Lenovo Capital's Managing Director Ouyang Xiangyu: The Next BAT Will Emerge in Healthcare

Legend Capital has focused on healthcare investments for nearly a decade, investing in more than 40 healthcare companies, and has become one of the top venture capital firms in China’s healthcare sector. Currently, Legend Capital’s healthcare portfolio spans pharmaceuticals, medical devices, diagnostics, and healthcare services, creating a robust and comprehensive healthcare industry and value chain.

Amid nationwide attention on healthcare reform, Ouyang Xiangyu, Managing Director of Legend Capital, expressed his hope that the next BAT could emerge from the “Medical Journey to Growth, Hand in Hand for Win-Win” Healthcare Partner Innovation Cooperation Competition, co-hosted by Legend Capital, Pfizer, Ping An Insurance, and Tencent.

Can this wish come true? Let’s follow Ouyang Xiangyu to explore healthcare through the lens of Legend Capital and examine which sectors are most likely to produce the next BAT.

A Decade of Accumulation: “Three-Chain Synergy”

Counting from the investment in Pharmaron, its first healthcare enterprise, in March 2007, Legend Capital has entered its tenth year of investing in the healthcare industry.

Ouyang Xiangyu told VCBeat that Legend Capital recognized early on that investing in the healthcare sector is a long-distance race, requiring professionalism and focus. Only through continuous, in-depth research and tracking can one gain a thorough understanding of the healthcare industry’s supply chain, identify truly leading companies within the sector, and ultimately build Legend Capital’s unique advantage of “three-chain synergy,” integrating the industrial chain, value chain, and capital chain.

To date, Legend Capital has cumulatively invested in more than 40 companies in the healthcare sector, covering pharmaceuticals, medical devices, diagnostics, and healthcare services. Notable portfolio companies include Innovent Biologics, which specializes in monoclonal antibody drug development; Berry Genomics, a leader in genetic diagnostics; KingMed Diagnostics; Wuhan Asia Heart Hospital, a leading private specialized hospital; and Yixintang, which successfully listed on the SME Board.

However, Ouyang Xiangyu stated that Legend Capital’s development in the healthcare industry has only just begun, with immense opportunities and vast potential ahead.

The Next BAT Lies in Healthcare

As China experiences consumption upgrades and an accelerating aging population, with “Internet Plus” and Healthy China becoming national strategies, healthcare reforms deepening, and national leaders attaching great importance to concepts such as online hospitals, healthcare has become a topic of nationwide concern, and the healthcare industry has emerged as one of the key investment focuses for various investment institutions.

In the healthcare sector, what kind of companies are most likely to become the next BAT? Ouyang Xiangyu pointed out that we must return to the core driver of social progress: innovation.

Ouyang Xiangyu told VCBeat that Legend Capital’s core focus when evaluating healthcare companies lies in their innovation capabilities, specifically manifested in two dimensions: technological innovation and business model innovation. A brief review of Legend Capital’s investment portfolio reveals a particular preference for companies with strong R&D capabilities. Examples include Sinocare, which focuses on the development of original anticancer drugs; Starry Medical, which specializes in in vitro diagnostic technologies; Berry Genomics, which concentrates on genetic diagnostic technologies; and Aohua Endoscopy, which is dedicated to the development of flexible endoscopes. However, Ouyang Xiangyu noted that Legend Capital also places significant emphasis on companies with unique business model innovations. Particularly as healthcare reforms deepen, various flaws and distortions within the existing healthcare system are being corrected, thereby unlocking substantial opportunities for business model innovation.

Specifically, the future healthcare system will see breakthroughs in the following areas: for instance, how to maximize the value and vitality of physicians as multi-site practice is promoted; how social capital can participate in medical services and optimize healthcare supply amid supply-side reforms; and how commercial insurance can integrate into the healthcare system and play a more effective role in cost containment, given the accelerating aging population and mounting pressure on medical insurance funds.

In fact, Legend Capital has made numerous investments in healthcare enterprises driven by business model innovation. For instance, Wuhan Asia Heart Hospital stands as a successful case where government encouragement of social capital entering the healthcare system has leveraged private-sector strength to optimize medical supply. Meanwhile, KingMed Diagnostics represents a successful case of reducing operational costs for hospitals, delivering better services to patients, and enabling more efficient allocation of medical resources.

Ouyang Xiangyu believes that as healthcare and the internet become increasingly integrated, innovative models within the healthcare industry will emerge at an accelerated pace. Previously, Legend Capital had invested in several internet healthcare companies, with a relative focus on vertical sectors and the B2B segment. Examples include Liangyihui Oncology Information, which specializes in the oncology field; Tongxin Yilian, which focuses on medical imaging and physician tools; and Gairui Technology, which is dedicated to primary care and telemedicine. However, Legend Capital has consistently maintained strong interest in consumer-facing (B2C) enterprises, firmly believing that mobile internet will drive transformation in the healthcare sector, presenting abundant opportunities.

Ouyang Xiangyu pointed out that the internet’s enhancement of the healthcare industry is currently manifested primarily at the tool level, helping hospitals and physicians deliver services to patients more efficiently and fostering innovation in business models. For instance, the internet has significantly driven China’s healthcare transformation toward a patient-centric model, optimized medical consultation processes, facilitated the shift of healthcare scenarios from hospitals to homes, enriched health management methods, and promoted the penetration of insurance into the healthcare sector. These changes will give rise to entirely new business models and create substantial opportunities to reshape the industry landscape.

Legend Capital also pays close attention to the opportunities that cutting-edge technology brings to internet healthcare, such as how advancements in sensor technology could bring significant changes to chronic disease management, and how big data and artificial intelligence may have a major impact on disease diagnosis.

Ouyang Xiangyu further emphasized that Legend Capital favors companies with industry-leading positions and the capability for future industrial consolidation, noting that the next BAT will emerge from among such enterprises.

"Snowballing" Capital-Industry Interaction for Mutual Win-Win

Regarding the increasingly heated investment climate in China’s healthcare sector, Ouyang Xiangyu stated that he welcomes more partners joining the industry, as this not only validates Legend Capital’s forward-looking vision but also helps foster a healthy industry ecosystem.

Regarding the Healthcare Partner Innovation Competition jointly launched by Legend Capital, Pfizer, Ping An Insurance, and Tencent, Ouyang Xiangyu stated that the timing is apt. Prior to this initiative, Legend Capital had engaged in extensive exchanges and interactions with the three partners. This innovation competition elevates their collaboration to the level of an industrial alliance, enabling more effective integration of resources from all four parties to build a multi-tiered healthcare entrepreneurship ecosystem.

Ouyang Xiangyu pointed out that Pfizer, Ping An Insurance, Tencent, and Legend Capital are all leading enterprises in their respective fields, with strong complementarity in their respective advantages and resources. Leveraging this competition, the parties can more effectively organize their resources to identify more in-depth investment opportunities.

Regarding Legend Capital’s unique advantages, Ouyang Xiangyu believes that they are reflected not only in the “three-chain synergy” of industrial chain, value chain, and capital chain built through nearly a decade of investment in the healthcare sector, but more importantly, in its ability to leverage Legend Holdings, Lenovo-affiliated investment institutions (Legend Star, Legend Capital, and Hony Capital), as well as its numerous portfolio companies, to provide startups with comprehensive investment and financing services—ranging from angel investment and venture capital to IPOs, financing, and M&A—along with industrial synergy support throughout the entire corporate lifecycle.

Dr. Wu Xiaobin, President of Pfizer China, stated in an interview with VCBeat that healthcare institutions and government entities should also be invited to participate in this innovation competition, thereby creating a more complete industry chain. Ouyang Xiangyu strongly concurred with this view, expressing hope that more diverse stakeholders will be engaged in the future to build momentum, foster mutually beneficial interactions between capital and industry, and jointly cultivate a healthy ecosystem for the development of China’s healthcare sector.

Tips:
Legend Capital Won Three Annual Awards in China’s Healthcare Investment Sector in 2015, Namely: Top 10 VC Firms in China’s Healthcare Industry; Top 10 Investment Figures in China’s Healthcare Industry: Ouyang Xiangyu; Top 10 Investment Cases in China’s Healthcare Industry: Innovent Biologics.