Devlina Rishav Bose, 26, was living with her parents in Kolkata when COVID-19 struck India in 2020. In the initial days of the pandemic, Bose would visit local pharmacies to buy regular medicines for her family.
As the city locked down, she and her family isolated themselves in their home to stay safe.
“As the peak approached, I would call a nearby pharmacy and ask them to deliver medicines. But because of increasing demand, they hardly had the products I asked for or the staff to get them delivered to me,” she recalls.
Bose and her parents then turned to online solutions, ordering medicines from e-pharmacies and, unable to meet their trusted family physician, consulting doctors on the internet.
The pandemic exposed the gaps and under-investment in healthcare in India, but it also made way for a massive technology-led disruption in the way medicines are bought and doctors consulted in the country.
That technology boost to e-pharmacies and online medical consultants is being eroded as the pandemic effect starts wearing off and people move back to physical pharmacies, trusted clinics, and hospitals.
Moving back to offline healthcare
Take Bose, for instance. Now that she is no longer confined at home, she picks up regular medicines for herself and her family from a local pharmacist on her way home.
“It saves me time as I have them in my hand instantly. Moreover, the pharmacy I go to offers me good discounts on bulk orders when I want to stock up on regular medicines once a month, and for smaller orders of Rs. 10 to 20, I don’t see any point in ordering online,” she said.
And her parents prefer to meet their family physician in person.
The preference for the offline model of healthcare, coupled with investors holding back funding in a tough global economic environment, is hurting start-ups.
Over a couple of months ago, healthtech startup Mfine laid off about 400 employees amid a funding crunch and later merged with Chennai-based LifeCell International's diagnostics business in an attempt to focus on more profitable areas, its co-founder Prasad Kompalli had then told Moneycontrol.
PharmEasy is in talks with investors to raise $200 million, but at a valuation that could be 15% or even 25% lower, cutting its valuation for the new funding round to $3.8 billion, a Reuters report said.
During the pandemic, e-pharmacies and online consultation platforms turned out to be lucrative businesses within health tech, which also includes at-home diagnostics, fitness and nutrition platforms, disease management, and employee wellness services.
Among e-pharmacies, Tata 1mg, PharmEasy, and NetMeds became popular. Patients used Mfine, MyUpchaar, Practo, and other platforms for remote consultations with doctors.
To be sure, the pain e-pharmacies and online consultants are now feeling is not confined to health tech alone. This is a trend experienced by the ed tech sector as well after schools and colleges reopened.
Moneycontrol spoke to consumers, investors and health tech experts to understand which segments of health tech industry risk being hit post-pandemic, and what entrepreneurs should do to receive investor interest in a bleak funding environment.
Tele-consultation
“According to our analysis of tele-consult usage pattern in the last two years, for most large corporate hospitals, at the peak of COVID-19, tele-consult reached about 50-60% of the total OPD (out-patient department) volumes. It has now come down to about 10-12%,” said Sunil Thakur, partner at healthcare private equity fund, Quadria Capital, and an investor in venture capital (VC) firm HealthQuad.
Tele-consulting or tele-consultation refers to healthcare consultations carried out online. While a series of lockdowns left patients with no choice but to interact with their healthcare provider remotely, post-pandemic, those with issues that require physical intervention are heading to healthcare centres.
“People have experienced that there are a few health issues that cannot get the best medical attention and advice online. There are serious ailments like cardiology, kidney issues or difficult to treat online like dental or opthal problems, and so on, and they are now opting for physical consultation,” said Thakur.
Some patients and doctors are also preferring offline over online at least for the initial stages of treatment, as it provides a sense of comfort and helps build trust.
“Many population types, especially the older generation, still believe that physical intervention can give them the best results instead of virtual interactions,” Thakur added.
According to Dr. Pankaj Jethwani, Executive Vice President of healthtech VC firm, W Health Ventures, while tele-consulting start-ups provide digital access to healthcare, they don't inherently solve the supply issue.
Data from IndiaSpend shows India’s doctor-population at a ratio of 1:1,404 compared to the World Health Organization (WHO) prescribed ratio of 1:1,000. The country has 1.7 nurses per 1,000 population, 43 percent less than WHO’s norm of 3 per 1,000.
“Instead of meeting a doctor in-person, you're meeting them on a phone or video call, that's not inherently increasing the capacity of the system,” said Dr. Jethwani, who is a physician-turned-investor.
He believes that there's also little to differentiate one telemedicine provider from the other.
Tele-consulting companies providing standard services will not be able to protect their market share or profit margins and will be forced to diversify their offerings and shop around to grow and scale, added Dr. Jethwani.
E-pharmacies
E-pharmacies were among the most successful in the Indian healthtech market in 2020, clocking $700 million in revenue, according to a report by advisory firm RBSA Advisors.
Prateek Verma, head of Tata 1mg, said when India went into a complete lockdown with only emergency services allowed in 2020, the e-pharmacy platform saw a spike of up to three times in certain categories. Post-pandemic, he said growth has moderated.
He also said order patterns changed during the pandemic, when orders for medicines to treat acute ailments grew faster than those for chronic diseases, but have settled post-pandemic.
“Products like self-testing kits, pulse oximeters, thermometers, masks, and a few other devices, during the pandemic, grew at a superfast pace compared to the rest. Their growth rates have decreased and have come back to pre-pandemic levels,” he added.
Reaping rewards of the pandemic push
However, according to Verma, due to the pandemic, there was a considerable jump in the total customer base on the platform.
“Then the new base has started to grow at the same month-on-month rate it was growing before the pandemic. So what pandemic gave to the e-pharmacy platforms was a huge surge of new customers,” he said.
Apoorva Sharma, a partner at venture debt fund Stride Ventures, believes these new customers will continue to use the platforms post-pandemic too.
“It’s similar to what we saw in grocery delivery. COVID or no COVID, it’s saving the hassle of waiting in long queues in big supermarkets. Growth rate can diminish, but I don't think the people who were enjoying the convenience of online ordering are going to completely shift back offline,” said Sharma, who has led deals in both health tech and e-commerce.
Mitesh Shah, co-founder of VC firm Inflection Point Ventures (IPV), agrees but also believes that Indian consumers have a greater affinity to the brand rather than the channel -- offline or online -- when it comes to pharma products.
“Like in e-commerce, both the channels in pharmacy will also co-exist post-pandemic. Traffic will be driven to the channel that can offer brands according to consumers’ preference,” he said.
Consolidation
Moreover, these segments are highly competitive as during the pandemic, entrepreneurs flooded the space with investors pouring in funding.
A report by London & Partners and Dealroom.co, published in December 2021, showed that the healthtech industry had attracted $1.9 billion in funding from venture capitalists last year.
But investors believe the success of new ventures depends largely on the business models they build.
“For the large number of players who have entered the market, the big question is – what is the model for scale? Discounting cannot be the model, especially in this funding environment,” said Dr. Jethwani.
Data from analytics firm Traxcn showed that over 200 startups received seed-stage funding in the healthtech industry over the last two years.
“There's a growing number of seed-stage digital health companies that are not able to raise growth rounds in the US. A few of these companies may wind down,” said Dr. Jethwani.
He says that a few companies in India may follow the fate of those in the US.
Shah of IPV says some of these companies entered the market with the wrong mindset. “We will see a consolidation within a lot of such me-too companies,” he said.
Me-too companies offer standard services with business models similar to top players in the market.
Ashish Venkataramani, a partner at Eight Roads Ventures, India, says differentiation in business models, unique products, and targeting niche segments is the way forward for newer companies to survive.
“If there are relatively high-value, clinically differentiated offerings, they can automatically monetise it well; that's the strategy that I think many companies will take,” he said.
High customer acquisition costs
With intense competition, healthcare companies are spending increasingly more on acquiring customers who often don’t make repeat visits.
Experts say these companies can also not generate sufficient revenue as the larger share of the actual value or the long-term value (LTV) goes to hospitals and clinics.
“It becomes hard for many tele-consult companies to show sustainable unit economics in such cases,” said Venkataramani of Eight Roads Ventures.
However, there are a few segments where companies can corner high LTV. One example of such businesses is management of a chronic disease like diabetes.
“India is home to over 200 million pre-diabetics or diabetics. More patients are being diagnosed with this chronic lifestyle disease,” said Dr. Jethwani.
According to a RedSeer report published in March, the disease burden in India is led by chronic conditions like diabetes, and hypertension, which accounts for 65 percent of the total deaths in the country, putting 400-450 million chronically ill people at risk.
Dr. Jethwani said he believes health tech companies have the potential to provide long-term care that is almost impossible to deliver at scale in traditional clinics.
“Even if you don't have high absolute LTV, your CAC (customer acquisition cost) to LTV ratio should be appropriate. If you're borrowing money for a low LTV model then it will not be sustainable,” suggested an investor with a leading VC firm, requesting anonymity.
Not all doom and gloom
According to a report by the National Association for Software and Service Companies and PGA Labs on quarterly funding in tech startups, while investment went down from $553 million in Q4 CY21 to $123 million in Q1 CY22, showing signs of a funding crunch in health tech, it has started to pick up again.
The latest data from the report shows that the health tech industry received $275 million in Q2 CY22.
In addition, VC firms like HealthQuad and Eight Roads, among others, have also announced healthtech and life sciences-dedicated funds worth $162 million and $250 million, respectively.
“The sentiments are muted, and people are taking it slow, being cautious waiting it out. But I strongly believe that this will probably start getting better towards the end of the year because many VC funds are sitting on a lot of dry powder,” added Sharma of Stride Ventures.
Moreover, experts believe the COVID-19 pandemic pushed healthtech years ahead, creating massive headroom for growth in a nascent ecosystem.
HealthQuad’s Thakur said data shared by hospitals also shows that pre-pandemic tele-consult used to be only 1% of the total OPD volumes. So at 10-12%, it is still 10 times what it was in the country, pre-COVID.
“People have now gotten used to technology,” he added.
