2020.04.30 Chen Xiachang Views:
CoStone Capital held big stakes in Asymchem, a leading global CDMO, based on our unique and comprehensive understanding on drug industry and CDMO. CoStone succeeded in gain 10 times of returns on investment after exiting it. Recently, Lin Ling, deputy chairman of CoStone Capital, shared the logic of investing in Asymchem and his insights on the “water-sellers” of the drug industry. He was convinced that CMO and CDMO in China were well-functioned high-speed trains which were ready to gather speed. Their growth rates hit 30% which were rarely seen.
CoStone Capital Lin Ling: Asymchem, the Leading Global CDMO and Our 10X Investment
Source: China Fund
(Lin Ling, deputy chairman and co-founder of CoStone Capital)
In the mid-1900s, Philip, a suburban youngster who sold bottled-water, and Levi Strauss, who invented jeans, got their first bucket of gold from the gold miners and became the “King of Cans” and the “King of Jeans”. Their completed the primitive accumulation. Similarly, some chose to sell shovels or horses. Those who went things differently were called “water-sellers”. The gold miners may fail but the “water-sellers” made a fortune. Yet, when shifting to new medicine from generics, the drug industry created subdivisions – CRO (Contract Research Organization), CMO (Contract Manufacturing Organization) and CDMO (Contract Development and Manufacturing Organization), the “water-sellers” in the industry.
CoStone Capital held big stakes in Asymchem, a leading global CDMO, based on our unique and comprehensive understanding on drug industry and CDMO. CoStone succeeded in gain 10 times of returns on investment after exiting it. Recently, Lin Ling, deputy chairman of CoStone Capital, shared the logic of investing in Asymchem and his insights on the “water-sellers” of the drug industry. He was convinced that CMO and CDMO in China were well-functioned high-speed trains which were ready to gather speed. Their growth rates hit 30% which were rarely seen. The reasons underneath varied:
First, international pharmaceutical enterprises tend to outsource their demands in order to reduce costs. CMO and CDMO moved to China and other developing countries from developed ones. The drugs giants like Bristol-Myers Squibb (NYSE: BMY), GSK (NYSE: GSK), Merck Sharp & Dohme (NYSE: MRK) and Pfizer (NYSE: PFE) outsourced 40% active ingredients demands to China and India, two major recipients.
Second, global R&D effort for new medicine have been increased and China’s new medicine has ushered into a period of rapid development. The data showed that the number of new medicines under research increased to 13,718 from 9,737, with the compound growth rate of 5%. According to Frost & Sullivan, the annual average investment on the R&D of new medicines was more than $100 billion, with an annual growth rate of 13%. The Growth rate of China’s investment on this respect has exceeded that of the world. By 2021, China’s investment would be expected to hit $30 billion with the compound growth rate of 22.1%. China’s share will increase to 18.3%. The innovative pharma in China like Hengrui Medicine (600276.SH) and BeiGene (NASDAQ: BGNE) put more than $3 bn into the R&D of new medicine.
Third, Chinese government supports the development of CMO and CDMO. In June 2016, the State Council passed and issued the Plan of Piloting the Possessor System of Marketing License of Medicine. It promoted a new management model which differentiated the marketing license and production license of medicines. Enterprises which possess the marketing license are able to produce medicine on their own or entrust the products to the qualified drug makers with GMP. The fixed asset investment can have assess to scale production of medicine without scaling up.
Above: Excerpt of the interview with Lin Ling from China Fund. Please refer to the link below to view the interview in full: http://stonevc.com/news_view.aspx?TypeId=5&Id=801&Fid=t2:5:2
Rewritten by: Luo Xinying, Edited by: Du Zhixin, Wei Yiyi
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026