Innovative drug gamble: 4 years to swallow 200 billion yuan of yellow sorghum a dream| deep krypton

Wen | Ren Qian

Editor| Liu Jing

01

From heaven to hell

Zhang Yu couldn't sit still for a minute. At 10 p.m. on Christmas Eve 2021, he had just finished a conversation with the CEO of an innovative drug company and hurried to the next building, where another CEO was waiting for him.

"Before the end of the year, the Hong Kong Stock Exchange must send out at a valuation of 6 billion." The CEO raised his tone. Five months ago, the company he founded, which specializes in oncology drug research and development, just submitted a prospectus.

"Either reduce the valuation or postpone the listing time." Zhang Yu repeatedly advised.

As the project leader of the medical team of a Chinese investment bank, Zhang Yu is more eager than anyone to send the company to the IPO site. But at the moment, he is shuttling through the Suzhou Industrial Park, which is full of more than 1,900 biopharmaceutical companies, with only one purpose: to dissuade CEOs from their IPO plans.

This is the 11th pharmaceutical company he has visited in half a month. In a PPT of more than 50 pages, he detailed the rise and fall of the Hong Kong stock market, listed pharmaceutical companies, and the roadshow feedback of nearly 200 investors he visited. "They don't invest in innovative drugs for the time being." He said emphatically. It was said, "Some people complained in their tones, and some even went mad to their faces." You know, only half a year ago, in order to get the cornerstone investment share of some pharmaceutical companies, investors even had to pay an additional 1%-2% "tea fee" to investment banks or brokers.

Time shifts easily in an instant. According to the incomplete statistics of 36Kr, there are nearly 80 biomedical companies in the Hong Kong stock IPO queue, of which more than a dozen were originally planned to be listed in December last year, but only 1 has been successful so far.

Companies in the primary market are also having a hard time. In the past two months, the founder of an innovative drug company in Zhangjiang, Shanghai, which specializes in the field of oncology and autoimmunity, has been financing the Pre-IPO round, but when he met with investors, "as soon as he heard that we were ready to hand over the form, he didn't ask any questions and went straight away." Later, he could only change the Pre-IPO round to the D round, which received a vague response from a small number of investors: "You can wait and see." Half a year ago, he was also a star entrepreneur who got a TS (letter of intent) with a target financing of 2.5 times.

The survival of listed pharmaceutical companies is even more urgent. Zhang Yu revealed to 36Kr that in terms of cash reserves / operating cash flow ratio within the year, about 45 innovative pharmaceutical companies have landed in Hong Kong stocks after 2018, but at present, 15 cash on the account "may not last for two years", and some companies will face the risk of delisting.

From heaven to hell, but half a year.

With the reform of the Food and Drug Administration in 2015 and the 18A New Deal launched by the Hong Kong Stock Exchange three years later (after allowing the IPO of unprofitable biopharmaceutical companies), the once-snubbed life and health investment seems to have stepped on the strong voice of the times and has become a sector that almost every mainstream fund cannot avoid. Among them, innovative drugs are the area with the largest amount of financing, the highest attention, and the most likely to create legends. Whale quasi data show that from 2018 to 2021, the financing amount in the biopharmaceutical field in the domestic primary market will be nearly 200 billion yuan. Among them, the financing amount in 2018 exceeded 20 billion, and the figure in 2021 reached nearly 90 billion.

The gift of the times, in fact, has long been marked with prices.

In the wave of Chinese venture capital in the past two decades, technological progress is the root cause of qualitative changes in most industry patterns and business logic, and the reason why innovative drug investment is not common is largely due to the fact that this is an industry with "insufficient basic strength". "There are very few pharmaceutical companies that really rely on R&D varieties to start. It can even be said that before 2017, There were very few generic drugs in China, mainly cottage drugs. An investment partner who has been focusing on innovative drugs for more than ten years told 36Kr. "Cottage medicine" means: copying the main ingredients of the original drug, or simply modifying the molecular structure, and quickly listing and selling under the corresponding standards.

What's more, the development of innovative drugs has always been a dangerous game. "The cycle is long, expensive, and all aspects of research and development may fail, and many times this will not reduce the mortality rate of a new drug because of the underlying progress of technology, the accumulation of experience, and the acceleration of capital." The above-mentioned investor told 36Kr. So much so that the theoretically more mature American pharmaceutical investment community also circulates a saying: "This is a game with God."

But in the past six years, in China's venture capital industry, which believes in miracles, this industry, which should not be trapped by capital, has not been spared.

02

108 high bets

In Guangzhou in March 2019, bauhinia flowers fluttered all over the sky. On the 13th floor of the Yueyun Building on Zhongshan 2nd Road, a group of young people are busy with the opening ceremony of the new office. A month ago, their innovative drug company, Haihe Pharmaceuticals, had just completed its first round of financing of $147 million.

The arrival of Academician Ding Jian, Chairman of Haihe Pharmaceutical, and Dr. Dong Ruiping, CEO, made the scene instantly commotion. Ding Jian said excitedly: "Haihe Biology is very unique, our original innovative drugs are driven by science, and the drugs are followed by molecular markers, which can accelerate the conversion and make China's truly innovative drugs." ”

It's truly a moving story. The two core founders, one is an academician of the Chinese Academy of Engineering, one is a special expert; avoiding the PD-1, which was already a Red Sea at that time, and choosing a popular but not so crowded oncology drug; and starting out with a high stake, taking the global clinical strategy: when most pharmaceutical companies can only do clinical research in China, Haihe has established a clinical research system that is in line with international standards - this is also the most difficult point. China's innovative pharmaceutical companies were once known internationally as the ones who picked up people's teeth, and there were not many pharmaceutical companies that dared to shout such slogans in the past, and BeiGene, which has melted 60 billion, is counted as one.

A year later, Haihe's financing was staggering. An investor who participated in the B round recalled to 36Kr that although the amount of the final close of the B round of Haihe was 1.2 billion yuan, if it wanted to soar to 2 billion or 2.5 billion, "it was completely fine". "At that time, many funds wanted to lead the investment, and there were seven or eight TSs with more than 500 million yuan alone. "In the end, Warburg Pincus Investment won the lead investment as desired - during the epidemic in 2020, Warburg Pincus only invested in two biomedical projects, and Haihe was one. At this time, the valuation of Haihe Drugs has jumped to $1 billion.

But at this time, Haihe, in addition to the aura of star entrepreneurs and several varieties that are being developed on the product line, actually has nothing. For early investors, this may be understandable - innovative drug investment is a "betting team". But in the field of innovative drugs, a top team may not mean that it is easier to reach the other shore, and the product line is the core element.

An investor who had done his best to conduct Haihe but ultimately failed to do so told 36Kr that he had two concerns at the time: Haihe's relationship with the Shanghai Pharmaceutical Institute was more sensitive; and perhaps more importantly, Most of Haihe's pipelines were introduced by License in.

License in is a model unique to the pharmaceutical industry. It is based on the research results of foreign advanced enterprises, the importer will obtain all the intellectual property rights of the new product in China, and obtain the right to obtain the secondary development patent through the digestion and absorption of know-how. In a word: buy buy buy model. Although this model has been widely used in the field of innovative drugs in China before, the investor believes that "it is difficult to accept that such a highly configured team is doing something similar to others." ”

For the next full year, Haihe fell into a long period of gloom: the IPO of the science and technology innovation board was launched in February 2021, the review was suspended in July, and the formal rejection was in September. The Listing Committee's on-site inquiry was quite straightforward: whether the issuer has independent research and development capabilities. The most lethal thing is to question its R&D capabilities and product monetization, which points to the failure of the license in model.

"A little panicked." The above-mentioned pharmaceutical investor told 36Kr. In fact, before the Haihe B round of financing, the voices in the market about license in the criticism rose and fell, but at that time, the companies that did have this model rose well in Hong Kong stocks, "I did not expect that it would not work in the science and technology innovation board." The recognized "originator" of this model, Zaiding Pharmaceutical, was listed more than 3 years after its establishment, and once created a market value of 100 billion.

If there is some rationality for gamblers, many innovative drug investors do not even have a methodology to tell.

Lao Cai had worked for many years in an international pharmaceutical company, and later served as MD (managing director) of a medical fund, and in the past few years, he had received inbox the BP of the innovative drug project from the fund's partners. "A lot of licenses are in the project, but it's basically a duplicate target. At that time, I told my partners that this kind of project was not feasible for us to set up a project in a pharmaceutical company. But to Lao Cai's surprise, less than two weeks after the words fell, the two cases that he passed away had announced financing. Looking at the investment list, "all of them are various institutions", but it turned out that the two companies almost never got financing again.

Liu Dan, a partner at CDH Investment VGC, told 36Kr that before 2018, except for a few heads, most institutions avoided innovative drug investment, for the simple reason: they could not understand. But when the floodgates opened, "it was like opening an Internet celebrity dessert shop on the street, initially only foodies went to punch, and then all passers-by wanted to try it." ”

Ms. Yang, who finances a rare disease drug research and development company in Shenzhen, has met with dozens of investors, but most of the conversations have been short. "They'll even pull out a piece of paper, and even if 1 of the 10 questions on the paper makes us feel like we're dazzled, it's very rare." Yang Han told 36Kr that most investors' questions are very general: "At the beginning, I asked: What is the difference between your technology and American technology?" Your good or America's good? ”

Of course, investors may also be helpless, when faced with star projects, they have to change the original investment process. For example, in the financing process of Golee Pharmaceuticals, there are investors who "complete the due diligence in 15 days, pass the investment committee in 20 days, sign the final legal agreement in 21 days, and receive funds in 30 days" - and in this field, the usual due diligence time for investors often takes 3-6 months.

An FA told 36Kr that the innovative drug itself is the product of multidisciplinary cutting-edge technology, and only when the company team gathers senior people from all walks of life can the project be smoothly advanced, and the investigation of commercial value is also extremely time-consuming. His implication is that if an innovative drug project is rationally evaluated, the time required is not short.

Unlike many of the startup sectors that are in full swing today, innovative medicine is an industry that is widely benchmarked against the U.S. market. "No matter what the quality of the enterprise, as long as there is an overseas benchmark, it is easy to pass." Lao Cai said that in order to make investors buy it, many scientists have to become PPT masters and story kings. "They generally say: You see that the product of THE US XX company has been in phase III clinical trials, the probability of success is very high, and the valuation is 3 billion US dollars." I'm doing Me-better, how can the same product line be worth 1 billion yuan? “

But in fact, the background of these companies determines that most of them are unlikely to grow into american companies that investors think of. The NEW DRUG model in the United States is a risk front-end - as early as possible through the clinical proof of drug quality, and with a lower valuation to eliminate some of the risks, but the current Chinese tracking new drug model is a serious risk post-position - capital saving, valuation speculation, but then the vast majority of products can not be listed, the company's profitability is difficult, capital exit is difficult.

A senior pharmaceutical investor described to 36Kr that he had never seen such a scene, and everyone held a similar script - several returnee doctors quickly pulled up the team, several product pipelines in infancy and a story of saving cancer in the future, which could attract investors with hot money to pay, and then push them to the IPO in just 2-3 years, and the capital cashed out.

"At that time, whenever there was a company that met the conditions of the science and technology innovation board, everyone was particularly happy." The above-mentioned investors revealed to 36Kr that a pharmaceutical company that met at the end of last year had a valuation of less than 800 million yuan before the opening of the science and technology innovation board, and after the opening of the science and technology innovation board, "the next day I quoted 1.2 billion yuan" "You see I am listed on the science and technology innovation board immediately, according to the fifth set of standards, you have to help me raise another round to raise the valuation to 4 billion.".

Pharmaceutical R&D big data information platform Yaodu once made a statistic, from 2009 to 2016, China's 1.1 new drugs declared 327 clinics, as of 2017, 259 clinical approvals, 3 listing applications, but no approved listed drugs. The latter set of data is more telling: from 2016 to 2020, a total of 25 new drugs in China's 1.1 category were approved – and this accounted for less than 5% of clinical declarations.

"The fanaticism of innovative drugs is driven by capital, entrepreneurs, CROs and even almost all participants in clinicians. The problem with Innovative Chinese Medicine now is like a bunch of people 'running a red light': those who don't follow the rules get benefits without punishment, or even by the scornful eyes of passers-by. An industry expert told 36Kr.

03

Roll the dice with God

Six years ago, an investor of Kangqiao Capital returned to China and found that the valuation of innovative drug projects in China was generally 5-10 times that of the United States. With more than 20 years of experience in the pharmaceutical industry, he is confused and alert about this, so whenever he meets an entrepreneur, he will habitually calculate the "ideal valuation" to the other party - otherwise the entrepreneur is very likely to overdraft the valuation in advance and will not be able to raise money in the future.

But most founders don't take his advice. "For example, an investor came in and said: Your medicine is good, the valuation of 100 million is no problem, I invested." That was the first time he realized the powerlessness of a pharmaceutical investor.

Compared with the Internet, TMT, consumption and other fields, medical (especially innovative drugs) is the sector with the highest barrier to entry – perhaps not one. This is not only because of the huge differences in scientific research systems and perspectives at home and abroad, which raises the academic threshold of innovative drug investors, but also because of the inherent high uncertainty of this industry.

A veteran medical investor offered 36Kr a philosophical perspective: all the problems in the world can be basically divided into two kinds: one is the problem of human definition, and the other is the problem of nature definition. "What kind of drug molecules can better bind to drug targets?" Is defined by the latter. ”

Even in the United States, innovative drug investment is a game of nine deaths. For example, the American pharmaceutical company Catabasis has been developing drugs around Duchenne muscular dystrophy since 2011. In 2015, the stock price soared to $170 per share, but the phase III clinical trial five years later announced the complete failure of the drug, resulting in the stock price currently only $2 per share. Another example is that Pfizer spent billions of dollars and gathered the world's top team to develop Drugs for Parkinson's and Alzheimer's disease, but only after the failure did it find that the judgment of the mechanism was wrong from the beginning.

China will not be easier. What's more, many of the "innovative drugs" in China are not innovative drugs in the true sense, but a dividend of the times and policies - relying on the innovative drug approval reform led by the Food and Drug Administration and the opening of Hong Kong stock 18A and the science and technology innovation board to unprofitable biopharmaceutical companies, innovative drug companies that should have experienced at least 10 years of growth cycle have quickly become stock codes. Correspondingly, China's investment in innovative drugs has also been more concentrated in the growth phase and the Pre-IPO round in the long run.

In the view of Zhang Xiao of Yikai Capital, opportunities always exist in the chaotic field, "the innovative drug industry is an industry with high risks and high returns". However, it is precisely because of the strong uncertainty that it is difficult for investors to make independent and effective investment judgments, relying more on the so-called "industry consensus" or the cognition of scientific research leaders, as well as the development status of the benchmark company or product at this stage, so the investor's way of thinking and judgment standards will also converge. "However, industry consensus or the perception of scientific research leaders is often falsified, and investors are confused."

Zhang Xiao told 36Kr that biomedicine and medical treatment "are definitely a good industry", and many great companies will be born here, but in terms of proportion, any industry and any subdivision field really runs out of the minority.

Of course, people who eat crabs earlier are still profitable. For example, Hillhouse successfully voted for BeiGene, Hengrui Pharmaceutical, Cinda Biologics and Junshi Biologics, which have now become the four leaders of PD-1. For example, Liang Zhenyu, the managing partner of Qiming Venture Capital, became the largest investor in Gan&Lee Pharmaceutical, which later achieved a super deal of more than 10 billion yuan. There are also Sequoia and Qiming in the earliest investment in Zaiding Pharmaceutical, was called "beautiful case" by the industry.

But even with such a deep pocket fund, there are only a few super deals on innovative drugs in the past few years. This also reveals another dilemma of innovative drug investment: compared with TMT companies, the single financing amount of innovative drug companies is not small, but the possibility of enterprises growing into giants is not so large, and it tests the long-term vision of investors, "All value is based on whether there are good varieties of continuous iteration, which is also the fate of innovative drugs." The above-mentioned senior medical investor said to 36Kr.

Today, with the passing of the generic era, there are few low-hanging fruits left. Yuan Quanhong, managing partner of Hankang Capital, has been in the field of innovative drugs for 20 years, and he frankly said to 36Kr, "It turns out that what you invest in is to make money, and then you have to invest in the big one and invest in the right one." The success rate of projects must also be declining. ”

This obviously puts higher demands on investors. In the view of a senior pharmaceutical investor, there are fewer investors with outstanding expertise in the medical field, "there are no more than 20 investors in the market who recognize each other." ”

But at this moment, a group of people who did not originally belong to the "medical investment community" are actually entering strongly.

04

Another round of reincarnation

The "killers" are investors from TMT funds.

In the circle of innovative drug investment, there has always been an obvious "three-eight line": traditional medical investors and TMT medical investors. Even since the introduction of the Hong Kong stock 18A in 2018, the former is still an absolute leader in the pharmaceutical investment industry. In general, the former believes that they are good at intensive cultivation of steady investment methods, while the latter believe that they are more optimistic and sensitive to new technologies and have a faster shot.

In early 2019, Jing Xutian, Managing Director of Five Source Capital, attended a global health conference in San Francisco, USA. At the meeting, "AI applied in the pharmaceutical field" and "new technologies such as supercomputing" were repeatedly mentioned, and Jing Xutian was "boiling with blood". He had been researching this direction within Wuyuan for a long time, and this meeting made him more convinced of the long-term value of this field. After returning to China, he immediately called Wen Shuhao, co-founder of Jingtai Technology, and took him to meet all the partners of Wuyuan. Subsequently, Wuyuan Capital invested millions of dollars in Jintai Technology and continued to re-bet since then.

To some extent, Wuyuan is a typical sample of TMT funds that invest in healthcare: they usually start from the perspective of information technology + biotechnology, trying to accelerate the process of new drug research and development with new methods of AI and computing, bringing innovation to the industry. As Jing Xutian said, "A new generation of computing and experimentation will bring a new pharmaceutical company paradigm." ”

However, it is not surprising that when this new concept, coupled with the TMT fund industry has always been more mature capital environment, in just one year, the AI pharmaceutical industry has become hot to the hot.

One healthcare investor told 36Kr that he had received dozens of funding proposals called AIxx Pharma in the past two months, including even the staggering language that "the company is also filing prospectuses with NASDAQ at the same time when it launches angel and venture capital." "The team is cobbled together, the product Red Sea, and you still want to go public in the short term?" He asked 36Kr rhetorically.

TMT investors' determination to re-invest in medical treatment is not limited to AI pharmaceuticals.

For example, this year's hot mRNA (messenger ribonucleic acid). In 2021, no one in the industry is talking about two companies, Aibo Biotech and Si microbial, whose common feature is that they are "very capable of financing, but also very expensive". Aibo Biotech, which is engaged in LNP (nanoliposomes), was originally just a small pharmaceutical company, stepping on the mRNA new crown vaccine and quickly counterattacking: in the absence of any product on the market, it raised 3 consecutive rounds of financing in one year, more than 1 billion US dollars, and the valuation doubled from 12 billion yuan after the A round at the end of 2020 to more than 4 billion US dollars.

An investor who entered the C round revealed to 36Kr that the founder InBev only wanted to raise 200 million US dollars at that time, and later because there were too many investment institutions to share, it could only be expanded to 700 million US dollars, but the actual amount was even larger than this.

But it's also a controversial company. A medical fund partner who has seen Abbott said that the basic data used in the next few rounds of financing of Abbott is the original data, "The data of the second and third phases of the clinical trial has not been disclosed, that is, you are willing to come and feel expensive." In his opinion, the most likely product to be approved by Abbott is the mRNA vaccine, but this product is difficult to internationalize at least in the short term – talent, technology, supply chain are not comparable to its benchmark companies Moderna or bioNtech at this stage.

One Abbott investor optimistically said that this is because the emergence of the new crown has "shot a catalyst" for the mRNA industry, "all of a sudden, the industry's timing is premature." "His logic is that, at least for VCs, the ceiling of the industry is high enough.

To some extent, the controversy over companies such as Aibo Bio can also reflect the collision of traditional medical funds and TMT funds.

"The TMT fund's favorite categories of innovative drugs are relatively limited, such as mRNA, AI pharmaceuticals, etc., and they are more optimistic about new technologies than traditional medicine investors." But their influx has indeed inflated the valuation of projects in some sub-tracks. A number of medical investors said.

But now, things seem to be changing again. In October last year, The listing of Jingtai Technology, which is widely regarded as the "gold sucking king" of AI pharmaceuticals, encountered obstacles, bringing some uncertainty to the AI pharmaceutical industry. What should give them a headache even more is the business dilemma that AI pharmaceuticals have not been able to solve for a long time.

"So what? When everyone starts investing in offline chain stores, you know that the consumer industry is finished, and you can only invest in medical and hard technology. An investment partner who has studied medical treatment for many years told 36Kr that in the past four years, he was often troubled by excessive competition in medical investment, but one day he was suddenly relieved: "Even if a medical academician starts a business, it is about 200 million yuan valuation, but if it is a mid-level entrepreneurship in the chip field such as Huawei, the first round may have a valuation of 3 billion." ”

"Medical gangsters can still make things, not completely play with concepts." He said with a bitter smile.

It's a helpless answer, but it's also an honest one — it's a high-level summary of the rationality and absurdity of all the venture capital waves in China over the past few years. Only this time it was replaced by a more incredible industry. And everyone knows that such stories will continue to play out.

(At the request of the interviewee, Zhang Yu, Lao Cai and Yang Han are pseudonyms)

Cover source: Pexels