.

Wang Lei: I believe there are two major trends for the future. First, from a policy perspective. The state has introduced numerous healthcare-related policies in the past two years and has been continuously promoting the construction of hospital medical alliances. These policies will bring different investment opportunities and impacts to the development of the entire healthcare industry. For example, it is currently clear that investors are focusing on innovative drugs rather than heavily investing in generic drugs.

Second, from an investment perspective. In terms of investment trends, pharmaceutical investment is increasingly shifting toward industrial investment. If we look back 5–10 years ago, when most investors approached the sector from a venture capital (VC) or private equity (PE) standpoint, investment directions were highly volatile and lacked sufficient depth. The future trend will be characterized by increasing depth, gradually moving toward integration and consolidation across the industry value chain.

Yang Ruirong: To summarize along the lines just discussed, I believe the most critical task at present is to seize the structural changes occurring on both the supply and payment sides of healthcare services. Building on our proprietary new technologies, we should identify the broadest possible application scenarios and engage in down-to-earth collaborations. This represents the future direction of development. Thank you all.

Source: Investment Circle (WeChat Official Account ID: PEdaily2012)