-
Categories
-
Pharmaceutical Intermediates
-
Active Pharmaceutical Ingredients
-
Food Additives
- Industrial Coatings
- Agrochemicals
- Dyes and Pigments
- Surfactant
- Flavors and Fragrances
- Chemical Reagents
- Catalyst and Auxiliary
- Natural Products
- Inorganic Chemistry
-
Organic Chemistry
-
Biochemical Engineering
- Analytical Chemistry
- Cosmetic Ingredient
-
Pharmaceutical Intermediates
Promotion
ECHEMI Mall
Wholesale
Weekly Price
Exhibition
News
-
Trade Service
In August 2022, Zhao Ming, an investor who has been working in the medical investment field for many years, received a lawsuit notice from the Longhao Fund (initiated by Shanghai Longyou Company), which he initiated and established six years ago
.
Longhao Fund is a RMB fund established in 2016 with a fundraising amount of just over 100 million, which is jointly managed
by the former DFJ fund team members in the United States and Profit Capital, where Zhao Ming worked at the time.
Generally, such small-scale funds are initiated
to raise funds for specific projects.
Faced with the electronic summons sent by the Hongkou District People's Court, and in the face of the fund that he personally initiated, established, fundraised, invested and co-managed and operated, he sued himself who is currently purely the LP (limited investor) of Longhao Fund, which is not a joke
.
In 2016, investor Zhao Ming contributed money and also participated in the investment of Longhao Fund (GP), so he had the dual identity of GP and LP, and later became a pure LP, and the conflicts and discords that continue to emerge in the short cooperation reflect the chaos in the operation and management of China's private equity investment funds in recent years
.
Longhao Fund is not large, but its investment targets include the CRO company that Zhao Ming was firmly optimistic about back then-Fangen Pharmaceutical
.
Fang'en's investment is the fund's star project, but it is such a star project that has become one of
the reasons for the most controversial dispute among several parties, and even the future confrontation and even the court.
the reasons for the most controversial dispute among several parties, and even the future confrontation and even the court.
Zhao Ming has a master's degree in biochemical molecular biology from the Chinese Academy of Sciences, and has also worked in Shanghai Cancer Institute, with many years of experience in foreign investment banking and investment.
It is a professional investor in industry investment, and in addition to the money, it also selects projects - the Fangen project is the target selected by Zhao Ming, the equity team of Lide Capital and Li Zhongqiang, a partner of DFJ Longmai
, based on their understanding of the industry.
Zhao Ming recalled that when the CRO industry and projects were far from promising in 2015, he insisted on increasing attention and investment; However, when the CRO industry was developing at its most rapidly, without the knowledge of co-manager Lide Capital, the co-manager Shanghai Longyou Company decided alone and privately chose to exit, and when many parties later found that Longhao Fund passively withdrew, Fang En ushered in a highlight moment - not only Goldman Sachs, Eli Lilly Asia and other well-known funds at home and abroad joined, but also the valuation rose later
.
As a co-manager, Lide Capital was forced to accept the result of the transfer without being notified, and at one point issued a lawyer's objection letter, and Zhao Ming and other substantial investors as LPs, not only did not have voting rights afterwards, but also seemed to be forced to accept reality and be kicked out of the ranks of
shareholders when they were about to enjoy greater benefits.
After leaving Profit Capital in 2017 due to job changes, Zhao Ming could only send an email as a pure LP to request access to the account of Longhao Fund, but GP
[DFJ China's management team] ignored it and instead sent him a petition
in August.
Longhao Fund's reason for suing: Longhao Fund Manager paid hundreds of thousands of yuan more when he called Zhao Ming for investment allocation, and was rejected
when he asked Zhao Ming to transfer this part of the funds back.
when he asked Zhao Ming to transfer this part of the funds back.
For Zhao Ming, if it is only a bank payment error, it is not a problem to return hundreds of thousands of yuan after confirmation, he emphasized that before the fund discloses the statutory information to the LP for the investment and exit of the invested project, and makes a reasonable explanation for the doubt, as the LP cannot judge the ownership and amount of the distribution money sent by the fund to the LP, in the investment projects of Fang En, he as an LP feels that many of the GP's decisions are also unreasonable: sudden withdrawal from the project between the entry of large capital, and the transaction time is too long.
.
.
However, when they asked for basic information such as monitoring compliance channels and viewing materials, and asking GPs to show basic information such as the use of funds, they were repeatedly refused
.
His appeal was just to get detailed information
from the GP.
If the former DFJ China team members of the management had fully disclosed the information to LP, the conflict would have been resolved
sooner.
But the administrator chooses to litigate on things he doesn't want to do
Way to solve the problem, "I never expected, someone came to a 'wicked person sue first'"
.
-01-
-01-Sympathetic cooperation
Sympathetic cooperationIn 2015, Zhao Minggang, who had worked in a domestic investment company of a foreign investment bank for many years, arrived at Lide Group and was responsible for the establishment of the equity investment business of Lide Group, a financial enterprise group established in 2011 and the earliest independent fund sales qualification
in China.
Zhao Ming and investor Li Zhongqiang mentioned the advantages of finding a project during casual chat, while Li Zhongqiang was worried that the past foreign fund in his hand expired and the project needed to continue investment, and the two sides talked about the cooperation
of establishing a condominium fund.
Li Zhongqiang knew Zhao Ming when he was investing in the Jiaotong University Industrial Incubator, and he joined DFJ Longmai, a well-known investment company in the United States, around 2006, and was already a partner
of DFJ Longmai Fund.
The two hit it off: at that time, DFJ Longmai team was eager to decouple from the US fund, and Li Zhongqiang proposed to find targets in the projects invested by DFJ US dollar fund and set up a condominium fund - which can not only allow some US dollar projects with low yields to survive, but also carry forward US dollar funds, but also save a lot of research, investigation time and expenses
before chasing investment.
This was followed by roadshows and fundraising
.
DFJ, once Baidu's largest shareholder, the dollar fund's golden signboard is like a rocket booster, allowing the fundraising speed to exceed everyone's expectations
.
In just one month, the roadshow attracted more than 40 customers, and the actual amount in place exceeded 100 million
.
Capital is drifting in
.
As soon as the money from a primary fund arrived, investment managers began to rub their hands excitedly and look for signposts
.
But the goal of Zhao Ming and Lide Capital's equity team was clear at the time: although many projects were tempting, there was only one real interest for themselves and their team - CRO company Fangen
.
In 2015, the CRO industry was a modest destination in China, where it was only $2.
6 billion
.
In the past seven years, that number has increased fivefold
.
In that year, China's temporary management system was officially established
.
The cost problem and specialization trend of clinical research projects have just entered people's vision, and the important role of CRO as a supporting component of China's innovative drug industry chain in the future, has not yet had time to show its strength, for the largest "market potential" of the CRO industry, many people still think that only SFDA gives mandatory drug consistency testing - think that its growth space is limited
.
In the last month of 2015, the later CRO giant WuXi AppTec (WUC) announced its deprivatization from the US stock market in the last month — because in the fourth quarter of the previous year, WuXi had only increased its profits
3% was criticized by investors, and American capital looked down on CRO companies as low-value-added industries for a long time, so that Li Ge finally made the decision
to privatize and delist.
At the same time, Tiger, another current CRO leader, as a service-oriented enterprise, has not waited for the development of China's innovative drugs that later made all CRO companies profitable, let alone the future use of leveraged investment business to create a profit side - its market value fluctuation is only around 10 billion, far from
the myth of approaching 200 billion in the future.
In a word, China's representative CRO enterprises at that time only ate the sporadic sweetness of the global innovative drug capital boom; As for how to eat the main course of this feast, no one has much confidence
.
.
More importantly, in the field of pharmaceutical investment, which has always focused on technology content, the foundry attribute of CRO once made investors look
at it coldly.
"According to the thinking of American investors, CRO to do OEM research and development will not work in the United States, and the technical content is not enough
.
" Zhao Ming recalled that even the two partners in the condominium fund investment decision, Li Zhongqiang and Li Guangxin, the actual controller of DFJ Longmai, were not very optimistic about the targets of CRO companies like Fang En
.
However, Zhao Ming has confidence in Fang En and has his own reasons
.
First of all, although the valuation of Chinese CRO companies was low at that time, the level was slowly rising
.
Around 14 and 15 years, a large number of overseas students appeared in the domestic pharmaceutical industry, including Zhao's classmates, and a considerable number of people slowly poured into the head CRO companies, and the value of enterprises such as Tiger continued to rise, until WuXi, which returned from the privatization of US stocks, set off a small climax
in the valuation of the CRO industry in 2018.
Secondly, it was the stall
where a number of CRO companies planned to list in China.
An early CRO track investor said: "In those years, it was just in time for the clinical outsourcing service industry to move from the West to the East
.
Before, domestic innovative drugs have not yet risen,
There are not so many lists for these CRO companies, and then the situation is very different, and the market value of CRO companies in China is suddenly pulled up
.
”
2015 is also a big year
for the entire Chinese concept stocks.
In March, Storm Technology, which returned to A-shares, confirmed the enthusiasm
of the Chinese capital market for these "returnee enterprises" with continuous limit increases.
In the months since, dozens of companies have announced their return to A-shares, even including Momo Technology
, which has just been listed on the US stock market for half a year.
A year later, the central bank put the CDR system on its agenda
.
ZHAO MING'S EXPERIENCE IN RED-CHIP OVERSEAS LISTINGS AT WELL-KNOWN INVESTMENT BANKS SUCH AS JINGHUA SHANICHI AND CROSBY TOLD HIM THAT IT IS THE GENERAL TREND
TO SPLIT RED CHIPS AND RETURN TO A-SHARE LISTING.
The last reason is that China's foundry industry is shifting from labor-intensive to
knowledge-intensive.
At that time, Zhao Ming saw that China's foundry industry, especially the companies on the Apple chain, had made a lot of money, which meant that China's foundry industry had moved from the simplest low-end consumer goods processing to the next stage of high-end services
.
To put it bluntly, it is to advance from the demographic dividend to the engineer dividend, which is in line with the attributes of the concentration of highly educated technical talents in the CRO industry, and there were about 100 returnee doctors
in Huiyuan Biologics invested by CICC Capital alone.
In this way, Zhao Ming took the newly established equity team and 15 million yuan of Lide Group and plunged into the investment tide
of CRO.
In hindsight, it was a fairly correct choice
.
However, as the CRO industry changed over the years, this choice seemed to be the wrong start for the fund
.
.
-02-
-02-Initiation and escalation of disputes
Initiation and escalation of disputesThis dispute between LP and GP laid the groundwork for investment allocation from the beginning
.
Due to optimism about the future development of the CRO industry, in 2015, in the early stage of fund preparation, Zhao Ming and DFJ China team discussed that the new fund is ready to contribute more than 30 million yuan to Fang En
.
In April 2016, Shanghai Longhao Investment Partnership completed the registration
of the condominium fund with the Shanghai Administration for Industry and Commerce.
However, it was not until the end of '16 that the fund received a certain amount
from Fang.
Only then did Profits Capital discover that the originally agreed amount had been reduced to $15 million
.
During the national roadshow of Longhao Fund, during the roadshow with the DFJ China team, Li Guangxin's team raised a new fund with a similar structure in Shenzhen: Dehui Jiufang
.
The managers are different, and they also invest in
Fang En.
One of the most taboo things to do in the process of raising new funds with a financial company with a fund sales license is to synchronize roadshows and raise funds for other funds, and at that time, the Lide Capital team did not know that there was another DFJ China fund being raised
at the same time.
According to enterprise investigation information, Shenzhen Dehui Jiufang Investment Partnership was established in February
2016.
In August 2019, Dehui Jiufang initiated an investment in Fangen; It withdrew four months later, with a shareholding ratio of 4.
32%
before exit.
In July 2022, the company was deregistered
.
However, the investors of Longhao Fund probably did not expect that equity dilution is only one, and the conflict will escalate
in the future.
In 2019, after Lide Capital learned that Long Hao had sent out the last final payment, Zhao Ming and the team members felt a little abnormal, and the partners DFJ China team members, including Li Zhongqiang and Li Guangxin, began to constantly vent the wind: "Repeatedly told me that they may withdraw from this project, but there was no specific announcement
.
Zhao Ming recalled
.
.
”
Less than half a year after the final payment, DFJ China's team made the decision to withdraw from FONNE and completed the first withdrawal - that is, it took more than two years from getting the quota to making the final payment
.
In the eyes of outsiders, perhaps this is all because the equity structure takes too long
.
"If there is a relatively long transition period between the signing of the contract and the actual capital contribution, it is unclear how the condominium will use this fund, which will leave hidden dangers
for the future.
" A lawyer familiar with the investment business said
.
for the future.
"
Whether it is Long Hao or Dehui, these two funds have held Fang En's time for an unusually
short time.
The investment cycle of equity investment business, especially investment in CRO enterprises
, is basically about 5 years by default.
"It can't just take two years
.
In two years, CRO can't actually do anything, at most it is to help pharmaceutical companies verify these compounds, small samples to verify, and safety tests
.
It is possible not even to go to the clinical stage
.
Another industry insider analyzed
.
A sudden change in capital means a reversal of the market winds
.
From 2017 to 2019, both Fangen and China's CRO companies are undergoing qualitative changes
slowly and drastically.
In order to adapt to the strong upward pace of the industry, some investors temporarily changed the direction of
their plans.
The most obvious of these is the surge
in orders from Chinese CRO companies.
In 2019, WuXi AppTec added more than 1,200 new customers throughout the year; The number of orders for Kanglong Chemical increased by 56%.
At this time, some medium and large CRO companies have passed the most important industry accumulation period, and the sticky advantages of customers have begun to appear
.
According to some industry insiders, by 2019, most of the old CRO companies have entered the realm
of "eating and wearing, getting stronger and stronger, and unstoppable".
For Fangen, a CRO company focusing on clinical aspects, the turning point in 2019 is particularly special
.
On the one hand, the landing of centralized procurement has forced large pharmaceutical companies and small pharmaceutical companies to develop in the direction of new drugs, and on the other hand, new drugs that have previously taken advantage of the east wind of innovative drugs have basically entered the clinical stage
.
Previously, clinical CRO in China had always accounted for a relatively small
proportion.
According to Frost & Sullivan, the market share of CRO clinical in China accounted for 54.
2% of the entire industry in 2018, far lower than the global 65.
5%.
Therefore, at this time, Fang En was like sitting in a gold mine, with a golden spoon
in his mouth.
Various auras bring it a capital focus, but also bring about the conflict
of interests experienced by Zhao Ming.
If the above two changes are still in Zhao Ming's optimistic expectations, what really surprised him was that some CRO companies that originally wanted to log on to A-shares began to have the idea of turning back to U.
S.
stocks in 2019
.
In 2019, at the time of the withdrawal of two RMB funds, Fang En announced a total of about $62 million in Series D financing, led by Goldman Sachs and followed by Eli Lilly Asia - this is the point that most puzzled Zhao Minghe: Why did the fund co-manager choose to exit on the eve of the entry of big capital and the imminent take-off of Fangen?
Why do fund co-managers choose to exit on the eve of the entry of big capital and the imminent take-off of Fangen?As a co-manager, Profit Capital also clearly objected to DFJ China's team and even issued a withdrawal objection letter, believing that the co-management rights
had been violated.
This is tantamount to forgoing the return on investment
that funders and managers may expect with the naked eye.
At the same time, Zhao Ming heard the news that Fang En was going to list on the
US stock market.
In 2019-2020, the biotech market in the United States reached the peak of a new round of bubbles, and the Biochemical Technology Index (BTK) on the Stock Exchange broke through 5500 points
.
In 2019, the total value of M&A deals in the biomedical industry reached $342 billion, a record
since 1995.
Biotech's long-term low valuation led to mergers and acquisitions by pharmaceutical giants, coupled with the currency over-issuance of the entire financial market in the United States, resulting in the hands of innovative drug companies in the United States stuffed with money
during that time period.
"At that time, everyone felt that innovative drugs had money, of course, they would place a lot of orders, and CRO orders would definitely grow
rapidly after sufficient orders.
" One investor
recalled.
rapidly after sufficient orders.
"
When the condominium fund was dissolved in 2019, Fangen's investment valuation had risen from about $100 million in 2016 to more than $200 million, however, after Fangen's news of entering the US stocks, the valuation entered a new round of skyrocketing
.
Today, Fang's market capitalization is conservatively estimated at $1 billion — and being kicked out on the eve of take-off is difficult for not only Zhao Ming, but also for anyone
.
At the same time, there are countless doubts that cannot be explained: to whom was the equity held by Longhao Fund sold? This private equity fund's right to know information has also become a point of
contention.
Zhao Ming believes that without the knowledge of the co-manager Profit Capital, who has 40% of the voting rights, DFJ China's unauthorized withdrawal from Fangen's project is neither reasonable nor legal
.
When they raised their own objections, Li Zhongqiang and Li Guangxin refused their request to see the underlying documents of the transaction - which gave him reason to wonder whether there was a secret behind the extreme opacity?
"Investment decisions should include both investment decisions and exit decisions
.
I want to know how Fang En's project was returned, how much money was refunded, how much should be divided proportionally, this kind of small fund that only invests in three projects, and the documents involved can be read
in a week at most.
But Li Guangxin and his team have been hiding, and various excuses are not allowed to see
.
Zhao Ming said
.
In the investment process, the issue of LPs' right to know has been a trigger for conflict
.
The reason why the Partnership Law has reservations and restrictions on LPs' right to know, in the eyes of professional investment lawyers, there are multiple reasons
such as maintaining the independence of GPs' investment decisions, and not being interfered with and pressured by investors.
"Although the law does not protect the LP's right to know too much, if the LP believes that the other party is in breach of contract, such as not fully investing the money I gave you into the target, then the last way for everyone to take is to prove it in court, at which time the court will force the GP to disclose transaction information
in order to make a liability determination.
" The lawyer said
.
-03-
-03-Next step of the alert
Next step of the alertLooking back on this long dispute, Zhao Ming regretted that in 2016, the equity market was turbulent, and at that time, whether it was fundraising, registration and filing, or even supervision, there were some regrets, and there were some shortcomings at the operational level, and these details became problems
after the dispute.
At that time, after the establishment of the condominium fund, it took a long time to register and file compliance and regulatory compliance requirements, and in order to lock in the investment project as quickly as possible, Lide Capital agreed that DFJ China team would handle the registration, and Lide Capital could hide behind through co-management and other agreements - which also planted future legal disputes
.
In 2016, capital rushed to catch up with the last train
of CRO companies' low valuation.
Take Boji Pharmaceutical, which went public in 2015, for example: the price-earnings ratio was about 35 at the time of listing, and by 2017, this number had exceeded 1700
.
The rush of capital will inevitably lead to compliance problems
in the fundraising process.
For Zhao Ming, another unbearable knot is that when Fang En's red chips were made into a domestic project for listing, the biggest problem was that the change period of its transaction structure was too long
.
The investment records of Profit Capital to the client show that the time between the decision to invest and the last part of the investment equity is more than two years, and the actual utilization rate of funds is not high
.
.
In order to obtain better financing results, Chinese enterprises often migrate
repeatedly between multiple exchanges.
For CRO companies, the valuation of A-shares is high, which is the main driving force for the dismantling of red chips that year; Compared with the approval system for A-share listings, U.
S.
IPOs are faster and have a lower threshold – which is also very attractive
for CRO companies in the expansion period.
At the same time, A-shares additionally require the applicant for listing to continue to operate for more than 3 years and make a profit of more than 30 million
for three consecutive years.
This is an impossible task
for many CRO companies in the early stages of development.
In mentioning the phenomenon that Fangen abruptly terminated its domestic listing plan in 2019 and turned to US stock IPOs, according to industry insiders, it should be that it should be difficult for net profit to meet the domestic listing requirements, but it may be due to pressure from investors and need to be listed
quickly.
In 2020, Fountain Pharma changed its name to Kunling Pharmaceutical
.
In July, Kunling announced the completion of a $150 million Series E financing, and the listing bell seems to be getting closer and
closer.
But for Zhao, his money seems to have become a springboard
for CRO companies to jump back and forth between A-shares and U.
S.
stocks.
Time and capital are spent on changing the transaction structure of a company, which can be said to be a waste
during the period when the overall ROI of the CRO industry is soaring.
during the period when the overall ROI of the CRO industry is soaring.
Today, the windy and turbulent year of the CRO industry has come to an end
.
In addition to the market correction, the epidemic is also an important factor
.
"CRO, like many pharmaceutical companies, is at a late stage of value-added
.
But when the pandemic lasts three years, it's like dividing a lot of things by three
.
Therefore, for financial planners, CRO's products are more difficult to sell than before, so now there are fewer
and fewer third-party investment institutions looking at the CRO track.
Ma Li, a member of the equity business team of Profit Capital, said
in an interview.
and fewer third-party investment institutions looking at the CRO track.
Another reason for the decline of capital is that for the CRO industry, concentration and upstream and downstream integration needs are getting higher
and higher.
The result is often that the company's valuation will suddenly increase significantly, and the investment risk will become higher, which will also block out investors outside of large capital - and if there is a situation where early small investors are kicked out regardless of agreements and business ethics, more regulatory constraints are needed to control human weaknesses
.
Individual investors have left the market, and for Lee Capital and Zhao Ming, the strange things that this CRO investment journey brings to them continues
.
In Fonne's project, LPs made money, GPs made money, the industry as a whole developed - in the eyes of outsiders, everything was happy
.
However, in the rising period of the industry where competition, seizure and racing have become key words, the suspected law of the jungle and the lack of contract spirit always seem to alternate with the glory of the industry, and there are always investors like Zhao Mingmen who may silently bear the loneliness
in the shadow of glory.
-04-
-04-Killing with each other or cooperating symbiosis
Killing with each other or cooperating symbiosisGP and LP, since the birth of the capital market, have been cooperative and symbiotic.
Cases of the two sides going to court are rare, but they have appeared
frequently in China in recent years.
According to many senior lawyers and litigation lawyers in China, the relationship between China and other countries is very different
from that of other countries.
A lawyer who has been dealing with pharmaceutical investment for a long time recalls that LP, that is, the limited partner of an investment company, began to play a role in the financial market in the pharmaceutical field, dating back to 2005/06
.
"When a pharmaceutical company obtains a drug patent but cannot make a profit, it can obtain a high valuation
by listing overseas.
At that time, the Chinese market began to accept this investment philosophy: good pharmaceutical companies are not judged by how much you make or gain, but by
market expectations.
”
by listing overseas.
At that time, the Chinese market began to accept this investment philosophy: good pharmaceutical companies are not judged by how much you make or gain, but by
market expectations.
”
From 2016 to 2019, the equity investment industry was enthusiastic and the CRO industry continued to rise
.
LP in particular, as the father of the gold lord, plays an extremely important role
.
They have limited understanding of the pharmaceutical industry, but they have used hot money to support the enthusiasm
for capital investment in the CRO industry in recent years.
In addition, the lawyer believes that the rapid compound growth rate of some industries in China is also an incentive
for GP and LP to have contradictions.
"If the compound growth rate of an industry is 10%, GP's choice is understood, because next year's market may be worse, or not much better
.
" However, when the compound growth rate reaches 30% that year, the GP's exit behavior will cause LPs to question and destroy the trust relationship
between the two parties.
”
In the past five years, China's CRO market has maintained a compound annual growth rate of around 30%, and many companies once grew by more than 50%.
Under this dizzying development speed, at what point in time the funds should be withdrawn has become the most likely cause of contradiction between GP and LP
.
The law stipulates that the Partnership Act is only violated if the GP causes material harm to the interests of the LP
.
For professional investors like Zhao Ming, this damage is not only reflected in interests, but perhaps more in a psychological level - before the CRO fire, there are not many
professionals and professional investors who can predict the development prospects and decisively raise funds to complete the investment.
And passively getting off the car in advance when it is hot, no one wants to be the one
who is thrown off the car.
who is thrown off the car.
