At the Jade Investor Annual Meeting held in May of the same year, Yang Hongbing gave the theme of the meeting as eight words: very cautious, especially careful.
This conservative theme was rare in the Chinese investment circle at that time, and surrounding partners were worried that it would appear too pessimistic, making it somewhat inappropriate to place it at the annual investor meeting. Under everyone's persuasion, Yang Hongbing softened the theme to "more cautious and patient".
These measures of "stepping on the brakes" have surprised colleagues around them, and many people do not understand. The young team members are also very anxious when they see others constantly investing in new projects.
Yang Hongbing constantly explains to the team and repeatedly emphasizes the "industry laws": investing in biopharmaceuticals should respect the objective laws of industry development, and new drugs are not achieved overnight or piled up by capital. But it is achieved step by step by outstanding entrepreneurs. If pharmaceutical investment is no longer in line with industry logic, then we must never invest!
In his view, pharmaceutical investment is like long-distance driving. Being able to overtake on one or two bends is not a good driver, but a truly good driver is one who never capsizes on any bend.
The fact has proven that Yang Hongbing's prediction has been fulfilled. In the past year, the popularity of innovative drugs has undergone a 180 degree turn around, and now it has changed from bustling to empty handed. Market confidence has dropped to freezing point.
Not only in the secondary market, but also in the primary market, investors are beginning to doubt the investment logic of innovative drugs.
Everyone is asking: What's wrong with China's innovative pharmaceutical industry? Is there still a play in biopharmaceutical investment?
Optimistic due to regularity
Yang Hongbing, who has been pessimistic about this issue for over a year, now has an outdated optimism. He believes that the long-term development of innovative drugs in China is bright.
His reason for optimism is the same as when he pressed the stop button a year ago, with the same four words: industrial laws.
Just like wheat can only be harvested in the summer after autumn planting, winter storage, and spring plowing, innovative medicine as an industry also follows a pattern. From early discovery to clinical trials in phases one, two, and three, and then to commercialization, it requires a process. It is not enough capital accumulation to solve the problem of 10 years in 5 years. This is also a lesson from the large investment in innovative medicine in the past period of time. In the past few years, China's investment in innovative medicine has fluctuated greatly, from great joy to great sorrow, and the secondary market has declined "Like a roller coaster, the target point's internal competition is almost disastrous, which is the consequence of excessive greed of capital. The market has paid a painful price for this, and overly aggressive capital will be shuffled out in this wave of decline." Yang Hongbing said.
"But we should not give up eating just because of choking, completely denying the progress made by China's innovative drugs in the past few years, and abandoning China's investment in innovative drugs. Some of the most basic common sense and logic of China's innovative drug industry have not changed. By understanding this, perhaps everyone can regain long-term confidence in China's innovative drugs," Yang Hongbing continued.
Yang Hongbing believes that the current pessimism towards innovative drugs is caused by two reasons.
Firstly, innovative drugs represented by PD-1 have experienced severe internal competition after being launched, and prices have significantly decreased after national medical insurance negotiations, severely impacting the market's imagination of the ceiling of China's innovative drug market. This has driven the entire innovative drug sector to significantly reduce its commercialization expectations.
Secondly, the US FDA has recently rejected multiple innovative drugs that use Chinese data to apply for US market listing. The increase in standards has made the path for Chinese innovative drugs to go global even more distant and uncertain.
"The combination of two reasons has led to a sharp drop in the valuation of the entire innovative drug sector. Originally, the market was overly optimistic about the commercialization and internationalization of innovative drugs, and capital and enterprises were 'working hard and quickly'. However, when the product was truly launched, it was discovered that commercialization in domestic and foreign markets was difficult to achieve, and the long-term logic of industrial development could not be reversed in the short term, ultimately resulting in the current situation." Yang Hongbing summarized.
To be honest, the entire market is currently a structural issue, and I am not so optimistic about a short-term bottoming out and rebound. The future market trend will not be a 'deep V-shaped' rebound, but a deep 'L-shaped' one. The market will remain sluggish for a period of time, and the industry will slowly recover according to its own laws. However, based on the 5-year and 8-year innovation drug investment cycle, I believe that the basic situation of China's innovation drugs is good, and outstanding entrepreneurs will definitely be able to step out of the current situation "The haze." Yang Hongbing added that.
Going abroad, commercializing, and having opportunities
In Yang Hongbing's view, as long as we respect the laws of the industry, there are opportunities for Chinese innovative drugs to go global or commercialize locally.
The reason why we are optimistic about China's innovative drugs going global is based on two core advantages: high efficiency and low cost.
Yang Hongbing analyzed that China's innovative drugs have obvious advantages in the industry chain, accumulating a large number of talents from early research and development to clinical research, and can produce high-quality clinical research at relatively low costs. As long as Chinese innovative drugs can produce high-quality clinical data, they can win overseas markets. "The needs of patients have no borders," and investors who support such enterprises will also receive generous returns.
"Why hasn't China's pharmaceutical industry produced global companies like Huawei and Xiaomi in the past? On the one hand, it lacks motivation because it doesn't require innovation and internationalization to make big money in the Chinese market. On the other hand, it lacks the ability. Many companies are making 'Chinese miracle drugs', not universal products, and cannot gain international recognition." Yang Hongbing said.
Nowadays, the environment has changed, and the logic of making money in the past has disappeared. Instead, it will make outstanding enterprises focusing on internationalization and innovative drugs stand out. In Yang Hongbing's view, China already has a reserve of such enterprises, and integrating into the world mainstream is only a matter of time.
Today, Chinese innovative pharmaceutical companies are on par with international standards in terms of talent, management, technology, and other aspects. From founders and executives to R&D and commercialization talents, they have rich overseas experience and vision, and they also produce universal products, which are not fundamentally different from Europe and America. Moreover, compared to Japan and South Korea, which have set sail earlier, Chinese companies have the world's second largest pharmaceutical market as a backing, serving as a support point for industrial development. Exploring the export of innovative drugs is essential More freedom to advance and retreat Yang Hongbing said.
Indeed, despite the sluggish investment and financing of innovative drugs since 2022, China's innovative drugs are continuously receiving large overseas BD orders.
According to the NextPharma pharmaceutical transaction database, from early 2022 to May 26, 2022, there were 21 domestic to foreign pharmaceutical BD transactions, with a total disclosed down payment of $166 million and a total disclosed transaction amount of $4.302 billion.
"It's not that going abroad has problems, but rather that in the past, people were blindly optimistic and ignored the long cycle and high risks of the innovative pharmaceutical industry itself. As long as we return to industry common sense and logic, in the long run, China has great advantages and opportunities, whether relying on BD methods or directly conducting sales globally." Yang Hongbing said.
He also emphasized that going abroad should not only focus on the European and American markets, but also consider the market opportunities of emerging developing countries. "Taking PD-1 as an opportunity, the cost of macromolecular drugs in China has been controlled to a lower level globally. Just like how Chinese mobile phones can be sold to Latin America and Southeast Asia, as long as they have high cost-effectiveness, with the aging of these populous countries and the improvement of payment capabilities, the market opportunities for innovative drugs in China will definitely become larger and larger."
Returning to the issue of local commercialization of innovative drugs, Yang Hongbing stated that the intense competition and significant price reductions of products such as PD-1 have indeed made the market see the payment pressure of medical insurance. However, people's imagination for commercialization should not be solidified by a type of product. The problems with products like PD-1 mainly come from the supply side.
"To be frank, having so many PD-1 listings today proves that its industrial moat is not as high, and projects with severe homogenization should not have enjoyed high premiums for a long time. This actually conforms to the basic laws of the market." Yang Hongbing said.
"From a macro perspective, China is still the world's second largest pharmaceutical market after the United States. In recent years, there have been relatively successful commercialization of local innovative drugs in the Chinese market, such as arotinib, which has been included in the national medical insurance catalogue for only a few years, and has been a variety with an annual sales of more than 5 billion yuan. Only differentiated products that truly meet the demand, coupled with outstanding commercialization ability, can produce 'blockbuster drugs'. I believe that Among entrepreneurs of innovative drugs, there will definitely be someone who proves that innovative drugs can make money and achieve commercial success. As long as one or two heavyweight products are produced, market confidence will be restored Yang Hongbing said.
pass through
Yang Hongbing specifically reviewed the history and cases of the United States.
Just like in 1993, the innovative pharmaceutical sector in the United States has also experienced a devastating downturn, with a long-term downturn lasting for several years. Now, Anjin and Genentech, which are thriving, have emerged as billions of dollars in large pharmaceutical companies thanks to the successful commercialization of their heavyweight products. Anjin has biopharmaceuticals like EPO, while Genentech relies on products such as Hesetin. After the successful commercialization of these heavyweight products, the market The market gradually regained confidence in innovative drugs Yang Hongbing said, "These historical events remind us not to be pessimistic about the future of China's innovative drugs. As long as we follow the laws of the industry, we have the opportunity to grow against the trend and stand out."
Image source for the May 2022 Jade Gathering: Provided by the company
Based on this logical judgment, Yang Hongbing has set the theme of this year's Jade Picking Annual Conference as: Time travel.
At the darkest moment of innovative drugs in China, Shiyu Capital will actively take the initiative and work with entrepreneurs to find opportunities to cross the industry cycle against the trend.
Yang Hongbing believes that in order for Chinese innovative pharmaceutical companies to cross the cycle and grow into an international biopharma, in addition to having good scientists who can produce products that truly address differentiated clinical needs, they must also have good entrepreneurs.
"In the past, any company could raise money, and everyone was used to living a good life. Outstanding entrepreneurs are adaptable to the situation, and the second half of the competition for innovative drugs is elimination. It is important to remember that innovative drug companies rely on burning money to make a living, and the next step of financing will be very difficult. Cash is king, how many companies have prepared their cash flow for the next three years?" Yang Hongbing asked in reverse.
"The companies we invest in have outstanding entrepreneurs with industrialization experience at the helm, and currently have more than three years of capital reserves. Many companies' major products have already been or are about to be listed, and they can generate stable cash flow in the next step, which can help them cross the cycle and become international innovative pharmaceutical enterprises. Our LP also recognizes our investment philosophy and is very confident in the companies we invest in." Yang Hongbing said.
"Shiyu is a fund that focuses on investing in the pharmaceutical industry. We do not pursue independence or blindly follow the trend, but respect the long-term laws and trends of the industry, and think independently to make our own judgments. Because we respect industry knowledge, we chose to wait for a long time in the past, also because we have insight into industry laws. Now we are optimistic about the future."
"We believe in Chinese entrepreneurs and the future of China's innovative pharmaceutical industry," said Yang Hongbing.
Disclaimer: This article is for reference only and does not constitute any investment advice. If there are any omissions in the information, please feel free to supplement.
