Everything you need to know about the WeDoctor IPO

What does WeDoctor do?

Founded in 2010, WeDoctor — named Guahao before 2015 — has grown into a multi-functional platform offering medical services, online pharmacies, cloud-based enterprise software for hospitals and other services.

The WeDoctor Holdings that's set to go public, however, is only the medical and health maintenance services arm of the company. Its other businesses, like health insurance and health data services, are not included, and are likely to stay private to appease Chinese regulators, according to Bloomberg. The prospectus still notes WeDoctor collects health data and establishes digital profiles, "which enables us to identify and categorize diversified health care needs and develop more accurate and customized medical services."

The prospectus also claims it's the largest digital medical service platform in China by both the volume of digital medical consultations it processes and the number of internet hospitals it owns. ("Internet hospital" is a term used in China for credentialed, digital-first telehealth institutions.)

WeDoctor's biggest comparative advantage: vertical integration. The platform owns 27 internet hospitals, has linked its appointment-making system to another 7,800 hospitals across China (including 95% of the top-tier public hospitals) and hosts over 270,000 doctors and 222 million registered patients. It's also one of the few online health care providers qualified to accept payments from China's massive public health insurance system, which covers over 95% of the population. These advantages allow WeDoctor to give users an "integrated online + offline" health care experience. For example, after an initial hospital visit, users can receive follow-up checks online and transfer digital medical records to other doctors.

WeDoctor is banking on the future of chronic disease management in China, a rapidly aging country with 1.4 billion people but very few CDM service providers. As of 2020, WeDoctor has over 145,000 subscribers paying approximately $550 a year for routine examinations, medicine delivery and personalized recovery plans. Still a modest number, but a huge space to grow as there are estimated 300 million people in China suffering from chronic diseases.

WeDoctor's financials

The pandemic has found WeDoctor's revenues jumping 262.1% in just one year — from $77 million (505 million RMB) in 2019 to $279 million (1.8 billion RMB) in 2020. 38.6% of the company's 2020 revenue comes from medical services while 61.4% comes from "health maintenance services," which refers to preventative care and chronic disease treatment and management.

But the company has still failed to turn a recent profit over the past three years. In 2020, the company lost $293 million, or $132 million adjusted for non-operational factors like dividends and value changes of preferred shares. And this is after WeDoctor's founder and CEO Liao Jieyuan, a.k.a. Jerry Liao, told a Chinese media outlet that the company had a near $40 million net profit in 2016. (The 2016 financials are not included in the prospectus.)

The three main expense areas for WeDoctor are R&D, marketing and administrative expenses, which respectively cost $52 million, $74 million and $138 million in 2020.

WeDoctor also acquired the Australian fertility clinic company Genea in 2020 to "better serve China's growing fertility treatment market," according to WeDoctor's prospectus. In 2020, Genea contributed 22.2% of WeDoctor's total revenue.

What's next for WeDoctor

China's pandemic lockdown has introduced a large number of its people to telehealth and online medical services. In January 2020, WeDoctor launched a platform dedicated to COVID-19-related consultations. At its peak it handled 97% of the chronic disease medicine needs in Wuhan, the first COVID-19 epicenter, Liao Jieyuan told state media outlet Xinhua.

The idea of seeing a doctor online is still fairly new to Chinese patients. WeDoctor will have to battle the Chinese cultural norm that obsesses with the few state-owned, top-tier hospitals. But the Chinese government has been supportive of online visits since 2018 and reinforced it with new policy guidance during the pandemic.

WeDoctor's growth strategy seems to be to occupy one city at a time. WeDoctor launched its first municipal-level CDM platform in Tai'an, a third-tier city in eastern China. In 2020 it made a new deal with Tianjin, a city with 15 million residents and a provincial-level political status. This new agreement allows WeDoctor to provide CDM services to 267 primary medical institutions there.

What could go wrong?

It's entirely possible that it will take years for Chinese patients to develop the habit of going online for medical treatment. That means revenues won't come fast for WeDoctor.

But even if patients do convert quickly, WeDoctor has to compete with a slew of tech giants and startups for wallets and attention. Right now, the other three frontrunners in digital health care are Alibaba Health, JD Health and Ping An Good Doctor (owned by Ping An, one of China's biggest insurers). Each of them receives referral traffic from their large parent companies, an advantage that WeDoctor doesn't have. On the other side, startup DXY.cn has built an online community with 10 times more doctors than WeDoctor; Tencent, Huawei and Meituan are all expanding their health care services, too. It's safe to say the space will get even more crowded.

In China, medical scandals can bring down a company fast. Once one of the top internet companies in China, Baidu suffered reputational damages for years because its search engine was found to recommend fraudulent medical institutions to its users. Another troubled area to navigate is the complex doctor-patient relationship in China, which has repeatedly resulted in violence against health care workers. Both medical fraud and medical liability claims pose risks to WeDoctor — patients unhappy with services they receive can sue the platform, not just the doctor or the hospital.

The increasing scrutiny on data security in China also puts WeDoctor in a precarious spot. The prospectus says it builds digital health profiles for its members to personalize their medical experience. If the company doesn't handle this sensitive health data well, it could find itself at the epicenter of China's next big medical scandal.

Who gets rich?

Information about WeDoctor's final restructuring process for going public is still redacted in the prospectus, but here's what we know of the major shareholders:

• Liao Jieyuan, the founder and CEO, owns 13.49% of the company.
• Yangzi River Investment Limited, an investment branch of Tencent, owns 8.88%.
• Institutional investors Hillhouse Capital, 5Y Capital, China Investment Financial Holdings, Qiming, Sequoia and Goldman Sachs Entities all have outstanding shares, ranging from 1.95% to 4.94%, from earlier investments in WeDoctor.

What people are saying

"Though [WeDoctor and Ping An Good Doctor] adopted different funding strategies, they shared a similar investor composition: at least one global capital institution and one insurer. The backup from an insurance titan is seemingly a necessity for online health care to complete the closed business loop. WeDoctor even secured the access of Fosun Pharma, a Chinese-listed pharmaceutical company." —Chinese investment research company EqualOcean.

"Making appointments, archiving medical histories, etc. aren't really profitable. What really makes money in health care is offering diagnosis and medicine. If you want diagnosis to be the pillar of your profits, you need a large enough user base, but WeDoctor has 200 million registered members — less than Ping An Good Doctor; plus there's a large overlap of enterprise users in this industry. In terms of medicine, [WeDoctor] doesn't directly sell medicine, so the majority of the profit goes to the pharmaceutical companies they work with." — Health care analyst Chen Qiaoshan in Chinese outlet Shenran Finance.

"WeDoctor seems to be a front-runner as the preferred platform" for governments to partner with. — HSBC analyst Charlene Liu in the South China Morning Post.