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What is holding back India’s healthtech sector?

Coronavirus outbreak has given a boost to business but it is not enough as questions remain over fundamentals and the profitability of the sector in which margins are low and competition intense.

August 07, 2020 / 01:23 PM IST
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Representative Image

The rampaging coronavirus has battered the economy and pushed several businesses on the brink of closing down but the outbreak that has forced millions of people indoors has also seen sectors like online education, business software and healthtech thrive.

Many online healthcare platforms such as Practo and 1mg have reported their fastest growth ever, including in doctor consultations, telemedicine and online pharmacies. 

Bengaluru-based Practo has seen a 600 percent growth in online consultations since March, while online pharmacy 1mg’s medicine delivery orders have surged 50 percent during the period, the companies have said. 

They are also getting users from smaller towns, a sign of a widening base and not just a small pool of customers ordering more.  

“The excitement and spike for healthtech are very real. It has taken the industry forward 18-24 months in a couple of months,” 1mg co-founder and CEO Prashant Tandon said. 

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“For telemedicine, in fact, the spike we have seen today is something that’s been expected for over a decade now. Some of the promise is finally being fulfilled.”

But it is too early to pop the champagne. The healthtech sector that should have been booming at a time of a major health crisis is hemmed in by challenges of building a large business. 

Symptom check 

A lead indicator for growth in a startup is funding. Founders show growth and investors cut large cheques at aggressive valuations in the expectation of aggressive expansion. 

According to data from research firm Venture Intelligence (VI), healthtech startups have raised $345 million across 30 deals, so far, this year compared to $702 million in 2019 and $534 million the year before. At this pace, funding in 2020 maybe just on par with that of the previous year. 

In contrast, online education startups have raised $750 million this year, roughly a sixth of the $4 billion that startups raised in the first half of 2020, according to VI data. This doesn’t include WhiteHat Jr’s $300-million sale to Byju’s.

Globally, healthtech is seeing remarkable growth. A year ago, two listed American companies—Teladoc and Livongo—were valued at $5.2 billion and $3.2 billion, respectively. Both provide online care, consultations, and treatments for chronic illnesses. 

On August 5, Teladoc acquired Livongo for $18.5 billion, giving the combined entity a valuation of $37 billion. Their valuation has risen five times in a year due to the pandemic. 

In India, the coronavirus has given an undeniable boost to many healthtech startups but questions remain over fundamentals and sustainability of growth the larger sector. 

For business-to-consumer platforms (B2C), which offer doctor consultations, or many online pharmacies, no one knows whether the spike will continue once the lockdown is completely lifted.

“Because of COVID, on the B2C side, there are short-term benefits and opportunities but whether there are long-term benefits is uncertain,” said Anjana Sasidharan, formerly an investor with Sequoia Capital.

Startups focusing on drug discovery, genetic research, working on specific diseases and those selling software to hospitals are better placed.

“For B2B businesses, there could be a benefit because it is much easier to sell to hospitals than customers. The decision-making time for sales has come down drastically,” Sasidharan said.

Tandon of 1mg said B2B selling had changed. “From companies pitching and marketing to hospitals for solutions, hospitals are actively seeking quick technology solutions,” he said. 

The problem is India doesn’t have too many B2B healthtech businesses. 

Despite a spike in demand, most of these businesses—both consumer and enterprise-driven—are not showing signs of profitability. 

In the last four months, the customer acquisition cost has come down by 40 percent for many platforms, as more and more people go online to consult doctors or buy medicines from the safety of their homes. 

Greater traffic hasn’t translated into higher profits as margins are low, competition intense, and in some B2B cases, the market is still young.

A healthtech startup comes with its own sets of challenges. The biggest is technical knowledge.

“For ideas like Swiggy or UrbanClap, you can experience the service yourself, so building it from first principles is easier. This isn’t true for healthcare, where technical knowledge is hard to access,” said Harsimarbir Singh, co-founder of Pristyn Care, referring to on-demand services firm Urban Company with its earlier name. 

Pristyn Care platform employs doctors and partners with smaller hospitals for non-critical surgeries such as hernia, piles and gall stone. 

“For a founder, building a team which has internet principles backed by healthcare and core-technology knowledge is hard, but if it has to work, unavoidable,” he added.

Healthtech lags most other sectors in India, in scale, companies created and funding even though the sector is fragmented and the country’s doctor-patient ratio is among the lowest in the world, which should ideally by an opportunity for founders and investors alike. 

India boasts of several unicorns in ecommerce, food delivery, logistics, business software, insurance, payments and financial services sectors but there is not one healthtech company that is valued at over a billion dollars. 

According to the latest Hurun Global Unicorn List, India has 21 unicorns collectively valued at $73.2 billion.

Industry insiders say only health and fitness platform Cure.fit and PharmEasy come closer. 

Cure.fit, which had a network of gyms, food-delivery services and consultations before the coronavirus struck, has had its own share of troubles. 

It has laid off 1,400 people in the last three months, as online classes haven’t generated the kind of revenue earlier businesses did.

PharmEasy, the leader among online pharmacies, is valued at about $700 million and is in talks to acquire smaller rival Medlife for about $200 million, as reported by Moneycontrol on July 20. 

It is, however, an exception when it comes to scaling and long- term potential.

The diagnosis

So why hasn’t healthtech taken off? 

Founders say Indian investors are not bullish enough on health. Except Sequoia Capital, few other venture firms have done healthcare deals.

Investors, on the other hand, say there aren’t enough founders building healthtech businesses and the ones who are, are often not showing the metrics that justify large investments.

“In real health technology, we have not seen enough founders. It is a difficult space. We aren’t seeing too many new companies coming up and even post-COVID, I haven’t seen much excitement,” said Anand Lunia, managing partner at India Quotient, an early-stage fund.

The general view is that the healthtech sector should have made strides like the online education did but a closer look reveals it isn’t that easy.

“There aren’t that many permanent shifts in behaviour. More doctors will start adopting online software and listing online but it doesn't look like a big or imminent exploding market,” Lunia said.

The viral outbreak helped but the industry was not showing signs of maturity or true innovation, said the founder of a healthtech startup on condition of anonymity.

“There are some positive signs but whether these metrics—of low cost, more customers and better economics will stick in the long run, only time will tell,“ the founder said.

In relative terms, this is a better period for these startups but in absolute terms, there are many challenges and the sector is not about to see a turnaround overnight. 
M. Sriram
first published: Aug 7, 2020 01:23 pm

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