Lu Gang: Internet Healthcare Is a Long-Term Battle

Event Name: Day 2 of the Xingdong Xiangyihui Open Lecture
Event Dates: November 7-8, 2015
Organizers: Legend Star, VCBeat, BlueRun Ventures
Guest Speaker:

Lu Gang, Partner at Legend Star
Joined Legend Holdings in 2004, engaging in venture capital and management. In 2009, joined Legend Star to oversee angel investment operations. Healthcare investments include Suning Yide, Tianjin Micro-Nano Core, Suzhou Paige, and Burning Rock Biotech.

Key Highlights:

1、The Healthcare Market Cannot Be Fully Marketized

2、Internet healthcare is still in its very early stages.

3、Mobile Health: A Bright Future, a Winding Road

4、Don’t speculate about platforms; seek opportunities in vertical sectors.


I.The healthcare market cannot be fully marketized

A common phenomenon is that healthcare professionals believe internet industry practitioners do not understand healthcare, while internet industry practitioners view healthcare professionals as old-fashioned. The differences between mobile internet and healthcare are: fast versus slow, light versus heavy, younger demographics versus aging populations, high-frequency low-value versus low-frequency high-value, disruption versus rigor, and market-driven versus regulated.

High-frequency services tend to dominate low-frequency ones. For instance, Didi Chuxing leveraged its high-frequency ride-hailing business to drive its lower-frequency designated driving service, reflecting the "winner-takes-all" dynamic of the internet industry. However, medical consultations are relatively low-frequency. How should such low-frequency services integrate with mobile internet? Although low in frequency, each patient visit generates a relatively high average transaction value. While other sectors within the mobile internet ecosystem are highly marketized, healthcare cannot be fully subjected to market forces.

Education has undergone marketization, whereas healthcare has not; however, health insurance funds are under financial strain. Nevertheless, complete marketization of healthcare is unfeasible in countries around the world.

II. Internet Healthcare Is Still in Its Early Stages

Internet healthcare is still in its early stages and lacks a proven business model. While Guahao.com has just become a unicorn, there are more than 100 pharmaceutical companies listed on China’s A-share market with market capitalizations exceeding RMB 10 billion. The mobile health sector will undoubtedly give rise to companies with even higher valuations. In fact, I believe that internet healthcare is at an even earlier stage of development.

Registration represents a relatively asset-light model, whereas WeDoctor operates with a comparatively heavier model. Chunyu Doctor has evolved from lightweight online consultations to operating physical clinics, progressing from light to heavy and from simple to complex. Why did these early-stage companies pivot toward heavier operational models?

First, at the current stage, the issue with physicians is not merely one of quantity but also of quality. The proportion of mid-level professionals is limited and relatively scarce, leading to a higher probability of misdiagnosis in primary care hospitals. Second, the overall level of healthcare informatization remains low. Although investments in Hospital Information Systems (HIS) and electronic medical records are substantial, each hospital develops its own system, resulting in data silos that cannot be integrated; even laboratory test results are not mutually recognized across different hospitals. The challenge of interoperability has yet to be resolved. Third, there is a lack of effective mechanisms and payers. The primary task of social insurance at present is cost containment, while commercial health insurance holds a very low market share in China.

III.The Future of Mobile Health Is Bright, but the Path Is Winding

Why Are Many Internet Healthcare Companies Becoming Increasingly Asset-Heavy? While the Industry Appears Close to Profitability, It Remains Distant in RealityMobile healthcare must embrace this perspective: the future is bright, but the path is tortuous. At the core of any business model lies the disruption and restructuring of existing interest structures. Currently, it remains difficult to break the fundamental balance of interests among “major Grade-A tertiary hospitals, senior department heads, national health insurance funds, and large pharmaceutical companies.” Social health insurance funds are already operating at a deficit. While the United States and Japan have long been implementing cost-containment measures, China is also pursuing cost control, albeit with insufficient level and capacity. Consequently, mobile healthcare in the U.S. has shifted interventions upstream to reduce overall costs. Therefore, internet healthcare companies must prepare for a protracted struggle.

When designing a business model and engaging in a protracted struggle, survival is the top priority. Those who secured funding this year were relatively fortunate. Although capital markets are tightening, we have not yet entered a true winter. It is essential to manage the pace of development, leverage capital effectively, and practice moderate cash burn. The goal should be to achieve results comparable to competitors while spending less. Regarding profitability, whether in low-frequency or high-frequency sectors, businesses must establish a solid foothold and stay close to revenue streams. There are concerns that many structural issues remain unresolved. Avoid excessive greed; do not obsess over building a massive platform.

Where will the funding come from? The three common models are payment by medical insurance, payment by pharmaceutical companies, and out-of-pocket payments by patients. Cost containment will definitely be the trend for medical insurance in the future. Pharmaceutical companies also have incentives to participate. However, it is a fact that the proportion of out-of-pocket payments by patients will increase, and this will become a prevailing trend.

IV. Significant Market Potential Remains in Vertical Sectors

Positioning for Internet Companies: Focus on vertical sectors, cultivate distinctive strengths, and pursue intensive specialization to establish a solid foundation. Avoid premature or unwarranted ambitions to build platforms; the emergence of successful platforms often hinges on favorable timing and circumstances, whereas vertical sectors offer substantial market potential.

The walls refer to those of public hospitals. The key question is whether a company’s positioning lies within these walls, outside them, or involves scaling the walls. Medical aesthetics operates entirely outside the walls, with patients paying out-of-pocket. The environment within the walls is undoubtedly more complex than that outside; consequently, the first wave of companies to rise will be those operating outside the walls.

United front: target the weakest links. With numerous and complex stakeholders, there are both advantages and disadvantages. Avoid making enemies on multiple fronts; instead, identify the right adversaries for focused strikes (those with limited power but substantial profits). Refrain from reckless talk of disruption, and employ strategic alliances to secure allies.

"To get rich, build roads first." Third-party services that help physicians reduce their reliance on "walled-garden brands," various smart devices such as POCT that enable remote collection of "test data," and mobile tools that enhance physicians' diagnostic and treatment efficiency and quality—all while patients tend to choose major hospitals and renowned specialists when selecting their doctors.

Five years ago, we invested in Micro-Nano Core. In the future, a diagnostic device like this could be deployed in primary healthcare institutions and households. We have also invested in the immunodiagnostics and molecular diagnostics sectors. If the intelligent hardware developed has low clinical relevance to diseases, it will struggle to gain physician acceptance, thereby significantly diminishing its value. Additionally, it is crucial to assess whether patients’ willingness to pay is sufficiently strong.

The healthcare industry is relatively resilient, provided you identify effective models that address critical pain points. Proximity to revenue streams is advantageous, but it requires strategic trade-offs. For instance, while "flying knife" procedures (where surgeons perform operations at external hospitals) operate in a gray area, they entail significant regulatory risks. Adhering to the value of "de-distortion," as advocated by Legend Star, ensures alignment with legitimate and ethical forces.

Below are two portfolio companies in the healthcare sector invested by Legend Star:

Xu Yi: YijiaYi’s Focus on Model-Driven Opportunities

Key Highlights:

1. Why Develop an Oncology-Focused App?

2. Positioned as a comprehensive patient-physician platform for the entire cancer care journey

3. Establish Competitive Barriers

4. Business Models of Internet Companies in the Oncology Sector

Xu Yi, CEO of Yijiayi. With 18 years of experience at multinational pharmaceutical companies such as Roche and Bristol-Myers Squibb, he primarily focused on oncology products. He has 15 years of management experience and has long served as Sales Director. He oversaw the sales management of multiple best-selling oncology drugs in China, covering gastrointestinal, breast, hematologic, gynecologic, esophageal, and lung cancers. He holds a Bachelor’s degree in Management from Zhejiang University, completed the DIMP program (Class of 2006) at CEIBS, and earned a Master’s degree in Project Management from the University of Quebec.


About Yijiayi:

Launched early this year, it became a member of the Chinese Society of Clinical Oncology (CSCO) in March. Within three months of its launch, it secured joint investment from Meinian Onehealth, China’s largest health checkup group and a key investor in Zhongwei Fund; Tigermed, China’s largest contract research organization (CRO); and a fund affiliated with the Shanghai Municipal Government. In less than a year, it has established partnerships with multiple multinational pharmaceutical companies, CROs, genetic testing firms, overseas healthcare providers, and e-commerce companies.

As of October, the company had 70 employees distributed across eight major cities, with business operations covering China. It has attracted approximately 100,000 users, including 50,000 followers on its WeChat official account (this figure should be updated promptly as the user base grows). YiJiaYi is set to launch a new round of financing. The company aims to become the mobile health internet product with the best reputation and largest market share in China’s oncology sector within three years.

I.Why Focus on Oncology?APP

By the end of 2013, the various entry points into mobile health had become increasingly crowded. Therefore, we decided to seek a niche characterized by relatively high competitive barriers, strong essential demand, a focused approach, a viable business model, and a sufficiently large market.

Oncology is precisely such a niche market. Currently, fewer than 10 internet healthcare companies focused on oncology have secured angel financing. Moreover, users exhibit low price sensitivity toward oncology products, and the oncology market presents certain barriers to entry.

First, oncology is a highly specialized field that demands professional expertise, experience, and resources; physicians are extremely busy and do not face a shortage of patients.

Secondly, many users are elderly and not typical internet users. The user overlap with Chunyu is one in a thousand.

Third, physicians do not lack patients but rather time; additionally, there are risks of violating laws and regulations in terms of functionality. However, patient acquisition remains a significant challenge. Our comparative analysis revealed that the overlap between physicians on the Yijiayi platform and those on the Chunyu Doctor platform is only one per thousand.

Fourth, there are over 3 million new cancer cases annually in China, with a total patient population of approximately 15 to 20 million. The number of first-degree relatives of these patients reaches 60 million, and the broader population concerned about cancer is even larger.

II. Positioning as a Full-Cycle Doctor-Patient Platform for Oncology

Strategic Positioning Considerations: Covering critical illnesses presents excessive difficulty, with insufficient resources to ensure comprehensive coverage and overly high complexity; focusing on a single tumor type offers limited growth potential and lacks appeal to multidisciplinary oncology specialists, including those in chemotherapy, radiotherapy, pathology, and radiology departments; an overly narrow positioning fails to offset labor costs.

Service Scope: Spanning pre- and post-diagnosis phases to cover the entire oncology care continuum. The distinction between pre- and post-diagnosis for cancer patients is not absolute; providing a comprehensive suite of services helps enhance patient stickiness, maximize value, and offset customer acquisition and education costs. This approach addresses the low frequency of pre-diagnosis interactions and the challenges of closed post-diagnosis entry points and undifferentiated competition, thereby strengthening future competitiveness and risk resilience.

It is widely perceived that cancer patients face significant challenges in accessing medical care; however, physicians also encounter considerable difficulties. Many patients seek treatment outside their home regions. While doctors often hope for patients’ timely discharge, these patients strongly desire to maintain contact with their physicians. Yet, they are unable to obtain the doctors’ phone numbers. This is not because physicians are unwilling to communicate with their patients, but rather because they are genuinely constrained by limited time and resources despite their willingness to help.

Yijia Yi aims to be the most trusted companion for people across China.

Provide patients with the opportunity to pre-consult with oncology specialists before their visit, enabling them to choose their provider prior to consultation. Physicians admit patients aligned with their expertise, thereby enhancing efficiency and realizing professional value. This approach transforms the traditional “acquaintance-based” model for managing serious illnesses into a highly professional “Internet + Precision Medicine” model, empowering leading experts in research, helping senior physicians realize their value, and assisting young doctors in building their professional brands.

Post-consultation, we serve as a bridge between doctors and patients by facilitating communication via the WeChat platform. After returning home, patients can submit case records and other relevant information through the WeChat backend. This enables physicians to obtain follow-up data after patient discharge, ensuring efficient management and supporting scientific research.

However, in terms of internet operations, Yijiayi acquires precise users through channel referrals, physician data entry, and disease education programs.

III. How to Build Competitive Barriers

In building competitive barriers, we have adopted a relatively heavy business model. While cumbersome, it is effective. Ninety percent of our physicians are invited through face-to-face engagement. Furthermore, we place significant emphasis on cultivating word-of-mouth referrals and professional endorsements. A critical aspect of our APP is establishing strong relationships between physicians and patients, as well as among physicians themselves. In the early stages, we substituted manual efforts for internet-based scaling, meticulously cultivating usage habits among both physicians and patients on Yijiayi. For a physician, having their own patient base, peer network, income stream, and clinical data on the APP makes it virtually impossible for them to uninstall the application.

Our patients are not matched entirely through an automated system, as physicians would quickly terminate their partnership with us if they felt burdened by excessive interruptions and a high volume of low-quality referrals. Therefore, we employ a large team of professional triage specialists in our backend operations, supported by an extensive offline assistance team.

IV. Business Models of Internet Companies in the Oncology Sector

Many people have told me that mobile health lacks a viable business model and that existing models are unreliable. However, I believe there are feasible commercial pathways. The first is a patient-physician service model; the other is medical service agency. When patients need to access various resources—such as genetic testing, new drug clinical trials, overseas medical services, and guidance on out-of-pocket medications—they can find them on our platform. With a sufficiently large base of patients and physicians, we effectively become a media channel, allowing us to charge pharmaceutical companies for advertising. Additionally, the abundance of data enables us to sell reports, and providing consulting services represents another promising direction.

However, these models are viable only in the oncology sector. Patient-physician services can drive patients to seek overseas genetic testing and pay out-of-pocket for medications only if they are connected with high-quality physician resources. If your model is not core-focused, avoid engaging pharmaceutical companies too early, as this may hinder your speed of execution.

Wang Zhanhui: Traditional Medical Device Companies' Internet Exploration

 Wang Zhanhui, Co-founder of Tianjin Micro-Nano Core Technology Co., Ltd. andCTO, Tianjin Micro-Nano Core is the first angel-round project invested by Legend Star in the healthcare sector.

We are a traditional medical device company specializing in in vitro diagnostics based on microfluidics technology. In addition to serving the B2B hospital market, we are exploring the miniaturization and intelligent enhancement of our products to facilitate a strategic transition from the traditional sector to the internet healthcare domain.

In recent years, Siemens, GE, and even Philips have been investing in R&D in this field, with microfluidics technology emerging as the next frontier. Originally applied in traditional aerospace applications, our product has now been miniaturized to require only a few drops of blood for testing, making it highly portable. This marks the transition of blood biochemistry analysis from the era of large-scale instruments to the PC-era (microfluidics). It is the world’s smallest, portable biochemical analysis system, yet its diagnostic accuracy is comparable to that of large-scale biochemical analyzers used in hospitals.

As simple to use as household appliances, it provides detailed personal blood test results in 10 minutes with a single drop of blood, and can directly upload data to the backend via Wi-Fi.

Our equipment is now sold across China, with installations in thousands of healthcare institutions nationwide.

We have launched two products: fully automated biochemical analysis systems based on microfluidics technology. Initially, we believed that tertiary hospitals might not need our products; however, we later discovered that these hospitals do have demand, particularly when their testing volumes are low. The broader market lies in small and medium-sized urban hospitals, with our systems being especially well-suited for maternal and child health hospitals and pediatric hospitals. Our equipment can also be utilized by township health centers. Additionally, some private clinics adopt our systems to mitigate the risk of medical liability incidents, which represents a key value proposition for this segment.

Currently, our products reach nearly one million community-level grassroots medical institutions and households. Small-scale medical institutions represent our key opportunity. In the next phase, we will further enhance device convenience and reduce prices, enabling patients to access professional-grade rapid testing at nearby pharmacies without having to queue at large hospitals.

We will next consider collaborating with third-party internet healthcare platforms, insurance institutions, and physical examination centers to acquire big data from medical tests by providing them with smart hardware. Health records will be established based on patient data, enabling physicians to provide health management and guidance. We hope that this innovative technology will give rise to a new model of healthcare delivery.