The Most Under-the-Radar Healthcare Fund: 13 Years, 10 Billion RMB, DPI Over 3 | RuJu

Technological upheaval, capital reallocation, and the tangled roots of an era — together these form the complex commercial world we inhabit. Between innovation and capital, as once-reliable operating models face new challenges and long-held industry norms inherited from West to East are dismantled, people urgently need new maps and new orders.

"Entering the game" may be the most accurate verb to describe the venture capital industry, Chinese society, and indeed the global landscape of the past five years. "Entering the Game" (Ruju) will also become the name of a new column at Dark Tide.

"Entering the Game" is born amid transformation. To summarize in one sentence: we hope to find new players and new strategies better adapted to a changing environment — perhaps more industrial, more RMB-denominated, more technology-driven, more rule-savvy, more Chinese; or perhaps more wildly imaginative, more in harmony with the environment, more global; or possibly more limited, yet more distinctive.

Those willing to step into the arena always deserve attention and reward. We hope that the people, institutions, and choices documented in "Entering the Game" will become footnotes to this era of transformation.

Here is the first article in this column.

By Ren Qian

Edited by Chen Zhiyan

Just after the 2020 Spring Festival, Yu Zhihua walked into Fenghui Times Tower, four kilometers from Beijing's Xihuan Plaza, with two partners. Here resided the "whale" of limited partners that every investment institution in the country dreams of — the National Council for Social Security Fund (NSSF).

Fundraising was the main purpose of their visit. Less than ten minutes into the meeting, an NSSF executive cut straight to the point: "I acknowledge Longpan's excellent track record, but the founders have no biopharma background. How did Longpan identify innovative drug development as its early focus and maintain such strong performance?"

Before the question finished landing, Yu Zhihua's memory was instantly pulled back to a day six years prior.

When Longpan was raising its second RMB fund, four of the five judges on the panel had bombarded him: "Your team doesn't appear to have particularly strong professional capabilities, and the partners don't have medical backgrounds. Why should we give you money?" The difference then was that the other side represented Infotech, which managed government guidance fund investments on behalf of the Ministry of Finance.

For its 13 years of existence, such interrogations have accompanied nearly every round of Longpan fundraising. The external skepticism is not hard to understand. Longpan Investment founder Yu Zhihua and co-founder Xu Guangyu both graduated from Renmin University with degrees in finance and economics. They initially worked at the Ministry of Finance and the Beijing Municipal Party Committee respectively, then became colleagues at Hina Investment Group. Though they had years of experience in investment and financing, their track record was largely in TMT projects. Before founding Longpan, the team had zero medical background or healthcare investment experience.

Meanwhile, Longpan has always projected an extremely low public profile: no media coverage, no participation in rankings, not even an institutional website. Even in its office location, it keeps to itself — at Xizhimen in Beijing, far from the venture capital cluster at Xihuan Plaza, next door to Taikang Insurance, which only moved in after the pandemic.

Yet none of this has prevented Longpan's striking rise in healthcare investing in recent years: its assets under management have grown from 200 million RMB 13 years ago to 10 billion today, placing it in the upper-middle tier among healthcare-focused funds; the returns and expected returns of its first through fourth RMB funds are roughly 8x or higher, surpassing at least 80% of funds in the market.

Is Longpan's success sustainable? What is the secret to its success?

Those LP's who once raised questions all ultimately made their choices — the Ministry of Finance (with matching Beijing municipal funds), SDIC Unity Capital, the NSSF, and the National SME Development Fund respectively invested 100 million, 200 million, 700 million, and 1.05 billion RMB in Longpan's second, third, fourth, and fifth funds, becoming the largest LP in each respective fund. Longpan is also, to date, the only biopharmaceutical-focused investment institution to have received capital from both the NSSF and the National SME Development Fund.

When Dark Tide Waves posed this question to Yu Zhihua, he smiled habitually: "There must be an element of luck, but sustained luck also requires capability."

The Early-Stage Magic of "Outsiders"

Longpan Investment was founded in the second half of 2010. At that time, domestic TMT projects dominated investment flows, while biopharmaceutical projects attracted limited market attention. Among these, innovative drugs — the crown jewel of the biopharma industry — were especially daunting with their high barriers of "ten-plus year cycles, billion-dollar investments, and sub-10% success rates," causing the vast majority of domestic investment institutions to retreat. Those willing to touch innovative drug projects were few and far between, let alone those who would make it a dedicated focus.

Yet from its very establishment, Longpan had already designated biopharmaceuticals, especially innovative drugs, as its most important investment area. Yu Zhihua's judgment was: "Compared to developed countries like the US, Europe, and Japan, domestic drug use at that time showed a clear generational gap, lagging by more than a decade or even decades. Even the widely used generic drugs varied widely in quality. This situation would change sooner or later."

"Our family members and friends around us all had contact with cancer patients. We deeply felt the urgent need for Chinese people to afford good drugs, and the helplessness of international new drugs being out of reach," Xu Guangyu recalled in his conversation with Dark Tide Waves: "China's innovative drugs lacked neither market nor talent. What was needed was capital investment and the continuous tilt of regulatory environment and policy. We were willing to be pioneers."

With the dual impetus of rational judgment and empathetic resonance, Longpan could be said to have invested against the tide in innovative drugs from birth. Investing early, betting accurately, and taking large stakes are the reasons Longpan has been able to deliver outstanding returns.

Longpan Investment has long focused on innovative drugs and innovative medical devices, with innovative drugs accounting for nearly 80% of investment amounts. And during 2010 to 2018, when biopharma investing went from ignored to frenzied — while hordes of funds swarmed into late-stage projects — Longpan kept betting on early stage: its angel, Series A, and Series B investments combined account for over 90% of invested capital; its ownership stake in startups is generally around 20%, and can reach 30-40% or even higher.

The typical VC-style portfolio construction — where a single project alone can win investors massive wealth and extraordinary influence — is actually very difficult to achieve the high returns VCs pursue in the healthcare field, especially in innovative drugs. The reason lies in the naturally high barriers and high failure rates of early-stage innovative drug investing, combined with relatively high financing rounds per deal, yet the probability of such companies growing into giants is minuscule. This means it is exceptionally difficult for a VC to make serious money from these innovative drug companies, and even harder to sustain returns.

Dark Tide Waves once roughly tallied exit outcomes for China's primary market biopharma investments from 2010-2017: among funds that entered 2-3 years before IPO, over 80% had paper return multiples between 1-3x, with some as low as 0.2x.

Longpan is one of the few healthcare investment institutions with sustained, stable high returns over the past decade. According to Dark Tide Waves, the first through fourth RMB funds all achieved returns of roughly 8x or higher, with DPI exceeding 3 for the first and second funds.

Specifically, Longpan has invested in over 100 biopharma projects. Among its exited positions (involving 16 projects), there are notable winners including Stemirna with over 20x returns, EYENOVIA with 18x, Betta Pharma with 16x, and RemeGen with 10x.

Stemirna was a Longpan angel investment. When Longpan wrote its first check, this company quietly developing mRNA drugs probably didn't anticipate later encountering the COVID-19 pandemic and instantly becoming a red-hot star company. In 2021, sparked by the disruptive wave from Moderna's COVID-19 vaccine in the US, domestic mRNA companies saw the spectacle of one firm raising over $1 billion in three months.

Longpan connected with Stemirna in its infancy. In 2016, after systematically researching and scanning the entire mRNA industry, Longpan quickly identified "delivery technology" as the sector's core issue, and along different technical routes found Chinese-American scientist Professor Shen Haifa at Weill Cornell Medicine. In 2017, when Shen Haifa returned to China with his independently developed LPP delivery technology platform to co-found Stemirna with returnee PhD Li Hangwen, Longpan unhesitatingly became the angel investor.

"We made the angel investment when Stemirna was valued at 60 million. In 2019 at a 200 million valuation, mainstream institutions still didn't recognize it. It wasn't until 2021 when the wind came that investment allocations couldn't even be split, and the valuation had reached 12 billion," Yu Zhihua told Dark Tide Waves. "During the company's development, Longpan transferred a small portion of equity, and the recovered capital has already exceeded more than 5x the invested principal."

Another classic case is RemeGen. Before Longpan invested in 2016, this project had been floating in the market for a year and a half unable to raise money. "At the time, people probably didn't understand ADCs [antibody-drug conjugates], and RemeGen's valuation ask was relatively high [6 billion]," Yu Zhihua recalled. After deep research with his team, in 2017 at Series A he invested 100 million himself, then introduced an LP and the LP's sibling fund to co-invest 400 million, and negotiated the pre-money valuation below 4 billion. The rest is history: RemeGen's ADC drug was the first approved domestically, and after the company reorganized and split into three business segments, RemeGen Bio alone had a market cap of 30-50 billion RMB (H+A shares), earning Longpan more than 10x returns.

Longpan strikes very decisively — preferring to bet independently, going all-in at once, disliking tentative multi-round additions. For example, Longpan was the first institutional investor in Biostar Pharma. In 2013, it invested 25 million at a valuation below 200 million, then exited 75 million across Series C and D rounds, and still holds 4% of the company currently valued at 200 million RMB, with even higher value post-IPO.

"Biostar Pharma will ultimately be a 20x-plus return case," Xu Guangyu believes. The reason Longpan operates this way is that it has validated this exit strategy as a weapon for capturing high returns: get in at the earliest stage, then after two or three rounds selectively exit portions to recover principal and some returns, and let the remainder ride toward independent IPO as long as the fund's lifecycle allows.

At the same time, Longpan's style is remarkably focused — all successful cases come from technology/product companies, and it has always favored the two tracks of innovative drugs and innovative medical devices.

Recall that 2015 was dubbed the "first year of healthcare investment," as liquidity overflow from the TMT industry led numerous institutions to deploy in internet healthcare. Then came the gene sequencing era in 2016 when batches of companies raised financing, and from 2018, investors collectively swarmed into late-stage innovative drug projects.

But Longpan "strategically" filtered out all noise. An investor who has worked with Longpan told us, "If you were to summarize Longpan's success methodology, it's that before the window exploded, they earlier and more firmly selected a batch of decent-quality innovative drug companies."

Determining "race tracks" earlier than peers through technical research, then selecting the best "horses" to bet heavily on through professional judgment — projects like RemeGen, Binhui Bio, and Stemirna that the Longpan team systematically researched, laid out prospectively, and independently selected account for over 60% of their total investments.

This inevitably deepens the industry's curiosity about low-profile Longpan: how does Yu Zhihua, this healthcare "outsider," manage to do this?

Behind the Making of a Name

Betta Pharma was the beginning of everything.

At the end of 2005, Betta's new drug "Conmana" (icotinib) was developed, but just as nationwide Phase III clinical trials were underway, the financial crisis hit. In October 2008, the cross-border VC that had committed to funding the Phase III trials reneged, and Betta faced the danger of a broken capital chain. Scraping together 30 million from various sources, still owing 30 million to the bank, Betta finally got its moment of celebration three years later: in June 2011, the NMPA's new drug certificate review concluded that Conmana's efficacy and safety surpassed the imported drug Iressa, meaning Conmana could be marketed and sold.

This first Asian lung cancer small-molecule targeted drug instantly ignited the market. Yu Zhihua, who had long wanted to connect with Betta, could no longer sit still. Right after the 2012 Spring Festival, he immediately flew to Hangzhou and, through a friend's introduction, met founder Ding Lieming. By then, over 30 investment institutions had already found their way to Ding through various connections, and Ding didn't mince words, asking directly: what advantages does Longpan, just founded two years ago, have?

After Yu Zhihua gave his answer and engaged in deep exchange, Ding Lieming rejected another institution that had already signed an investment agreement, allowing Longpan to enter at a very low valuation with nearly 40 million invested across two rounds. When Betta listed on A-shares in 2016, it brought Longpan overall 12x returns (16x on the initial investment), equivalent to recovering more than twice the size of the first RMB fund from this single project.

His answer: value-added services.

The Betta case highlights the core metrics determining success in domestic innovative drug investment — R&D success, regulatory approval, and acceptance by the system/market. Deep understanding of China's pharmaceutical market regulation and access is Longpan's most important success secret beyond investment strategy itself.

Taking 2020 and 2021 as examples, Longpan's portfolio saw 8 innovative drugs approved for marketing, accounting for roughly 1/4 of all innovative drugs approved for Chinese pharmaceutical companies during that period. Multiple industry insiders have mentioned to Dark Tide Waves that Longpan's influence at the policy level is, most of the time, "a calling card." "Many pharmaceutical companies take Longpan's investment because they value the founder's value-added service capabilities."

This influence appears to outsiders as an ineffable "mysticism," while in Yu Zhihua's view it is simply "what should naturally follow" after making an investment.

The style of every fund is ultimately determined by the founder's background and personal temperament. During his time at the Ministry of Finance, Yu Zhihua was mainly responsible for state-owned enterprise reform and tax policy formulation, then served as CFO at multiple companies over the following decade, gaining financial management and investment financing experience. This relevant professional experience and understanding of policy undoubtedly constitutes an advantage for the policy-oriented pharmaceutical industry.

But Yu Zhihua candidly states that this advantage "at best can create a relatively equal dialogue environment for companies, limited to improving efficiency, unable to determine outcomes." Because "first, 90% of Longpan's projects are invested around Phase I clinical stage, with very limited data available for judgment; second, NMPA drug approval requires 19 people to sign collectively with lifetime accountability — only solid clinical data forms the foundation for drug approval."

For Longpan, hitting on Betta was a massively successful experiment that indirectly determined Longpan becoming a healthcare-focused investment institution.

Before that, Yu Zhihua and Xu Guangyu, freshly out from Hina to start their own venture, had tested the waters in four sectors: biopharmaceuticals, environmental new energy, new materials, and modern agriculture. Of the 12 projects in the first fund, only 7 were new drugs; the other 5 were in agriculture, environmental protection, and technical services. Through the Betta investment, the team further clarified the distinctive characteristics of biopharmaceuticals, especially innovative drugs: large market potential, high ceiling, and high barriers.

"Investments that can build moats and are technology-driven are what Longpan is extremely passionate about." Yu Zhihua never denies Longpan's "genetic advantages." But he believes that sustainable biopharma investing still relies on systematic methodology and forward-looking judgment. "Only 10% of Longpan's performance relates to value-added services; the remaining 90% depends entirely on professional capability."

The Longpan Standard

Going earlier stage, pushing deeper into industry — this is a topic that all biopharma-specialized funds and healthcare-heavy generalist institutions have been unable to avoid in recent years, yet it was Longpan's investment strategy from day one. And for a firm founded by "healthcare outsiders" to simultaneously invest early and invest accurately, building a sufficiently professional team was the first step.

Initially, the founding team had only Yu Zhihua and Xu Guangyu, both finance-background investors. During 2014-2017, Longpan completed its professional team construction. The four new partners who joined later all had 20+ years of drug R&D experience, had worked at international major pharma companies, and had founded companies in China. Their industry experience covered biology, medicinal chemistry, ADME/PK, in vivo efficacy evaluation, CMC, clinical-stage R&D, and more.

In 2014, structural chemistry expert Zhang Faming, with over 20 years of biologic drug development experience, joined. He had spent 14 years at Eli Lilly as senior scientist and global head of drug development, and subsequently founded Sino-American Huashitong Pharma and Crown Bioscience. In 2017, medicinal chemistry expert Han Yongxin, also with over 20 years of pharma R&D and management experience, joined. He had served as inventor and lead for multiple innovative drugs, with rich industry experience. Later, Longpan also brought aboard biology expert Li Jian and in vivo pharmacology expert Liu Changnian. Additionally, Longpan values internal cultivation of partners — after years of磨合, Li Junhong, with 15 years of drug R&D and CMC experience and over 10 years of innovative drug investment experience, was also promoted to Longpan Investment partner.

Yu Zhihua told Dark Tide Waves that Longpan's hard criteria for recruiting investors are: strong scientific research capability, and must have deep roots in frontline industry, especially R&D — both are indispensable. In his view, building a healthcare investment team is much like an entrepreneur building an executive team: "First at the cognition level, knowing what capabilities you have and what you lack; second, execution must be strong; third, breadth of mind, knowing how to assemble and unite scientists and share benefits."

Since Longpan's founding, not a single partner has left. "We have very deep interest alignment — 4 of our 7 partners hold over 10% of Longpan's equity," Yu Zhihua told us.

The professional team brings a relatively scientific investment methodology. Longpan is an absolutely technology-preferencing investment institution. In evaluating a project, 70% weight goes to technology and product; only the remaining 30% goes to team. But if both cannot be had, they would rather choose a company with better technology and product.

Han Yongxin told Dark Tide Waves that Longpan advances projects looking at three points: first, market demand space; second, track and target — that is, how relevant the direction is to clinical diseases; third, whether a perfect treatment solution can be provided based on pathology, and then derive how to make the drug. This should be the logic of innovative drug companies, and also Longpan's project initiation logic. "Whether the product is useful is fundamental — 99% of our attention goes here when considering any target."

Biostar Pharma is the first domestically and second globally to independently develop and produce epothilone-class marketed drugs. When Longpan made its first-round investment in 2013, Biostar Pharma was conducting Phase I trials. At the time, one similar drug had been approved abroad but hadn't sold much due to strong toxicity. Biostar Pharma's safety showed promising signs in Phase I, with significantly fewer side effects — this was the key point in Longpan's investment decision.

"Our logic: solve unmet clinical needs," Xu Guangyu said. "Longpan cares about the advancement of technology/product, but cares even more about whether technology can be realized and drug-ified, so the professional judgment of our expert team is particularly critical."

In 2022, when the healthcare primary investment and financing market as a whole was in turbulence with difficult fundraising and a cold market, with the entire industry's investment volume and value cliff-diving, Longpan deployed 23 deals — its most active year ever.

Adding the newly raised fifth fund of 3.7 billion RMB and a first USD fund of 260 million, Longpan's total assets under management has now reached 10 billion.

With scale expansion, will Longpan remain focused on healthcare? This is also a concern of many LPs. Yu Zhihua told us two things won't change: 90% of projects invested at early stage, with roughly 80% in innovative drugs and 20% in innovative devices. USD fund and RMB fund allocations are also converging, mainly investing in Chinese companies.

Yu Zhihua said the only change is moving toward more institutionalized operations, filling out middle and back office staff and raising capabilities. "We rarely poach from peers. For front-office young investors, we hope to bring them from industry and top schools, then cultivate them ourselves at Longpan."

Image source: Visual China

Layout: Du Meng