Junli Capital's Cai Daqing Unveils Previously Undisclosed Investment Logic in Healthcare Sector

Counting from the investment in Pharmaron, the first healthcare company, in March 2007, Legend Capital’s investment layout in the healthcare industry has entered its tenth year.

Over the past decade, Legend Capital has cumulatively invested in more than 40 healthcare companies, covering various sectors including pharmaceuticals, medical devices, diagnostics, healthcare services, and internet healthcare. The firm has achieved multiple successful exits through IPOs and M&A, with notable portfolio companies such as Yixintang, Amcare, Dianhong Pharmaceutical, KingMed Diagnostics, Pharmaron, and Yimei'er.

In 2015, Legend Capital won three annual awards in the healthcare sector from VCBeat:

• Top 10 Best VC Firms in China’s Healthcare Industry: Legend Capital;




• Top 10 Best Investors in China's Healthcare Industry: Ouyang Xiangyu;




• Top 10 Best Investment Cases in China’s Healthcare Industry: Suzhou Innovent Biologics.

Beyond its investment portfolio, Legend Capital is also actively committed to strengthening the healthcare entrepreneurship ecosystem. In collaboration with Pfizer, Ping An Insurance, and Tencent, it co-hosted the “Healthcare Partners Innovation Cooperation Competition” under the theme “Growing Together in Healthcare, Winning Through Partnership,” encouraging more entrepreneurs to join forces in addressing China’s healthcare challenges.

Behind this series of achievements and moves, one cannot help but wonder: What is Legend Capital’s understanding of the healthcare industry and its investment logic? What will the future landscape look like for Legend Capital in the healthcare sector? To address these questions, VCBeat conducted an exclusive interview with Cai Daqing, Managing Director at Legend Capital, who provided detailed insights.

Abundant Healthcare Investment Opportunities Driven by Numerous Pain Points and Upgrading Demands

In China’s current economy, the healthcare sector faces more numerous and profound pain points than other industries, with substantial unmet medical needs. These include effective treatment and early screening/diagnosis of cancer, effective treatment and early intervention for cardiovascular diseases, rehabilitation for various major diseases, and the prevention and management of genetic disorders.

More significantly, there is an unending and growing desire to better address unmet medical needs: patients who require open-chest surgery increasingly prefer minimally invasive alternatives, while those needing twice-daily injections hope for once-weekly dosing or even oral medications.

Coupled with changes in government policies and the drive of technological innovation—such as rapid advances in optics, electronics, computing, and biotechnology, as well as the accelerating penetration of the internet—there are immense possibilities for meeting healthcare demands, offering numerous investment opportunities in the market.

In the view of many industry experts, the various problems in China’s healthcare system stem from a fundamental fact: while demand for medical and health services continues to grow rapidly, the corresponding supply of healthcare resources remains severely inadequate, resulting in low efficiency in matching supply with demand and significant waste of medical resources.

Cai Daqing pointed out that with the relaxation of national policies in areas such as multi-site practice and private healthcare provision, China has ushered in a significant opportunity to resolve the contradiction between medical supply and demand. The healthcare system, characterized by prominent planned-economy features, will become increasingly market-oriented, thereby opening up greater market space for private medical services. In the process of policy-market integration and interaction, the value of physicians—the core resource of the healthcare system—will become increasingly prominent. Meanwhile, the influx of social capital will serve as a catalyst or lever, promoting the rational allocation of medical resources and the efficient operation of the healthcare system.

Cai Daqing believes that in the coming years, physicians aged 30 to 40 who are well-versed in the internet will become the primary group leaving public medical institutions. A large volume of non-basic medical services will be taken over by social capital, the market share of private healthcare services will rise significantly, pricing mechanisms will become increasingly market-oriented, and commercial insurance will play an increasingly important role in the healthcare system.

In contrast to the abundant opportunities brought by deregulation in the healthcare services sector, Cai Daqing believes that strengthened regulation will also create market opportunities in the pharmaceutical industry. The phenomenon of “bad money driving out good” has long persisted in the pharmaceutical sector, where companies focused on R&D struggle to achieve reasonable returns, while substandard drugs have captured a share of the market. However, in 2015, with the state’s strict definition of innovative drugs in the drug approval reform, vigorous support for innovative drug R&D, and requirements for pharmaceutical companies to conduct self-inspections of clinical trial data, broad market space was opened up for high-tech innovative drugs and related R&D services. This has allowed those dedicated to the R&D and production of truly innovative, high-quality drugs to sense the arrival of spring.

Technological innovation is another key factor driving healthcare development and creating entirely new markets. Cai Daqing pointed out that the global healthcare sector has experienced three waves over the past two to three decades:

• The first wave was monoclonal antibody technology, which won the Nobel Prize in 1984; since then, monoclonal antibody drugs and diagnostic technologies have swept across the entire healthcare sector.




• The second wave was PCR technology, an in vitro nucleic acid amplification technique developed in the mid-1980s. It represents a revolutionary breakthrough and milestone in the field of biomedicine, exerting a profound impact on healthcare.




• The third wave is the increasingly popular liquid biopsy and human genomics science in recent years, with related technological applications bringing huge opportunities in the future.

Technological innovations beyond biomedicine, such as mobile internet and the Internet of Things (IoT), have enriched traditional healthcare scenarios by extending medical services from hospitals to homes. These advancements cover pre- and post-diagnosis stages, offer various prevention and rehabilitation services for chronic diseases, and provide personalized health management solutions, thereby creating substantial market opportunities for the healthcare industry.

Cai Daqing revealed that Legend Capital has devoted significant efforts to internet healthcare, with dozens of employees across multiple internal teams previously studying the sector from various perspectives. Legend Capital’s assessment is that internet healthcare will likely integrate with China’s healthcare reforms in the future, fundamentally transforming many aspects of the healthcare landscape and creating numerous investment opportunities. Accordingly, Legend Capital has also pursued investment deployments from diverse interdisciplinary angles and within highly specialized domains.

Cai Daqing also believes that the currently popular concept of precision medicine is highly likely to eventually integrate with internet-based healthcare. For instance, non-invasive prenatal genetic testing actually involves data from both the mother and the fetus, including most of their genetic information. As the scale of such testing expands significantly, substantial data will accumulate. Leveraging this extensive data foundation, it is possible to combine it with the technologies and models of internet-based healthcare to develop numerous high-quality applications and products that deliver significant value to society and families.

Investment Layout from the Dual Perspectives of Disease Spectrum and Industrial Chain



Cai Daqing reviewed Legend Capital’s investment journey in the healthcare sector, noting that the disease spectrum and industry chain constitute the core strategic themes of its investment portfolio.

The disease spectrum refers to the arrangement of various diseases that threaten public health in a specific region, ordered by their severity. According to relevant studies, cardiovascular diseases, cancer, and diabetes have become the leading causes of mortality in China’s disease spectrum.

Cai Daqing revealed to VCBeat that Legend Capital’s investment portfolio around the disease spectrum is quite extensive, covering multiple fields such as oncology, cardiovascular diseases, diabetes and metabolic disorders, hypertension, and otolaryngology.

From an industry chain perspective, Legend Capital’s investment portfolio spans multiple segments, including diagnostics, pharmaceuticals, medical devices, and healthcare services, creating a synergistic interaction with its disease-spectrum-focused investment strategy.

Taking oncology as an example, investments have been made in KingMed Diagnostics, Berry Genomics, and Singlera Genomics. KingMed Diagnostics is the largest third-party medical laboratory group in China, offering comprehensive outsourced medical testing services, including cancer detection. Leveraging genetic testing as its core technological advantage, Berry Genomics actively develops molecular diagnostic products for tumors, providing a full spectrum of tests such as targeted therapy selection, chemotherapy regimen guidance, treatment efficacy monitoring, hereditary cancer susceptibility screening, and personalized oncology care. Singlera Genomics’ Pylon Immunoassay System offers a wide range of immunoassays, including those for cancer.

In the pharmaceutical sector, major investments were made in Innovent Biologics, Ribo Life Science, Kaiyin Technology, Shenaoji, and Hemei Biologics. Innovent Biologics is dedicated to developing novel monoclonal antibody drugs with high technical barriers, complex manufacturing processes, and independent intellectual property rights, primarily covering oncology, diabetes, and autoimmune diseases. Ribo Life Science focuses on developing nucleic acid therapeutics based on RNA interference (RNAi) technology, and has gradually established a relatively comprehensive R&D system for small nucleic acid innovative drugs, encompassing drug target discovery, target activity screening, delivery routes, pharmacodynamics and pharmacology, safety evaluation, and clinical research. Kaiyin Technology specializes in the field of liver diseases, establishing a product portfolio focused on antiviral, immunomodulatory, hepatoprotective, anti-hepatic fibrosis, and liver cancer treatments. Shenaoji holds the sole global patent for the novel estrogen receptor ER-alpha 36 drug target and is committed to developing first-in-class anticancer drugs that specifically target cancer stem cells. Hemei Biologics adopts a unique operational model featuring overseas project initiation and domestic R&D, primarily focusing on the development of anticancer drugs, anti-inflammatory agents, and therapies for cardiovascular and central nervous system disorders.

Seeking Value Depressions in Internet Healthcare

Cai Daqing believes that the internet venture capital bubble of 2015 was not necessarily a bad thing. Looking back at the TMT sector’s boom in 2000, it similarly saw a frantic influx of capital from various sources, appearing chaotic on the surface. However, without that phase, today’s tech giants such as Tencent and Baidu would not exist. This process evolves from chaos to rationality, and the medical investment sector is likely to follow a similar trajectory. Industry development requires a certain level of capital injection to continuously cultivate talent, establish a robust industrial ecosystem, and truly drive the sector forward.

At a time when investors are becoming more rational and composed, Cai Daqing believes that there are indeed some high-quality enterprises that require discerning investors to discover them, provide financial support, offer assistance in strategy and management, and accompany them through their growth. These enterprises represent value depressions in the internet healthcare sector, warranting thorough exploration by investors.

In addition to pure venture capital (VC) firms, an increasing number of industrial investors are now active in the venture investment landscape. Cai Daqing previously oversaw investment activities at BGI Genomics and joined Legend Capital after 2010, giving him a profound understanding of the distinctions between industrial capital and venture capital.

Cai Daqing pointed out that the biggest difference between the two lies in their perspectives. From the viewpoint of industrial capital, greater emphasis is placed on the synergy between the invested company and its own business operations, as well as strategic layout, rather than solely calculating returns based on financial metrics. However, from the perspective of venture capital, investments in startups focus more on financial returns, with less attention paid to other synergies or strategic considerations.

Cai Daqing offered prudent advice on how high-potential startups should select investors. If entrepreneurs believe that the platform they are building holds universal significance, with its value not dependent on the support of industry giants, but rather aiming to serve a broader population and generate greater social impact, they must maintain their independence in the early stages. They should strive to advance rapidly instead of becoming deeply entrenched with industry leaders. Such companies typically enjoy better development prospects in later stages.

Cai Daqing concluded by stating that an open China today boasts a large pool of talent capable of aligning with, and even surpassing, international leading technologies, along with numerous teams returning from overseas. Legend Capital has always adhered to the investment philosophy of “business first, people foremost,” collaborating with individuals of integrity, ambition, insight, and competence to identify favorable and actionable trends amidst market currents. Legend Capital is particularly keen on platform companies with sustained product innovation capabilities or resource integration strengths. These are the companies Legend Capital values highly and is willing to invest in, as they are more likely to emerge as the future BATs (Baidu, Alibaba, Tencent) of the healthcare sector.