2022: Healthcare and Life Sciences Investment Outlook

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.

2022 Outlook — 2022 India Healthcare and Life Sciences Investment Heat Map

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.

That’s Lazer Sharp Vision, Literally!

Background

Perfect human sight is the greatest gift that a man can get. Years ago, I remember on one of my Rotary Eye Camps in a village near Bangalore, an old lady came to the Eye Camp with the help of her assistant holding her and guiding her to take the steps due to poor vision. The doctors checked her eyes and gave her a pair of spectacles. On wearing the spectacles the lady was overjoyed and filled with tears. She could see perfectly which she had not for years. Her dependency on others and quality of life improved immediately. This incident bought emotional tears to all the people around her. Like the old lady, there are millions of Indians who have poor quality of life due to lack of proper sight as they cannot afford proper spectacles to correct their sight. I seem to be amongst the more fortunate ones who can afford the luxury of sight correction.

My Issues with Hypermetropia, Myopia and Presbyopia

As far as I am concerned, I have always tried to maintain my eyes inspite of long-distance sight (hypermetropia) correction from my teenage years. As I aged (presbyopia), the complexity of near-distance (myopia) reading and long-distance sight have emerged. My lenses that Essilor fitted to combine both of these into one lens in a spectacle resulted in near catastrophe while driving on the highway. As a result I preferred to maintain two sets of spectacle for hypermetropia and myopia. With presbyopia, I have to fit new lenses as the vision for hypermetropia and myopia keep changing. This means a new set of spectacles every year or so to maintain proper vision.

My Experience This Time Getting Vision Correction on Digital

Every year, I visit the optometrist around the festive season to get my vision tested and procure new set of spectacles and lenses as per the advise of the optometrist. Given the lock down situation, I thought of procuring the spectacles through the digital online platforms like Myntra, LensKart, Titan Eye and Amazon, etc rather than shopping for at the physical optician stores. I wanted to try out Lenskart as my daughter had bought two pairs of spectacle recently and was a very loyal customer of them. While all the catalogues of Myntra, Titan Eye and Amazon offered just the spectacles, Lenskart offer the spectacles and a zero-powered bluecut and anti-glare computer lenses fitted along with it. Similar spectacle designs on platforms other than Lenskart turned out to be cheaper as Lenskart was loading the price to the lenses additional. I needed powered lenses to be fitted at an additional cost and throw away the lenses already fitted with Lenskart spectacles.

My WhatsApp Interaction and Talk with Amit Chaudhary of Lenskart

Pissed off with the experience, I WhatsApp Amit Chaudhary, Founder of Lenskart. That’s when I realized the business model of Lenskart versus other digital and brick and mortar opticians out there. Here are some of the excerpts of my telephonic conversation with him

Lenskart is the largest AR eyewear venture in the world
Over USD 150 mil of eyewear is sold by them through their platform and lenses are manufactured and fitted through their fully-automated robotic facility
AR technology and fully-integrated robotic manufacturing facility makes them the cheapest provider of eye wear in the world due to the scale
They are targeting a total addressable market of around 1.5 billion eyes in India
They are therefore integrated to provide the full solution of spectacles and lenses as operationally there are challenges of product warranty when customers buy spectacles from them and fit the lenses outside at a local opticians.

There is a stand out quotes that while talking with Amit that summarized their business model

“We are the Maruti of the eye wear business. Customers like you form the top 10% who are the Ferrari’s who would like spectacles not only for functional, but for esteem value”

I like the lazer sharp vision of Amit. As entrepreneurs like him who raise lot of VC and PE capital at some time want to dominate and move away from their core business model and value proposition in the pressure for growth, profitability and valuations.

Although Amit offered to service me as an exception, but that is not core to their way of working. Consumers sometimes miss out on this and crib and bad mouth the start ups on social media, missing out how these start ups are making the world better by offering sight to millions by being cheaper, better and faster. Remined me of the old lady in tears who could see properly and so did I on Amit’s perspective.

Kudos to such start ups which are bringing in technology and production techniques to reach scale!

Why India is not selling its Healthcare Assets Under National Monetisation Pipeline (NMP) 2021?

National Monetisation Plan 2021

Preamble

On 23 August 2021 the government announced a National Monetisation Pipeline of INR 6 tn, (~2.6% of GDP), aimed at monetising its brownfield infrastructure to fund greenfield ones. Most of these projects will be concentrated in the roads, railways, and power sectors and no monetisation of India’s healthcare assets. NMP provides the guide to funding the National Infrastructure Pipeline (NIP) announced by the Finance Minister on 31 December 2019. I had written an article on the NIP giving my observations and feedback on the NIP with respect to healthcare (see below).

National Monetisation Plan 2021 Sector Wise — National Monetisation Plan Sector-Wise

Why is Healthcare Assets Monetisation not Under NMP?

It has been clearly apparent from the Covid 19 pandemic the clear shortages in the bed supply whenever there was a spike in the Covid cases. The private sector just did not have the capacity to manage the situation, burdening the Government and its healthcare resources to step up. I had warned about the gross under supply of beds in my critique to the NIP, “As per one of our investment thesis on healthcare infra in India, to meet the global norms of 3 beds per 1000 population India needs an investment of $200 billion by 2025. This is approximately the total NIP projected across all the infra sectors. The current NIP shows a committed pipeline of $2.5 billion which is only through Center and State Governments. A gap of 99% of what needs to be invested for India to meet global norms for healthcare infra supply! Unlike roads which is hogging over 80% of NIP’s committed investments, healthcare infra is gestational. Therefore, there is a weak and lagging healthcare infra investment in India leading to demand gaps.” These concerns that I had voiced have come out to be true during the Covid pandemic. The issue here is not about how much to invest in healthcare infrastructure but the issue of would the Government want a political turmoil now to sell off its healthcare assets out. More importantly, for the monetization of healthcare assets, there are other regulatory and tax issues for the Government to iron out to be ready for this sector’s assets to be monetized.

I believe that it has been a prudent move by the Government to exclude healthcare out from the NMP.

National Infra Pipeline (NIP) – Where is the Healthcare Infra Connectivity like Roads for the Masses? (Published in Jan 2020 in VC Circle)

Background

Over the last few months of 2019, the Government through various Ministries and industry bodies and Political Forum have tried to reach out to investors in healthcare infra to compile the pipeline of investments that are at various stages of implementation. This report was announced by the Finance Minster on 31 Dec 2019. We congratulate the Ministry of Finance in coming forward with the efforts in reaching out various stakeholders and sets the focus and discussions back on the economy.

While the report recognizes the fact that various mechanisms need to be put into place to debottleneck and fast track the investment process into infrastructure to meet our goals of a $5 trillion Indian economy by 2025 and be the second biggest economy in the world by 2050. It also recognizes the issues relating to land reforms, which the Government dropped out in earlier regime due to political opposition, financing, regulations amongst others. As India’s dedicated healthcare infra fund, we point out some of our observations and feedback on the report with respect to developing and funding healthcare infra in India.

Indian Healthcare Infra Economics

As per one of our investment thesis on healthcare infra in India, to meet the global norms of 3 beds per 1000 population India needs an investment of $200 billion by 2025. This is approximately the total NIP projected across all the infra sectors. The current NIP shows a committed pipeline of $2.5 billion which is only through Center and State Governments. A gap of 99% of what needs to be invested for India to meet global norms for healthcare infra supply! Unlike roads which is hogging over 80% of NIP’s committed investments, healthcare infra is gestational. Therefore, there is a weak and lagging healthcare infra investment in India leading to demand gaps.

While there is a further ripple effect of this investment on the wider economy in terms of job creation, healthy and productive population amongst others which we believe will be the second order issues that can be addressed as investment flows in. The key issue here is what measures the Government and Private Sector needs to take to accelerate the pace of investments and delivery of healthcare infra to the masses like road connectivity.

Key Policies and Measures to Attract and Boost Healthcare Infra Investments from Private Sector

GST Bottlenecks on Input Side with No Pass Thrus on Output Side

Any healthcare infra investments structure whether PPP or private with asset-lite models is taxed under GST. While there is no scope for pass thrus of these costs on the output side. Several representations to the Government on correcting this anomaly have been presented at the highest levels. Unless this is corrected, private sector participation investment is only a minor aggregate to the investments.

Interest Rates YoYo Regime

RBI in its efforts to contain the inflation has not directionally provided a proper guidance of interest rates over the last few years. These changes in interest rates are difficult to model and predict for our investors both Indian and foreign. Healthcare infra investments require a stable interest rates regime.

Bank Leverage for Healthcare Infra

Over the last few years of liquidity crisis with the banking sector, healthcare infra financing like other infra financing has been deprioritized by the banking system as a whole as very high risk. Our discussions with senior leadership with various top banks does not give any confidence that the worst is over for the healthcare infra sector bank financing with many still negative with the burden of NPAs of the past. A policy to establish healthcare infra as a priority sector for bank would be in positive direction.

Pivoting Infra Models for Delivery of Ayushman Bharat

Ayushman Bharat is a positive step in Nation’s healthcare financing and delivery. However, the last report of Niti Aayug states that around 90% of all players in India owning healthcare infra employ less than 10 employees! Seriously, are these really hospitals delivering quality care? Given the current reimbursement rates, private sector participation in the whole scheme can only be marginal or absent in their current healthcare infra operating cost base. A more innovative low-cost infra investment model needs to be developed which some players are working towards to pivot towards the requirements of Ayushman Bharat.

Monetising Existing Gun Powder of Healthcare Infra

There is an approximately $45 billion of healthcare infra assets which are sitting on the books of Central and State Governments and Private and Social Sectors. Many of these require funding for upgrading and expanding their infra. Various archaic regulations and other operations bottlenecks are preventing investments flows into these existing healthcare infra from Indian and foreign investors.

Nine Men Cannot Produce a Baby in a Month (even in a test tube)

While healthcare infra is a highly gestational business, it is dependent on supply of adequate clinical and operational manpower from the investments in the education sector. The NIP duplicates the investments in AIIMs under health and education. A similar push is required in the education sector for private sector participation.

Social Stock Exchange – A Black Swan for Healthcare Social Infra

While working on the regulations for the Social Stock Exchange (SSE) with SEBI. There are several regulations that govern the social sector in terms of ownership of land and infra that need to be streamlined for a healthy investments in social health infra. We estimate that the addressable social ventures that would qualify to be listed on the SSE would potentially deliver an annual turnover to be around $5 bn on a conservative basis from various impact investors. If the regulations are streamlined, our expectations is that this would be increased by a multiple of 3X.

In Conclusion – Our Forward Looking and Safe Harbour Statements

While the NIP is a great exercise for setting the vision and strategy for the way forward. We believe that investor confidence is still muted and the dialogue between the Government and Healthcare Infra Investors and Operators need to be urgently set up for strategizing how the current estimates in NIP for healthcare infra can be boosted 100X to meet the current deficit to Healthcare Infra Connectivity like Roads for the Masses to meet the global norms.

Is Moving Healthcare to Concurrent List a Good Move?

List of Ministries

Background

My blog on healthcare investments in India heatmap 2021 States Heat Map | Kapil Khandelwal (KK) has shown the gaps in healthcare delivery system in the different states of India. Also over the last year, India’s health infrastructure came under considerable strain in 2020, with over 20 million Covid cases and perhaps over a million requiring hospitalisation. We have observed how each of the states of India have responded to the Covid Crisis and the variability of the best practices implemented by each of the states whether it is immunization for Covid Covid Politics | Kapil Khandelwal (KK) or the digital health initiatives Sustainability of Digital Health | Kapil Khandelwal (KK). Moreover, the passage of the Telemedicine Practice Guidelines and the National Digital Health Mission regulations, last year, would require the country needs unified implementation of healthcare policies and programs with minimal leakages and cost of administration at the state level.

Recently, a high level group has recommended the 15th finance commission to bring health under concurrent list and declaring health as a fundamental right. This recommendation would Bringing health into the Concurrent list would give the Centre greater flexibility to enact regulatory changes and reinforce the obligation of all stakeholders towards providing better healthcare. I completely endorse the recommendation. Here are some of my reasons.

Look what’s happening to the Police?

Recent police involvement in extortion and misuse of their powers have clearly shown that States can misuse their political powers in delivering pubic safety and security to their population. We have seen in the past similar political interventions by the States in curbing healthcare for vested political interests. Politicalisation of health would be curbed by this move.

Promote Private Investment in Healthcare

Our recent heatmap on investments in healthcare attractiveness for the States shows that top-10 states would attract over 70% of private healthcare investments. Many high-end tertiary and quarternary care investments have catchments beyond the State and National boundaries. Such investments get stuck in local and state-level politics for regulatory and other approvals. The bottom 12 States have to practically fend for themselves and are on YOYO (you are on your own) effects. High-level Center’s intervention would remove such imbalances.

National Healthcare Emergencies and Pandemics

The last year’s Covid Crisis has clearly paved the way for a concerted National level Program for Healthcare and justifies the move to a Concurrent List for Healthcare in India.

Other Justifications from Experts

Low healthcare spending

India’s government spends only 1% of GDP (Gross Domestic Product) on health (Ministry of Health and Family Welfare), of which 80% is raised and spent by the states themselves. Achieving a public health expenditure of 2.5 % can be done by bringing health under concurrent list.

Indigenous practices

States do minimum to preserve indigenous healthcare systems and practices. Bringing health under concurrent list would allow Centre to spend in a better way to preserve indigenous systems of medicine, like Ayurveda.

Cooperative federalism

Health Under concurrent list will further the spirit of cooperative federalism. State-level Policy implementation regarding the health sector has underperformed and is plagued by poor quality and corruption. With health as a part of the concurrent list, the government can ensure a better healthcare system by working with states in a better way.

Better policy implementation

With health under concurrent list, the central and state governments would find a way to collaboratively design better policies and better implementation of union government initiatives. For example, a health scheme launched by the centre is implemented by states and funded by them makes its implementation poor.

Promote Universal Health Coverage

The key objective to promote Universal Healthcare Coverage in India are pivoted on the key axis which will be accelerated by this move

Social justice: A fundamental right is justiciable. Once health is made a fundamental right the citizens can approach the courts for its violation. It can prevent poor from being denied basic health services on basis of various factors like race, religion, caste etc.
Unaffordable health system: The large number of people still living below the poverty line in India. Thus the affordability of quality healthcare is a problem and needs to be addressed.
Discrimination: Cultural differences such as social, cultural, and linguistic barriers may prevent patients from accessing care. E.g. minorities may face discrimination in accessing quality health services.
Increasing risks: Environmental challenges, which include unsafe streets, asthma exacerbated by air pollution, leading to unnecessary hospitalisation and minimal or no spaces for physical activity or exercise all add to risk to health of millions of poor.

Accelerating Digital Health Initiatives

The Telemedicine Practice Regulations and the National Digital Health Mission would increase the complexity of regulating Digital Health in India if the current status quo continues. Imagine a situation where the technology infrastructure for digital health is hosted in a certain state, the doctor delivering the virtual health services in another state and the consumer in a third state? Which State will command the hegemony in such a case? Moreover, there are Centrally controlled Ministries which also regulate sectors such as Telecom and IT which will regulate digital health. There would be a barrage of court cases when we would have to adjudicate who has the right to regulate in such circumstances.

The move to move healthcare to the concurrent list is therefore the right move!

Healthcare and Life Sciences in 2021: Part 1- Sectoral Investments Heat Map

2021 Healthcare and Lifesciences Investment Heatmap

Healthcare and Life Sciences in 2021: Part 1- Sectoral Investments Heat Map

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. Covid Pandemic has completely disrupted and reset the investment cycle in India and we missed out all our prediction accuracy for 2020. We were at cross roads for releasing our Heat Map for 2021. The first was to actually abandon the whole exercise of predicting. The second was to actually relook at India and the world afresh and rebuild out algos and work with lower levels of prediction accuracy like we started back in 2013. We chose the later. While we worked on the Heat Map for 2021, we realized that there were additional variables that would impact investments in 2021 which we have added. These are Human Capital and New Normal Disruptions which would have an impact on how investments and investment activity in healthcare and life sciences in India will pan out in 2021. During 2020, while we were tracking the progress or containment of Covid to an endemic stage in India, we also realized that the execution of the Covid-related measures is in the hands of the States of India given that health is a State subject in our Federal governance structure and different States have demonstrated varying levels of outcomes in healthcare. My blog Sustainability of Digital Health | Kapil Khandelwal (KK) provides this insights. We have taken these into consideration to create for the first time State-wise investment Heat Map under Part 2, Hottest States to Invest for Healthcare and Life Sciences. These have been aggregated into our overall Heat Map here. Please await the release of our Part 2 shortly.

As part of our revised Heat Map for 2020 released in mid-2020, we had predicted a V-shaped recovery for healthcare and lifesciences. March 2020 was the all-time low for the markets and BSE Healthcare Index. By 31 December 2020, the index was at all-time high. With the rapid bounce back of the equity markets, the pricing and returns for healthcare and lifesciences is now not going to be sustainable in 2021, given low cost of debt in India, other supply side challenges, proactive regulations such as Telemedicine Act, National Digital Health Mission (NDHM), PLI Incentives, two leading Covid vaccine candidates.

Vaccine Race and Human Capital to Determine Investment Bounce Back

The investment for the industry for bounce back into the new normal is anywhere estimated to be around INR 120,000 crores a good chunk of this is going to be spent on the vaccination program in India. Our heatmap provides the snapshot of how the investment cycle is gearing up with increased pipeline of deals and investment flows. Markets have already recovered and factored this in their pricing.

2021 India Healthcare and Life Sciences Investment Heat Map

Based on the Heat Map 2021, we have updated our revised Heat Map of 2020 published in June 2020 with the addition of Human Capital and New Normal Disruptions. Let’s relook at the board trends for 2021 in terms investment activity and trends.

Healthcare Financing

Pay cuts, job losses, low interest rates, reduced household saving and speed for digitization accelerates the ‘India Stack’ to reach to the consumer faster with innovative consumer financing products. Innovation into financing products and services for consumer financing of healthcare will see a few more players emerge. Many existing players are reworking their value proposition and plan to provide innovative products and services thus increasing coverage in 2021. However, as new demand accelerates, risk underwriting is equally important to avoid delinquency.

2021 Outlook: Very Hot
What’s going wrong: regulation, maturity to scale, right bite for the consumers, reach and penetration, debt financing costs, slower non-discretionary and elective healthcare spend, delaying of healthcare spend
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 the Covid Crisis and now for the vaccination program. 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. Many of the debt servicing issues of the sector continue to persist with a few more NCLT/bankruptcy cases. A lot more exits expected and churn in ownership of assets due to consolidation activity.

2021 Outlook: Moderate
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, NCLT closures, digitisation

Med Tech Innovation and Life Sciences Discovery and Clinical Development

Focus in 2020 for clinical development had completely pivoted towards Covid vaccines and solutions and of global scale. India-Shinning moment with the two vaccines being awarded the emergency approvals has heightened investor interest in India. Investments will be selective in opportunities for Covid related therapeutic solutions. Social innovation would be the way forward. On the human capital, renewed interest of scientists to return back to India like in 2006-07 outsourcing boom.

2021 Outlook: Hot
What’s going wrong: innovation pipeline, IP regulation, regulatory bottlenecks on clinical development, newer skill sets for research and acceleration
What’s going right: Human capital, cost advantage, emerging social innovation models,

Pharma and Therapeutic Solutions

M&A and consolidation activity will spiked up. Digitisation will be a key driver in 2021 and beyond. Some social impact models to counter the bottom of pyramid need gaps are emerging. Will not get mainstream in 2021 as China substitution and supply chain issues need to be resolved urgently inspite of positive policy push.

2021 Outlook: Very Hot
What’s going wrong: price controls, policy log jam, wrong product portfolio, innovation and scale up, global or China-level cost competitiveness
What’s going right: cost advantage, distribution infrastructure, digital business models, Government incentive programs

Healthcare Providers

Funding and liquidity crisis continue after the lock down. Newer delivery models and hospitals of the future with asset-lite strategy emerge as costs build up and prices remain under pressure. Huge churn in asset ownership and consolidation activity. There will be no major action on PPP front. The telemedicine guidelines accelerate digital business models.

2021 Outlook: Hot
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

Complete liquidity crisis due to moratorium of renewals till October 2020. Innovative models for healthcare payors emerge in India for the middle bulge of India Stack for the middle 500 million that are paying out of pocket. As loss ratios will further mount, insurance rate will go northwards. Innovative products and pricing still a distant reality with the regulator in India. Many of the digital healthcare insurance players have to scale back and reduce their human capital and now need to rebuild in 2021. Don’t expect any IPOs.

2021 Outlook: Moderate
What’s going wrong: margin pressures, product fit to consumer needs, product approvals, loss ratios, slow pace of innovation, operating cash runway, human capital reduction, consumer offtake and demand
What’s going right: Consumer demand, digitisation

Health Retail

Muted consumer demand and discretionary spending due to reduce disposable income will result in slower growth and GMV pick up. Valuations will be a key issue. Consolidation and acquisitions expected for some to survive and grow. VC and PE interest is still muted and reviving their commitments to those ventures that survived the pandemic situation. Consolidation activity will increase. No serious IPO expected in 2021.

2021 Outlook: Moderate
What’s going wrong: regulation, maturity to scale, slower consumer spending, operating cash runway
What’s going right: Consolidation, newer cross-vertical innovative business models

Wellness

Discretionary consumer spending on wellness to pick up due to fear of Covid. Mass market moderately priced wellness products and business model innovation is still lagging behind. Post lockdown the growth has not be pre-lockdown due to consumer intertia. However, very innovative business models have emerged for the new normal. Investment activity is yet to pick up in 2021 as most of these ventures are in infancy.

2021 Outlook: Moderate
What’s going wrong: regulation, maturity to scale, new mass market business models
What’s going right: newer cross-vertical innovative business models, Fit India

Alternative Therapies

The Babas promoting alternative therapies have been coming up with Covid related products and its controversies. MNCs and local businesses have entered in this segment affecting their market share and position. Consumers adoption to accelerate faster as these products become the only choice. In this sub-sector, we are witnessing some very interesting ideas for disruptions in the New Normal these are very much at the seed or angel investing stage.

2021 Outlook: Hot
What’s going wrong: maturity to scale, consumer education and confidence, clinical research, new product development
What’s going right: discretionary consumer spending, newer cross-vertical innovative business models

Stay Safe and Happy Investing in the rest of 2021!

From Telegraph Road to US$50 Billion Digital Health Silk Road

Digital Silk Road

Preamble

There have been very positive developments for Indian healthcare on the digital front. First, the Indian Telemedicine Guidelines and then the National Digital Health Mission (NDHM). From various think tanks and industry bodies there have been various numbers been project on the incremental value that these will create for the Indian economy. While it is wishful to conjecture the US$ 250 billion dollar impact, what hums in my mind is the Dire Straits famous 14-minutes “Telegraph Road” song. At that time, Mark Knopfler was reading the novel The Growth Of the Soil by the Nobel Prize winning Norwegian author Knut Hamsun and he was inspired to put the two together and write a song about the beginning of the development along Telegraph Road and the changes over the ensuing decades. Using the same analogy, the development of India’s Digital Health Silk Road is feasible on the back of the physical and human healthcare infrastructure. So let’s tune in to my song!

Song Intro – India’s State of Wild-Wild West Healthcare Underdevelopment

India is a country of paradoxes for healthcare infrastructure. India has 18% of world’s population. However, it has around 18% of world’s diseases burden which is increasing. To service this diseases burden, this increasing disease burden, India has only 2.4% of world’s land mass and needs approx 0.01% of world’s land usage for health and well-being purposes. On the clinical manpower supply, India has 1% of world’s lab techs, 9% of world’s health workers, 8% of world’s nurses and doctors. To level up India to the global average, the total investment is approx $460 billion now (165 countries in the world had a GDP of less than $460 billion in 2018). (see Tedx talks My Presentations – Kapil Khandelwal (KK) To address the country’s healthcare needs within the constraints of capital, land and clinical manpower, homegrown solutions are required. At per capita healthcare spend of INR 4116 (USD 55), India’s per capital spend is growing @ 22% pa. However, India is amongst the lowest 4 countries (ranked 129) in the world on healthcare spend as per Oxfam’s latest Commitment to Reducing Inequality Index 2020 at 4% of GDP (against the globally recommended 15% of GDP).

Song Pre-Chorus – Healthcare Gold Rush to the Wild West due to Covid

Let’s set the context under which there has been an accelerated push for healthcare digitization in India. The Great Covid Lockdown. Elective healthcare were down by 70% across the board due to lockdown and priority to Covid affected. The healthcare industry started rumbling and requesting Government to come out with a bail-out package of over INR 50000 crs. Doctors needed to restart their practice through work from home or anywhere. The decade-long deadlock on the telemedicine act between Medical Council of India (MCI) and the Ministry suddenly cleared. There was a mutual agreement to develop the telemedicine road and to regulate the gold rush road to telemedicine in India.

Song Verse – New Digital Health Regulations

The actual verse of the telemedicine regulations in India was announced by the Niti Aayog and the MCI. The Prime Minister in his verse of Independence Day speech also announced the National Digital Health Mission (NDHM). The draft verse of the digital health regulation was available for the general public to review and critique. This was the back drop to the crescendo of the industry chorus on the digital health in India and the opportunity it offered.

Song Chorus – Industry Estimates and Reports

With the regulatory verse out in the public, the industry voice chorus on the real impact to the Indian economy initiated. One industry report estimated the pace of digital healthcare can unlock USD 200 to 250 billion in next 10 years in terms of primary and secondary impact to the nation’s economic value. These value-creation in the march to the wild west will be on three key roads:

Road 1: From episodic care to wellness-oriented care
Road 2: From volume-based to value-based healthcare
Road 3: From siloed systems to streamlined processes

While such stratospheric estimates at a Concorde-neck supersonic speed of the digital health silk road to the Wild West is great for headlines for the chorus, let’s not fool ourselves with the history of what the retail (brick and mortar) and ecommerce underwent in the past decade which went super sonic with investments and valuations on digital retail commerce in India. I have been writing about various issues and roadblocks to digital health path in my various columns which are available at My Library – Kapil Khandelwal (KK)

Song Bridge/Solo – My Estimates on the Investments and On Ground Reality and Impact

For any song chorus there is also a bridge/solo that makes the real sense. Here is my view of the chorus. The last decade received around USD 500 million in different ventures of digital health which were cut-past healthcare business models of the West. The current technology spend on these is around USD 500 million per annum. For the USD 250 billion impact on the ground to be realized a straight forward deep healthtech investments of around 5% (around USD 12.5 billion) is to be right away with a gestational lag of around 3 years on a conservative 2x on valuations return and not on revenue growth. In other words, all the sum total of early stage VC money raised in 2019 globally will have to be directed to India and that too in healthtech. A tough ask and a pipe dream.

Let’s also focus on the available data sets which is the oil to run the digital health motorway in India that we currently have. Currently, India’s data sets on healthcare is of the Telegraph road era. These include information on radiology, EMR, labs, meds, monitoring, doctor exam, nurse observations, claims data, billing and transactions. This data set is available for the Bharat Stack 1 (the elite-12% of India’s population). The real driver for the growth is the Bharat Stack 2 (the next billion of India’s population) and 30-odd points of healthcare data (not under the current NDHM regulations) which will make the digital health silk road truly a reality. An incremental investments of USD 18 billion in deep tech ventures in next generation digital health ventures to create a true high-speed digital health motorway of the future.

Therefore to land the stratospheric Concorde of the chorus that were singing, we require a total of USD 30 billion of tech investments on the word go. Where is that sort of money? We still don’t know where this money raised will be invested and that is not the point we are belabouring. Taking that cue, we have been tracking around 150 healthtech ventures in our annual healthcare and life sciences investment heatmap on digital. We will need to create 10000s of ventures that can create the depth and width of healthcare apps for the next billion today!

Song Outro – The Rhythmic Orchestration of Capacity Creation in Physical and Digital Healthcare

While most songs orchestra fade and end abruptly, this India digital health silk road would need a different Outro to its song. On a conservative basis, we estimated that the overall India digital health silk road opportunity is valued conservatively at USD 50 billion as it currently stands with the different constraints in our physical and technology healthcare delivery system. This is on the back of three key multiplier effect on the Indian healthcare economy:

Increasing per capita spend on health and well being of the next 1 billion population as disposable incomes goes up moving from the informal sector to formal sector in next 10 years
Incremental 1/6^th disease burden our population carries as compared to world due to the genomic make up and ageing population in next 10 years through alternative healthcare delivery models
Emerging alternative digital healthcare delivery models that would play on the shortages in the physical delivery system as penetration and acceptance of mobile first delivery of healthcare services become mainstream and productivity of the clinical manpower is augmented by healthtech

Money for Nothing – Covid Vaccines for Free

Another Mark Knopfler hit which talks about the excesses of a rock star and the easy life it brings compared with real work. Between the Independence Day announcement and the Bihar elections manifesto announcement, there seems to be shift in the focus and the priorities it seems from our Rock Star Prime Minister. The Government would not have the funds to spend on the Digital Health Silk Road if it spends its budget on providing free Covid Vaccines to the masses.

Only time will tell how the orchestra and the song of the great India digital health gold rush will play out!

Excerpts of this blog published as an article in VC Circle: