JD Health, Backed by $830 Million from Hillhouse, Poised to Become the Next Unicorn as JD.com's Market Cap Surpasses $110 Billion

Yesterday (August 18), JD.com’s stock price hit a record high, with its total market capitalization surpassing $110 billion and overtaking Pinduoduo. On the 17th, JD.com released its financial report, showing that in the second quarter, the company achieved net revenue of RMB 201.1 billion, setting a new quarterly record for China’s retail and internet industries and representing a year-on-year increase of 33.8%.

As JD.com’s first financial report since its secondary listing in Hong Kong, its performance in the first half of the year was impressive.Concurrently with this announcement, JD Health, a subsidiary of JD.com previously rumored to be pursuing the fastest possible Hong Kong IPO by the end of this year, signed a final agreement with Hillhouse Capital for the Series B non-redeemable preferred share financing of JD Health.Hillhouse expects the investment amount to exceed $830 million, equivalent to approximately RMB 5.8 billion.

The financial report mentioned that JD.com will remain the controlling shareholder of JD Health after the closing. The closing is expected to be completed in the third quarter of 2020. Last year (2019), in November,JD Health Successfully Completes Series A Preferred Stock Financing, Reaching a Post-Money Valuation of Approximately $7 Billion. As the third “mega-unicorn” created by JD.com, JD Health has been highly anticipated by the market.

As is well known, Hillhouse and JD.com have been close partners in the venture capital and private equity sector for over a decade. Notably, in 2010, Hillhouse made a bold $300 million investment in JD.com, which later yielded tens of billions of dollars in profits, becoming one of founder Zhang Lei’s most iconic investment cases.

A decade later, Hillhouse has established a presence in the fields of biopharmaceuticals, medical devices, healthcare services, and pharmaceutical retail.It has cumulatively invested in over 160 companies, with total investment exceeding RMB 120 billion and the aggregate market capitalization of its portfolio companies surpassing RMB 2.5 trillion. Its every move influences the direction of industry trends.

In the article “A Full Deconstruction of Hillhouse’s RMB 120 Billion in Healthcare Investments: Long-Termism Paves an ‘Extra-Long Snowy Slope’” published by VCBeat on July 30, the firm’s recent strategic layout in the biopharmaceutical sector is comprehensively reviewed.This investment in JD Health undoubtedly reflects Hillhouse’s optimism about the internet healthcare sector and its strategic intent to strengthen its footprint across the entire medical industry chain.

Why Did Hillhouse Invest in JD Health? How Far Has the Chess Game of Healthcare Investment Progressed? What Kind of Medical Future Will Emerge? In response, VCBeat has conducted a comprehensive review to shed light on these questions.

Hillhouse Is Accelerating Its Comprehensive Control Over the Healthcare Investment Landscape.

In the biopharmaceutical sector, Hillhouse has invested in companies such as BeiGene, Hengrui Medicine, Junshi Biosciences, and Innovent Biologics. In the medical device sector, it has backed cardiovascular intervention companies like Venus Medtech and MicroPort, as well as orthopedic companies including AK Medical and Kinetic Medical. In the healthcare services sector, Hillhouse has invested in Aier Eye Hospital, Hygeia Healthcare, and Jinxin Fertility. In the contract research and manufacturing services (CRO/CDMO) sector, Hillhouse has placed bets on Tigermed, Asymchem, and PharmaFrontiers Holdings.

Among them, in the pharmaceutical retail sector, Hillhouse’s industrial company dedicated to strategic investment and operations in the broader healthcare industry—Since late 2017, Gaoji Health has been actively engaging in and consolidating the chain pharmacy market. Over the course of more than two years, Gaoji Health has strategically acquired and integrated over 10,000 brick-and-mortar pharmacies., spanning 21 provinces and municipalities, 70 cities, and 1,000 suppliers across China, leading to a significant increase in market concentration within the Chinese chain pharmacy sector. In 2018, Gaoji Medical’s integrated pharmacies achieved total revenues of RMB 30 billion, establishing it as a leading national pharmaceutical retail platform.

According to public reports, in 2019, Gaoji Medical established a headquarters with over 600 employees and four regional management platforms to optimize its operational and managerial structure. The three-tier management architecture, spanning from the headquarters to regional platforms and then to prefecture-level city subsidiaries, was also nearing completion. In addition, Gaoji Medical assembled a technical team of more than 300 professionals and developed various tools to better manage and serve its affiliated pharmacies.

Unlike the vast majority of financial investors, Gaoji Medical assumes the role of a strategic business partner, focusing on building and refining industry-specific platforms and engaging in long-term operations.Moreover, the founding team of Gaoji Medical largely hails from China’s leading pharmaceutical retail chains and healthcare groups, bringing extensive practical experience in the broader health sector, along with strong operational and investment capabilities.

Just as with the logic of heavily betting on innovative pharmaceutical and medical device companies while pursuing long-term investments, Hillhouse is highly bullish on China’s pharmaceutical retail market.

Currently, the status quo of retail pharmacies in China is characterized as “small, fragmented, and disordered.”, leading the entire market to be driven by retailers’ high gross margins while neglecting consumer needs.It is against this backdrop that the pharmaceutical market presents opportunities for consolidation and optimization.。

On the other hand,As no major capital players have yet entered the pharmaceutical retail market to drive consolidation, which results in pharmaceutical chain companies having relatively low financing frequency and modest scale.Ample Market Opportunities. Not only that,As a major entry point for healthcare demand, chain pharmacies can also expand into businesses such as chronic disease management and pharmacy benefit management.

Chain pharmacies have become a critical component of Hillhouse’s healthcare strategy. Prior to this, however, Hillhouse’s initial step was to establish a large-scale, nationwide chain network. Once this expansive footprint was secured, the next priority became how to integrate operations and leverage the scale advantages of chain pharmacies. Integrating online and offline channels for commercialization presents a viable solution.

This may not be a particularly difficult task for Hillhouse. First, among the numerous companies invested in by Hillhouse are internet giants such as Tencent, JD.com, and Pinduoduo. Second, Gaoji Health itself has an IT team of approximately 300 people, with its team “DNA” deeply imprinted with an internet heritage.

This investment in JD Health may well represent Hillhouse Capital’s deep exploration of this strategic path.

In the healthcare sector, dominated by industry giants, JD.com entered the market relatively late. Although health supplements were the earliest category JD Mall operated in the healthcare space, dating back to 2013, it was not until 2016 that JD.com formally ventured into the medical industry.

Looking at other internet giants, both Tencent and Alibaba entered the healthcare sector in 2014, while Baidu established its Healthcare Division in January 2015. As a latecomer, what did JD Health do right to secure substantial investment from Hillhouse Capital?

May 10, 2019,JD Health Officially Announces Independent Operations. Leveraging the capabilities and resource advantages of JD.com, JD Health is gradually refining its “Internet + Healthcare” industrial layout, building upon its four business segments: pharmaceutical and healthcare e-commerce, internet-based medical services, health services, and smart solutions.To become a premium enterprise in the health industry.

In terms of core products, JD Health primarily offers JD Internet Hospital, JD Pharmacy, “Yaojingcai” (one of the third-party pharmaceutical wholesale platforms), and smart healthcare solutions.

Although it had been independent for only one year, the sudden outbreak of the COVID-19 pandemic this year propelled JD Health into a period of rapid growth, riding the wave of surging demand for internet-based healthcare. According to data disclosed by JD.com, from its launch in late January through April 30, JD Health’s free online consultation service cumulatively served more than 11 million users.

JD Health’s ability to handle such a high volume of consultations stems from its years of accumulation in physician resources.Publicly available data shows that as of April this year, JD Health’s online consultation platform had more than 30,000 registered practicing physicians (including full-time doctors), 62% of whom came from Grade A tertiary hospitals and 80% of whom held the title of attending physician or above.

To expand its coverage to a broader range of diseases, JD Health has been continuously strengthening its strategic layout. In June this year, JD Health launched the Traditional Chinese Medicine (TCM) Consultation Center and the Intelligent Medical Health Service Center for Otorhinolaryngology. Each center has enlisted top-tier experts from across China to provide online consultations and disease management services to patients nationwide. Including these two centers,The online virtual specialty centers within the JD Health app already cover cardiology, mental health and psychology, diabetes, kidney diseases, pediatrics, oncology, obstetrics and gynecology, and other fields.

In the pharmacy sector, JD Pharmacy has established an online-offline integrated, retail-centric omnichannel pharmaceutical distribution network, comprehensively covering scenarios with varying urgency levels for critical, acute, and chronic conditions. Furthermore, JD Pharmacy pioneered the “professional service-oriented pharmaceutical and healthcare retail” model, continuously enhancing drug accessibility and patient adherence.

At the 2019 JD Health Partner Conference, Jin Enlin, General Manager of the Pharmaceutical Division at JD Health, stated that the revenue of JD Pharmacy had surpassed that of the four major retail chains—Yixintang, Laobaixing, Dashenlin, and Yifeng Pharmacy—making it the largest pharmaceutical retail channel in China. JD Health’s retail operations collectively accounted for more than 15% of the national pharmaceutical retail market share. According to JD.com’s Q3 2019 financial report,JD Health Pharmacy is currently the largest online pharmacy in China by revenue.。

On the day of this year’s “6·18 Shopping Festival,” JD Health Pharmacy saw a 270% year-on-year increase in transaction volume for chronic disease medications, a 20-fold increase in the daily average transaction volume of cross-border pharmaceuticals, and a transaction volume for its O2O medication service “JD Express Delivery” that was 492 times higher than the same period last year.

In addition, in the realm of smart healthcare, JD Health has partnered with Peking University Third Hospital to launch “PharmCoo,” an artificial intelligence-powered pharmaceutical knowledge graph. Built upon a pharmaceutical knowledge base and real-world data, and integrating AI technologies such as semantic understanding and machine learning, PharmCoo provides efficient and convenient services for rational drug use and intelligent prescription review to various stakeholders.

According to information disclosed by Xin Lijun, CEO of JD Health, in a media interview in July 2019,JD Health’s annual revenue exceeded RMB 10 billion, and it has already achieved profitability.. Among them,Pharmaceutical retail is the primary revenue driver for JD Health, accounting for over 90% of its total revenue.

The gradual improvement of the “Internet + Healthcare” layout, coupled with strong financial performance, enabled JD Health to rank 35th on the “Suzhou New District · 2020 Hurun Global Unicorn Index” with a valuation of RMB 50 billion on August 4 this year. It also became the youngest unicorn on the Hurun Rich List and attracted significant investment from Hillhouse Capital.

The day after Hillhouse announced its investment in JD Health, JD Health officially launched its family doctor service product, “JD Family Doctor,” on August 18, aiming to establish a model and benchmark for the family doctor industry.

Despite its strong performance, why did Hillhouse Capital specifically choose JD Health among the many players in the internet healthcare sector?

The COVID-19 pandemic this year is the most widespread epidemic humanity has faced in nearly a century, with its evolving situation drawing global attention. The rise of online consultations has also heightened public awareness of internet hospitals and, to some extent, fostered habitual usage. This shift in behavior is primarily reflected in the comprehensive, multi-dimensional growth of data associated with internet healthcare institutions.

For instance, during the pandemic, the Ping An Good Doctor platform recorded 1.11 billion visits, its app’s newly registered users increased tenfold, and the average daily number of consultations by new app users was nine times the usual level. Similarly, Miaoshou Doctors provided free online consultation and health education services to users during the pandemic, serving over 30 million people in total, with approximately 330 million views of content on its health education platform.

The substantial demand has brought about favorable market conditions. According to the special analysis report “Annual Analysis of China’s Internet Healthcare 2020” released by Analysys,Affected by the pandemic, the market size of internet healthcare in China will reach 200 billion yuan in 2020, with a market growth rate of 46.7%, marking the highest growth rate since 2015.。

The internet healthcare industry is accelerating, and Hillhouse Capital has also taken notice of this opportunity. However, a review of major internet healthcare companies reveals that while their service focuses vary, they generally revolve around online consultations, prescription issuance, and medical science popularization, with limited linkage to pharmaceutical distribution. After all,For Hillhouse, establishing comprehensive ecosystem coverage in its healthcare investment portfolio is of paramount importance.

At this time, despite having been spun off only recently, JD Health’s performance during the pandemic remained noteworthy. Moreover, unlike other internet healthcare institutions,JD Health also enjoys the advantages of pharmaceutical e-commerce. Particularly as pharmaceutical retail faces mounting pressure from medical insurance policies, Hillhouse Capital’s investment in JD Health at this juncture is undoubtedly aimed at leveraging its vast online user base and resources to bolster offline operations.

Moreover, for the more than 10,000 physical pharmacies acquired and integrated by Gaoji Medical,Should deeper collaboration with JD Health materialize in the future, it will facilitate the sharing of resources such as distribution channels, online marketing, and warehousing. This will also create greater strategic opportunities for Hillhouse’s healthcare investments.

Of course, it is undeniable that as a long-standing friend of JD.com for over a decade, Hillhouse’s years of collaboration with JD.com have deepened its understanding and recognition of JD Health. This, in turn, is one of the key reasons behind Hillhouse’s significant investment.

In the venture capital and private equity community, Hillhouse wields the power to reshape industry landscapes through its substantial investment volumes and dense portfolio strategy, making each of its investments a focal point for the sector.

The $830 million investment in JD Health is merely a small milestone in Hillhouse Capital’s investment rhythm. Within this context, it is important to recognize that China’s healthcare industry is continuously evolving and developing, driven by the participation of capital, enterprises, government, and other stakeholders. Hillhouse Capital serves as both a participant and witness to this transformation, with each of its investment moves having the potential to exert a significant impact on the industry. This investment in JD Health may herald the following trends.

As China gradually transitions into an aging society, the chronic disease management market has become a widely recognized lucrative opportunity., the market potential is enormous, yet nearly all enterprises are exploring business models for this very segment.Hillhouse can leverage its extensive healthcare investment portfolio to integrate the pharmaceutical retail resources within its ecosystem with JD Health’s internet healthcare capabilities.，By leveraging extensive chain pharmacies as terminals for prescription outflow and medication delivery, and utilizing internet hospitals and pharmaceutical e-commerce platforms as carriers for patient follow-up visits and patient management, effective integration within China’s resident health management market is made possible.

Following the investment in JD Health, the integration of online and offline resources offers greater potential for innovation.Under the pressure of centralized volume-based procurement in medical insurance, traditional pharmacies are facing a new round of challenges and disruptions. JD Health possesses distinct attributes in pharmaceutical supply chain management,Integrating its capabilities serves as a positive incentive for enhancing the operational management, efficiency, and professional service capacity of pharmacies.Not only that,Following Hillhouse Capital’s investment in JD Health, enhanced synergy in resource coordination, supply chain management, channel distribution, and pharmaceutical procurement can be achieved, thereby driving overall efficiency gains.

The essence of the healthcare industry lies in returning to the authenticity of humanistic care. This distinguishes it from other sectors, as it follows its own developmental patterns and characteristics, requiring gradual nurturing and meticulous stewardship by all stakeholders. Hillhouse appears to deeply understand this principle; through long-term investment and comprehensive value-chain deployment, it is working alongside medical innovation enterprises to incrementally transform the industry. The path in healthcare is slow and protracted; what remains is simply a matter of perseverance.

References：

“2020 Internet Hospital Report” by VCBeat

“JD Health Secures $820 Million in Series B Funding from Hillhouse: A Review of Its Success in the Digital Health Sector” VBInsight

“Tencent Invests in Gaoji: A Review of Hillhouse Capital’s Path to Retail Pharmacy Layout” by Yidaoshe