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!

Background

India has finally developed a vaccine for Covid which was approved by the regulatory authority the DCGI and it now the front runner for production of vaccines in the world. This is a great moment for India’s scientific might and I want to congratulate all the scientists who have worked tirelessly to deliver this solution to fight Covid to the world. Let me tell you that having worked in the drug development industry and also on the boards of several pharma companies, and biotech industry policy making, all efforts of the scientists are guided towards drug safety and efficacy before the final vaccine candidate is commercially produced for the masses. In the last 24 hours, leaders of several political parties have placed their roles in shamming and shaming the Indian scientists on the Covid vaccines being approved by the regulators in India. Let me inform you that Indian scientists do not work for political parties, they work for the advancement of science and technology. In this blog, I want to debunk some of the politics going on around our Covid vaccine and the timing of their political statements

The Political History of Bharat Biotech

Bharat Biotech whose vaccine Covaxin started in 1996 in the Genome Valley in Hyderabad. At that time the Deve Gowda Government with the support of Congress was at the center and the Telgu Dessam Party (TDP) was ruling in Andhra Pradesh. Let me remind the leaders of Congress who have come out with some statements, why did your Minister heading the Department of Science and Technology under which Department of Biotechnology (DBT) comes in provide grants to such a company if you believed that today that company is a fraudulently and premature in producing a vaccine for Covid. Over the years under the Congress rule, Bharat Biotech received some many grants and awards from the DBT to further their development of various vaccines. Infact BIRAC an arm of DBT also owned equity in Bharat Biotech at some point in time for the funding that was provided to Bharat Biotech by the Congress Government. I had been associated with the DBT and the Principal Secretary, DBT during the Congress Government who I worked closely to deliver the Biotech Ignition Grant Policy to the nation. He was very appreciative of the work Bharat Biotech had done and achieved several milestones in its journey with several vaccines and patents.

The Science into Politics – Way Forward

Rather than making baseless statements around the vaccines being approved, its time political parties appoint a Chief Scientific Advisor like they had Chief Economic Advisors in their party. The job of this Chief Scientific Advisor and his team would be to sieve through the clinical data presented to the regulators DBT, DCGI and other departments and raise scientific issues and challenge the science on the floor of both the houses of the Indian Parliament through their elected party representatives rather than make frivolous public and press statements outside the house. This would imbibe science into politics and allow for the ruling political party of the day to address any issues relating to the science of drug development through the right governance mechanisms of our Parliamentary Democracy. All I must say here is: Dear Politicians, please do not debunk our Scientific progress for your political gains and headline statements for your parties and your social media impressions and eyeball. In the eyes of science, you all have been marginalized completely.

Jai Hind!

For more information on Covid Vaccine also visit:

Covid Vaccine | Kapil Khandelwal (KK)

Sustainability of Digital Health | Kapil Khandelwal (KK)

QuoteUnQuote with KK (kapilkhandelwal.com)

Tag: Vaccine Development