Mumbai: Dr Pankaj Jethwani, Executive Vice President, W Health Ventures spoke to ETHealthworld’s Prabhat Prakash on the budding ecosystem of health Indian start-ups in comparison to the US market and why established healthcare stakeholders are investing in these upstart ventures.
How can start-ups disrupt healthcare with established players and how does it benefit both?
Pre-COVID, for most patients in India, accessing healthcare meant visiting a doctor in a clinic or a hospital or a pharmacist or informal providers when one is ‘ill’. While this is largely true even after COVID, we’re seeing that healthcare services are moving closer to the home with patients being able to talk to doctors over video or chats via WhatsApp). Companies are solving for patient experience and newer disease-focused care models are gaining market share.
Healthcare start-ups are trying to address issues of access and cost by innovating in the clinical model, technology, and business model. Healthcare incumbents are generally resistant to change but are slowly starting to work with these new-age start-ups. We have seen this playing out several times within our portfolio. Many traditional healthcare set-ups benefit from trusted digital players which educate patients on their healthcare condition and act as a channel of acquisition.
The lack of specialists and healthcare infrastructure in rural interiors of India is a known problem. 70 per cent of our population resides in tier II cities and beyond while 70 per cent of our doctors are in tier I cities, often leading to healthcare institutions grappling with underutilisation. Healthcare start-ups are bridging the supply gap of doctors and specialists in the country by digitally connecting them to patients across the country.
Moreover, start-ups are using their digital touchpoints to enhance the customer experience for patients and complete the care continuum loop. This has helped healthcare providers improve customer engagement, retention, and lifetime value. Start-ups also benefit from these symbiotic partnerships by gaining the trust of patients by virtue of association with a known hospital brand. Additional commercial interests accrue– lower customer acquisition costs by tapping into the huge patient base of providers built over the years and revenue from digital health services.
What is the scope of start-ups in the healthcare domain, what are the challenges faced when it comes to sustainability, and how can they be addressed?
The scope for healthcare start-ups is ever evolving. Built to address the changing and growing problems of the supply business-to-business (B2B models) and demand side (business-to-business-to-consumer [B2B2C] and business-to-consumer [B2C models]), their scope is influenced by macro factors like changing healthcare-seeking behaviour, digital innovation, and adoption by healthcare providers and patients.
On the supply side (B2B models)- multiple artificial intelligence (AI) developers are building solutions to improve accuracy, turn-around times, the productivity of physicians, and overall efficiency of standard healthcare processes adopted by hospitals. AI providers get access to several large hospital groups by being on the platform. Start-ups are also bringing efficiency to the pharmacy supply chain addressing problems like a longer delivery time, product expiry management, reverse logistics and reconciliation process, and limited inventory choices, among others. On the demand side- The pandemic pushed employers to provide comprehensive healthcare offerings to their employees.
B2C start-ups have leveraged the increased digital adoption among Indians to go direct-to-consumer (D2C) offering them comprehensive solutions for their medical needs. Going D2C allows start-ups to have a targeted marketing approach towards problems unaddressed by the large players. Building trust among patients/consumers is paramount in healthcare – this is the biggest challenge that healthcare start-ups face. Getting millions of consumers to trust a digital start-up for their healthcare needs requires a large amount of capital and time for brand creation and marketing. Moreover, start-ups are tempted to offer deep discounting early in their journey even in healthcare. Both may lead to significant ‘burn’ and poor unit economics in the early days. Path to profitability is key for any company to scale and create shareholder value. Once companies identify their execution playbook early on, operating leverage in later years can help them scale sustainably.
Why do corporations invest in various healthcare domain start-ups? Could the lower risk factors involved in R&D and investments be the reason? If others specify.
Today, there are more than 7,600 health-tech companies in India with total funding of over $7 billion. As the ecosystem matures, there is rising interest from corporates to invest in or acquire these digital health companies.
Hospital groups invest in or acquire start-ups that complement or augment their scope. This could be by providing better patient engagement especially pre and post-IPD procedures to improve patient lifetime value, by improving operational efficiency through EMRs and Tele-ICUs or by improving customer acquisition.
Pharmaceutical companies invest in digital health start-ups that have a remote touchpoint with patients which helps measure and improve medication adherence, provide them with patient-level data and conduct pharmacovigilance studies.
Medical devices giants invest in start-ups that help save lead time on R&D, help acquire new IP, or augment their existing offering through software and hardware that complements the existing product portfolio of the devices giants.
Consumer health product companies fast moving consumer goods (FMCG) and wellness brands buy over-build, to save lead times on developing products that are natural extensions to their current suite of products. Another reason for investing in start-ups, particularly direct-to-consumer (D2C) start-ups, is the level of last-mile consumer data the latter have which the offline distribution-heavy conglomerates don’t have.
Technology giants invest in healthcare start-ups as it allows them to foray into healthcare quickly, and also access the burgeoning technology talent in this space.
What percentage of the funds you are looking to back around 15-20 early-stage health tech/care start-ups in US and India through its $100 million fund) would be targeted to the Indian market? Will further funds be provided to these start-ups once finalised in scaling up?
We invest in outcome-focused, health-tech start-ups in India and the US that are addressing large healthcare problems through clinical, product, or business model innovations. Investments in India will be approximately 65 per cent of our corpus. Committed to help our portfolio companies grow by making pro-rata investments in follow-on rounds as they scale. Through our investments, we aim to positively impact 100 million lives across the two geographies and help build healthcare systems that are inclusive, equitable, and effective.
In addition to investing in companies that have found product-market fit, we will also invest in building companies from the ground up along with the right mission-driven founders. To do so, we’re building internal capabilities around product and commercialisation that several companies can benefit from. This venture factory or venture studio will build companies in care delivery for India and the rest of the world.
How does the Indian health tech industry compare to its US counterpart? Elaborate.
There are some striking differences between the Indian and US health sectors:
Insurance coverage is much higher in the US and as a result, out-of-pocket expense (OoPE) is much lower- Insurance coverage is much higher in the US and as a result, OoPE is much lower. 91 per cent of Americans are covered by insurance as opposed to a mere 37 per cent of Indians. This leads to 66 per cent of healthcare expenses in India being paid out of the patient’s pocket as opposed to only 9 per cent in the US. Because of this difference in healthcare financing, most US healthcare start-ups have adopted a B2B2C model where they are selling to employers and payers, and through them reach the end consumers.
Stricter but more trusted regulatory landscape in the US- The US regulatory landscape is stricter compared to India. Getting an FDA approval is much more difficult than any Indian regulatory approval, however, the struggle is rewarded as an FDA-approved solution finds greater adoption and acceptance not only in the US market but globally.
Quality healthcare is more expensive in the US- The per capita annual healthcare expenditure in India is less than $100, while that in the US is over $10,000. This is driven not only by more people in the US consuming healthcare but by the higher prices for healthcare services in the US. For instance, an RT-PCR test in the US could cost upwards of $200 whereas in India it is less than $10-15.
Healthtech innovation is still at a nascent stage in India- Healthtech innovation in India is synonymous with telehealth and e-pharmacies while more comprehensive interventional care models remain at a nascent stage, unlike in the US where vertically-integrated platforms and value-based care models are seeing rapid growth.