Image source @ Visual China
| Titanium Capital Research Institute
With the progress of science and technology and the development of the Internet, the process of informatization and digitization in various industries in society is advancing rapidly, and smart medical care, as an important field, is being transformed by big data, artificial intelligence and other technologies. In recent years, the State Council has continuously issued documents to promote the high-quality development of public hospitals, of which smart medical care is an important starting point.
How do we understand the current policy situation? How can information technology empower the healthcare industry? What investment opportunities are available on the track? Recently, Titanium Capital Investment Research Institute invited Xu Jiawen, vice president of Zhilin Capital Investment, to share the theme of "Smart Medical Care under the Great Changes of the Past Century".
Ms. Xu holds a bachelor's degree from Shanghai Jiao Tong University and is responsible for the investment of Zhilin Capital to B. Zhilin Capital focuses on early-stage scientific and technological innovation industries, next-generation TMT hard technology, industrial technology applications and other fields, and has so far invested in black sesame intelligence (AI automatic driving chip), One Pharmaceutical Network (NASDAQ listed), Collin Brinbury (hospital data middle office), Liudu Renren (SCRM enterprise services) and other enterprises.
01 Review the tide of Internet medical listing
In 2021, Internet Medical experienced a wave of listings, and many companies submitted prospectuses and successfully listed, such as Yidu Technology and Yimaitong, which were listed on January 15 and July 15, respectively; in addition, WeDoctor, Dingdang Fast Medicine, and Yuanxin Technology submitted prospectuses. The implementation of the registration system makes the listing of enterprises no longer the end point; whether the value can be made high after the listing and truly bring value to China's medical care is the last word for sustainable development.
The chart below lists the revenue and net loss of several listed companies. WeDoctor's revenue in 2020 was 1.8 billion yuan and a net loss of 800 million; Dingdang Health's revenue was 2.2 billion yuan, with a net loss of nearly 1 billion; and Zhiyun Health's revenue was 800 million, with a net loss of 2.8 billion. In addition, there are Sipai Health and Yuanxin Technology, which have different directions, but the commonality is that they are facing huge losses.
How to ensure that Internet medical companies can sustainably increase their value after listing and solve the problem of huge losses? In this regard, we put forward three concerns: first, pay attention to data to open up, use data to reshape the service chain; second, pay attention to the in-depth reform of public hospitals; third, pay attention to drug circulation.
02 Macro issues in healthcare investment
Let's start with a few macro questions:
First, in the next 10-20 years, will "medical informatization" be the priority object of national policy?
Second, under the general framework, if the finance is weakened, how much impact will it have on medical informatization?
Third, how should the increase brought by new infrastructure be quantified? How big is the impact of covid-19 on macro investment in healthcare?
Most of the macro level involves national policies, the meso level involves the size of the industry's track, the pattern of competition, growth, revenue, equity, etc., and the micro level involves how companies can open up data, reshape the service chain in medical treatment, help public hospitals to carry out in-depth reform, and play a key role in drug circulation.
If you can predict macro trends in advance, you can grasp the most relevant investment opportunities. To give a few examples: First, the real estate-related service industry, since 2015, the real estate industry has been carrying out supply-side reform, the core point is to control the house price holding city. This policy vein is very obvious, real estate revenue is narrowing, and its related upstream and downstream are also facing greater challenges.
The second is Alibaba, Tencent, Meituan and other enterprises. These companies operate the universal demand of the 1.4 billion single market, and enjoy the demographic dividend, per capita GDP growth dividend, institutional innovation and technology dividend in the big track. These are the major factors that make up economic growth, and they can also be predicted.
The third is off-campus discipline education and private hospitals. The investment opportunities can also be predicted in advance. China's Gini coefficient in 2019 has reached 0.47, and the income gap is relatively large. The Central Economic Commission has set out the goal of common prosperity, including a third distribution of wealth, preventing and resisting various risks, and eliminating the gap between the rich and the poor. These are trends that can be predicted in advance.
The fourth is integrated circuits, new energy vehicles, carbon neutrality, and domestic substitution. In 2015, the integrated circuit surpassed crude oil and refined oil for the first time, becoming the largest imported product in the mainland and still maintaining the first place.
In the table shown in the figure below, the red line represents the integrated circuit, and its import value has soared from more than 200 billion in 2013 to more than 330 billion US dollars in 2019. Among them, 2015 is a key point, the import volume of integrated circuits exceeds that of crude oil, and it is becoming more and more unmanageable.
In fact, if we look at the macro situation, we will find that the policy is consistent, which can help us identify opportunity points and strengthen investment beliefs.
Let's look at three questions at the macro level.
First, in the next 10-20 years, will medical informatization be the highlight? This depends on our understanding of the country's historical mission for the next decade.
After World War II, the world's technical discourse power shifted from Britain and Germany to the United States, and the financial discourse power was also controlled by the United States. China needs to take these two points as the main starting point. If China is likened to a high-speed train, the key problem is not the slow GDP growth, but the stagnation of overall growth. High-speed rail can be slow, but it cannot be stopped, and from this point of view, medical care is the top priority in the risk of people's livelihood.
The mainland's economic development is "stable" at the forefront, paying attention to the efficiency and fairness of handling, in order to prevent the intensification of social contradictions, medical care must ensure the maintenance of class stability and social stability. Under the premise that China's GDP is so large, medical care needs to be cautiously developed and there can be no directional errors. To sum up, medical care must be the direction of national attention in the future.
The second question is which macro risk points will affect smart healthcare?
To answer this question, we must first clarify two premises. First, why has China's economic growth sustained? Second, what potential risk points need to be paid attention to?
There are several factors that promote China's economic growth: first, there is no problem with the driving force of China's economic growth; second, the market is large enough; third, China's industrial categories are complete; fourth, transportation is convenient; fifth, the top level has not changed the general trend of reform and opening up.
In summary, China's economy is in a period of adjustment rather than recession, and the superposition of various factors has led to an economic slowdown. In this regard, the national decision-making level is not unprepared, but consciously adjusts. Therefore, we believe that the fundamentals for the future are good.
At the same time, if the finances weaken, the investment in medical IT will not fall but rise. There are two major italias for hospitals, hospital informatization and public health informatization. In the future, these two points will not shrink, and will develop rapidly. There are several reasons for this:
First, the epidemic has promoted the introduction of a large number of policies and strengthened the expenditure of hospital informatization. The hospital is the most unique big B I have ever seen, it is well-funded, there is a demand for informatization, and there is no scale advantage and price reduction between the hospital and the hospital. The informatization construction of the hospital mainly relies on the hospital's own funds. Taking public hospitals as an example, the proportion of informatization investment in public hospitals in the mainland accounts for 1.3% of total revenue, and a third-class hospital with an income of 5 billion yuan basically has 50 million to 100 million yuan of funds invested in information upgrading every year. In addition, the income of public hospitals is mainly medical income, and the impact of financial subsidies on the overall income of hospitals is relatively small, accounting for only about 10%.
Second, all regions are strengthening medical funds to support public health informatization. After the epidemic, provinces and cities have increased funds to supplement public health shortcomings. At present, the "14th Five-Year Plan" medical related plans of various provinces and cities and the plans for promoting the high-quality development of public hospitals are being introduced and landed.
So, how much incremental is the new infrastructure? What are the macro impacts of the epidemic on medical care?
The new infrastructure in the 14th Five-Year Plan has brought new additions to the entire hospital market, which is equivalent to the construction of 1230 new tertiary hospitals, an increase of 1/3.
Large-scale public events inspire two kinds of investment: The first is government spending on public health. Before SARS in 2003, the state's expenditure on public health care accounted for 17% of the total government expenditure, and after SARS, a large number of hospitals were expanded and renovated, and the expenditure doubled. After the new crown, the country's medical improvement will also be great. At present, the proportion of China's medical expenditure to GDP is in the single digits, and there is still a lot of room for improvement. The second is the investment of secondary market capital. Many medical companies are in the process of listing, but whether the stock price can continue to rise after listing requires the joint efforts of the industry.
03 Micro issues in healthcare investment
Next, we focus on three micro-issues at the medical level.
First, data is connected and the service chain is reshaped with data. The core reason for the serious loss of listed medical companies is that the medical industry chain is very long, the dependence on medical insurance payment methods is very strong, and the regional isolation of the market is very strong. In such a market environment, market expansion is bound to pay a higher cost than other industries.
The fragmentation of The service chain of China's healthcare system itself restricts the likelihood of success of investment. On the one hand, every chain in medical treatment is fragmented, and participants can only cut through one chain and cannot take care of other links. The payer only pays attention to the diagnosis and treatment of this one link, and the two steps before and after the diagnosis are online and are not paid attention to by traditional hospitals, resulting in the overall rupture of the medical service chain. Doctors, on the other hand, derive their income mainly from products. Services outside of the product, such as follow-up visits, from which doctors cannot derive financial benefits are at the root of the problem.
For a long time, the environment of China's medical care has always been strong for service providers and weak for payers. Public hospitals develop according to their own needs, implement the most profitable part of the existing system, and weaken the part that cannot make money. The purpose of medical reform is to reverse this situation, reshape the service chain for the payer, and establish a strong and reasonable system for the payer. Taking Collin Brinbury as an example, it helps tertiary hospitals to establish a clinical data center, operate a data center, a scientific research data center, open up various electronic medical records and internal data, help patients provide more complete services, and finally meet the requirements of cost control.
Second, pay attention to the reform of public hospitals. Public hospital reforms have been proposed for many years, but have not been successful. At the heart of health care reform is helping public hospitals reinvent their service systems. Since in China, medical insurance and hospitals are controlled by the government, medical reform has two aspects: on the one hand, to increase the payment rules and strengthen supervision of medical services by payers; on the other hand, to empower the public medical system, reduce costs and increase efficiency.
There are two areas of concern for the reform of public hospitals, the first is the data center. Taking ColinBray as an example, it helps tertiary hospitals establish data modules in view of the fact that China's medical insurance regulatory system is relatively extensive and lacks refined tool management, and promotes the institutional adjustment and service market reform of public hospitals.
The second is to help public hospitals build smart hospitals. Taking Quality Healthcare as an example, it allows patients to not only register online, but also see all the previous electronic medical records, and open up cross-hospital and cross-department data. At present, the company has covered 30 provinces, developed more than 500 tertiary hospitals, more than 130 medical associations, a total of more than 3,000 hospitals, and achieved the head position of the smart medical track. We are also very optimistic about this kind of company.
Finally, talking about drug circulation, I pay attention to drug circulation for the following two reasons.
First, there is a great demand for drug circulation. A chronic disease patient has to go to the hospital every month to get the same medicine, even if he is familiar with every corner of the hospital, he still has to queue up for a long time. This is an irrational phenomenon, and the best way to solve this problem is to take the form of prescription outflow or online dispensing with the support of offline pharmacies. From the perspective of patients with chronic diseases, the outflow of prescriptions can solve fundamental problems; from the perspective of supply, the state encourages the outflow of prescriptions and accelerates the circulation of drugs, which can make up for the imbalance between various regions of drugs.
Second, the market for drug circulation is large. The market size of prescription outflow in 2019 is about 200 billion. Retail pharmacies in the U.S. and Japan account for 70 to 80 percent of the prescription drug market, respectively, while we only have a dozen percent, and the gap is very large. There is huge room for the Chinese market in the future.
To solve the problem of prescription outflow, we can break through from three angles.
The first is the source of the prescription, that is, to guarantee the authenticity of the prescription.
Second, empower capable pharmacies. The outflow of prescription drugs has high requirements for the service capabilities of pharmacies, including category richness, pharmacy scale, location characteristics, supply chain capabilities, service and information capabilities.
The third is the circulation of drugs, including Medicare payments. After the implementation of the medical insurance electronic voucher by the National Medical Insurance Bureau in 2019, this problem has a breakthrough, and most chronic patients in the future can be reimbursed through the pooled account of medical insurance.
interlocution
Q1: From the perspective of the secondary market, the recent fluctuations in the price of medical informatization-related stocks are large, will the investment in the primary market be affected?
A: The secondary market cannot be evaluated simply based on "whether to withdraw in the short term". Exit is also an art, the secondary market is ultimately a free cash flow line opened in the future, we pay attention to its value judgment, not only to see the short-term impact, but to see the impact of long-term planning on the entire medical system. At present, due to the decline in economic growth, many industries will be affected, but medical care is like a risk absorber, there will be a lot of capital influx, so it is difficult to make investment judgments. Since medical insurance and hospitals are in the hands of the national government, it is difficult to reform the entire medical system, and the cycle will be very long, so the short-term fluctuations of the secondary market cannot be used to judge the Chinese medical system market.
Q2: In various provinces, the promotion of "data through" is very different, and when it comes to medical insurance reimbursement, the policies of each province are also different, so it is very difficult to promote. In fact, the country may not have the will to promote data access?
A: It is true that at this stage, it is difficult to do data from the provincial or national level, and it can only start from a single hospital and a medical association. We will firmly invest in some related companies, open up the data middle office from each hospital, put all the data together, and then apply it. It is actually difficult to get through the data from the national level, because now the medical insurance information is scattered in various hospitals, and the data of each individual hospital is the richest.
Q3: What are the investment opportunities in medical informatization in the secondary market?
A: The recently listed AI medical and medical information companies have suffered serious losses. It will take some time for market capitalization to return to its highs. At present, various companies are still trying to break through from the entire long chain and seize some of the ten links, such as drug circulation and diabetes chronic disease management, but other links are still losing money. In the process of pushing from one link to another link, there will generally be a lot of losses, which is the current situation of the secondary market.
Titanium Capital Research Institute observation
From the national level, in 2021, the General Office of the State Council issued the "Opinions on Promoting the High-quality Development of Public Hospitals", promoting the quality improvement of public hospitals from six aspects, such as the new system and new trend of high-quality development of public hospitals, and strengthening the supporting role of informatization.
The construction of smart hospitals can be divided into three parts: electronic medical records, smart services, and smart management. Electronic medical records are one of the performance appraisal indicators of public hospitals. From the experience of the United States, high-level electronic medical records can improve the quality of medical services, so in the field of electronic medical records, there is still a lot of room for development in the future. Smart services and smart management, the mainland issued rating standards in 2019 and 2021 respectively, so that hospital-related construction has a basis. It is foreseeable that electronic medical records will be further interconnected, the data-driven model will promote more personalized and accurate diagnosis and treatment, and the online and mobile of smart hospitals will bring a new medical service model.
In 2021, the scale of domestic smart medical care will reach 125.9 billion yuan, with a compound annual growth rate of 17.4%, and there is still huge room for development in the future. According to McKinsey, the global smart healthcare industry will reach a total of $25.4 billion in 2025, accounting for about 20% of the total value of the global artificial intelligence market.
At present, the players in the track can be divided into three categories, one is the traditional medical device company, such as GE, Philips, Siemens Health and other giants. GE split its healthcare business and focused on digital healthcare applications and solutions, while Philips took medical AI as a breakthrough point to build its own ecological platform, acquire start-ups, and unite ecological partners. Second, technology giants, such as IBM's Watson Health, have acquired a number of medical data companies, and the solutions cover four major areas of medical payment, service provision, government management, and life sciences, and Google, Apple, Microsoft, and Amazon have also been laid out. In China, Alibaba, Tencent, Huawei, Baidu, iFLYTEK and BGI Genomics have also entered the market. Tencent has made breakthroughs in ai medical imaging, AI-assisted diagnosis and treatment, AI motion video analysis, AI pathology analysis and other technologies, and developed innovative solutions such as Internet hospitals, electronic health cards, and medical science popularization. The third is the startup, in recent years, there have been more than 100 medical-focused AI startups launched, investment institutions to increase the weight, the start-up round of financing are in the A round and beyond, which means that the track into the development period, enterprises will accelerate the application for product certification, in the future market competition to gain an advantage.
For hospitals, cooperating with enterprises to build medical informatization channels is the first step, followed by the leap from informatization to intelligence. Hospitals will benefit from digital transformation, with cloud computing, big data, artificial intelligence, Internet of Things and 5G technologies further penetrating into the medical core, making a profound impact in the clinical and scientific research fields, and contributing value in smart management. For medical IT enterprises, while synchronizing the boundaries and capabilities of hospital needs, they are also making efforts to output the overall solution of smart hospitals. In the future, smart medical care will form a win-win pattern of multi-party collaboration.