Charged to craft an edge – Indian Healthcare Startup

The enterprising cohort of start-ups in India is on the rise as the healthcare entrepreneurial ecosystem is committed to creating a better future for the millions in our nation. Venture studios like 2070 Health have been fortifying India's healthcare start-up ecosystem, by driving the operational framework from ideation to growth. Backed by their extensive research support, and their in-house product development expertise they have impacted many profitable start-ups, especially in the fields of pain management, diabetes, oncology and AI-driven health technologies. Dr Pankaj Jethwani, CEO, 2070 Health in interaction reveals more.

By Sonali Patranabish

India today has emerged as the third largest ecosystem for startups of which healthcare and life sciences contribute to a mere 9 per cent. In what ways can the cautionary mindset be turned around for the healthcare entrepreneurship ecosystem in India?

There are over 17,400 healthcare companies in India, but still a plethora of problems that need to be solved across patient experience, clinical outcomes, and access. Given the size of our population (Rs 140 crore) and the limited number of doctors (~one million), there is an urgent need for innovation to address some of the challenges in healthcare. 

We believe the following factors will help unlock the healthcare entrepreneurship ecosystem in India:

● Driving clinical innovation and physician leaders to develop best-in-class new-age clinical offerings for patients. Start-ups building these differentiated, patient-centric, and outcome-focused offerings can attract both patients and clinicians.

● Building patient trust via partnerships with existing stakeholders: Hospitals and pharma companies, creating a win-win solution where the latter benefit from efficiency due to technology adoption and startups benefit from the brand and large patient base. We have already seen

examples across our portfolio. BeatO, providing diabetes care, has partnered with several pharmaceutical companies to demonstrate that technology-based chronic care support programmes used in conjunction with pharmacotherapy for diabetes lead to improvement in clinical

outcomes (HbA1c reduction).

● Understanding that one can’t ‘move fast and break things’ when it comes to patients lives. Healthcare innovation needs more patient capital from LPs interested in financial as well as societal RoI. Early-stage R&D can further be de-risked with the help of research grants before

IP-focused companies become viable for equity financing.

Despite the significant strides made in the Indian healthcare landscape w.r.t innovation, there are still glaring gaps and pressing challenges that need to be addressed. How will your expertise as India's first healthcare venture studio help to bridge these gaps?

This is the exact problem statement with which we started 2070 Health. In 2020 and 2021, the number of new healthcare startups that received funding was at an all-time high. Over 2000 healthcare-focused startups were created in 2020 and 2021 and over 500 received funding. However, even with the significant increase in the number of companies, there were

still many pressing unsolved challenges.

At 2070 Health, we aim to address these large ‘whitespaces’ and build solutions that improve patient experience and clinical outcomes. We follow a rigorous venture-building process:

● Identifying the right problem - We pick tough problems that have a large unmet need but have limited/no scaled solutions. We have built companies in areas such as chronic pain, which affects 20 per cent of India’s population, and obesity, which affects 300 million people, to name a few.

● Creating an effective solution - Patients are at the centre of any solution we build. Empathetic patient conversations and controlled experiments allow us to deeply understand their problems

and existing behaviours. Global and Indian clinical experts and Key Opinion Leaders further augment our understanding by helping develop best-in-class care protocols. While ensuring the solution is clinically effective, we also build out the financial viability of the solution to get the

best estimates on how much a patient would be willing to pay for the solution and our costs to provide it. This process ensures that only financially viable and 10x better solutions are pursued, significantly

reducing risk by reducing the number of unknowns. We kill 90 per cent of our ideas with confidence and double down on the 10 per cent that make it through a stringent internal diligence process.

● High-touch operational support - Finally, it all comes down to execution. Our operating team led by experts across online and offline go-to-market channels, technology, and talent has built multiple playbooks across these functions. These tried-and-tested playbooks help companies build solutions and scale faster, better, and more cost-effectively.

3. Early 2020 saw a unicorn rush, however, there has been a decline in the number of additional unicorns being added year on year in the healthcare sector since then.

Could you throw some light on this trend. Are we seeing a situation of funding winter in India?

The dynamics within India’s healthcare startup sector have seen a significant transformation, especially during and after the COVID-19 pandemic. Supported by bullish markets, 2020 and 2021 witnessed a surge in the number of healthcare startups (2,000+ healthcare companies

founded) and as a result, some startups achieved unicorn status (five healthcare startups became unicorns in 2020-21).

Post 2022, this changed, and the private markets have reverted to pre-pandemic levels. This shift has affected most sectors, not only healthcare. The number of new unicorns across all sectors in India was down from 44 in 2021, and 21 in 2022 to a mere two in 2023. This decrease in funding suggests a cooling period – a (much-needed) market correction or a phase of strategic recalibration encouraging founders to build more financially sustainable businesses.

Healthcare startups have targeted diverse sectors. However, which of them according to you has been receiving more focus in terms of creative solutions and quality innovations? Which segment of the healthcare startups has proved to be more bullish and persistent in the markets?

Among healthcare startups, some of the areas that have seen both innovation and traction are:

1. B2B solutions made in India for the world: India, with its vast engineering and medical talent, is uniquely poised to solve global challenges in healthcare more cost-effectively. 

Advancements in generative AI can further strengthen innovation in the India-US and India-global corridors. 18 per cent of the companies we spoke with in the last 12 months had AI-first solutions. We are already seeing AI innovators solve healthcare administrative problems such as medical billing,  medical notetaking, prior authorization, etc. With the emergence of several healthcare LLMs (MedPalm, Meditron, Hippocratic AI, etc.) and sophisticated AI fine-tuning techniques (prompt engineering, RAG, etc.), the next wave will also include AI solutions that operate in the domains of healthcare operations, patient experience, and clinical care enablement.

2. Vertically integrated omnichannel solutions: Just in the four months of 2024, 24 single-therapy-focussed companies raised a total of $183M in funding. Nephroplus accounted for the lion’s share raising $103M. We are excited about vertically integrated models that address patients’ healthcare needs right from diagnosis to management offering them comprehensive, one-stop solutions. This enables the startup to holistically cater to a patient’s needs, driving better experience and outcomes for patients and improved LTV/CAC for the start-up. We have typically seen in companies aiming for an LTV/CAC of 4-5x and above in this category.

How do you foresee the future of the Indian healthcare unicorn ecosystem in terms of emerging trends that will shape the Indian healthcare landscape?

While we are confident that there will be many more healthcare unicorns in the country in the next few years, achieving a unicorn status should not be the end goal for any company. It’s merely one of many financial metrics depicting success. In our opinion, the aim of every company should be to build a sustainable business that creates meaningful value for its patients/customers and shareholders.

There are a few healthcare areas that we continue to focus on:

● Innovaccer, Indegene, and Citius were some of the first few Indian healthcare unicorns. Going forward, AI-led, India to US, healthcare-focused products and services will spur the highest number of unicorns, leveraging India’s superior engineering talent ecosystem to build global solutions.

● Hospitals – both multi-speciality and single speciality remain an investor favourite. They were the hottest commodity in 2023 sought fervently by both PE funds rapidly building healthcare platforms (The largest deal of the year was Temasek’s $ 2B acquisition of Manipal Hospitals.

Blackstone acquired Care Hospitals and KIMS Health), and hospital systems expanding their geographic presence and capacity inorganically (HCG acquired SRJ CBCC Indore Hospital, Manipal acquired Kolkata-based AMRI Hospitals). We even saw five multi-specialty hospitals listed in the public markets ranging in scale from $4 M to $575 M market cap.

● Medical devices and equipment are another area that has received consistent interest from PE players over the last two quarters. In just the five months of 2024, 13 startups have raised a cumulative $59 million. Conducive to global sales and a resulting cost arbitrage given the

manufacturing capabilities in India, this is also a sector we believe will create large companies.

The concept of venture studios has become popular in recent times. What has shaped the trust and success of such venture studios in hand-holding startups?

Building a startup is difficult, especially in healthcare. Healthcare is a slow-to-change industry, heavily regulated, relationship-driven and generally not open to ‘outsiders’. Founders have a myriad of questions from, 'Is this the right problem to address?', 'Do people need this and will they pay for it?', 'How will I raise capital?' and many more. In the first few months of a startup, it is hard to get dedicated experts to solve the many questions across different functions - product, technology, marketing, talent, fundraising, and more. Founders are limited by their network and capital.

As the startup ecosystem matured with more and more founders facing these problems and startups failing, this became a clear white space hindering innovation, and that’s where a venture studio comes in. A Venture Studio is an organization that identifies opportunities or

problems develop solutions along with founders, launch new companies, and provide them extensive operational and strategic support until the companies achieve product-market fit.

Across all functions, subject-matter experts leverage their immense experience to answer these many pertinent questions.

In terms of profitability and investor interest, which sector seems more lucrative for healthcare start ups, B2B, B2C or D2C?

There are many different go-to-market strategies including:

● D2C selling directly to consumers without any intermediaries online on their website,

● B2C selling to consumers via intermediaries like online healthcare service aggregators or

third-party-platforms, or via offline self-owned, or shop-in-shop centres, and

● B2B selling to other businesses.

However, omnichannel is the only winner. In the last few years, most companies have adopted multiple strategies depending on the kind of products and services or the stage of the company. 72 per cent of companies we spoke to in 2023 were already omnichannel or planned to become in the next few quarters.

● Many tech-led clinical care companies such as BeatO, Toothsi, etc. have moved offline starting their own clinics and offline experience centres. Large offline players are doubling down

on their digital initiatives too. Just last week, Apollo 24/7 announced its fundraising of Rs 2,500 crore from a global PE fund.

● Product companies such as baby products or nutraceuticals usually start as D2C companies selling on their website. Soon after they also list their products on platforms like Amazon, Flipkart and even category-focused marketplaces. After gaining initial traction and building a

hero product portfolio, they move offline selling through placements in multi-brand outlets, starting self-owned stores, etc. Leading digital-first players like MamaEarth reported 40 per cent+ of their revenue coming from offline channels.

● B2B healthcare companies are acquiring clients through a mixture of digital targeting and offline fleet-on-street teams.

There is no one more lucrative strategy. The trick we believe would be to pivot, adapt and employ different strategies.