Margins ring alarm bells as 160 Health readies IPO 

The digital healthcare platform with nearly 45 million registered users has filed to list its shares in Hong Kong 

Key Takeaways:

• Gross margins have been falling at 160 Health, which gets more than 60% of its revenue from wholesaling medical and health supplies
• The online healthcare service provider is still in the red but rising revenues and cost-cutting measures have helped to narrow its losses  

By Li Shi Ta

Digital healthcare has been booming in China, offering a remedy for some of the deep-rooted maladies of the country’s medical system.

Online platforms connecting patients with medical services or products can help to alleviate the uneven distribution and the limited supply of quality provision that plague the Chinese healthcare system.

And the government’s plan to boost the population’s health by 2030 has the potential to generate even more business for market leaders in digital healthcare such as 160 Health International Ltd..

Seeking capital to ride an anticipated wave of demand, 160 Health became the latest company in the sector to file for a Hong Kong share listing on Dec. 15, following in the footsteps of ClouDr Group Ltd. (9955.HK) and Medlive Technology Co., Ltd. (2192.HK).

The IPO candidate will be hoping that the rapid growth of digital healthcare will be a draw for investors. 

China’s digital healthcare industry grew from 28.9 billion yuan ($4.05 billion) in 2017 to 135.2 billion yuan in 2022, representing a compound annual growth rate (CAGR) of 36.2% during the period, according to a Frost & Sullivan study. The market is predicted to reach 1.4 trillion yuan in 2030, marking a CAGR of 33.9% from 2022.

The 160 Health platform connects healthcare organizations, medical professionals, individual users and third-party suppliers. According to the listing application, the company ranked as China’s biggest platform for integrated digital healthcare services in 2022 by number of registrations and partner hospitals.

The company was founded in 2005 by Luo Ningzheng, a computer engineering graduate with a professional background in education and health management. After heading up the information and education department at a Shenzhen hospital, he jumped into the digital healthcare business by setting up Shenzhen Ningyuan, the predecessor of 160 Health.

Big marketing drive 

Collaboration with healthcare organizations is one of the company’s core businesses, through digital solutions to help the institutions better manage their medical information and monitor diseases. 

160 Health also provides an online health service platform and healthcare management tools for medical professionals. Individual users can also enjoy a one-stop service spanning medical appointments, consultations and diagnosis, consumer healthcare packages and supplies of medicines or healthcareproducts. In addition, the company runs an online retail pharmacy.

As of the end of June this year, the platform served more than 260 Chinese cities, with a user base of more than 30,000 healthcare organizations and over 720,000 healthcare professionals, according to information in the listing document. The company had 44.9 million registered individual users, with an average of 3 million monthly active users as of the middle of this year.

Looking at the company’s finances, revenues have been rising over the past three years, but 160 Health is still making a loss.

The company brought in 280 million yuan in 2020, jumping to 420 million yuan the following year and 530 million yuan in 2022. It logged a net loss of 29.88 million yuan in 2020, surging to 150 million yuan a year later before narrowing to 120 million yuan. In the first half of this year, revenues came in at 270 million yuan, translating into a net loss of 24.78 million yuan. The online healthcare service provider is trimming its losses with higher revenues and cost-cutting.

160 Health cited the high costs of developing services and products and attracting traffic as the reasons for the persistent red ink. Notably, marketing expenses at 97.4 million yuan in 2022 were nearly double the company’s R&D spending of 54.1 million yuan that year. Clearly, the company depends on marketing to drive its sales performance.

Reliant on drug sales

In fact, digital healthcare solutions are not the company’s main source of revenue. The company has become increasingly reliant on its other main business – sales of pharmaceutical and health supplies. The share of revenue generated from wholesale pharmaceutical supplies has risen from 24.9% in 2020 to 63% in the first half of this year.

That shift has come with a downside. According to the listing application, 160 Health’s gross margin has dropped from 36.8% in 2020 to 24.8% in the first half of this year. The company said the decline was mainly due to an increasing proportion of revenue coming from the lower-margin sales of medical and health supplies. Gross margin on those sales has typically languished in the single digits and fell from 7.9% in 2020 to 2.1% in the middle of this year. By contrast, the gross margin for digital healthcare solutions remained at around 75%.

As online healthcare has become a national priority in China, more and more local governments have embraced digital solutions, seeking to stretch their limited resources with systems linking treatment, medicines and health insurance.

Compared with its rivals, 160 Health benefits from more than a decade of experience in developing digital healthcare in Shenzhen. By comparison, ClouDr is an online platform focusing on chronic disease management while Medlive is a doctor-focused service.

The services provided by 160 Health, such as its Cloud Hospital, Cloud Social Health and Cloud Pharmacy, have laid a foundation for a city-level healthcare service portal. If it can take advantage of more R&D investment, a rising reputation and policy support, the company may be able to boost its financial health in the future and finally turn a profit.

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