From the fourth quarter of last year to the past few months of this year, China's biopharmaceutical investment market has plummeted. It can no longer be described as bleak. There is simply no market.
Secondary market performance, whether it is US stocks NASDAQ, Hong Kong stocks 18A, or Science and Technology Innovation Board , the trend is bleak needless to say. In terms of primary market investment, according to the Medical Rubik's Cube InvestGo database, domestic biopharmaceutical investment has shown a rapid shrinking trend in terms of transaction amount and number of projects.
Investment and Financing Trends in China's Biopharmaceutical Industry 2020.10~2022.4
Data source: Medical Rubik's Cube Investment and Financing Database InvestGo
What's even more terrible is that these statistics based on public market information, considering that there is often a lag of two or three months from signing to delivery, recently The financing news disclosed is almost all intentions reached by institutions and project parties last year, which means that the current market may be cooler than the data shows.
As for the reasons for the market cooling, there has been a lot of discussion among various parties recently. It is basically recognized that it is mainly due to the cyclical correction after the surge in biomedical investment prices in the past two years, and the continuous breakthrough of IPOs in the secondary market has frightened the first level. In addition, many factors such as Sino-US relations, the Russia-Ukraine war, and the recurrence of epidemics in the macro environment have further hindered investor confidence. Is the
market short of money? There shouldn't be that much of a shortage. After all, it's only been two years since liquidity was released after the epidemic, and most funds haven't invested all their money yet. In terms of fundraising, although U.S. dollar funds may have trouble raising new funds due to Sino-U.S. relations, the RMB should be generally fine. What's more, in terms of investment volume, biomedicine is obviously smaller than TMT and the consumer industry, which are consuming huge amounts of money, and the latter two are now more completely cold than biomedicine. There are various indications that capital is not at least the main reason hindering biomedical investment at the moment. What the
market actually lacks is confidence.
Seeking stability in turmoil: the real logic behind the investment shift
Many domestic biopharmaceutical investors have lamented since the second half of last year: "In this market, innovative drugs no longer know what to invest in." This "I don't know what to invest in." ”, firstly because some deterministic targets are already highly involved and have high valuations, and secondly, when it comes to truly exclusive innovative projects, there is no way to start: national Almost none of these ICs held by internal funds can promote projects purely on technical grounds. They may also be directly criticized and said, "The risk is so high, Hillhouse and Sequoia didn't invest, why should we invest?"
In desperation, investors just Can get together and flock to one early theme after another: AI pharmaceuticals, various new concepts RNA, digital medical , intestinal flora . . . Most of these topics are in the early stages, with large institutions entering the market, and they have not yet reached the later stage of collective incorporation into . Even IND is still far away, so let’s do it. Is the valuation expensive? Anyway, it is an early-stage project and there is no reference. Compared with the market value of listed companies, it is always cheap. In addition, income-based projects are also popular. After all, there is cash flow and . It doesn’t matter what the profit is. Anyway, it is calculated based on PS. The successive IPO breaks in the secondary market of
have further strengthened this sentiment. The IPO and Pre-IPO projects recommended by investment banks are getting less and less popular. The media went to interview investors and said, "We are now more inclined to early-stage projects with new themes because they are still far away from IPO." This statement really makes people wonder whether these investors have confidence in their invested projects or not. I don’t know how the LPs of these funds would feel if they heard that the criteria for GPs to select projects is not the return on investment, but the distance from the IPO. What kind of changes in market trends are behind these incredible attitudes of
? I'm afraid, we still have to look through the phenomena to see the essence.
In fact, investors’ preference for early-stage projects with new themes and income-generating projects is only superficial. Their real inner appeal is mainly slow to falsify and low valuation. This is probably why such projects can get the approval of the IC behind them. The real reason, although it may not be able to be brought to the table. To put it more bluntly, in the current highly uncertain market environment, what investors are really pursuing is one word: stability.
can be compared to the stock market to experience it. The bull market is full of demons, and there are funds to pay for all kinds of stories, and the smaller the market capitalization, the easier it is for stocks to soar. However, the inner belief of the vast majority of market participants is not necessarily that the good news can be realized. They still believe that someone will take over and I will not be the last one to spread the news. If it turns to a bear market, the picture will change drastically, and funds will begin to flow into white horse stocks , because the performance of these stable companies can be expected and the value growth is certain. Further extrapolation, when market uncertainty continues to increase, funds may also reduce the stock market and invest in the more stable bond market. If a war really breaks out, money will have to flow into hard currencies like gold.
The pursuit of certainty in a turbulent market environment is an instinctive reaction of investors. This is the real logic behind the current shift in biomedical investment.
Crowded new track: Going in the wrong direction due to subject matter anxiety
At present, the investment logic of seeking stability is correct, but many domestic investment institutions frequently turn to new tracks. This approach may be somewhat contradictory. Although many new biomedicine tracks will not be falsified in the short term, the potential R&D risks are simply not on the same order of magnitude as traditional small molecule and macromolecule drugs.
In the industry, it is often said that CRO is selling shovels, while new drug research and development is digging for gold. The uncertainty lies more in whether gold can be found and how many people will rush to dig together after seeing it. According to this analogy, many seemingly sexy new tracks are probably like taking a treasure map, pointing to a place 100,000 kilometers away and saying, "We want to subvert and go there to dig for gold." Although the ideal is full and the blueprint is beautiful, once you actually hit the road, it is very likely that there will not even be a formed road, and you will fall into a ditch within ten miles.
This is not an exaggeration. If you don’t believe it, take a look at AI Pharmaceuticals. After a bunch of TMT investors were recruited in the past two years, how many are still willing to pay and take orders in this year’s market environment? Looking at our foreign counterparts, all kinds of sexy new therapies are also constantly hearing bad news about their safety and effectiveness after they enter clinical practice.
In a turbulent market environment, it is right to pursue investment certainty. The question is, for innovative drug investment, what kind of projects are more certain? At the very least, this company must make people believe that it is truly capable of launching this innovative drug, right? But this originally simple principle seems to have been ignored by primary market investors who are blindly seeking new ideas in recent years.
Despite this, the secondary market is always recognized. If you don’t look at Hong Kong stocks, the closer a company’s innovative drug varieties are to the commercial end, the higher the valuation given by the market. In addition to Beiji Xinda Junshi, let's take a look at a number of Biotech companies. Rongchang, Nuocheng Jianhua , Kangfang, etc. have relatively high valuations. They are basically companies whose products have been launched or are about to be launched. On the other hand, there are several companies where the abilities and status of the founders and teams are no worse than those above, but the market value is far different. It's simply because the product stage is still too early, and it hasn't even reached the key clinical trials yet, so the secondary investors really can't settle their accounts.
You can look at the team in the primary market;; Listen to the story, after all, the secondary market must calculate cash flow discount . InnoCare's Orbutinib may appear to be "just a BTK inhibitor that is all over the street" in the primary market, but it appears to be "already on the market + no risk of R&D failure + ready at any time" in the secondary market is bringing in revenue", so "we can give a higher valuation." Aren’t these all based on considerations of certainty?
In view of this, for primary investors, if they still hope to exit through IPO, they should probably think more about the idea of the secondary market.
Return to the simplest logic of innovative drugs
After talking about this, I am afraid that the first-level investors will complain: I don’t want to invest in those new topics. I really want to invest in small molecules and large molecules with higher certainty in the finished drugs, but low-risk targets are volume. What should I do if the target is not rolled and the risk of failure is high? Indeed, this is the objective situation. Sugarcane is not as sweet at both ends.
But having said that, in the past ten years, the Fast Flow route adopted by China’s innovative drugs has brought the road of low-risk targets to an end.In other words, it’s not whether you want to choose or not, but this road has been blocked. If we feel that innovative drugs are still a track worthy of investment, perhaps we should think about how to select the most likely to win from some new targets that are less complicated, although they appear to be more risky.
Many opinions say that primary market investment makes money based on cognitive differences. This principle also applies to betting on innovative drugs with new targets. Opportunities that everyone can see are definitely not opportunities. Real opportunities can only be nurtured in the recognition of differences in perspectives.
returns to the simplest logic of innovative drug research and development. For those innovative targets with cognitive differences and little competition, try comparing the following characteristics, which may help investors select a drug with a relatively greater chance of success from the market. These projects:
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core projects have completed clinical studies on a certain number of patients, the drug efficacy data have been proof of concept, and the clinical data are positive;
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key research is about to or has just started;
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company has basically sufficient cash reserves and has the resources to cope with the complex and changing industry situation;
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team must have sufficient capabilities and experience in new drug research and development, especially clinical research;
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has relatively sufficient research on target molecular mechanisms and has a certain theoretical basis;
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Theoretically, the patient group is large, or there are many opportunities to expand application scenarios;
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and the lack of effective treatments, the cancer project focuses particularly on solid tumors .
Looking back on the past two years, these characteristics are indeed somewhat unremarkable in the face of many emerging themes in the biomedical industry. But today, in the current turbulent market environment, certainty has become a scarcity.
Perhaps only in this way can truly excellent innovative drug projects stand out, and investors can regain their original intention of investing in this track: each choose a recognized, less complicated new target, and then truly embark on it. Make the medicine in a down-to-earth manner.
This article comes from Medical Rubik's Cube
