How to reshape the market growth logic at the industry turning point?

At present, the medical industry is standing at a historical node of change.

On the one hand, challenges are intensifying. Affected by the capital winter and the continuous tightening of IPO channels, the pressure of survival is spreading rapidly in the industry. Taking the most intuitive secondary market as an example, as of November 25, nearly 100 medical companies have been terminated from listing this year, and less than 20 medical targets have been successfully listed, which means that the cash flow problem is becoming more and more urgent, and many medical companies are already on the verge of bankruptcy.

On the opposite side of the challenge, many market opportunities are also sprouting rapidly. For example, in innovative technology, cutting-edge fields including synthetic biology, brain-computer interface, and AI are bursting with more possibilities; in addition, at the capital level, state-owned assets are pouring in, and gradually aligning with market-oriented funds, and have now become a new source of vitality for the industry; finally, in market expansion, new concepts such as going overseas, BD, mergers and acquisitions, and NewCO are emerging in an endless stream, and a large number of growth opportunities are hidden in them.

Therefore, the era of the medical industry is divided into two parts: one part is about survival, that is, how to survive better first; the other part focuses on growth, that is, how to seize opportunities and successfully open up a second growth curve?

In order to clarify the industry logic and find the key answers, the "2024 Changping Medical Health Financial Investment Innovation Forum" held recently attracted special attention from Artery Network. It is reported that the conference had more than 30 heavyweight guests from the medical industry ecosystem, including government department leaders, academician scientists, clinical experts, top investors and business leaders. Through keynote speeches, roundtable dialogues and other forms, they objectively analyzed the subtle changes in the current market while also clearly portraying the industry's future growth path.

01. Make truly valuable medical innovations

Lai Lipeng, co-founder and chief innovation officer of Jingtai Technology, shared a case at the meeting. He said, "At the beginning of 2023, ChatGPT suddenly became popular, attracting widespread attention and a large number of followers in the industry. But in fact, the earliest article on the model behind ChatGPT was published in 2017. I think that people who were keen at the time should have realized that this would become an important development trend. If you just follow, it may be difficult to keep up with the speed of development and change of new technologies."

It is not difficult to see from this that original innovation is crucial in the medical field and is the key to mastering the industry's discourse power. In fact, domestic substitution, cost reduction and efficiency improvement, and value-added medicine, which have been repeatedly mentioned by the industry in recent years, are actually inseparable from the promotion of original innovation.

In this regard, Zhang Jinju, founder and CEO of Guoke Rongzhi Biology, said, "When we focus on the application field of medical care and choose what kind of products to make, we first start from clinical needs, and then innovate on this basis, focusing on those segments that can truly fill the gaps and replace imports. This is the first step. The second step is to make higher-quality substitutions, not just follow but lead, so we must go further in diagnosis and treatment effects and cost control, and this requires technological innovation to support it, and it also conforms to the basic characteristics of new quality productivity."

Companies are chasing innovation, and so are investment institutions. According to the investment and financing report of the Eggshell Research Institute, among the 415 financing events completed in my country's medical and health field in the first half of 2024, the proportion of investment in round A and before was close to 60%, most of which were mainly based on the upgrading and iteration of innovative technologies. By observing investors' descriptions of current investment targets, Artery Network has summarized three typical characteristics: first, its technology, methods or equipment are scarce in China or even the world; second, this technology or this product has clinical value, that is, it can meet unmet clinical needs; third, it can be made at a lower cost, and this cost can be covered by the existing payment system.

However, it must be recognized that although innovation is imminent, the process is not easy, especially in the high-investment, high-tech medical field, the challenges and risks to be faced are very high. Therefore, it is particularly important to empower innovation in a targeted manner.

In this regard, Wang Jingjing, executive director of the Global Health Industry Innovation Center of Tsinghua University Institute of Industrial Technology, said, "If we regard the path of transformation of a result as a process from an idea to a commodity, then each step is actually very difficult. For example, when judging whether the technology is valuable in the earliest stage, it is necessary to combine clinical and market dimensions for comprehensive consideration. In addition, in the key link of transforming technology into products, there are also many bottlenecks, such as registration and approval, which may exceed the capabilities of scientists or doctors. Therefore, it is necessary to build relevant platforms to clear obstacles and accelerate the pace of medical technology achievements from the laboratory to the market." Based on this point, Chang Development Group, which has formed a mature industrial ecological chain, has a certain voice. To this end, Wang Ying, general manager of Changfa Development Group, said, "The medical and health industry chain is indeed very long, and the technical threshold is also very high, which also poses great challenges to the capabilities of enterprises at different stages of development. As a government-guided fund, we can actually build a platform, focusing on the three major sectors of asset management, technology finance and industrial services, integrating the high-quality resources we can reach and accurately empowering enterprises, so as to solve development difficulties and promote their rapid growth."

Specifically, based on the underlying logic of medical innovation, Changfa Development Group has built multiple professional service platforms such as the International Precision Medicine Innovation Center and Acceleration Center, the International Medical Device CMO Platform, the Instrument Equipment and Testing Service Sharing Platform, the M+ Medical & Beauty Innovation Center, and the Synthetic Biology Manufacturing Transformation Acceleration Center, which can provide the invested enterprises with full-chain services from 0 to 1, then to 10, and then to 100.

02. When going overseas becomes a must, how to bypass the reefs and find treasures?

When talking about the portrait of the bidder, Wang Junfeng, co-chief investment officer and managing director of Legend Capital, took "whether it has international potential" as an important reference standard. In this regard, he said, "If a target does not show international potential, we may first draw a question mark, is it still worth investing? Now the domestic market is very competitive, and overall profits are declining rapidly. How to find growth, the only way is to look for new opportunities outside. To exaggerate a little: not going overseas today is waiting for "death", going overseas is looking for "death", and looking for "death" may still be able to fight a bloody way out."

Peng Huanhuan, vice president of MGI and general manager of China, agreed with this. She said, "If you want to have a larger market share in the industry in the future and have better performance in business, then you must be very firm in going overseas. Although there is great resistance in the early stage, if you can combine your own local conditions, there is still a high probability that you can find a way out."

So, how to go overseas?

This needs to be viewed from multiple dimensions. The first point is to choose a destination. Through discussion, everyone agreed that there are actually two ways to go overseas. The first way is to take the usual way, that is, to face the European and American markets. This market is huge, and many companies choose to do clinical trials here and establish marketing teams to sell directly; the second way is to take the unusual way, that is, the entire "Belt and Road" countries that are currently emerging. Although their overall market size is not as large as that of Europe and the United States, the demand is very strong.

Therefore, different overseas modes determine different overseas destinations. Specifically, if it is simply a product export, the European and American markets can be given priority because they are large and can promote rapid growth of products. But if it is technology export, the European and American markets can be the main force, and emerging markets represented by Southeast Asia also have opportunities because there is a huge generation gap and the market potential is very large.

After talking about the destination, let's focus on the mode and path of going overseas. In this regard, Wang Junfeng, co-chief investment officer and managing director of Legend Capital, said, "How to formulate a good internationalization strategy? On the one hand, we need to make adequate preparations. Not only technology and products, but also talents and mentality are equally important. On the other hand, we need to combine "local" and "foreign". Here, "foreign" represents China, and "local" represents local. That is, we need to let local people solve specific problems of local implementation, such as access, approval, etc. At the same time, we must also focus on magnifying our own advantages, such as bringing technology, talents, methodology, quality standard system, marketing methodology, etc., and helping them get on the horse for a while, so that we can hand in a satisfactory answer."

The last thing to talk about is balance, that is, how to balance the short-term pressure and long-term layout of going overseas. Although everyone is currently hoping to see the effect immediately at the overseas level, in fact, this is unlikely, because this is not something that can be achieved overnight, and it is difficult to bear fruit without two or three years of hard work. So the question is: How to alleviate the pressure of profit and cash flow under the huge investment in the early stage of going overseas?

In this regard, Peng Huanhuan, Vice President of MGI and General Manager of China, gave an answer. She said, "Going overseas is definitely right in the long run, but there will definitely be pressure on companies in the short term, so it is crucial to find a balance. As far as MGI is concerned, we will be relatively aggressive when the industry momentum is relatively good. If we encounter resistance in some stages or some regions, we will shrink. We will not expand blindly. Whether it is region or product, we have to make some trade-offs. Although the long term is more important, it is also important to survive in the short term."

03. "Holding together for warmth" is the key to breaking the deadlock

It is reported that at this conference, two major cooperations were finalized. One is the "Beijing Future Science City Industrial Investment Promotion Consultant Certificate" - 12 experts in the fields of medical health, financial investment, etc. will inject new vitality into the pharmaceutical and health industry in Changping District; the other is the "Life Valley Pharmaceutical and Health Industry Investment Fund Cooperation Signing" - Life Valley Pharmaceutical and Health Industry Investment Fund has reached cooperation with four institutions, Shenwan Hongyuan, Legend Capital, Shuimu Venture Capital, and Chende Capital. In the future, it will deepen investment in synthetic biology, innovative drugs, cutting-edge biotechnology and medical devices.

Based on this cooperation, Wang Ying, general manager of Changping Development Group, said, "The biggest advantage of the parent fund is that it can help us connect to the best social resources, and introduce more partners to Changping, and then make the "circle of friends" bigger and stronger. For example, the four sub-funds signed this time have their own strengths. Some are far ahead in a certain technical field, and some are good at going overseas or capital operation. So for us, it is necessary to link up with multiple parties and give full play to their respective advantages to meet the personalized needs of different companies at different stages." In fact, in the current market winter, "grouping together for warmth" is not only applicable to investment logic, but also to going overseas. Take the recently popular "NewCO" as an example. It uses the advantages of different companies to achieve a common goal, and then each company obtains the required benefits from it. In this regard, Li Rui, partner of Button Capital, said, "NewCO is nothing more than a transaction between an asset and a counterparty. The first thing that comes into play must be the quality of the asset, followed by the investor's grasp of NewCO itself and the expectation of whether NewCO will be acquired by MNC in the future."

So, will this cooperation mode of NewCO exist for a long time?

Meng Qingwu, founder of Yikesit Pharmaceutical, gave an answer from his own level. He said, "Dollar funds are decreasing in China, but the essence of profit-seeking will not change. In the future, we will continue to increase investment in the NewCO model and obtain more good assets. As for us, we can also accumulate more overseas experience through NewCO, and even be able to directly participate in "building ships to go to sea" from "borrowing ships to go to sea". Therefore, NewCO is not a product of the development stage of China's pharmaceutical industry, but will exist for a long time and eventually become a normalized BD transaction model." Therefore, it is foreseeable that NewCO will burst out with more possibilities in the future.

Finally, in the current environment where challenges and opportunities coexist in the medical industry, the synergy between the industrial chain has become increasingly important, and it is the key to crossing the cycle and finding new growth in the industry. In this conference, there is not only guidance on the methodological level, but also active promotion of mutual cooperation and connection in various dimensions, which will open up more growth curves for the entire medical and health industry.