Chinese Healthcare Capital Goes Global: 90% Betting on Tech-Driven Innovations, with Tencent Early In, Baidu Ventures Focused on Seed Stage, and Hillhouse & TPCG Deep in Innovative Drugs
China’s healthcare sector experienced rapid growth in recent years; however, the investment and financing environment began to cool in the second half of 2018, a trend that continued into the first half of 2019. The domestic healthcare industry appears to have encountered a bottleneck in its development: as technologies and business models mature, fundraising frequency has declined; progress in emerging fields has been slow, and there is a scarcity of high-quality investment targets.
In this context, many investment institutions have begun to turn their attention overseas. Foreign healthcare and medical enterprises hold significant advantages in business model innovation and technological advancement, presenting abundant investment opportunities. However, due to the disparities between the domestic and global environments, mainland Chinese investment institutions face certain challenges in engaging with the global healthcare and medical sector. Accordingly, we have identified eight mainland Chinese investment institutions and enterprises that have participated in six or more financing and investment deals in the overseas healthcare and medical sector, and summarized the five most critical investment logics of these institutions/enterprises:
1. Emphasis on Technology, Neglect of Business Model:Portfolio companies are concentrated in sectors with high technological barriers, while innovative business models receive little attention;
2. Enter niche segments in China that are experiencing a bottleneck period:Innovative drugs, genetic testing, artificial intelligence, and other sectors often offer suitable investment targets abroad;
3. It is necessary to focus on innovative drugs:The exit rate for innovative drugs is extremely high, facilitating rapid capital recovery for institutions;
4. Focus on More Mature Companies:Mainland institutions primarily enter at Series B and later stages, with most investments occurring in the final funding round prior to an IPO;
5. One-time capital injection, minimize follow-on investments:Portfolio companies exhibit a low follow-on investment rate, with capital increasingly directed toward late-stage financing rounds closer to an initial public offering.
We screened the VCBeat database and identified eight institutions/companies with frequent overseas investment activities, including Allsino Capital, BV Baidu Venture Capital, Qiming Venture Partners, Hillhouse Capital, Decent Capital, WuXi AppTec, Tencent Holdings, and ZhenFund. These entities collectively participated in 74 overseas financing and investment transactions, investing in 67 distinct foreign healthcare companies.
Among them, Tonghe Yucheng and BV Baidu Ventures participated in the highest number of investment and financing events, with 15 deals each. Hillhouse Capital achieved the highest portfolio company IPO rate, with five of its nine invested companies already listed on either NASDAQ or the New York Stock Exchange.
Year-on-Year Changes in the Number of Investment and Financing Events Involving Eight Institutions
Since ZhenFund participated in its first overseas investment and financing deal in 2014, eight mainland Chinese institutions have increasingly focused on the global healthcare sector year by year. In 2018 alone, these eight institutions/companies were involved in 33 overseas investment and financing transactions. Affected by the overall environment, although their performance in the first half of 2019 lagged behind the same period of the previous year, it remained higher than that of the same period in 2017. It is projected that the momentum of mainland China’s outbound investments in 2019 will barely match the level seen in 2018.
Although there are differences between the domestic and international healthcare environments, making it somewhat challenging for mainland Chinese capital to engage in the global healthcare sector, the more advanced development of the overseas healthcare industry offers valuable opportunities. By participating in foreign investments, mainland Chinese investors can gain insights into global trends and technological advancements, thereby deepening their industry understanding. Additionally, overseas companies find it relatively easier to go public, facilitating smoother exit strategies. These factors have led mainland Chinese capital to increasingly focus on global healthcare investments in recent years.
Distribution of 67 Companies by Sector
Technology, sector, business model, and team—what should investors truly focus on? Every investor may have their own perspective.
The portfolio companies of the eight selected institutions/firms clearly exhibit a preference for technology over business models. Among the 67 invested companies, only seven operate in sectors with a strong focus on business models, such as general health, chronic disease management, and patient communities; the remaining 60 are concentrated in technology-intensive fields, including innovative drugs, drug discovery, genetic testing, and medical devices.
In fact, these capital firms do not focus exclusively on technology-driven enterprises within China. For instance, Hillhouse Capital has invested in Aier Eye Hospital and Leke Sports; Baidu Ventures (BV) has backed Ai Yi Chuan Di and Jian Yi Bao; even Tonghe Yucheng has participated in projects such as 111.com and Mingyi Zhonghe. The rationale behind these institutions’ adoption of divergent strategies in domestic and international markets likely stems from differences between the Chinese and foreign healthcare environments. Such disparities make it difficult for primarily China-focused investors to accurately assess the development of business models in overseas contexts. Consequently, they choose to avoid pitfalls associated with unproven business models and instead prioritize technological elements that are universally applicable across both domestic and international markets. Additionally, the rapid growth of the biopharmaceutical industry in recent years has been a significant driver shaping this investment landscape.
List of Companies That Have Gone Public or Been Acquired
Of the 67 portfolio companies, 10 have gone public or been acquired. Nine of these 10 companies are in the biopharmaceutical sector, including seven innovative drug developers, one gene therapy company, and one cell therapy company. The remaining company, a healthcare IT firm invested by Qiming Venture Partners, was acquired.
The lenient listing standards for biopharmaceutical companies in overseas secondary markets have enabled many institutions investing in innovative drugs to find exit strategies more easily, rather than waiting until the products are commercially launched. Domestic innovative drug companies such as BeiGene, Hutchison MediPharma, and Zai Lab have also listed on NASDAQ while still unprofitable. Currently, the Hong Kong Stock Exchange has opened its doors to unprofitable enterprises, and companies on the STAR Market have begun listing in batches. These developments have opened new fundraising windows for biopharmaceutical companies characterized by long R&D cycles and high R&D investment, while also providing investors in this sector with new exit avenues.
Distribution of Domestic and Overseas Investment Rounds for 8 Institutions
A comparison of the distribution of domestic and international financing rounds for these mainland institutions/companies reveals that overseas investment and financing events tend to occur at later stages. Series B financing accounts for the highest number of transactions, while Series C and subsequent rounds constitute approximately 20% of total financing events. This indicates that when selecting overseas investment targets, these institutions prefer to invest in more mature companies rather than intervening at early stages.
List of Institutions and Enterprises with Follow-on Investments
The reinvestment rate of domestic institutions/companies in foreign enterprises is very low, with only 5 reinvestments occurring among 67 companies. This may not indicate much, as most companies have so far stopped at the round involving domestic enterprise participation.
Participation of Domestic Institutions in Investee Companies
Most overseas companies invested in by Hillhouse Capital and Decheng Capital also feature participation from other domestic institutions. In contrast, ZhenFund, WuXi AppTec, Tencent Holdings, and Qiming Venture Partners rarely co-invest with domestic peers. This disparity in co-investment patterns may reflect differences in information access channels among these investment firms. Institutions that engage less in co-investment may have established unique channels for sourcing overseas projects, built their own information networks, and developed the capability to uncover high-quality but low-profile opportunities.
1. Tonghe Yucheng: Multi-point layout around innovative drugs in the biopharmaceutical field
List of Overseas Portfolio Companies of Tonghe Yucheng
Formed by the merger of Allsino Capital and Yucheng Capital, Allsino Yucheng is one of the largest investors in China’s healthcare sector. Previously, neither Allsino Capital nor Yucheng Capital had a relatively clear investment focus. Their portfolios spanned multiple subsectors, including healthcare informatics, medical devices, innovative drugs, and vaccines.
Since the merger and establishment of Tonghe Yucheng, it has become evident that the innovative drug sector has garnered significant attention. Although Tonghe Yucheng has also invested in companies in other sectors within China, such as Mingyi Zhonghe and 111.com, the majority of its portfolio companies—including Gracell Biotechnologies, Hua Medicine, Brii Biosciences, and Hybio Pharmaceutical—fall within the scope of the innovative drug sector.
Since its inception, Tonghe Yucheng has consistently focused on the overseas healthcare sector. It has participated in 15 investment and financing deals involving foreign healthcare companies, a figure nearly on par with its domestic investment activities, among which four companies have successfully gone public.
Innovative drugs are also a core sector of focus for Tonghe Yucheng in overseas markets. The firm has invested in eight innovative drug companies abroad, accounting for more than half of its overseas investment and financing activities. Its other portfolio companies span diverse sectors, including cell therapy, drug discovery, medical devices, biotechnology, and genetic testing. This overseas sector allocation closely mirrors Tonghe Yucheng’s domestic strategy, with a heightened emphasis on biopharmaceutical enterprises and a complete exit from the pharmaceutical distribution and healthcare services sectors.
Hillhouse Capital appears to be an excellent partner for Tonghe Yucheng. The two firms have jointly invested on four occasions, with three of those deals exceeding $100 million.
Although Viela Bio, invested in by Tonghe Yucheng in early 2018, has not yet gone public, growing information highlights the company’s future potential. Viela Bio is an innovative pharmaceutical company dedicated to developing drugs for inflammatory and autoimmune diseases, with Dr. Zhengbin Yao, a Chinese-American, serving as its current CEO.
Among the drugs in Viela Bio’s pipeline, Inebilizumab, the most advanced candidate, received Breakthrough Therapy Designation from the U.S. FDA in April 2019 for the treatment of neuromyelitis optica spectrum disorder (NMOSD), a severe autoimmune disease of the central nervous system. In May 2019, Jiangsu Hansoh Pharmaceutical Group Co., Ltd. entered into a collaboration agreement with Viela Bio, valued at up to $220 million, to advance the development and commercialization of Inebilizumab in China.
2. Qiming Venture Partners: Accelerated Investment Pace in 2019
Qiming Venture Partners' List of Overseas Portfolio Companies
Since its establishment in 2016, Qiming Venture Partners has designated healthcare as one of its core investment focuses. To date, the firm has made a cumulative total of 116 investments in the healthcare sector, achieving remarkable results with portfolio companies including BGI Genomics, CrownBio, and Tigermed, all of which are publicly listed. Over the past two years, Qiming Venture Partners has continued to increase its commitments in the healthcare space, raising its investment frequency both domestically and internationally, while its investments have shifted noticeably toward later-stage financing rounds.
Qiming Venture Partners has developed its own unique investment logic in the healthcare sector, which may be partly attributed to its founding managing partner from the United States, Gary Rieschel. Mr. Rieschel earned a bachelor’s degree in biology from Reed College in the U.S. and has long focused on the healthcare and energy industries. He has brought Qiming Venture Partners an advantage in accessing overseas resources; as a result, few other Chinese firms participate in the cross-border financing deals involving Qiming.
Qiming Venture Partners does not have a clear preference for specific subsectors within the healthcare and medical industry. From biotechnology to broader health and wellness, Qiming has made selective investments across various segments. This approach is largely consistent with its investment strategy in China, where it has maintained a strong focus on and commitment to the innovative drug sector. In recent years, it has consecutively invested in companies such as Antengene Corporation, Chenthera Pharmaceuticals, and Allist Pharmaceuticals. In contrast, its only investment in an innovative drug company outside China was ARMO BioSciences in 2017.
Qiming Venture Partners’ overseas investments have predominantly occurred in later funding rounds, with only four Series A financing deals; all other transactions took place at Series B or beyond. Meanwhile, Qiming Venture Partners made four consecutive investments in the first half of 2019, suggesting a strategic intent to further increase its exposure to the overseas healthcare and medical industry.
ARMO BioSciences is the only innovative drug company invested in by Qiming Venture Partners abroad, and also the only innovative drug company from which Qiming has successfully exited. In May 2018, Eli Lilly announced the acquisition of ARMO, which had been publicly listed for just four months, for a total consideration of approximately $1.6 billion.
Eli Lilly’s primary objective in acquiring ARMO was its drug candidate pegilodecakin, a pegylated IL-10 developed by ARMO. Pegilodecakin is currently undergoing three clinical trials for pancreatic cancer and non-small cell lung cancer, with the Phase III trial for pancreatic cancer nearing completion and expected to conclude in 2020.
3. Hillhouse Capital: Large-Scale Investments with Quick Entry and Exit
List of Hillhouse Capital’s Overseas Portfolio Companies
As China’s largest private equity firm, Hillhouse Capital did not initially engage in healthcare investments. Its investment in the Series A round of BeiGene in November 2014 marked Hillhouse’s first foray into the healthcare sector. Subsequently, Hillhouse formally entered the healthcare industry and, between 2014 and 2016, invested in a series of innovative pharmaceutical companies, including Junshi Biosciences, Innovent Biologics, and PharmaBlock Sciences. Hillhouse Capital’s healthcare investments in China have primarily focused on three areas: innovative drugs, clinics, and medical imaging. Particularly in the innovative drug segment, Hillhouse has successfully backed three listed companies—BeiGene, Innovent Biologics, and CStone Pharmaceuticals—while its portfolio company I-Mab recently filed for an IPO on the NASDAQ, demonstrating an exceptionally high exit rate.
Hillhouse Capital’s investments in the overseas healthcare sector have largely adhered to a “quick-in, quick-out” strategy. The firm has invested in only nine companies, five of which have gone public, resulting in an exit rate as high as 56%. Moreover, Hillhouse Capital has committed substantial amounts in each financing round: five of the nine deals exceeded $100 million, with the smallest amounting to $47 million.
In terms of sector selection, Hillhouse Capital’s overseas investments continue to focus on innovative drug companies, with six out of the eight invested firms being innovative drug developers. In addition to innovative drugs, Hillhouse Capital, which has no involvement in genetic testing domestically, has invested in two genetic testing companies abroad: Grail and Omniome. Neither of these companies has a clear Chinese background, and Hillhouse participated in their financing rounds as the lead investor.
In China’s genetic testing sector, there is currently significant congestion in the oncology segment, while new therapeutic areas have yet to take shape. These challenges may well explain why Hillhouse Capital has strategically withdrawn from the domestic genetic testing market and shifted its focus overseas. For investors monitoring the genomics space, Hillhouse’s investment rationale offers a viable approach to investing in genetic testing.
In selecting investment partners, Hillhouse Capital frequently collaborates with other domestic institutions. Among its eight overseas investment and financing transactions, seven involved participation from other Chinese investment firms, with the sole exception being its investment in Gossamer Bio, which did not include any other domestic institutional investors.
Gossamer Bio is a typical case of Hillhouse Capital’s “quick-in, quick-out” investment strategy. The company listed on the NASDAQ in January 2019, just six months after Hillhouse Capital’s investment. Gossamer Bio is dedicated to developing therapies in the fields of immunology, inflammation, and oncology. Its drug candidate, GB001, currently has two Phase II clinical trials underway, targeting asthma and sinusitis, respectively.
4. Tencent Holdings: Abrupt Halt to Overseas Investments
List of Overseas Portfolio Companies of Tencent Holdings
Tencent may have been the first among China’s internet giants to enter the overseas healthcare sector, and it also appears to have been the first to withdraw. As early as 2015, Tencent began making investments abroad, with a surge in activity between 2015 and 2017. However, these investments came to an abrupt halt by March 2018, and since then, we have not observed any new overseas investment moves by Tencent.
None of the nine companies invested in by Tencent have gone public or been acquired. Around 2015, Tencent’s overseas investments primarily focused on healthcare informatics and the broader health sector. In 2017, it further invested in two genetic testing firms. However, after investing in Atomwise in March 2018, Tencent has not made any additional moves in this area.
In fact, Tencent’s investment style in China underwent a significant shift during this period. From 2015 to 2017, Tencent consistently focused on internet healthcare and artificial intelligence, investing in companies such as Miaoshou Doctor, Haodf Online, XtalPi, and VoxelCloud. However, starting from the second half of 2018, Tencent became increasingly less active in the healthcare sector, participating in only one financing round in the first half of 2019.
Investment focus has shifted from internet healthcare to fitness and wellness companies such as Keep and Leke Sports, as well as the rapidly rising mutual insurance provider Shuidi Inc. From a strategic perspective, Tencent’s approach to building its healthcare ecosystem appears to have changed, with external investments no longer serving as its primary means of entering the healthcare sector.
Tencent Holdings was the first Chinese institution to invest in Grail, a star company in the liquid biopsy sector. While most domestic investors entered during Grail’s Series C financing round, Tencent Holdings participated at the earlier Series B stage. Grail is a genetic testing company dedicated to developing liquid biopsy technologies for early cancer screening.
Backed by sequencing giant Illumina, Grail emerged with the aura of a unicorn, and its $900 million Series B financing round in November 2017 further propelled it into the spotlight. Grail has been conducting a large-scale population study; as this initiative spans five years, news about the company has been intermittent. In late 2018, Grail indicated that it might go public in 2019, but no further updates have been disclosed to date.
5. BV Baidu Ventures: Deepening its AI-driven healthcare and biotech footprint through early-stage investments
BV Baidu Ventures: List of Overseas Portfolio Companies (Companies with Unclear Specific Information Are Excluded from the Overall Statistics)
In September 2017, BV Baidu Ventures made its first overseas investment in the healthcare sector by investing in Subtle Medical. Subsequently, in 2018, BV Baidu Ventures made several additional investments, continuing to inject capital into the international AI-driven medical and biotechnology sectors. The portfolio companies backed by BV Baidu Ventures are broadly centered around AI-enabled medicine and biotechnology, with a particular focus on AI-driven drug discovery, advanced diagnostics, and novel therapies. Currently, the firm’s investments primarily target early-stage rounds, ranging from seed to Series A.
Atomwise is arguably the most standout company in Baidu Ventures’ investment portfolio. As the first commercial entity to apply deep neural networks to drug discovery, Atomwise developed AtomNet, a pioneering software technology that leverages powerful deep learning algorithms and high-performance computing to analyze tens of millions of molecules daily for potential drug candidates.
In 2015, Atomwise publicly announced that it had identified two drug candidates with potential efficacy against the Ebola virus. Leveraging its platform technology, the company identified these two drugs in just one week at a cost of less than $1,000. With its advanced drug discovery technology, Atomwise has established collaborations with major pharmaceutical companies such as Merck & Co., Bayer, and AbbVie, numerous biotechnology firms, and more than 40 research universities.
6. WuXi AppTec: Business-Driven Search for New Drug Discovery Platforms
List of WuXi AppTec's Overseas Investees
As China’s largest CRO, WuXi AppTec has a highly targeted global footprint in the healthcare sector. Its investments span seven companies, including three innovative drug developers and four drug discovery firms. Additionally, in May of this year, WuXi AppTec acquired Pharmapace, a U.S.-based clinical CRO. The activities of these portfolio companies are closely aligned with WuXi AppTec’s core expertise, and its overseas investments appear strategically aimed at enhancing its international competitiveness.
Compared with domestic investment activities, WuXi AppTec has placed significant emphasis on the drug discovery sector in its overseas expansion, with half of its financing and investment transactions occurring in this field. These companies are all attempting to accelerate the drug discovery process by applying artificial intelligence technologies. While there are similar enterprises in China conducting research in the same direction, no news has emerged regarding equity investments by WuXi AppTec in these entities.
Drug discovery is the area of greatest focus for WuXi AppTec, with Schrödinger standing out as a particularly noteworthy player. Founded in 1990, Schrödinger is a leading provider of advanced molecular modeling and enterprise software solutions, revolutionizing drug discovery through its cutting-edge molecular simulation technologies. Since 2010, Bill Gates has participated consecutively in four rounds of financing for the company. Li Ge, Chairman of WuXi AppTec, stated at the time of the investment, “We are deeply impressed by Schrödinger’s ability to drive new drug development through innovative approaches. We look forward to this investment accelerating progress toward treatments for patients suffering from serious diseases.”
7. Decheng Capital: The Twin Engines of Innovative Drugs and Genetic Testing
List of Decheng Capital’s Overseas Portfolio Companies (Companies with Unclear Specific Information Are Excluded from the Overall Statistics)
As an investment firm specializing in the healthcare and medical industry, Decheng Capital has not been particularly active overall. According to statistics from VCBeat, Decheng Capital’s first investment was in 3SBio in 2013, followed by successive investments in biopharmaceutical companies such as AnchorJ, InnoCare Pharma, and TopAlliance Biosciences. Although the number of deals has been relatively low, the financing amounts involved in Decheng Capital’s transactions have been comparatively large. With the exception of its 2015 investment in AnchorJ, all other financing rounds exceeded RMB 100 million.
Although Decheng Capital has not been highly active in China’s healthcare sector, it has demonstrated robust investment activity overseas. To date, the firm has invested in 24 companies, with seven successful exits.
Omniome, led by Decheng Capital, is developing a new gene sequencing method. The company’s sequencing technology, known as “binding sequencing,” leverages the natural matching capability of polymerases to enhance the precision of nucleotide-DNA pairing, thereby reducing costs and shortening run times.
8. ZhenFund: Early-Stage Investments with a Consistent Deal Frequency
List of ZhenFund's Overseas Portfolio Companies
ZhenFund, as the largest early-stage investment institution in China, may not invest in the healthcare sector as frequently as it does in other fields, but it has still backed many well-known companies, such as Yitu Healthcare, Mingyi Zhudao, and TomoDeep, with a primary focus on early-stage investments.
ZhenFund’s domestic investments in China are primarily concentrated in the healthcare services and artificial intelligence sectors, while its international strategy is notably more aggressive, with five portfolio companies spanning four different tracks. Notably, ZhenFund appears to have recognized the potential in the innovative drug sector; after investing in the Chinese company Xunyin Bio in late 2018, it invested in Panorama Medicine abroad in 2019.
Synthego is the only non-seed-stage company in ZhenFund’s overseas investment portfolio, and also the only enterprise in which ZhenFund has made a follow-on investment. Founded by former SpaceX engineers, Synthego leverages CRISPR technology to provide gene-editing products for scientific researchers.
Currently, Synthego’s main offerings include two products: one is “CRISPRevolution,” a CRISPR toolkit for modifying and engineering cells in the laboratory; the other is pre-edited cell lines. Dabrowski, founder of Synthego, stated that the company’s initial product suite was designed to streamline the process of identifying and designing genetic materials for experiments. In developing its next generation of tools, Synthego aims to assist scientists by providing them with the specific biological materials they wish to observe or test.