Yang Yunxia of Sequoia Capital China: There have always been only two core driving forces in the biomedical industry.

"The high or low point of short - term market sentiment actually won't fundamentally shake the development of the pharmaceutical industry." Yang Yunxia summarized the market fluctuations in the medical industry in recent years in this way.

She is a partner at Sequoia China, focusing on investments in the healthcare field for many years. She has led investments in multiple star projects such as Pufang Biotech, CStone Pharmaceuticals, and Grail.

In her opinion, although the healthcare track has experienced a "roller - coaster ride" in the past few years, the underlying investment logic and strategies haven't changed fundamentally. Because there are only two real driving forces for the industry's development: the continuous breakthroughs in human understanding of life sciences; and the continuous evolution of tools and means to solve life - science problems.

Before entering the investment circle, Yang Yunxia was a doctor. She believes in the principle of "the simplest truth is the most profound". She believes that the logic of commercial success should follow the triangular rule of "faster, cheaper, better", and thinks that financial investment itself is also a process of turning financial capital into product form.

After 15 years of ups and downs in the medical investment field, she was also pleasantly surprised to find that the infrastructure for innovative drugs in China has become mature and efficient, and the engineering efficiency of the pharmaceutical industry's ecological chain has been gradually verified. "The development of the Chinese pharmaceutical industry will be more prosperous in the future than it is now."

The following is a compilation (with abridgments) of an exclusive interview with Yang Yunxia by China Entrepreneur:

The core driving forces have never changed

The biopharmaceutical industry is a typical technology - driven industry.

The process of drug R & D first depends on people's in - depth understanding of drug targets in the biological dimension; second, it is based on this understanding to develop molecular tools targeting these targets, such as small - molecule drugs, large - molecule drugs, and emerging ADC (antibody - drug conjugates), nucleic acid drugs, etc.

Source: AI - generated 

As our understanding of more targets deepens and the tools targeting these targets increase, the forms of drug molecules are becoming more and more diverse. We've seen many significant deals in the domestic industry recently, which are basically successful demonstrations of such R & D.

In addition to technology and IP (intellectual property), capital has always been another important production factor in the development of the biopharmaceutical industry. The more capital is invested, the faster the industry will develop. However, the cyclical rotation of the capital market sectors and the high or low point of short - term market sentiment actually won't fundamentally shake the development of the pharmaceutical industry.

There are always only two core driving forces for the biopharmaceutical industry: the continuous breakthroughs in human understanding of life sciences; and the continuous evolution of tools and means to solve life - science problems.

From this perspective, Sequoia China has maintained a stable and consistent investment strategy. As primary - market investors and as people exploring uncharted paths with entrepreneurs, our core investment logic has basically remained unchanged: we want to find products that can change people's life trajectories, we continuously pursue technological breakthroughs, and we firmly invest in the best innovation teams. Changes in the external environment may have some impact on our mindset, and our actions may be slightly adjusted according to market conditions, but our core investment logic remains the same.

For investors, this is also a long - term spiritual practice. The results of primary - market investments often take 5 years, 8 years, or even longer to be verified. How to endure loneliness and adjust one's mindset in the dynamic capital market is a transformation and growth process that every investor has to go through.

Who will be the next "ADC"?

In the past few years, we've seen the rapid development of a group of innovative drug molecules such as ADCs and bispecific antibodies in China, which is actually a continuation of the above two driving forces.

We're also very happy that a group of our invested medical companies have made considerable progress in this field. For example, Pufang Biotech, in which we continuously participated in the Series A and Series A+ investments, is a representative enterprise in the ADC field. In May 2024, it was acquired at a price of $1.8 billion. As the largest institutional investor, a 2 - year investment period also brought considerable investment returns to Sequoia.

The explosion in the ADC field has actually verified the engineering efficiency of China's innovative drug ecological chain. We believe that there may be more "next waves", such as bispecific antibodies, multispecific antibodies, next - generation ADCs, small nucleic acid drugs, etc. Different from the single - target approach in the past, now we may face more permutations and combinations of forms. From this perspective, we're in a great era for biopharmaceuticals, with infinite possibilities for the future.

Corresponding to the two core driving forces, there are two core risks in the biopharmaceutical industry: first, biological risks, such as whether a target can truly become a drug - molecule target, which belongs to the category of basic science and is also the biggest risk point; second, technological risks. Of course, technological risks are closely related to biological risks. Different drug molecules targeting the same target may have significantly different clinical results.

In recent years, the development of artificial intelligence has also set off a boom in the biopharmaceutical industry. AI is regarded as an accelerator, which not only speeds up the pace of basic research on life sciences but also accelerates the development of various new tools and technological routes. It should be said that the development of AI will significantly accelerate, and even disrupt, the development of the entire pharmaceutical industry and the entire healthcare industry chain.

The triangular model for product commercialization

From the perspective of solutions, the essence of commercialization is actually whether a new product is faster, cheaper, and better than existing products?

The same goes for the commercialization of biopharmaceuticals. Of course, it's ideal to achieve all three, but if you can only achieve one, then it depends on whether you can maximize that one advantage. For example, in the field of lipid - lowering, there are already products that have upgraded from daily oral administration to one injection every six months, improving patient compliance and providing stable and reliable lipid - lowering effects, greatly enhancing the "better" indicator. Although this product is not "cheaper", many patients still choose it.

Source: AI - generated

The CAR - T (chimeric antigen receptor T - cell) therapy may be a counterexample. In terms of the treatment effect of some hematological tumors, the CAR - T therapy has achieved "better" results, but its preparation cost and usage process are too complex and expensive. For manufacturers, the high complexity of preparation, and for patients, the high cost of use have led to the commercialization progress of the CAR - T therapy falling short of expectations at the current stage.

Transactions can also be a strategic choice

In the past two years, the amount and number of China's innovative drug License - out transactions have increased sharply, sparking a lot of discussions. In our view, this is an inevitable result, stemming from the superposition of multiple factors.

First, there has been a great improvement in the infrastructure of China's biopharmaceutical industry. The success of more and more Chinese innovative drugs going global has actually proven that the maturity of China's biopharmaceutical industry has been recognized by the international community. China's CRO (contract research organization) and CDMO (contract development and manufacturing organization) resources have greatly lowered the threshold for biopharmaceutical entrepreneurs in China and even globally, improving the efficiency of entrepreneurship.

Second, there is an abundance of talent. Whether they are returnees or scientists, industry professionals, and university talents cultivated locally, they are all contributing to the development of the entire industry. These talents are becoming more and more international, and the articles they publish are in top - tier journals such as Nature, CELL, and The New England Journal of Medicine. There are also Chinese clinical PIs (principal investigators) who disclose high - quality Chinese clinical data at global conferences. These are all important factors for the increasing recognition of China's biopharmaceutical industry in the international market.

Of course, there is also the contribution of capital. Some funds may have been transformed into specific drug - molecule products, and some funds may have become sunk costs for enterprise development. However, these costs are not really "sunk". All past accumulations have played a substantial role in promoting the infrastructure construction, talent development, and standardization of clinical data that we mentioned earlier.

In the current entrepreneurial environment, enterprises' pipeline assets are relatively rich. For some enterprises, License - out transactions may be a phased choice. In the current downward state of the biopharmaceutical capital market, using the rights and interests of some products to gain space for the enterprise's next - step survival and development is a positive choice.

Source: AI - generated

For other enterprises, License - out transactions can also be completely strategic. By selling part of the pipeline, they not only get a supplement of funds but also gain the recognition and endorsement of industry giants, which is effective support for the company's future listing.

Speculators leave the market automatically

We still firmly believe in the future of the Chinese pharmaceutical industry. We believe that it will be more prosperous in the next few years than it is now.

China's biopharmaceutical industry is integrating into the global biopharmaceutical ecosystem in a more in - depth and active manner. When going global becomes a major trend, startup companies will have more room for imagination. Under the ceiling of global competition, investors will be more enthusiastic about participating.

New drug R & D is a process that requires long - term and continuous investment. It often takes 10 years to push a drug to Phase II or Phase III clinical trials and even get approval. Both entrepreneurs and investors need strong belief to support them. Nowadays, entrepreneurs who are deeply involved in the industry must have the necessary skills and have carefully considered the entire chain of targets, clinical trials, regulations, and payment.

Speculative entrepreneurs who took advantage of the "enthusiasm" of the capital market will realize the difficulty of entrepreneurship after experiencing the "freezing period" of the past two years, and the industry can truly cultivate high - quality entrepreneurs.

This article is from the WeChat official account "China Entrepreneur Magazine" (ID: iceo - com - cn), author: Tan Liping. Republished by 36Kr with permission.