Song Qiong: Biotech’s CFO will be more than just IPO

Original Medical Rubik's Cube

In the past few years, the multiple benefits of the capital market have given domestic Biotech unprecedented listing opportunities. After achieving their goals, some chief financial officers (CFOs) will choose to go to the next company to continue IPO.'Iron-made Biotech, smooth CFO' also became the norm at that time.The career trajectory of Dai Fucai, the new head of the global pharmaceutical giant Merck, has pointed out another development possibility for the CFO.As the pace of investment slows down, the career goals of biotech CFOs will go beyond IPOs.

Mr. Song Qiong, who has been engaged in financial work for more than 20 years, said frankly in an interview with Medical Rubik's Cube that during a downturn, it is particularly important for the company's fundamentals to be sound, and it also places higher requirements on the CFO's capabilities, such as being familiar with the entire business process such as technology, products, and markets. , refined operations support meaningful innovation, leverage industry opportunities to empower enterprise development, etc.

Song Qiong, CFO of Lenno Medical Technology

High-ranking CFOs tend to be more knowledgeable about the business

Medical Cube: What made you choose to work in the field of biomedicine?

Song Qiong: My career began in 2001 when I worked in taxation and consulting at an accounting firm in Shanghai.Around 2003, our client Thermoelectric (the predecessor of Thermo Fisher) was about to begin a large-scale integration of the representative offices of its various business units in the Chinese market, establish an operating entity for research, production and sales, set up a regional headquarters and establish a logistics service center.

By chance, I joined Thermoelectric in 2004, starting my career in the field of life and health.Although I have been working in the field of biomedicine for 18 years, I maintain a high level of passion because of the many positive effects this industry can bring to society.In my spare time, I have also become a certified instructor for emergency CPR/AED by the American Heart Association, hoping to contribute to social welfare.

Medical Rubik's Cube: What important changes have occurred in your career since you entered the industry 18 years ago?

Song Qiong: I come from a financial background. This is a type of work that requires time and experience accumulation.In my opinion, the challenge of doing this job well is that high-level financial experts are familiar with business, can plan and make decisions on financial issues from the company's overall strategic perspective, and have professional background in their industry, and can work with them. The company's technology, product, marketing and other departments communicate seamlessly.

Leno is the first local company I have worked for, which is a relatively big change in my career.Before that, I had worked in large foreign companies, from six years at Thermo Fisher to five years at Covidien (formerly Tyco Medical), to six years at Medtronic and then Cisco Systems.

While working at the global medical device giant Medtronic, I served as the senior director of its Greater China Finance Department, responsible for the company's financial budgeting and analysis.At that time, I also struggled with whether to stay in a large foreign company forever?After careful consideration, I decided to go out and have a try.The original intention was to see where the upper limit of life might be if I had a certain level of protection at the lower limit.Because I did not grow up in a greenhouse, I dare to step out of my comfort zone, even though this process may succeed or fail.

After joining a local company, I found that on the one hand, I could contribute my previous knowledge and experience; on the other hand, I was learning new things and solving new problems every day, which made me feel very fulfilled.In addition to the daily work on investment and financing projects, my other main responsibilities are to continuously improve the financial department’s business empowerment, establish and optimize systems and processes internally, improve internal controls, and improve business performance while ensuring compliance with financial operations. and financial integration capabilities.

Medical Rubik's Cube: How do CFOs like you, who have moved from foreign companies to domestic companies, continue to solve new problems?

Song Qiong: This question must be faced and answered by managers who switch from MNC to local companies.My opinion is that the resources of foreign companies are basically on the company platform. You have good support from internal resources of the company and good support from colleagues at the front and back offices. The processes and systems are already very complete, and the content of the work is more Mostly operations and maintenance.

More than ten years of experience in multinational companies gave me the opportunity to bring advanced and mature management ideas, standardized operating systems, and corporate governance for handling large business volumes and complex businesses into existing enterprises.In addition, our company, from founder Cui Teng to middle and senior managers, all have working experience in international companies.When everyone arrived on the local platform, they also started new attempts together.

For local companies like Leno that are in the early stages of growth, they need to face all aspects of investment and financing, listing sprint, market value management, financial operations, auditing, compliance and other matters.The launch and commercialization of a company's products require a CFO who is well versed in the industry and performs refined operations. It also requires vision and courage, and the ability to gradually develop the company from 0 to 1 to 10.

Medical Rubik's Cube: There was a saying in the past that 'Biotech is as strong as iron and CFO is as good as water'. What do you think of this phenomenon?

Song Qiong: This phenomenon mainly occurred 5 to 10 years ago. At that time, many innovative Biotech companies with weak capabilities needed to IPO on the secondary market after several rounds of financing, and they needed CFOs with investment banking backgrounds. Help them achieve their goal of going public.When this goal is achieved, the company will gradually have commercialized products and will need a CFO with a strong operational financial background.So we often see that some CFOs leave after helping a company complete its IPO and go to the next company to continue its IPO.

However, in the past five years, PE and other institutions with investment banking resources have grafted these resources onto Biotech. At the same time, the IPO process has become more procedural and transparent. The importance of investment banking resources in the company's IPO process has declined. At the same time, as the market has also They began to pay more attention to the fundamentals of the company, so CFOs with an operational background were valued and needed more.

Medical Rubik's Cube: Can you share an example of how a CFO with an operational background carries out his or her work?

Song Qiong: Take mergers and acquisitions as an example.For the medical and health industry, in the process of becoming bigger and stronger, it is essential for companies to carry out mergers and acquisitions.Integration and operations after mergers and acquisitions are actually also very important, that is, how to achieve the synergy of 1+1>2 after mergers and acquisitions.

For example, Leno's revenue has achieved a compound annual growth rate of more than 200% in the past five years, which is closely related to its multiple acquisitions, such as the acquisition of Chengdu Meichuang in 2019.Recently, we have also completed two mergers and acquisitions projects, one is an ear, nose and throat surgical instrument company in Hangzhou, and the other is an ODI of a German endoscopy company.

For group companies (such as Biopharma) that can expand their research, production and sales, independent research and development, authorized introduction, and mergers and acquisitions are the means for the company to grow and develop.No matter which path is pursued, the company is required to have solid fundamentals, and then on this basis, it must do a good job in investment and financing in capital and markets externally, and continuously improve operational efficiency and financial performance internally.

Support meaningful innovation

Medical Cube: From a CFO perspective, what kind of projects do you think are innovative?

Song Qiong: I think it is necessary to achieve meaningful innovation at least in therapy technology and business models.For example, a pacemaker. The traditional pacemaker is about the size of a tea bag, installed under the shoulder blade, and connected to the heart through wires; while the latest pacemaker is not only about the size of a vitamin capsule (1/1 the original volume). 10), and can be delivered percutaneously to the heart directly through a catheter passing through the femoral vein.This is a transformative minimally invasive technological innovation that redefines the patient experience, avoids leaving scars on the chest, allows patients to have less movement restrictions and recover faster after surgery, while eliminating bag-related complications. The surgery takes about 30 minutes to complete.

Personal observation is that real technological innovation is easier to achieve in small companies than in large group companies.Leno, where I currently work, is a small company that has entered the early stages of growth from a start-up.60% of our business is the low-temperature plasma platform produced in Chengdu. The product has a wide range of application scenarios in departments, spanning otolaryngology, sports medicine, reproductive surgery, neurointerventional, hepatobiliary surgery and other departments. It is a comprehensive innovation in business model and technology application.

Medical Rubik's Cube: If you want to continue to lead in a certain segment, what key points will you grasp first?

Song Qiong: Currently, a new growth point in the industry is consumer medical care.In the past, when living standards were low, people might not be willing to deal with or treat non-life-threatening diseases; as living standards improve, people’s requirements for quality of life are also increasing, and they gradually begin to pay more attention to consumer medical care, including medical care. Beauty, ophthalmology, dentistry and more.

The ear, nose and throat we are currently working on is also a consumer medical treatment, which is an opportunity we can seize.In the future, we will spend more resources on technological innovation in this area, hoping to eventually form an integrated medical solution, the so-called 'total solution' concept.

Medical Cube: Continuous innovation requires system support. What do you think is the most effective decision-making mechanism for startups?

Song Qiong: The medical industry is a highly regulated industry, with rapid technological iterations and the possibility of being disrupted by cross-border technologies. Domestic market changes are also rapid in terms of policies and access.In this environment, the company not only needs someone to pay attention to and worry about the market and development direction in two to three years or even further, but also needs someone to ensure that compliance operations and performance goals are achieved every quarter (annual).

In my opinion, every manager should always ask himself: On average, how much time per week or month does he spend worrying about the company's affairs within two or three years?How much time do you spend worrying about this quarter (year)?Is the time spent appropriate to your role?Is there neither duplication nor gap in the allocation of management responsibilities and time for the current stage and the next two or three years of operations?

Medical Cube: From a management perspective, what method is suitable for managing an innovative company driven by R&D?

Song Qiong: As for the management of R&D, I do not have an R&D background. It is mainly based on my market experience in this industry. There are three points:

o Integration with upstream markets.We find that more and more capital is directly cooperating with R&D personnel in universities and research institutes to start businesses.The ideas and pain points of upstream medical experts themselves represent many opportunities for innovation and R&D.

o Divestment of old and new technologies.Within the company, if old technology and new technology are in the same team, innovative R&D will inevitably be restricted in terms of resources and environment. This is why many major drug or device manufacturers rarely produce breakthrough R&D results. There will be many technological breakthroughs in unicorn companies.

o R&D reward system.A good incentive system will promote the motivation of R&D personnel.

Leveraging industry opportunities to empower

Medical Cube: From a supply chain perspective, what are the differences between foreign companies and domestic companies in the upstream and downstream areas?

Song Qiong: In the upstream area, I personally don’t think there is much difference.In terms of R&D, technology and production, foreign investment has more advantages; currently, the country is actively promoting the technological development of local enterprises, which will have some advantages in product registration, market access, medical insurance payment, etc.So in terms of overall cost, there is actually not much difference between imported and local products.

For example, our company's Chengdu factory produces hundreds of thousands of cutter heads every year, most of which are supplied to the Chinese market; while a large international factory like ours has its production base abroad and supplies the global market. The volume is large and can Reduce unit production costs, but its high operating and management costs will lead to a significant increase in overall costs.For most device products, production and development costs are not the main issue before centralized procurement or large-scale procurement; market access, patient education, and doctor training are the 'must-haves' for military strategists.

On the downstream side, it involves volume purchasing or channel control.Volume purchasing has a great impact on channels. What originally required many dealers to do is gradually turning into a semi-direct sales state.This is very similar to the foreign GPO model, which relies on logistics companies such as China Resources, Shanghai Pharmaceuticals, and Sinopharm to directly deliver hospital admissions.At this stage, the technical advantages of some imported products make the commercial influence of local companies on dealers and channels weaker than that of imported manufacturers. As a result, they will be slightly inferior in business arrangements and distribution of channel profits.

Medical Cube: Since the overall cost difference is not big, which products do you think can be substituted by domestic products?

Song Qiong: Personally, I think 'domestic substitution' can mainly be viewed from three aspects:

o From a government perspective, consider issues such as medical insurance expenditures, medical effectiveness and technical bottlenecks.

o Consider affordability of care from a patient perspective.

o From a doctor’s perspective, the main issues are the product’s safety, ease of use and medical effectiveness.

Taking medical devices as an example, with the government acting as the main driving force for 'domestic substitution', therapies with the following characteristics may be the first to achieve mass procurement and domestic substitution: high medical insurance expenditures; uncomplicated surgeries and high standardization ; there are reliable domestic manufacturers that can guarantee quality (technology and quality) and quantity (production and coverage) supply.

Medical Cube: From the perspective of a financial officer, how do you view the industry opportunities under the volume-based procurement policy?

Song Qiong: China's medical device market may form two main ecosystems after the competition among all parties - one is focused on 'price parity and large volume' products (including some hidden champions); the other is products with real It is a product with innovative technological content and obvious advantages in clinical effect and value medicine.

The 'Healthy China' strategy implemented by our country after the 19th National Congress is to ensure the health rights and interests of all citizens, improve health levels, improve the quality of medical services, and at the same time control medical costs.As medical expenses continue to grow due to the aging of the population, my country's medical security can only be basic, which requires affordable and large-volume medical products and services.In the context of the reform of medical insurance payment methods, certain products with great demand, low value attributes, and high unit gross profit may be more likely to succeed.

Medical Rubik's Cube: In this environment, how will the financial department empower enterprises?

Song Qiong: The financial department can proactively guide enterprises in the midst of drastic changes in the industry to adjust market strategies and execution strategies based on their understanding of business, markets, products, competitiveness, channels, payments, etc., and based on financial data and facts. .

Taking the cardiac stent, whose channel profits have been greatly compressed after centralized procurement, as an example, its business model is facing huge adjustments.On the one hand, we need to reintegrate the channel structure, recalculate dealer prices, and consider the significance of 'volume' of 'volume purchasing' to the company; on the other hand, we may need to redeploy the sales team to new regional markets. ; At the same time, we will formulate new financial indicators based on the new business form, and think about how to achieve these indicators, as well as the assessment and payment of sales bonuses.

Another example is the pricing of new products.Finance involves price approval, so finance needs to calculate what kind of price can not only meet the basic needs of the market, but also add points to the company's profits and profit margins?How to reasonably balance the profit distribution between the company and dealers so that dealers have enough motivation to promote new products while protecting the company's interests?

Medical Rubik's Cube: What do you think about the current difficulty in raising funds in the primary market and the slowdown in investment pace?

Song Qiong: In the past year, everyone has seen the situation of Hong Kong 18A companies. There have been many breakouts, and some have passed the hearing and still have issuance risks.The essence behind it may be that the primary market has accumulated some bubbles after rounds of financing, and these bubbles are reflected in the secondary market, and investors in the secondary market do not pay for these bubbles.The valuation of the secondary market is forcing the value of the primary market to return.

At the same time, due to geopolitical issues, the liquidity of the Hong Kong market has declined, coupled with the risk aversion of investors caused by war and the epidemic, the investment pace has slowed down significantly, and everyone is also concerned about the companies in 18A that only tell stories but have unsatisfactory performance. Aesthetic fatigue has begun.

The development of innovative drugs generally takes about 10 years. Investors will be more patient with drugs, and storytelling may still be useful.But for innovative device products, the development cycle is only about 5 years.If the story told 3 to 5 years ago fails to materialize on time, some investors will also have doubts about its financing logic.Therefore, when the general trend is downturn, it becomes particularly important for the company's fundamentals to be sound.Investors and the capital market will pay more attention to the company's business foundation, operational capabilities, financial performance, etc., and further emphasize the importance of the team's operational capabilities.