Internet medical ︱ routine is not new, loss is endless

Author/Boiled under the stars

Edit/Spinach’s Starry Sky

Typography / Puffs Under the Stars

Internet medical care has gone through more than ten years.

In the era of double entrepreneurship and innovation , the mobile Internet has profoundly transformed many industries including catering and finance. As one of the three mountains, the medical and health field touches an absolutely vast upstream and downstream groups, and has an absolutely huge industrial scale. It is naturally a place that Internet upstarts must not let go. A large number of Internet medical platforms have spread rapidly in just a few years. In 2015, when the hot money is surging, the number of related APPs can be more than 2,000 .

The sudden Covid-19 has made this already eye-catching track look like the son of a natural choice. Who can refuse such a sexy concept? Players from all walks of life under Huang Paojia took advantage of the situation to sound the clarion call, and Ali Health, JD Health, and Ping An Good Doctor have successively rushed to Hong Kong stocks.

Picturesque, a moment how many hero.

Flying high and falling really fast. Various companies went public and reached their peak, and then the stock price fell all the way to the ankle , even a guy with big eyebrows and big eyes like Ali Jingdong is no exception. This can be explained not only by the overall cooling of the Hong Kong stock market, but this industry is probably questioned by capital .

Source of the stock price trend chart of 5 listed companies in the past 18 months: the author organizes

Is there really no story to tell in Internet medical care?

1. The regulation is clear, and it is expected to be on the right track

In fact, Internet medical care is a very broad concept, which includes all the forms of business that can be integrated with traditional medical and health services by using the Internet as a carrier and using cloud computing, big data and other information technologies as means. The specific performance includes everything from doctor-patient communication community, online registration, light consultation to medical e-commerce, B-side SaaS service, family doctor, and chronic disease monitoring.

Source of Internet medical operation model: iiMedia Research, Caitong Securities Research Institute

In China, where the public system and medical insurance are dominant, the digitalization of medical and health care is still not high up to now. This considerable imagination has spawned a variety of business models, and they all seem to have a chance to win. However, after more than ten years of preliminary exploration and burning the tens of billions of dollars that were raised in the bustling primary market, the author thinks that the Internet medical platforms that are not yet yellow can be mainly divided into two categories:

The more orthodox pharmaceutical e-commerce platform uses products as the means of income; the health management platform tries to use services as the means of income (manual emphasis on ” trying “).

China’s digital health and wellness market size Source: Frost & Sullivan, company prospectus, Industrial Securities Economics and Finance Research Institute

The same goes for regulatory policy, which grows with the various business models in the market. After repeated explorations, the “Detailed Rules for the Supervision of Internet Diagnosis and Treatment (for Trial Implementation)” and the “Measures for the Supervision and Administration of Drug Online Sales” finally came into effect this year. This is of far-reaching significance to the Internet medical industry, and it can be said that it has gotten rid of the barbaric period of barbaric growth .

2. Pharmaceutical e-commerce: the winner takes all, the giant is king

Let’s take a look at pharmaceutical e-commerce first.

Pharmaceutical e-commerce represented by JD Health and Ali Health, or online drug purchase is the main business model of domestic Internet medical platforms, and it is also the main source of revenue for various platforms. This can’t blame everyone for not having new ideas. After all, selling drugs is really too close to money. Since 2014, the growth rate of domestic pharmaceutical e-commerce has continued to reach more than 40% . Moreover, the huge and unparalleled pharmaceutical market in China still leaves a lot of room for onlineization. In 2021, there will be only 36.8 billion online sales of pharmaceutical terminal sales totaling 1,774.7 billion yuan, with a penetration rate of only 2.1%.

Source of market size and growth rate of brick-and-mortar pharmacies and online pharmacies: Minet, Caitong Securities Research Institute

In addition to the low penetration rate, the drug structure also has room for optimization. At present, the main income of players such as and Ali is still in the field of OTC (over-the-counter drugs), and the proportion of prescription drugs is not high. This is mainly because the relevant policies have been unclear before, and the prescription drug business has been in a gray area for a long time. This has led to the emergence of phenomena such as difficulty in finding out the first consultation and follow-up, AI inquiring and reviewing prescriptions, first-drug prescriptions, commercial unified prescriptions, etc., and finally alienated into a pure method of prescribing medicines . Frankly speaking, it is very close to e-commerce, but far from medical care.

With the implementation of the above-mentioned “Measures for the Supervision and Administration of Online Drug Sales”, online sales of prescription drugs have finally been officially recognized, and specific standards that can be implemented have also been provided. The author believes that this aspect has brought certain compliance pains to the pharmaceutical e-commerce platform. After all, the aforementioned salacious operations are prohibited. Online supervision should be compared to offline hospitals. A large number of small and medium-sized platforms have set up a so-called Internet hospital in Yinchuan and other places, but the strange phenomenon of prescribing medicines without asking for diagnosis and treatment can no longer continue. On the other hand, for “serious” players It also greatly expands the future business space. After all, the prescription drug market is the absolute bulk of the drug market (85%), and returning to serious diagnosis and treatment is more in line with the original intention of digital health care.

Benefiting from factors such as the epidemic, the head pharmaceutical e-commerce platform has been running fast in recent years. In 2022H1, JD Health’s revenue was 20.2 billion yuan, a year-on-year increase of 48.3%. In the six months ending in 2022Q1, Ali Health’s revenue was 11.2 billion yuan, a year-on-year increase of 34.2%. Moreover, both companies have achieved profitability after adjusting the non-operating part , which is rare in the industry and has exceeded market expectations. Focus on prescription drugs. From 2018 to 2021, Jingdong Health’s prescription drug business revenue has increased by nearly 14 times from 240 million to 3.3 billion. Ali Health’s prescription drug ratio also increased to 40% in the last fiscal year. Where is the future of pharmaceutical e-commerce? It goes without saying .

However, beaming is only on the top two. The third market leader, Dingdang Health (09886), which has just been listed, is still struggling in the quagmire of losses (see the article Dingdang Health is not healthy for details). In addition to the heavy-asset model of a large number of offline and instant distribution capabilities, Dingdang is largely dragged down by the sales expense ratio (22.7%) that is much higher than the top two, and it also bluntly expresses its high marketing investment . It is to maintain a competitive position among peers.

Comparison of operating income and sales expense ratio (%) of the top three pharmaceutical e-commerce companies in 2021 Source: the author

This may lead to a well-informed proposition: the e-commerce pattern is initially determined, and the traffic advantage of the platform of all categories of giants is like the top of Mount Tai .

For small and medium-sized and vertical pharmaceutical e-commerce platforms, is there an end to burning money to maintain share? Don’t forget, the next stage of the final battle is prescription drugs. Prescription drugs require more cold chain, SKUs are more complex, and there will be many long-tail products. Players with strong logistics and distribution capabilities should have more obvious advantages. Besides, Alibaba and have already entered the game, and there are still a few Internet giants with superior traffic and instant delivery capabilities.

The author even thinks that a relatively low-frequency consumption scenario such as online drug purchase may only be part of the business of giants.

3. Health management: the model is swaying, and the payment terminal is hard to find

Non-giants need to find a way out, but giants also have the intention to make the closed loop of Internet medical care more complete through new stories such as family doctors. In short, everyone is invariably working hard on health management . After all, the service business not only has more stable income, but also can significantly improve user stickiness.

Online consultation is the first well-known model. Doctors diagnose and treat patients online, and issue medication recommendations or prescriptions. Domestic pioneers such as Dr. Chunyu have been online for more than ten years, but their performance can be said to be unsatisfactory. After all, a large part of the high added value of the medical industry is reflected in the face-to-face interaction between doctors and patients. The effect of online interaction is greatly reduced, and it is difficult to obtain the true trust of patients . If it’s free, it’s okay for users to ask, but it’s almost impossible to make C-side payments cover all costs. Therefore, many Internet medical platforms generally only use it as a means of diversion, paying less attention to consultation and paying more attention to follow-up goods or services.

China Chronic Disease Management Market Source: Frost & Sullivan, Dongxing Securities Research Institute

The chronic disease business is a feasible way. The author is in “Insulin Centralized Procurement Landing! Honey for patients, arsenic for manufacturers? As mentioned in the article, the number of diabetic patients in my country is huge, in fact, the group of other chronic diseases in the third and higher grades is also not small. According to the Frost & Sullivan report, China’s chronic disease health care expenditure is expected to increase from 4.1 trillion yuan in 2020 to 12.5 trillion yuan in 2030, which is a huge amount. These patients who need to take long-term medication and are often inconvenient to prescribe offline are ideal Internet medical audiences. If daily monitoring, diagnosis and treatment refills, drug purchase, and payment can be completed online, it will be a good thing for both doctors and patients, especially in the past few years when it was difficult to see a doctor under the epidemic, the significance was even more prominent. This is also the path that many Internet medical platforms aim at. For diabetes management alone, dozens of APPs have gathered, which is known as the “Battle of Sugar”. Zhiyun Health, which emerged from this fierce battle, also went public this year under the name of “the first stock in chronic disease management”. Let’s not list the blueprint of the vision in the “Prospectus”. Let’s take a closer look at the revenue classification . …Hey, I still sell medicines anyway.

Zhiyun Health’s revenue by products and services (unit: RMB million) Source: Company information, Zhongtai International Research Department

Not only the source of income has no new ideas, but the loss has not been significantly narrowed, which is also blamed on its ridiculously high period expenses .

Zhiyun Health’s sales expenses (100 million yuan) and sales expense ratio (%) Source: Prospectus, Industrial Securities Economics and Finance Research Institute

The root cause of the difficulty of service business models is that China’s Internet medical care has never had a stable payment terminal . The value of health management can actually fall on the word ” cost control “. Through daily disease monitoring and health intervention, reducing future medical expenditures is a bit of the meaning of “preventive disease treatment ” (prevention/treatment of diseases that have not occurred) in traditional Chinese medicine. Therefore, in some western countries where private medical care and commercial insurance are widely covered, commercial insurance is the main payer, after all, it saves them money. However, domestic public hospitals and medical insurance are the absolute biggest players. If you can’t pry it, it is difficult to expect the C-end to pay.

Since commercial insurance is mentioned, is Ping An Good Doctor, who is backed by the Ping An Department, blessed? In fact, a large part of Ping An Good Doctor’s income does depend on transfer payments from the Ping An department . However, the financial report shows that its total revenue in 2021 is 7.334 billion yuan, a year-on-year increase of 6.8%, but its net loss has increased by 62.2% year-on-year to 1.538 billion yuan. In 2022H1, the revenue was -25.94% year-on-year, and the loss narrowed by half year-on-year. In short, the operating performance is unstable , the profitability is still far away, and it is also very dependent on the commodity business such as the health mall. Since 2021Q4, Ping An Health has shouted the slogan of Strategy 2.0, which is to shift from 2C to 2B, and to do more corporate health management business. It is natural to tell the story of the B-side when the performance has not improved in successive years , but was born with a golden key and has been running for so many years, and in the end, it is still transforming to find a profit model.

Writing here, the author can’t help but want to sigh: Internet medical care is really difficult to do.

Many players such as WeDoctor are already in the stage of submitting a prospectus or preparing to go public. The business may look diverse, but it is always impossible to escape the dilemma of making a living with the money raised, and it is impossible to see where the break-even is .

4. Where is the road?

Looking at the development of Internet medical care, although over 10 billion US dollars have been raised, we have not even seen any sustainable business model with “money” except for the giant pharmaceutical e- commerce. How can we return to the essence of serious medical care, and truly dig out value for patients and other parties beyond the trick of burning money for data? This is a puzzle that every player has to try to answer.

In the author’s opinion, the way to redemption is to open up the public system and deeply connect medical insurance. It is impossible not to be a brick in the “three-medical linkage”, otherwise, in addition to earning the difference in commodity prices, the success of other business cakes will be nothing but a flower in the mirror and the moon in the water.

After all, what we expect from Internet medical care is far more than selling medicines .

Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm without buying and selling.