For decades, one saying has echoed across the venture capital world:
“Invest in people, not ideas.”
But for Shan Fu, managing partner at Vivo Capital, that wisdom doesn’t quite apply to biopharmaceuticals. In his view, the most valuable currency in biotech is the asset: the molecules, technologies, and pipelines with genuine therapeutic and commercial potential.
Operating across both the US and Chinese capital markets has given Fu a global vantage point on the biopharma industry’s evolution. He believes the traditional VC model for biotech startups has run its course, and that a new organizational approach is needed to reduce the cost of trial and error in drug R&D.
That approach has taken shape in the form of an accelerator program that identifies high-quality drug assets worldwide and introduces them to China through a NewCo model. By leveraging China’s advantages—its deep pool of engineering talent, established platforms, and rich clinical trial infrastructure—the accelerator aims to test and validate assets faster and at lower cost.
As of March, Vivo Capital’s public market fund raised USD 740 million, bringing its total assets under management to more than USD 7.5 billion. Fu described Vivo’s core value as “change,” a principle that has guided the firm’s three-decade journey through the capital markets. Since 2021, 34 portfolio companies have closed pipeline licensing deals, while several (including Gracell Biotechnologies and RayzeBio) have been acquired by global pharmaceutical giants. Companies such as Visen Pharmaceuticals and GenFleet Therapeutics have gone public, adding to Vivo’s track record of successful exits.
Fu told 36Kr that the accelerator could deliver its first success story as early as late 2026.
When the traditional VC model falters
China’s biotech capital market is undergoing a deep structural shift. According to Pharmcube data, in the first half of 2025, Chinese innovative drug license-out deals generated USD 2.64 billion in upfront payments, far exceeding the USD 1.62 billion raised from primary market financing. Yet despite rising stock prices and booming business development deals, early-stage biotech investment remains cautious.
Fu argued that the traditional VC playbook no longer works in biopharma. Endless cycles of funding and IPO-driven exits have failed to solve the industry’s core inefficiency: resource misallocation. Instead, they’ve bred dependence on capital markets. When IPO windows close and liquidity dries up, many biotech firms face crisis—or collapse.
Biotech companies face dual risks in science and business: a drug must first prove it works, then that it can sell. Both must succeed for the venture to pay off. Once a candidate drug shows signs of failure in clinical trials, it’s nearly impossible to reverse course.
Under traditional VC incentives, founders with high salaries and investors with sunk capital often prolong failing projects, consuming more resources and deepening losses.
The gap between input and output is striking. Over the past decade, roughly USD 200 billion has flowed into biopharma development in China, yet in 2024, total annual sales of domestically developed innovative drugs reached only RMB 60 billion (USD 8.4 billion).
Fu said this imbalance reflects the nature of the industry itself. “Globally, there are three sectors—food, pharmaceuticals, and aviation—where a slightly negative return on investment is reasonable because of their immense social value,” he said. He often advises non-specialist investors to “stay out if you’re just chasing the hype.”
For specialized firms, the key lies in balancing technological, regulatory, and commercial risks through deep expertise and resources.
“The question of whether to invest in people or assets, Vivo debated that for two years a decade ago,” Fu said. “We decided to back assets.”
The accelerator embodies that philosophy. Unlike incubators that build startups from scratch, Vivo’s model targets assets ranging from early-stage targets and molecules to midstage proof-of-concept and clinical pipelines.
In practice, Vivo partners with global biotech firms and research institutions to identify promising assets. These are spun out into NewCo entities, with the original IP owners taking equity stakes, Vivo providing capital, and development teams assembled according to each project’s stage. By leveraging China’s strengths in preclinical and clinical development, these spinoffs aim to reach preclinical candidate (PCC) or proof-of-concept (POC) milestones quickly and efficiently.
“A NewCo entity’s job is to develop its pipeline as fast and cheaply as possible. If it doesn’t work, we shut it down quickly,” Fu said.
This model works because, after two decades of buildup, China now offers unique systemic advantages. If these are effectively utilized, NewCo firms can dramatically lower development costs through rapid, parallelized testing.
How does Vivo decide how much to invest, or when to advance or terminate a project?
According to Fu, each pipeline undergoes five levels of evaluation: screening by the original tech owner, Vivo Capital, the NewCo board, development partners, and potential future BD buyers. Beyond scientific merit, market competition often determines the outcome. If a rival drug is years ahead in development or offers a cheaper, more efficient solution, Vivo terminates the project to prevent waste.
Through this process, Fu said, Vivo acts as a “resource allocator,” using capital to balance stakeholder interests and make the final call when consensus fails.
Under this philosophy, Vivo’s strategy has evolved through three iterations: beginning with license-in investments such as Zai Lab, progressing to the joint venture model exemplified by Visen, and now deploying its accelerator to manage multiple assets simultaneously.
Finding the right “driver” for promising drugs
In 2025, Vivo’s earlier joint ventures achieved major milestones. Visen became the first biotech firm to go public on the Hong Kong Stock Exchange that year, raising about USD 100 million. Meanwhile, Visirna Therapeutics outlicensed pipeline rights to Sanofi, securing USD 130 million upfront and up to USD 265 million in milestone payments.
Fu attributes such success to three core capabilities:
- Strategic clarity, the ability to define unmet clinical needs, evaluate scientific feasibility, and gauge market size and competition.
- Operational execution, by matching the right talent to each development phase: biologists for mechanism discovery, chemists for drug design, and principal investigators for clinical execution.
- Business development, focusing on planning out exit paths early, whether through licensing, acquisition, or IPO.
“It’s a complex system that needs at least three kinds of people,” Fu said. “First, those who identify unmet needs, who are usually medically trained professionals that understand where the gaps are. Second, the scientists and experts who actually do the work. Third, the BD and commercialization teams who bring the product to market.”
But the hardest part, he admitted, is assembling the right people. Long development cycles and deep specialization often lead to misaligned teams, such as biologist-led firms struggling to empower medicinal chemists.
“Judging people is highly situational,” Fu said. “You can’t build a universal formula. It’s a kind of art.”
That principle is especially critical when choosing CEOs. For companies like Visen and Visirna, Fu looked for “drivers” rather than traditional founders: leaders with multinational experience and the ability to navigate complex governance structures while aligning investors, boards, and scientists.
He cited Lu Anbang, CEO of Visen, as an example. With over 30 years in the industry, including as Takeda’s president for Greater China, Lu helped grow Takeda’s China revenue tenfold. In a past interview, Lu described leadership as “threading pearls together,” linking brilliant specialists into a cohesive whole. That philosophy aligns closely with Vivo’s vision.
Visen’s joint development model dates back to 2018, when Vivo partnered with Ascendis in Europe and the US to co-found the company around three endocrine drug assets. Instead of paying large upfront or milestone fees, Visen acquired Greater China rights through equity. By tightly integrating technology, operations, and capital stakeholders, the model reduced reliance on public markets and created long-term value through steady sales growth.
Hong Kong biotech valuations rest on stronger assets
After a months-long rally, Hong Kong’s biotech stocks have entered a correction. Fu remains bullish on the long-term outlook.
“This year’s rebound reflects a return to fair value based on asset quality,” he said. “While the pace was steep, it’s far from a bubble. The biotech index is at roughly 60% of its June 2021 peak, but listed companies today have far stronger fundamentals. I see this as the start of a three-to-four-year upcycle.”
He added that short-term pullbacks are healthy, helping filter out weaker players and improve market discipline.
Fu predicted last year that Hong Kong’s market would recover from early 2025, and Vivo accelerated Visen’s IPO preparation accordingly. He attributes the global recognition of Chinese biotech assets to four structural factors forming the foundation of his long-term optimism:
- Regulatory alignment: China’s review and approval standards for new drugs have been harmonized with international norms, improving the credibility of Chinese clinical data.
- Returning overseas talent: Chinese scientists and executives trained abroad are bringing back global R&D expertise and management methods.
- The rise of the WuXi AppTec ecosystem: CRO (contract research organization) and CDMO (contract development and manufacturing organization) service providers have become world-class infrastructure for drug development.
- Massive capital inflows: An estimated USD 200 billion over the past decade has fueled innovation at scale.
“Over 70% of that investment came from China,” Fu said. “We should thank Hong Kong’s Chapter 18A listing regime, the STAR Market, and the many institutional investors who made it possible.” Together, he added, these elements form China’s system integration advantage, a key driver behind the current market rebound.
In the first three quarters of 2025, China’s license-out transactions totaled USD 92 billion, including USD 4.55 billion in upfront payments. Fu cited this as proof of global pharma’s growing appetite for Chinese assets.
Global pharmaceutical companies collectively hold about USD 1.2 trillion in deployable capital, with roughly USD 300 billion in annual sales set to vanish over the next decade due to patent expirations. Their need for new pipelines is urgent, creating a historic opening for Chinese biotech firms.
“Most of the high-quality assets that could be sold are already spoken for,” Fu said. “In two years, BD activity may slow. The key now is to prepare assets for the next wave.”
The logic of M&A
While licensing deals are booming, mergers and acquisitions (M&A) remain the ultimate value realization path for both companies and investors. The capital winter of the past three years, during which IPOs nearly froze, has made Chinese VCs more aware of the risks of relying solely on public listings.
With operations across the US and China, Fu believes Vivo’s cross-border presence provides natural cycle hedging. “For our limited partners, that’s the best safety cushion,” he said.
Some portfolio companies have exited through IPOs in China or Hong Kong, while others were acquired by global pharmaceutical giants. But true strategic M&A, Fu emphasized, isn’t about one-off deals. “Many so-called acquisitions today are opportunistic,” he said. “It’s like buying a bit of garlic or scallion to spice up the meal. Strategic M&A is different. It’s about market integration and efficiency improvement.”
In other words, real consolidation eliminates redundancy and boosts productivity, and this is a process global firms are already pursuing through targeted acquisitions.
Despite the surge in licensing activity, full acquisitions of Chinese biotech companies remain rare. Fu attributes this partly to cultural factors. Many local firms aspire to become fully integrated pharmaceutical companies, building large sales and manufacturing operations, whereas in the US and Europe, most acquisitions happen long before reaching that stage.
“Many companies that could be acquired simply aren’t ready,” Fu said. “Everyone wants to be Pfizer or Eli Lilly.”
In mature markets, biotech IPOs often serve as valuation milestones before M&A, not endpoints. That’s why Vivo insists its portfolio companies maintain global vision and capabilities from day one.
“New drug R&D is a technology-driven economic activity,” Fu said. “Scientists pursue truth, companies pursue efficiency, and in this industry, truth and efficiency converge into economic value. China’s system integration advantage will unleash immense industrial efficiency, and over time, that will become ever more visible.”
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Hai Ruojing for 36Kr.