Bottlenecks and Opportunities in Biopharmaceutical Investment: Insights from He Xun, President of Shenzhen Association of Life Sciences and Biotechnology

Amid the broader trends of consumption and technological upgrading, the healthcare industry has undergone subtle yet significant transformations. These changes can be categorized into two types: innovative enterprises driven by new technologies, and new healthcare services based on novel business models. In the realm of new technologies, immunotherapy and pharmaceutical innovation have undoubtedly emerged as the most closely watched subsectors.

At the 2017 Shenzhen International BT Leaders Summit held recently, He Xun, President of the Shenzhen Life Science and Biotechnology Association, delivered a speech titled “Bottlenecks and Opportunities in Investing in the Biopharmaceutical Industry,” offering insights into new directions for healthcare investment under the current landscape. The following is a curated report by VCBeat.

He Xun

Member of the 8th National Pharmacopoeia Commission, Founding President of the Shenzhen Life Sciences and Biotechnology Association, and Chief Mentor for Innovation and Entrepreneurship. Currently serves as General Manager of Jiangsu Unisys Biopharmaceutical Co., Ltd., General Manager of Shenzhen Unisys Xinpeng Pharmaceutical Co., Ltd., and Vice President of Beijing Peking University Unisys Bioengineering Group Co., Ltd. Mr. He Xun has reviewed over 10,000 biopharmaceutical projects, covering biological products, chemical drugs, traditional Chinese medicines, diagnostic reagents, medical devices, and medical technologies; he specializes particularly in early-stage project screening and assessment, as well as later-stage project coaching and management.

In the realm of emerging technologies, immunotherapy and pharmaceutical innovation are undoubtedly the most closely watched subsectors.

Among pharmaceutical innovation enterprises, biopharmaceutical companies listed on the NASDAQ are a sector worthy of attention. There are three reasons for this:

First, the valuations of these companies are generally relatively low. U.S. Nasdaq-listed companies typically have valuations ranging from hundreds of millions to tens of billions of U.S. dollars, making them high “cost-performance” enterprises compared to companies listed on China’s ChiNext and the New Third Board.

Secondly, these companies generally have one innovative drug in Phase III clinical trials or two in Phase II clinical trials, indicating robust R&D capabilities.

Moreover, compared with companies listed on the ChiNext Board and the New Third Board, delisting from NASDAQ is relatively straightforward, and both exit and cash-out processes are fairly conducted. Most importantly, pharmaceutical innovation operates in a globally competitive market.

From the perspectives of industrial investment, venture capital, or wealth management, projects listed on the U.S. NASDAQ represent a relatively suitable choice. Following several years of advancement in pharmaceutical innovation, domestic investment institutions are now capable of engaging in negotiations with NASDAQ-listed companies.

In many emerging technology sectors, the United States’ present landscape may well foreshadow China’s future. Therefore, it is always advisable to consult the U.S. Food and Drug Administration (FDA) website for any given project. Information on whether a project has entered clinical trials in the U.S., and at what stage, can serve as a valuable reference for domestic investment institutions during their due diligence processes.

Taking innovative drugs as an example, if there are numerous Phase II and Phase III clinical trial projects in the United States, and some of these projects have made little progress over five or ten years, it is highly likely that such projects are no longer viable, yielding relatively unattractive investment returns.

Innovation can be further divided into two categories: one is first-in-class, referring to products targeting a mechanism for which no drug has yet been approved globally; the other is me-too drugs, which are developed by modifying the molecular structure of already marketed drugs.

In the early years, there were virtually no Chinese enterprises developing first-in-class drugs. However, with the return of a large number of overseas-educated talents in recent years, the development of domestic first-in-class novel drugs has begun to take off. Most of these enterprise teams have overseas work experience and are familiar with international markets, and their operational processes are relatively standardized. Whether in pharmaceutical studies or clinical trials, these companies conduct their operations in accordance with international standards.

Investment in Class I drugs must closely track the global market; while such projects carry higher investment risks, they offer greater returns.

More companies are developing "me-too" drugs, such as Beta Pharma and Chipscreen Biosciences. The targets for this class of drugs are already well-established, with corresponding products already marketed abroad. These drugs essentially involve modifications to the molecular structures of existing marketed drugs. Compared to first-in-class drugs, this category carries significantly lower risk. The optimal time to invest in such drugs is when products are already available overseas but have not yet been launched in the Chinese market.

Investing in "me-too" drugs requires a keen assessment of the domestic competitive landscape, where being the first to market confers a significant advantage. This competitive edge is specifically reflected in execution capabilities, regulatory approval proficiency, marketing prowess, and team experience.

If cancer treatment had been mentioned years ago, many people would have first thought of chemotherapy and radiotherapy. However, if this topic is raised today, the first term that comes to mind for most people is undoubtedly immunotherapy. Immunotherapy is currently the hottest field in biotechnology, particularly CAR-T therapy.

There are approximately 200 companies in China, with nearly 100 teams engaged in related investments. Beijing, Shanghai, and Guangdong host a large number of clinical trials. This sector has become an essential investment focus for healthcare-focused venture capital firms. With most global companies currently seeking regulatory approval, all players are essentially starting from the same baseline.

No corresponding guidelines have been issued in China yet, making the clinical submission experience and technical capabilities of corporate teams critically important. Although the national government has not yet introduced specific policies or approval regulations, successful product submissions have already been achieved globally, indicating that such approvals are also feasible in China.

The entire cell therapy sector is experiencing a surge of momentum, and strategic planning requires seizing the initiative. However, as CAR-T therapies primarily target hematologic malignancies, the patient market is limited. Therefore, exiting at an appropriate time represents a more suitable strategy.

In the fields of liquid biopsy, big data, gene therapy, and RNA, a large number of companies in China are making strategic investments. The core competency in this domain lies in technological capabilities, such as CTC capture, DNA capture, and RNA interference.

At present, other pharmaceutical companies in the United States are facing significant challenges in securing financing, but antibody drugs remain a perennial investment theme. A prime example is the currently hottest target, PD-1/PD-L1.

Antibody Drugs: While fundraising for most other pharmaceuticals in the United States is currently challenging, antibody-based therapeutics remain a steadfast strategic direction. For instance, antibodies are employed to eradicate tumor cells, with PD-1/PD-L1 inhibitors currently being the most prominent. In contrast to previous years, the majority of contemporary antibodies target T cells, as current research trends suggest that modulating T cells can reshape the tumor microenvironment. Consequently, T cell-targeted antibody drugs represent the future direction of development.

The widespread interest in PD-1 and PD-L1 inhibitors stems from three primary factors. First, their broad applicability: to date, few drugs have demonstrated efficacy across more than twenty types of cancer. Second, although only a subset of patients responds to these agents, the duration of therapeutic benefit is substantial, with some patients even achieving potential cures. Third, they exhibit a favorable safety profile; compared with chemotherapy or targeted therapies, PD-1/PD-L1 inhibitors are associated with significantly fewer adverse effects.

For these reasons, PD-1/PD-L1 has garnered significant attention in the global market. It is precisely due to these factors that the FDA has approved a total of six PD-1/PD-L1 inhibitors within a very short period, targeting eight high-incidence cancers and more than ten rare tumors. Furthermore, new advances in PD-1/PD-L1 research are reported every month.

There are more than 100 companies in China developing PD-1/PD-L1 inhibitors and other immunotherapeutic products. Among them, Hengrui Medicine, Innovent Biologics, Junshi Biosciences, and BeiGene are the leading firms in the first tier. At least three of these companies are expected to obtain approval for their PD-1 products next year. Furthermore, multinational pharmaceutical giants such as Eli Lilly and Roche are striving to secure a significant foothold in the Chinese market, while Chinese enterprises are increasingly engaging in collaborations with foreign companies.

For Chinese enterprises, speed is the most critical factor in achieving overtaking on a bend. In the Chinese market, for similar products, it may be difficult for the seventh company to enter and capture the market. However, prioritizing speed inevitably requires compromising on certain aspects of treatment efficacy, a balance that is delicate to manage. If not handled properly, the attempt to overtake on a bend can easily turn into a crash.

Another consideration is the selection of disease indications. Given the high upfront investment required for new drug development, choosing therapeutic areas with low market share makes it difficult for companies to sustain profitability in the later stages of commercialization.

In the medical device sector, chemiluminescence is currently the hottest area. There are highly capable teams both in China and abroad, and the momentum in this industry is expected to last for at least another 5–10 years. With listed companies such as Mindray already established in this field, is it still worthwhile for venture capital to enter? Admittedly, established players of a certain scale, such as Mindray and Autobio Diagnostics, exert pressure on startups. However, if a startup team possesses strong comprehensive capabilities, there is still potential for latecomers to surpass their competitors.

Another area is medical robots. The most well-known currently are products for assisted diagnosis, such as IBM's healthcare system. Another category is surgical robots, such as the da Vinci Surgical System in China.

At present, medical robots cannot replace doctors; their role is primarily supportive. Furthermore, these robots are not universally applicable; for instance, orthopedic surgical robots cannot perform dental procedures. Therefore, the development of medical robots should adhere to the principle of focusing on single disease indications, and investment strategies should be determined based on the market prospects for each specific indication.

Among hospital investments in China, apart from Aier Eye Hospital, a chain hospital that has already gone public, there has been little news from other ventures. It is difficult to make profits by investing in private hospitals in China, a situation determined by patients’ market habits. The majority of people tend to seek medical care at public hospitals and consult specialists at large tertiary hospitals. Due to systemic factors, most specialists are employed in the public healthcare sector.

Why Is Aier Eye Hospital a Viable Option? Aier Eye Hospital primarily specializes in ophthalmic laser surgeries. Unlike other specialties, it does not rely heavily on a large number of renowned experts, and its business model is highly replicable through chain expansion. Consequently, hospitals operating under this model present a higher feasibility for investment.

In the realm of internet healthcare, telemedicine is currently the most prominent sector, encompassing remote consultations and online appointment registration. While some of these domestic initiatives are profitable, the majority struggle to achieve profitability. Investment in internet healthcare ultimately hinges on a project’s technological barriers and its profit model. Many telemedicine software projects lack significant technological moats; therefore, the key determinants of success lie in their profit models and business models.

The most critical stakeholders in telemedicine are hospitals and patients. No single hospital or physician can provide round-the-clock endorsement for a project, while patient stickiness depends on whether the product truly meets user needs. In China, there are also telemedicine companies that have achieved remarkable success. By partnering with just a few hospitals across several regions, these companies can generate millions in profits.

But the question is: Is this model replicable? If not, it cannot be extended to other hospitals and regions, making it difficult to develop a project with nationwide coverage in China.