Lu Gang of Legend Star on Exploring Business Models in Mobile Healthcare: Insights from Xingdong Xiangyi Hui Public Lecture Series #12

Event Name:StarMed HubIssue 1Open Course
Event Date: November 7-8, 2015
Organizers: Legendstar, VCBeat, BlueRun Ventures
Guest Speaker:

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

Below are highlights from the guest speakers’ remarks. For the full presentations, please follow VCBeat’s WeChat account (vcbeat).

Reflections on Exploring Business Models in Mobile Health

1. Legendstar Capital began offering CEO training programs in 2008. Currently, it primarily focuses on angel investing, with an emphasis on the TMT (Technology, Media, and Telecommunications) and healthcare sectors. Within healthcare, we pay attention to innovations in traditional pharmaceuticals, including drug and medical device projects, as well as mobile health initiatives. Our significant interest and expertise in mobile health stem from our previous investment portfolio. Having invested in both traditional healthcare and TMT, we have developed a deeper understanding of internet-based healthcare.

2. Many people are concerned about the actual size of the bubble and whether a “capital winter” has arrived. In my view, it is more meaningful to examine specific market segments rather than making broad generalizations. To answer these questions, we must first identify the key pain points in healthcare, second, determine what problems mobile health can solve, and third, assess the current stage of development of mobile health. Only by reaching a consensus on these issues can we understand our current position and chart our future direction.

3. Healthcare entrepreneurs argue that internet professionals fundamentally misunderstand the healthcare sector and rashly claim to disrupt it, questioning whether such disruption is truly feasible. In response, the internet industry contends that healthcare lacks “internet thinking” and innovation, leading to mutual friction. While mobile internet is characterized by speed and lightness, healthcare is inherently slow, and mobile health applications are significantly more resource-intensive than typical internet services. Furthermore, a large proportion of patients are elderly, posing considerable challenges related to their familiarity with and habits regarding mobile devices, as well as their gradual adaptation to emerging technologies.

4. In the mobile internet sector, high-frequency applications displace low-frequency ones. For instance, Didi Chuxing was ultimately able to expand into designated driving services after alcohol consumption precisely because it is a high-frequency application; this reflects the "winner-takes-all" dynamic prevalent in the internet industry. Furthermore, internet applications prioritize traffic volume, where companies are often satisfied with even a 1% conversion rate. This is because the revenue contribution generated per user is relatively limited. In contrast, healthcare is a low-frequency industry; even online consultations, which represent the highest frequency segment, can only be classified as low-frequency applications. Although customer acquisition in mobile health is low-frequency, the value per patient is comparatively high. While the mobile internet is essentially a highly marketized domain, healthcare is not an industry that can be fully marketized in any country around the world, as it must balance social equity.

5. The internet healthcare sector is still in its early stages and has yet to establish a viable profit model. Among traditional pharmaceutical companies listed on China’s A-share market with market capitalizations exceeding RMB 10 billion, there are approximately one hundred firms, with the highest market cap reaching over RMB 100 billion. The mobile healthcare industry will inevitably give rise to more and larger enterprises; however, only one unicorn has emerged so far, with a market valuation of just RMB 10 billion. Therefore, I believe the sector remains in a relatively early stage of development.

6. At the current stage, physicians face challenges not only in terms of quantity but also quality. The proportion of core medical professionals is limited and relatively scarce. The probability of misdiagnosis remains high in primary care hospitals.

7. Silicon Valley in the United States is home to many high-tech companies. Apple emerged during the PC era, alongside router companies, as online content continued to grow. Yahoo appeared during this period. Following the information explosion, Google was founded. Later, as information became increasingly integrated with social interaction, Facebook emerged. Industries that are highly driven by digitalization, such as tourism and finance, are particularly susceptible to disruption by mobile internet technologies.

8. In the healthcare sector, investments in Hospital Information Systems (HIS) and Electronic Medical Records (EMR) are substantial. However, each hospital develops its own system, resulting in a lack of interoperability; even laboratory test results are not mutually recognized across different hospitals. The issue of interconnectivity remains unresolved. Why do information silos persist? Technical challenges are not the core issue; vested interests and incentive mechanisms are. This fundamental problem poses a significant challenge for mobile health, which cannot be overcome solely through “mobile” information technologies.

9. Physicians need to be mobile. While practitioners of Traditional Chinese Medicine (TCM) are the most mobile, their mindset remains the most traditional. Conventional healthcare relies heavily on medical device manufacturers for diagnostic testing; however, there is a shortage of remote, medical-grade devices, and traditional medical device manufacturers lack the incentive to address this gap. Without adequate equipment at the primary care level, senior physicians are unwilling to work in grassroots settings. The benefit distribution mechanism among stakeholders is not yet reasonable. Many startups aim to resolve doctor-patient conflicts by improving communication, but these conflicts are not merely issues of communication. They also involve complexities related to social insurance, commercial insurance, payment systems, and cost containment.

10. Appointment 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 have these early-stage companies shifted toward heavier operational models? Why are the industry leaders becoming increasingly asset-heavy? Although this sector appears to be close to monetization, it is in fact quite distant. The mobile healthcare industry must embrace the perspective that “the future is bright, but the path is tortuous.” At the core of any business model lies the disruption and restructuring of interest structures. Currently, it remains difficult to break the entrenched interest framework dominated by “major tertiary hospitals, senior department heads, national health insurance systems, and large pharmaceutical companies.”

11. Social security funds are already running a deficit. The United States and Japan have been implementing cost-containment measures, and China is following suit; however, the level and capacity of cost control in China remain insufficient. In the U.S., mobile health has shifted services upstream to reduce overall costs. Therefore, internet healthcare must be prepared for a protracted struggle.

12. United Front: Target the weakest links. Given the numerous and complex stakeholders, this approach has both advantages and disadvantages. Avoid creating multiple enemies indiscriminately; instead, identify specific adversaries for focused strikes—targeting those with limited power but substantial interests. Refrain from reckless talk of upheaval, and employ vertical and horizontal alliances to secure allies.

13. To achieve prosperity, one must first build roads. Third-party services that help doctors reduce their reliance on “walled-garden brands,” various smart devices such as POCT (Point-of-Care Testing) tools that enable remote collection of “diagnostic data,” and mobile applications that enhance physicians’ diagnostic efficiency and quality—all these innovations are reshaping healthcare delivery. However, patients still predominantly choose large hospitals and renowned specialists when seeking medical care. The “wall” refers to the institutional barriers of public hospitals. The key strategic question for companies is whether to position themselves inside the wall, outside the wall, or to “climb over” it. Medical aesthetics, for instance, operates entirely outside the wall, with costs borne fully by patients out-of-pocket. Operations within the wall are undoubtedly more complex than those outside. Consequently, the first wave of successful companies will likely emerge from outside the wall.
Five years ago, we invested in Micro-Nano Core. In the future, diagnostic devices of this kind can be deployed in primary healthcare institutions and households. We have also made investments in the fields of immunoassay and molecular diagnostics. From a therapeutic perspective, if the hardware developed has low relevance to specific diseases, it will be difficult for physicians to provide direct recommendations, thereby significantly diminishing its value. Additionally, it is crucial to assess whether patients’ willingness to pay is sufficiently strong.

14. The healthcare industry is relatively resilient; as long as you identify a robust model that effectively addresses critical pain points, survival is likely. Proximity to revenue streams is advantageous, but it requires strategic trade-offs. For instance, while “flying knife” services (where specialists travel to perform surgeries at other hospitals) operate in a gray area, they entail significant regulatory risks. Adhering to compliance and ethical standards is a core value of Legendstar Capital; aligning with legitimate and lawful practices is the best way to safeguard oneself.

15. When developing 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 is tightening, we have not yet reached a true winter. It is essential to manage the pace of development, leverage capital effectively, and burn cash moderately. One must learn 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 mega-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. While cost containment is undoubtedly the future trend for medical insurance, and pharmaceutical companies also have incentives to participate, it is an undeniable fact that the proportion of out-of-pocket payments by patients will increase in the future. This will be a prevailing trend.

16. Positioning: Focus on vertical niches, cultivate distinctive strengths, and pursue intensive, specialized operations to establish a solid foundation. Avoid overstating the importance of platforms; their emergence often depends on favorable timing and circumstances. Vertical sectors offer substantial market potential.

 

 



 

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