Bo YU: Seek for the Hidden Giant
Jiuding Capital has recently announced its investment in Hunan Erkang Pharmaceutical Co., Ltd., China’s biggest pharmaceutical adjuvant supplier. So far, it has invested more than 1o medical enterprises in medical R&D, manufacturing and sales sectors, completing its layout among medical industry.
Jiuding Capital Partner Bo YU expressed that Jiuding Capital’s fast development should be attributed to its philosophy of “Professional Investment by Professional Team”. Professional team can ensure investment professional, competitive and valuable. During the past years, the company has been dedicated into building its professional medical investment team towards professional research. In November 2009, it set up China’s first private RMB medical fund with the amount of 600 million yuan. Bo YU acted as General Manager of the fund. It’s a very good presentation of years of efforts.
Graduated from Shenyang Pharmaceutical University, Bo YU once worked at State Pharmaceutical Administration (current China Food and Drug Administration) and acted as General Manager of Sea Rainbow Electronic Trading Service Co., Ltd, Assistant Executive of Sea Rainbow Group, Secretary General of China Medical Elite Club, etc.
Under his leadership, a professional medial investment team with a staff of 20 has been set up. Team members were all experienced in R&D, manufacturing and sales of medical products. In only one year, the fund has been invested in many medical enterprises, covering most of the sectors of medical industry.
For Bo YU and his team, it’s important to find suitable medical enterprises rather than get higher returns.
Create Value Commonly
Beside medical funds, the typical diversified specialization case, Jiuding Capital has set up same strict requirements on agriculture and consumption. Its motion of investing in seven agriculture-related firms continuously is reflecting the specialization in familiar fields.
How to reflect specialization? Is there any difference between Jiuding Capital and other investors? Bo YU replied Jiuding Capital aimed to become a value creator but a value sharer. Among medical industry, the company took its advantage in both medial and financial sectors to provide value-added services for its investees.
Medicine Economic News: As one of the most professional medical PE in China, what’s your specification?
Bo YU: I think we are very professional because my team members are all medical experts. We can invest in 9 subdivided medical sectors, with excellent financial value discovering ability, which is also our core advantage.
Let’s take a powerful medical enterprise in Southern China for example. The enterprise has only fixed assets of 20 million yuan when we invested, but the number has reached 180 million yuan recently. The reason why it accepted our investment is it believed our team was able to provide professional services. Hence, I think successful investment should be weighed by comprehensive values brought by investors, rather than high price.
Medicine Economic News: What added-value services can be provided by Jiuding Capital?
Bo YU: For investees want to change its market mode and optimize its marketing team, we can customize them with suitable marketing plans by integrating their resource, talent and product features and help them implement; for those want to perfect product structure, we can select prosperous products or acquire SMEs with potential products; for those who are unfamiliar with capital markets, we can assign professionals to guide them to solve problems; for those who have no good management structure and incentive mechanisms, we can tell them our own experience; for those want to improve their basic management capacity in terms of management flow, finance and tax planning, we can optimize their working flows and financial management, and redo tax plans.
Next Investment Target
As China’s first market-oriented medical fund, Jiuding Capital has astonished the insiders by its 20 investments within one year, which are all high-valued projects. Insiders praised all of these projects were valuable and prosperous.
Bo YU said Jiuding Capital would not speed down its investment in medical industry although the first issue of fund was used out, because the second issue of fund was been rising and would be completed around the spring festival. As to further investment target, he said there were over 500 medical companies able to listed, and many of them were worth being invested. It would pick up 30-40 companies from them to help them expand further so as to achieve industrial integration.
Medicine Economic News: What are your requirements while selecting investees?
Bo YU: First, we focus on the entrepreneur and his team. We appreciate those far-sighted, open-minded and perseverant people; second, we focus on products, the key to profit. We will analyze the pharmaceutical formulary lists of Chinese drugs, and research the investees’ products and sustainable development values and life cycle; finally, we focus on R&D, the fundamentals of development. Excellent enterprises put much into R&D and product plans. Every day, we sort out all new drugs of SFDA to help investees find potential drugs.
Recently, an enterprise that got the certification of one Class A drug of medical insurance becomes our investment focus. It can achieve a huge expansion in sales by national bidding although its current profit is only 20 million yuan.
Medicine Economic News: Did you and your team investigate the investees’ commercial ethics and propose requirements?
Bo YU: Entrepreneur’s ethics is very important in investment, which is the objective demands of commercial society, and the essence of Chinese culture with thousands of years of history. It has been said in History as a Mirror, a famous Chinese ancient works, that talent is the helper of ethics, but ethics is the commander. Hence, we clearly know how important ethics is.
As I mentioned above, the first important thing while investing is talent, so we must investigate the investee’s leaders and teams first. We know it’s difficult to investigate persons because there will be lots of confusion elements. However, unlike common investors, we have rich human resources among medical industry, which can help us understand the investees’ ethics and themselves.
We can know a company by investigating its sales system. If the system is unstable, the company must have a bad relation with its dealers and may be involved in some kinds of lawsuits. We must not invest in such companies. We can know the true situation based on our industrial resources, which cannot be done by other investors.
Medicine Economic News: Do you think what medical sector is not worth being invested?
Bo YU: It’s very hard to say. In philosophy, it is a paradox. Any industry requires capital. If no capital is put in, capital will be much valuable for the industry. Of course, the development space of an enterprise will be limited in certain stages in fiercer competition so that little money is required. It also exists in medical industry.
You can think if an industry that is controlled by governments and survives without fine services, with scale economy and monopoly happened, it is not worth investing.
However, it probably has chances in terms of regional and physical strategies. You can enter into a bigger platform to share values via integration after investment.
Medicine Economic News: Do you think what sectors are the most worthy one to be invested?
Bo YU: I think it’s good if we know what sectors are worth investing and the valuable and worthy sector is the one lightly regarded by most people.
I want to give you an example although it may be involved in our trade secrets. I am very confident about the prospect of medical chain stores despite many investors are cautious about it, and it’s the best time to invest now. Global market has shown that higher the health care coverage is, lower the profit is. Generally speaking, it’s hard for investors to invest in a decreasing industry for short-term and single-store profits. However, for the long-term development, the industry should be concentrated and requires sophisticated services, which can only be done by powerful private enterprises with good systems, rather than by state-owned companies. We have known that large-sized chain drugstores will be merged after being listed on the market and the medical industry will be integrated highly in the coming 5 years, entering into the so-called monopoly period. At that time, some “Cash Cow” firms will come out.
After years of efforts in industrial investigation and team building-up, we will consider about the development and position in a more ambitious layout for a long time. We will eye on long-term targets to seek for suitable investees.
More Specialized, Cost-ignored Relatively
In the midnight, Bo YU had to go back to his meeting room on the 6th floor of WINLAND International Finance Center on Financial Street of Beijing to attend a regular meeting with his co-workers. He told the reporter that his team members communicated each other every day.
For people in Jiuding Capital’s investment team, it’s very valuable to see each other every day. Compared with other investors in first-tiered cities like Beijing, Shanghai and Guangzhou that sit in pure exotic places to do businesses, Bo YU and his team are differently because they know it’s not easy to find a good project without in-person investigation due to more money poured into the capital markets.
Since 2010, more than 30 offices used to net targeted investees have been set up nationwide, forming a national business network.
Meanwhile, Jiuding Capital has set up a professional auditing team composed of four backbones. Once the investigation group reached cooperative intentions with targeted enterprises, the investment team and financial auditing team will do due diligence and overall investment research afterwards.
The huge investigation network set up by Jiuding Capital is totally different with that of the newly-established PE firms, which will cost considerably. Unlike those PE firms that put investment return at the first place, Jiuding Capital aims to build its team more specialized and sophisticated and thinks little of cost relatively.
“More Specialized, Cost-ignored Relatively” is what the investment field needs now. Bo YU thought medical industry has become a national development strategy after medical reform began. Under such circumstance, many key sectors in this industry have been dominated by state-owned companies. For example, China National Pharmaceutical Group, CR Pharmaceutical and Tongyong Pharmaceutical have controlled Chinese vaccine, medical circulation and import and export businesses respectively. Hence, Jiuding Capital has to search those inconspicuous but powerful firms.
It’s obvious that Gifore and Hongqi Chain are all unknown but powerful firms. In conclusion, nationwide deep layout is the key to find good investment opportunities.