The ups and downs and struggles of China's first generation of Internet medical "unicorns".

In 2000, the medical website represented by Lilac Garden quietly emerged, and if this is regarded as the beginning of the Internet medical industry in mainland China, it has gone through more than 20 years. Before 2015, the first stage of development was the Internet medical treatment, which mainly moved some information from offline entities to the Internet.

It was also during this period that a number of Internet medical companies full of dreams emerged, such as Good Doctor Online, which was founded in 2006, 1Yao.com, which was established in 2010, KangAiduo, which was launched in 2011, and Jianke.com, which was founded in 2006...... Most of these companies later became unicorns, and some eventually successfully landed on the capital market.

However, Internet + medical care has its own particularity, and medical consumption behavior is a low-frequency behavior, and it cannot be induced artificially. In addition, the entire medical process is long and fragmented, and it is difficult to meet the interests and demands of multiple parties in one way. In this context, the road to commercialization of Internet medical enterprises is becoming more and more difficult.

Around 2015, Internet medical treatment was divided into two camps: "medicine" and "medicine", one is the start-up companies with the core of continuous polishing of medical services and exploring the closed loop of business, such as Good Doctor Online, WeDoctor, and Chunyu, and the other is the platforms with pharmaceutical e-commerce business as the main source of income, such as JD Health, Ping An Good Doctor, and Ali Health.

Most companies still have to rely on online malls to sell drugs to achieve profitability, and the Internet medical care driven by the two-wheel drive of "medicine" and "medicine" cannot move forward stably now, and the business model has become a pain point in the industry. In fact, in the traditional Internet track, more than ten years is enough for an enterprise to complete the full cycle from establishment to the formation of a closed business loop, but this is not the case with Internet medicine.

Nowadays, a number of pioneer companies have little vigor and show their development fatigue: Good Doctor has been exposed to layoffs and slimming down many times, and then fell into rumors of being acquired; 1Yao.com, the first stock of Chinese Internet pharmaceutical companies to be listed in the United States, has launched a delisting plan; Kang Aiduo, the former star pharmaceutical e-commerce company, is on the edge of the cliff; and Dr. Chunyu has also fallen silent after the highlight.

"This industry used to be matured by capital, but healthcare is a relatively long-term business model and cannot be matured by capital in the short term. Zhao Heng, founder of Latitude Health, a medical strategy consulting company, told the 21st Century Business Herald reporter that the entire market is not actually unable to operate, but the original valuation is too high, and the current valuation is only returning to normal, so the entire capital market now looks bleak.

图片来源：IC photo

Running wild: The world of capital sings all the way

The medical industry has been moving forward with advanced science and technology at the same frequency and in sync. However, there is always the business sensitivity and entrepreneurial passion of entrepreneurs.

In 2006, Wang Hang, who had the experience of being hindered from seeing a doctor, officially entered the Internet medical industry. At that time, Wang Hang led the start-up team to run major hospitals to copy information by hand every day, build a database of doctors, and launch a doctor review and voting system, with registration and consultation as the main business model.

At the end of the year, there were already 50,000 doctors on the online page, and the first 500 reviews of doctors on the website were all real information obtained by the start-up team after communicating with patients.

At the beginning of the business, Good Doctor Online was favored by capital with its unique advantages. In 2007, Lei Jun and Lianchuang Capital's 3 million angel investment helped the team expand to more than 20 people, and this year, the number of online doctor information reached 250,000.

Wang Hang believes that compared with peers, the advantage of good doctor lies in the number of doctors, which does not refer to the number of registrations, but the doctors really work on the platform and produce a batch of high-quality medical services.

In the following years, Gooddoctor Online went through multiple rounds of financing, raising more than $260 million in total, the largest of which came from the Series D financing led by Tencent in 2017, with a total amount of $200 million.

In 2013, the online APP was launched, and the scale of users expanded rapidly, in 2016, the pilot of online diagnosis and treatment was started in Yinchuan and a smart Internet hospital was established, in 2017, the first remote expert outpatient clinic was created to help hierarchical diagnosis and treatment, and in 2018, the doctor team diagnosis and treatment model was launched, and family doctors were launched to help medical resources sink.

As one of the first batch of Internet medical companies, Good Doctor Online has not chosen to go public. In this regard, Wang Hang said that this industry has just begun, and it is not yet time to go public. They are unwilling to drag semi-finished products and step on high valuation losses to go public, and Good Doctor Online will only consider listing after achieving self-hematopoiesis.

However, there is more than one way to tell the story of capital, and 1Yao.com has explored another path for the development of Internet medical enterprises.

Although in 2005, the drug regulatory department issued the first online pharmacy qualification certificate in China, in fact, for a long time, the emergence of Internet medical companies are the mode of consultation and consultation. In 2010, 1 Yao.com was born as a sub-channel of No. 1 store, and two years later, No. 1 Yao.com became independent from No. 1 store, and "selling medicine" became a front-stage business.

During the period of 2010~2015, 1Yao.com became a pharmaceutical e-commerce company with a scale of 1 billion yuan by virtue of the B2C model. Since then, under the leadership of Yu Gang and Liu Junling, 1 Pharmaceutical Network has rapidly expanded its business scope, launching the Internet hospital "1 Diagnosis" in 2016 and "1 Pharmaceutical City" in 2017, a B2B platform for pharmacies to purchase and wholesale.

In September 2018, 1Yao.com successfully landed on the NASDAQ in the United States, becoming the first Chinese Internet medicine to be listed in the United States. Today, within 6 years of listing, 1 Pharmaceutical Network has achieved a 16-fold increase in revenue scale, from 959 million yuan in 2017 to 14.9 billion yuan in 2023.

KangAiduo, which was also founded in 2010, chooses to purchase drugs from the source of pharmaceutical companies, cut off the middle 2~3 circulation links, and sell them directly to patients, so the low price is one of its major advantages. In August 2011, KangAiduo was officially launched, and the founder Wang Yanxiong attached great importance to technology and operation, and in the early days, KangAiduo's team of 400 people accounted for 100 people.

In the year of its launch, KangAiduo was invited to settle in Taobao Mall Pharmacy. Relevant data show that in the four years from 2012 to 2015, KangAiduo won the sales championship of the pharmacy 3 times, and only ranked second in 2014.

Also in 2014, the listed company Tai'an Tang purchased all the shares of KangAiduo at a price of 350 million yuan, and KangAiduo expanded its business to the four major fields of reproduction, dermatology, pediatrics and tumor in addition to liver disease, ushering in a new development situation.

The 21st Century Business Herald reporter noticed that in September 2017, KangAiduo was also on the list of e-commerce demonstration enterprises of the Ministry of Commerce in 2017~2018.

It can be said that taking advantage of the rapid development of China's Internet industry, the first generation of Internet medical companies have also quickly become unicorns and become frequent visitors to major lists at that stage.

Dilemma: The problem of commercialization that cannot be escaped

The situation is very good. However, returning to the industry itself, medical services are a business with high investment, long return cycle and high complexity, Wang Hang has persuaded many investors to quit, and finally those who stay can understand the characteristics and fundamentals of the industry.

In contrast, pharmaceutical retail can achieve commercialization faster, and pharmaceutical e-commerce has become a common path for Internet medical companies to achieve hematopoietic function. Especially after the state promulgated the Measures for the Supervision and Administration of Internet Food and Drug Business in 2014 (draft for comments), substantial breakthroughs have been made in the entry threshold, logistics and distribution conditions, and online sales of prescription drugs, and the door of the industry has been completely opened.

In 2016, Internet giants such as Alibaba and JD.com successively entered the field of pharmaceutical online retail, gradually recovering the traffic that was originally directed to vertical e-commerce into their own hands.

After years of development, Alibaba Health and JD Health have achieved profitability by virtue of their traffic and technological advantages. According to Ali Health's financial report, as of the 2023 interim report, Ali Health's total operating income is 12.956 billion yuan and net profit is 446 million yuan, while JD Health's financial report shows that JD Health's revenue in 2023 will be 53.5 billion, an increase of 15% year-on-year, and an adjusted net profit of 4.1 billion.

However, this is one of the few profitable companies among the listed Internet medical companies, and its business model is what many people criticize as "it is called medical treatment, but it actually sells medicine".

Wang Wenhua, partner of CIC Insight Consulting, told the 21st Century Business Herald reporter that compared with some mature foreign Internet medical companies, some enterprises in mainland China have not yet formed a stable and mature profit model, and are still in the exploration stage.

For example, Teladoc Health, a successful overseas Internet medical company, has a subscription-based business model that is mainly aimed at employers, insurance companies and individuals. Online pharmacies such as NowRx and Alto Pharmacy offer same-day home delivery and work with health insurers to provide patients with easy access to medicines.

In the mainland, unlike Ali Health and JD Health, which rely on large platforms, more Internet medical companies are actually struggling to move forward.

According to public information, at the beginning of the listing, the issue price of 1Yao.com was US$14 per share (ADS), and on the first day of listing, it fell below the issue price, and since then it has been lower than the issue price for a long time. As of the close of the U.S. stock market on April 19, 2024, 1Yao.com closed at $1.02 per share, a cumulative decline of 92.71% from its IPO issue price. Based on the closing price, the total market capitalization of 1Yao.com is only $85.67 million.

It is worth mentioning that the market capitalization of 1Yaowang was US$1.16 billion when it was listed, and on February 11, 2021, the stock price of 1Yaowang once rose to US$45.88 per share, corresponding to a market value of US$3.802 billion, a record high.

The 21st Century Business Herald reporter flipped through its financial report and found that although the revenue of 1 drug network has achieved rapid growth, it is still continuing to lose, and from fiscal year 2019 to fiscal year 2023, the net profit attributable to the parent company of 1 drug network in five years is -500 million yuan, -457 million yuan, -670 million yuan, -417 million yuan, and -392 million yuan respectively.

For KangAiduo, which is not listed, the situation is also not optimistic. The reporter found that the Kangaiduo APP could no longer be searched in the mobile app store, and after downloading the "Kangaiduo Handheld Pharmacy" APP through web search, it was found that it could no longer be used normally, and the opening screen time was displayed as "2021".

In other words, the KangAiduo app has not been updated since 2021. After searching through the web and finding the official website of "Kangaiduo Health Mall" from many advertisements, I found that it was opened on the PC side but typeset for the mobile terminal, and there was no special web version. The reporter also asked the customer service for verification, at present, there is no special APP on the Kangai platform, and there is only an official website for mobile typesetting.

According to public information, from 2019 to 2020, KangAiduo was sold by its parent company Tai'an Tang 5 times, and exchanged 5.15% of the equity for 130 million yuan. KangAiduo's financial report shows that in 2021, KangAiduo began to lose money, but according to the investigation of the securities regulatory department, KangAiduo inflated its inventory and profits in 2018~2021 by reducing carry-over costs and underwriting expenses, with an annual amount of as little as 60 million and as much as hundreds of millions of yuan. According to this calculation, Kang Aiduo has been unable to make ends meet since 2018, and by 2021, the annual loss has reached nearly 250 million yuan.

A few days ago, the pre-reorganization of Tai'an Tang (*ST Tai'an) was terminated, the stock is facing the risk of delisting, and the future of Kang Aiduo, a former pharmaceutical e-commerce star company, is uncertain.

In the process of commercialization of Internet medical enterprises, Good Doctor Online has always been a special existence. Over the years, Good Doctor Online has adhered to the "three no-do" strategy, that is, not to earn drug profits, not to build its own offline hospitals, not to do medical advertising business, and to rely solely on medical services to pay.

There are some details that are also worth paying attention to, and the reporter noticed that the Good Doctor Online APP is currently one of the few online medical platforms without opening screen ads.

"By combing the profitability of Internet medical enterprises in mainland China, it can be seen that the main business models of profitable enterprises include pharmaceutical e-commerce, service revenue, Internet hospitals, technology output and platform sharing, O2O model and B2B model. Wang Wenhua said that the business model of loss-making Internet medical enterprises includes online consultation platforms, because of the limited policy, the platform cannot issue prescriptions, resulting in low user stickiness and low customer orders under the light consultation that only provides some information consulting services, and ultimately cannot achieve corporate profitability.

Under the "three don'ts" strategy, how to make a profit has become a problem that Wang Hang needs to think about, and he once joked that he is often tortured by investors to the point of "out-of-body".

Resistance: An attempt at change in silence

In the first few years of the establishment of Good Doctor, Wang Hang did not consider the issue of commercialization, and the team focused on improving the quality of service, which laid a solid foundation for the later good reputation, but also laid hidden dangers for its sustainable development.

In fact, after getting the C round of financing in 2015, Good Doctor Online has been regarded as the leader of Internet medicine. Until now, despite the fierce competition, the use rate of the Good Doctor online platform among doctors is still in the first echelon. According to the research of relevant institutions, the usage rate of the online platform of Good Doctor exceeds 30% among the various online consultation platforms. In contrast, in the face of different platforms, the proportion of chief doctors who often use good doctors online is higher.

However, in the face of the problem of profitability, how to develop sustainably is an urgent problem to be solved. Good Doctor Online has been exposed to layoffs many times. As early as 2016, Good Doctor Online was exposed by the media to lay off 50% of its staff, and Wang Hang refuted the rumors at the time that it was not a layoff, but a team adjusted to the structure of an online hospital, with department reorganization and personnel in and out.

At the end of 2022, a "Letter to All Employees" issued by Wang Hang was circulated in the industry, which pointed out that Good Doctor Online is about to undergo strategic and organizational structure adjustment, and the specific direction is to transform from focusing on production and research in the entrepreneurial period to market development. Wang Hang hopes that the company can get rid of its dependence on financing and become self-financing.

After the completion of the adjustment, Good Doctor Online achieved breakeven in the first quarter of 2023, due to the decrease in labor costs on the one hand, and the increase in revenue on the other hand, mainly due to platform service fees, membership services, and follow-up service packages for physicians. Subsequently, Wang Hang said in an interview with the media in mid-May that compared with the production and research stage in previous years, this year, Good Doctor has officially entered the commercialization stage.

However, less than a month after this interview, Wang Hang issued the "Company Update" within the company on June 8, pointing out that since a series of business adjustments began in December 2022, the company's loss situation has improved rapidly, but in the face of huge pressure from shareholders to withdraw capital and demand redemption, the adjustment plan has not met expectations.

In August of the same year, it was reported that a major Internet company wanted to acquire Good Doctor Online, and an offer has been given.

In April this year, it was reported that Ali Health was negotiating with Good Doctor online about the acquisition, and the two sides had made substantial breakthroughs in negotiations on some key issues. Both sides denied this at the first time, but this does not rule out the possibility of cooperation between the two sides in the future.

In the turbulent changes, acquisitions and acquisitions, equity sales and acquisitions tell too many twists and turns.

In 2021, Tai'an Tang sold 47.35% of the equity of KangAiduo to Chengdu Yiyun Technology Co., Ltd. for 748 million yuan. However, after Chengdu Yiyun paid 60% of the total benchmark transfer price, that is, 449 million yuan, the transaction was unexpectedly stopped.

On the evening of January 27, 2022, Tai'antang announced that according to the "Equity Transfer Agreement" and its supplementary agreement signed between the company and Chengdu Yiyun, there is a risk that the major asset sale will be terminated. Relevant information shows that the industrial and commercial information of KangAiduo has also changed before, and Wang Shirui, the founder of Chengdu Yiyun, has withdrawn from the board of directors of KangAiduo and no longer serves as the company's legal representative.

The 1 drug network, which has the halo of "the first stock of China's Internet medicine and health industry to be listed in the United States", has already launched a delisting plan. In September 2022, Yu Gang, Liu Junling and Shanghai Guosheng Capital Management Co., Ltd. initiated a preliminary non-binding proposal letter proposing to acquire all of the Company's outstanding Class A common stock in a private transaction, after which the Company will be delisted from NASDAQ.

On the other hand, 1 drug network has also started to work back to A. In December 2020, the Shanghai Regulatory Bureau of the China Securities Regulatory Commission announced that OneYao.com Technology (Shanghai) Co., Ltd. has entered the stage of A-share listing counseling and filing, and OneYao.com is the main business entity of OneYao.com in China.

Taking fiscal year 2023 as an example, the total cost of 1 drug network including depreciation and amortization expenses was 14.099 billion yuan, a year-on-year increase of 11.22%, and in fiscal year 2020, the cost increased by 106.96% year-on-year.

Regarding the increase in costs, 1 Pharmaceutical Network also explained in its financial report that due to the increase in the number of sales personnel and the expansion of B2B business, related expenses have increased. In fact, it is also reflected in the revenue composition, in the year of listing, the B2C business revenue of 1 drug network was 862 million yuan, accounting for 89.9%, with the entry of giants such as Ali and Jingdong and the adjustment of the company's own strategy, today, the main business of 1 drug network has turned to B2B, and the 2022 financial report shows that the B2B business revenue reached 12.995 billion yuan, accounting for 96.14%.

"In fact, for specific operations, as long as companies are willing to cut costs, I think basically they will eventually tend to be profitable, and this market will become a relatively normal market, and everyone will be profitable companies, so they don't need to rely on capital to operate. Zhao Heng said.

Focus: "Must-answer questions" in the changing world

Although most Internet medical companies are moving forward with heavy burdens, the development of the industry still has great potential in the future, especially after the baptism of the new crown epidemic, the rapid increase in market acceptance, and the further acceleration of the development of the Internet medical industry.

On April 8, according to data from Minenet, the scale of China's online pharmacy terminal drug market has shown a rapid growth trend in recent years, with sales exceeding 60 billion yuan in 2023, a year-on-year increase of 28.46%, and continuous double-digit growth.

In addition, in terms of user scale, according to the 53rd Statistical Report on the Development of China's Internet Network, as of December 2023, the number of Internet medical users in mainland China reached 414 million, an increase of 51.39 million from December 2022, accounting for 37.9% of the total number of Internet users.

From the perspective of market size, the data of the "2019-2024 Internet + Medical Market Prospect Research Report" released by the China Business Industry Research Institute shows that the market size of China's Internet medical industry will reach 309.9 billion yuan in 2022, a year-on-year increase of 39%. Analysts at the China Business Industry Research Institute predict that the market size of the mainland's Internet medical industry will increase to 419 billion yuan in 2024.

After 20 years of development, especially since 2019, the state has intensively introduced new policies, and the policy barriers restricting the development of Internet medical care have been continuously eliminated, and with the blessing of medical insurance, the basic closed-loop service system of "medicine", "medicine" and "insurance" has been accelerated, and the Internet + medical and health industry has entered the fast lane of high-quality development.

However, in Wang Wenhua's view, there are still many pain points to be solved in the commercialization of Internet medicine. First of all, the ability to integrate the industrial chain determines the business model that Internet medical enterprises can ultimately achieve. The integration of the industrial chain refers to the integration of industrial chain resources such as medical services, pharmaceutical circulation, and medical insurance to create a closed-loop service system. Different Internet medical companies have very different genes to enter this field, and only by integrating resources based on their own superior resources can they achieve revenue growth and profitability.

Second, enterprises need to explore diversified service models, such as combining the online advantages of the Internet with offline services, and providing personalized health management solutions, so as to increase revenue sources.

In addition, in terms of market education, it is necessary to improve the market's awareness and acceptance of Internet medicine, improve the retention and conversion of traffic, and gradually cultivate the habit of users using tools through the Internet through the continuous accumulation of user precipitation and the penetration of user behavior.

In the face of the new situation and new stage, these former unicorn companies are still trying to explore changes and find a way to break through.

Wang Hang believes that compared with surgeons, the group of internal medicine doctors is larger and the dependence on offline equipment is relatively small. Third-party platforms should promote the improvement of medical quality by providing considerable income, efficient and intelligent tools, etc.

In addition, Good Doctor Online also further focuses on the grassroots, Wang Hang believes that the most anticipated direction of Internet medical care is the grassroots, and the county hospital and the hospital at the doorstep are the first places where people will go when they are sick. As for the future map of Internet medical services, Wang Hang said that it will be composed of three parts: online services, on-site services and medical home-based services.

In recent years, with the penetration and application of a new generation of information technology such as 5G, big data, and artificial intelligence in the medical industry, the Internet medical industry in mainland China has also ushered in new development.

According to its 2023 financial report, 4 new invention patents were added throughout the year, and the cumulative number of patents reached 23. In addition, 1Yao.com also reshapes the marketing, trading, warehousing, and fulfillment links in the pharmaceutical industry chain through the advantages of digital technology and online and offline integrated intelligent supply chain.

A few days ago, Ark Jianke, which hit the Hong Kong stock IPO again, is also using technology to enhance its core advantages. It is understood that on the basis of Jianke.com, Ark Jianke Group was established in 2015, committed to providing users with digital chronic disease services, and from 2015 to 2019, Ark Jianke has completed 3 rounds of financing.

Last year, Ark Jianke began to cooperate with Baidu Intelligent Cloud, Tencent Cloud, etc., and strive to deepen AIGC into the medical and health industry. In September last year, Ark Health released a large health model, hoping to use digital technology to transform chronic disease management.

"In fact, compared with foreign Internet medical enterprises, mainland enterprises have unique advantages, such as the rapid development of technology, China's rapid development in mobile Internet, big data, AI and other technical fields, which can provide Internet medical enterprises with technical foundation and innovation empowerment. The huge market and policy support are also the advantages of the general environment for the development of Internet medical enterprises. Wang Wenhua said.

To this day, although Haodafu Online is facing great pressure to survive, it still adheres to its idealism;1Yao.com is on the verge of delisting, but it has also launched a plan back to A;It is still unknown whether KangAiduo can be reborn;Some companies have embarked on the road to IPO despite not making profits.

Wait for the next 20 years to listen to them answer the questions of the industry and the times.

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