Is Precision Medicine Overvalued? Navigating the Bubble in China's Healthcare Investment Landscape

On April 27, 2016, the “2016 China Healthcare Industry Investment Summit” was held at the Hyatt on the Bund in Shanghai. The event was co-hosted by Zero2IPO Group and Pedaily. Founders of prominent industry companies—including Sequoia Capital, Northern Light Venture Capital, Tongdu Capital, Xiantong Capital, Dayima, Medical World, and Haodf Online—were invited to discuss investment trends in the industry and clarify the development prospects of specific sectors. VCBeat has compiled the key highlights from the conference for our readers.

During the on-site discussion on the topic of “Opportunities and Challenges in the Era of Precision Medicine,” Wang Haijiao, Executive Partner at GTJA Investment Group; Fan Jianbing, Founder and CEO of Benchmark Medical; He Wei, Founder of Geno Biotech; Liu Pei, CEO of Sinomeditech; Sun Dawei, Vice President of Annoroad Gene Technology; Zhang Li, Partner at CDH Investments’ Innovation and Growth Fund; and Zhong Jie, General Manager of the Strategic Investment Department at Dian Diagnostics, participated in the panel discussion and shared their insights.

Wang Haijiao: Practicing Precision Medicine Is Like Swimming with Your Pants On 

In the medical field, entrepreneurship should first contribute to overall social welfare and embody a spirit of long-term commitment. Second, it requires the courage to confront and resolve challenges. Third, one must have a clear vision, as corporate development necessitates an enduring guiding spirit. Finally, a mindset of win-win cooperation is essential. At the core of precision medicine lies the sharing of big data. This industry thrives on having more friends and fewer enemies.

To excel in precision medicine, one must first possess passion, second have patience, and third, entrepreneurs must engage in substantive work—swimming with trunks on, not naked. We believe that precision medicine is one of the future directions of development and will bring us excess returns. The dream of precision medicine is to achieve true individualization: different treatment plans, different intervention plans, and different diagnostic plans.

Fan Jianbing: Investing in Precision Medicine Is a Long-Term Plan

Precision medicine must be implemented step by step. Therefore, before precision medicine becomes widely accessible to households, relevant laws and regulations are needed to standardize its practice. I believe that precision medicine is more akin to the traditional pharmaceutical industry. Investment in precision medicine by the state or enterprises is a long-term strategy. For the development of enterprises and the industry, the most critical factor is to identify useful products that address pressing medical challenges.

He Wei: EnterpriseOveremphasis on Valuation Is Not a Sound Strategy

There is a significant gap between our vision of precision medicine and reality. First, how to achieve precise patient stratification. Medicine is evidence-based, requiring sufficient evidence and the accumulation of big data. Second, whether testing technologies are reliable and supportive. There are still technical issues in testing that need to be resolved. Third, whether it can help provide clinical evidence for physicians. This requires support from big data, which must be comprehensive, well-designed, and systematic clinical data. Fourth, whether the state provides subsidies for precision medicine. In China, many institutions receive no subsidies for testing. As a result, patients can undergo testing but cannot afford the prescribed medications. Much remains to be done by both physicians and the government.

The precision medicine industry holds genuine value, which must be consolidated over time. In the future, precision medicine will undoubtedly evolve into a cost-effective sector that addresses clinical challenges for physicians and improves patients’ quality of life. Market opportunities arise only where there is tangible value. Although the precision medicine industry does exhibit some bubble-like characteristics, this does not negate its inherent value. For companies, an excessive focus on valuation is not a particularly sound strategy; instead, the key lies in whether they can demonstrate their value within the industry.

Liu Pei: Capital Is a Key Factor in Promoting the Development of Precision Medicine

Precision medicine is currently in its nascent stage, representing a rather superficial concept with substantial room for advancement. From a technical perspective, the entire industry is currently focused on identifying mutations, fusions, and genetic alterations. However, cellular metabolism, fusion, and repair within the human body constitute highly complex dynamic processes that are influenced by environmental factors and individual physiological conditions. Data accumulation in these areas remains scarce. Although the path toward precision medicine is long, it has already begun.

Industry development can be attributed to four key drivers: product, technology, market, and capital. It is undeniable that capital is a significant factor in promoting the advancement of precision medicine. Currently, many companies are overvalued, yet such high valuations are not without justification. While business operators certainly place considerable importance on their own valuations, they must also strive for substantive execution and tangible implementation. Ultimately, the industry’s growth depends on intrinsic capabilities. As for whether the sector is overheated, it remains difficult to determine at this stage.

Zhang Li:Funds need to find the optimal balance point in strategic interactions

In precision medicine, should one invest in companies that are ahead of the curve and already generating positive cash flow, or those lagging behind? I believe it depends on assessing what is achievable versus unrealistic, and whether sustainable growth is possible. For instance, how significant is the market? Companies leading the pack tend to command relatively high valuations. As a fund, we consider multiple factors, such as the stickiness of a company’s ties to downstream markets and the risk of being replaced in the future, among other issues.

For us, it ultimately comes down to whether marketing or technology is the stronger suit. When technological prowess is the key differentiator, medical expertise becomes critically important. We aim to collaborate with teams that possess strong technical capabilities. A major challenge for funds is identifying the optimal balance in such strategic negotiations.

Zhong Jie:Precision Medicine Requires Robust Clinical Trials as a Prerequisite

Currently, the primary prerequisite for precision medicine is to conduct rigorous clinical trials. Only through clinical validation can high-quality products gain recognition from hospitals and acceptance by patients. From the perspectives of policy, venture capital, and industry, precision medicine represents an inevitable trend for the future. At present, the overall sentiment around precision medicine is somewhat overheated. In China, it remains challenging for many mobile health projects to generate cash flow and achieve profitability in the short term.

Our project selection is centered on addressing medical needs, with three primary criteria: first, the technology or product must further enhance treatment efficacy; second, it must help reduce healthcare costs; and third, the product and technology must enable broader market coverage.

Sun Dawei: The precision medicine industry indeed has a high valuation.

Precision medicine requires the establishment of standards and norms before implementing precise treatments. High-throughput tumor detection technologies should be introduced into clinical practice to genuinely reduce physicians’ medical costs and alleviate their burdens during diagnosis and treatment. Only in this way can we effectively address practical challenges such as difficult and expensive access to healthcare, while significantly improving survival rates for cancer patients.

The precision medicine industry indeed commands a high valuation, but this bubble is positive and constructive. It is precisely investors’ recognition of the precision medicine sector that has enabled a large number of companies to develop new technologies, advance medical progress, address persistently high healthcare costs, and allow more patients to live with dignity.

In my opinion, China’s healthcare system is the most efficient in the world. We have addressed the healthcare needs of the vast population at minimal cost. With further data accumulation, I am confident that we will achieve more refined and precise treatments in the future.