Since 2013 our algos have been accurately predicting the investment heatmap in the healthcare and life sciences in India which were predicting with 95% accuracy on the sectoral investment cycle in India till the end of 2019. Since the Covid Pandemic in 2020 we lowered levels of prediction accuracy like we started back in 2013. While we worked on the Heat Map for 2022, we realized that every new wave of Covid is like a black swan event and raises the uncertainty and reduces the accuracy of the predictions with a reset. For 2021, we released two sets of heat maps, one for the healthcare and life sciences sub sectors and another for the States. Since the Central Government took the mantle of immunization, the need for updating state-wise heat map for 2022 is not relevant and not much data is being updated except for the electioneering noise and promises by political parties and immunization achieved.
2022: A Year of Consolidation and Tempering Expectations
2021 was the record year since 2013 when we started tracking the healthcare and lifesciences investments. The investments across the board was the highest, with the maximum number of IPOs and M&A activity, with over USD 2.2 Bn in funding across all the sectors in 2021. Some of the investment activity we predicted for 2022 preponed to 2021 due to positive investor and market sentiments and uncertainty of the future waves of Covid. Therefore, 2022 is a year of consolidation and tempering the tempo of investments.
Let’s relook at the board trends for 2022 in terms investment activity and trends.
Healthcare Financing
2021 was an all time-high for healthcare financing sector. However, recent clamp down of Chinese funded consumer financing fintechs is going to temper down the healthcare financing sector. Health Tourism related funding is only going to take off in Q3. Consolidation activity to slow down.
- 2022 Outlook: Hot
- What’s going wrong: regulation clamp down, right bite for the consumers, reach and penetration, higher debt financing costs, slower non-discretionary and elective healthcare spend, delaying of healthcare spend and health tourism, new wave restrictions, shortage of digital workforce
- What’s going right: India stack digitisation, consumer borrowing to spend on non-electives, immediate gratification, reduced household savings supplemented by borrowings
Medical Education
Key shortages of healthcare frontline workers was very apparent during 2021 Covid Crisis. The need for regulatory regime to upskills is still being reworked. Healthcare could be the key job creator. Regulatory reforms are urgently required to push digitization and newer business models for upskilling existing workforce. Churn in ownership of assets due to consolidation activity will continue albeit at a slower pace.
- 2022 Outlook: Hot
- What’s going wrong: regulation, corruption, no vision, skill shortages, alignment to new age care, increasing debt burden, new age skills certification, funding dry up
- What’s going right: skill demand, digitisation
Med Tech Innovation and Life Sciences Discovery and Clinical Development
India has proven to be the vaccine supplier to the world in 2022. Capacity creation and new product development will continue. Dependence on Chinese supply chain will reduce further as alternatives are developed indigenously. Expect a few IPOs this year in this sector. Government grant funding will temper down.
- 2022 Outlook: Hot
- What’s going wrong: innovation pipeline, IP regulation, regulatory bottlenecks on clinical development, newer skill sets for research and acceleration, Government grants and funding slow down
- What’s going right: Human capital, cost advantage, emerging social innovation models, lower dependence on Chinese supply chain
Pharma and Therapeutic Solutions
M&A and consolidation activity was at a record high since 2016. Shortage of digital workers will slow down the digital transformation activity. As China substitution and supply chain threats mitigate, the Government will temper down their PLI support as well
- 2022 Outlook: Hot
- What’s going wrong: price controls, policy log jam, wrong product portfolio, innovation and scale up, global or China-level cost competitiveness, exit of PLI incentives, shortage of skilled digital workforce
- What’s going right: cost advantage, distribution infrastructure, digital business models, Government incentive programs
Healthcare Providers
Funding costs will zoom up and will make access to long-term capital dearer. Huge churn in asset ownership and consolidation activity will continue. Digital transformation activity will slow down due to skill shortages
- 2022 Outlook: Moderate
- What’s going wrong: margin pressures, price controls, GST slabs rationalization on inputs, execution of programs on the ground, PPP in healthcare, supply and demand mismatch in micromarkets, debt financing costs, gun powder churn, operating cash runway, liquidity and working capital crunch
- What’s going right: Digital business models augmentation, asset-lite models
Healthcare Insurance
The IPOs in 2021 in the sector have created uncertainty in valuation and investor sentiment. The sector will continue to grow as it did in 2021. Digital push and intermediation will be the key to growth.
- 2022 Outlook: Hot
- What’s going wrong: product fit to consumer needs, product approvals, loss ratios, operating cash runway, human capital reduction, consumer offtake and demand, IPOs pricing and valuation
- What’s going right: Consumer demand, digitisation
Health Retail
The major consolidation of the health retail after hectic M&A activity of 2021 will slow down the decibel levels of consumer discounts and offers to focus on generating healthy bottom lines. Only one major IPO expected in 2022.
- 2022 Outlook: Moderate
- What’s going wrong: regulation, consolidation, slower consumer spending, excess funding for GMV and operating cash runway
- What’s going right: Consolidation, newer cross-vertical innovative business models, profitability focus
Wellness
2021 was the highest growth year in the last 10 years on the back of discretionary consumer spending on wellness. Digital business model innovation is still lagging behind. Medical wellness tourism will be recover in Q3 of 2022. M&A activity and consolidation to continue in 2022 but at a slower pace. Corporate Wellness spends to continue to fuel growth in 2022
- 2022 Outlook: Very hot
- What’s going wrong: regulation, maturity to scale, new mass market business models
- What’s going right: newer cross-vertical innovative business models, corporate wellness spending
Alternative Therapies
Newer products and therapies that have accessed funding in 2021 will continue to fuel growth and investments. Adoption of alternative therapies into mainstream allopathic as complementary treatment is going to accelerate. Newer product development and business models is the key to sustained growth and success in 2022
- 2022 Outlook: Hot
- What’s going wrong: maturity to scale, consumer education and confidence, clinical research, new product development, inflated valuation, over capitalization and cash burn to gain market share
- What’s going right: discretionary consumer spending, newer cross-vertical innovative business models, mainstream complementary treatment.
Let’s wish that there are no further variants and waves in 2022 for any black swarm events for affecting investor sentiments.
Happy investing and stay safe!
Kapil Khandelwal is Managing Partner of Toro Finserve LLP, India’s First Healthcare Infrastructure Fund and Director EquNev Capital Pvt Ltd.