Zheng Li waited on the stage for the crowd below to quiet down.
The investors standing here are the elite of the elite. They can immediately grasp the key point: endorphins combined with another drug can cure addiction and drug dependence, even if this treatment is targeted and only effective against opioids.
But it is also a monopolistic market.
Lei Jun was equally moved, saying that investing in Zheng Li was the most profitable investment he had ever made in his many years of investment career.
Young Guo felt utterly helpless. He felt like he had missed out on the world by just missing one step. Perhaps if he had persisted a little longer, he could have participated in the Series A venture capital round of Kechuang Bio.
The excitement didn't last long. Investors viewed each other as enemies, and the investment quota was limited. There were more than 30 investment institutions present, but it was estimated that no more than five would be able to participate in the Series B investment.
After the scene quieted down again, Zheng Li said:
"Now I'm going to talk about the thing that everyone is most concerned about, which is the specific details of the Series B investment in Kechuang Bio."
"Firstly, in our Series B funding round, I will give up 20% of my shares to bring in four institutions, and these four institutions will share this 20% of the shares."
"The Series B funding will be mainly used for clinical trials at home and abroad. Endorphins have been approved for marketing and sales. In addition, we need to build a production base integrating R&D and production in Suzhou, and we plan to build a biomedical laboratory in Southeast Asia."
Many pharmaceutical giants set up their own laboratories around the world. For example, Pfizer has a laboratory in South Africa, and Bayer has its own laboratory in Singapore.
Firstly, these regions offer tax incentives to innovative enterprises, and secondly, they utilize local resources for resource allocation.
"The representatives of the investment institutions present can write down their valuation of Kechuang Bio, the assistance they can provide for Kechuang Bio's future development, and the name of the investment institution they represent, and then submit it to the staff."
"The service staff compiled everyone's written documents and handed them to me."
"I will select four institutions present here to participate in the Series B investment of Kechuang Bio."
This is a blind auction format, which is disadvantageous for investors because you don't know what price you need to estimate to participate in the Series B investment.
Zheng Li continued, "Finally, the valuation of Kechuang Bio's Series B investment will be the average of the valuations of the top four investors present here."
"If any of the four companies I selected decline the opportunity, then it will be postponed to the next eligible candidate."
After Zheng Li finished speaking, the waiter handed paper and pens to the investors in the audience.
Young Guo hesitated, unsure what conditions to include to win this competition. Judging from what Zheng Li had them write, valuation wasn't the most important factor.
Moreover, the valuations of Kechuang Bio by investment institutions are roughly the same, even though Zheng Li claims that endorphins can cure opioid addiction.
Because endorphins want to replace morphine as an analgesic, their price cannot be much higher than morphine's. If endorphins want to be sold at a high price as a drug to treat addiction, then they cannot be sold as an analgesic.
In short, you can't have the advantages of both positioning.
Since the company has not yet started production or completed the entire clinical trial process, it is difficult to accurately assess the valuation of Kechuang Bio.
Even under the most optimistic scenario, endorphins could completely replace opioids in the analgesic industry, with the global analgesic market share estimated at around 200 billion yuan in 2018.
The market is large, but the compound annual growth rate is very low, less than 1%.
From this perspective, the value of endorphins is approximately 200 billion yuan. Assuming that endorphins can capture 30% of the market in the early stages after their launch, that would be 60 billion yuan in sales. Then, assuming a profit margin of 15%, that would be 9 billion yuan in annual net profit.
Based on a PE ratio of 20, the valuation would be around 200 billion.
In 2019, the average PE ratio of domestic pharmaceutical companies was around 20, not as exaggerated as it became later.
The price of 200 billion was the previous price. If endorphins also have the effect of treating addiction, then this valuation is hard to calculate.
Because this is a market that has never existed before. Although intuition and experience suggest that there are many addicts at home and abroad, the market is huge and it is a monopoly market.
However, how profitable a blue ocean market can be, and whether Zheng Li, as the leader of the company, has the talent and courage to explore it in business, are unknowns for Young.
Everyone present was in a dilemma.
......
"So, these are the last four: Goldman Sachs, IDG Capital, BOCOM International, and Temasek Holdings?" Zheng Li asked.
Goldman Sachs, IDG Capital, and Temasek Holdings are all valued at around $50 billion, while only BOCOM International is valued at $35 billion, significantly lower than the other three.
The reason BOCOM International was allowed to participate was because it was necessary to have a state-owned enterprise involved.
Lei Jun nodded and said, "I think there's no problem. These four organizations are all very experienced, and the resources they can provide will also benefit the company's development."
Zheng Li asked, "At this price, senior brother, are you going to invest more?"
Zheng Li is giving up 20% of his shares. If Lei Jun does not invest more according to the new valuation, then his equity will be diluted accordingly.
Lei Jun replied directly, "Of course, if I don't invest in such a good project, what will I invest in?"
"The most important thing is people. I believe you can develop better products to benefit more patients."
After the shareholders of Kechuang Bio reached an agreement, Zheng Li arranged for Cheng Gang to handle the specific matters.
In the final two rounds of investment, Kechuang Bio's valuation was $47.1 billion. After Cheng Gang informed four institutions of this news, Goldman Sachs, IDG, and Temasek all responded on the same day that they were willing to invest.
After internal communication the following day, BOCOM International also decided to participate in the investment.
The second round of investment in Kechuang Bio was attended by Goldman Sachs, IDG Capital, Temasek and BOCOM International, with Shunwei Capital participating.
Kechuang Bio received an investment of 14.1 billion US dollars. With the money and resources in place, Kechuang Bio entered a period of rapid development.
At the end of 2019, the Phase IV clinical trial of endorphins was completed, and the integrated production and R&D base was officially put into operation in Suzhou.
After the integrated base went into operation, Zheng Li began to work on the reproduction of artificial demon brains. Without the help of magic, it was very difficult to cultivate demon brains that were compatible with humans. Both gene editing and later cultivation required overcoming many difficulties.
Zheng Li entered a state of in-depth research. Before entering this state, he appointed Li Miaomiao as the deputy general manager of Kechuang Biotechnology, in charge of finance.
In February 2020, the Center for Drug Evaluation of the National Medical Products Administration accepted and approved the marketing application of Kechuang Bio's endorphin.
Following the approval of its endorphin, Kechuang Bio announced that it would unconditionally provide 100 million yuan worth of endorphins to Wuhan for its fight against the epidemic.
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