Investment in health IT: Gaining ground

Issue Date: 11th September, 2012

Publication: Express Healthcare Magazine

The Indian healthcare industry is at an exciting juncture and health-IT is leading its path. Although few investors are looking at health-IT firms right now, it has the potential to attract many more in the near future, says M Neelam Kachhap

The Indian healthcare industry estimated at $40 billion in  2010 is expected to reach $280 billion by 2020. This rapid expansion in the segment is due to huge demand in healthcare and explosive development of the healthcare delivery segment. One of the main engines of growth of healthcare is the growing use of IT in healthcare delivery. Health-IT is transforming the way healthcare is delivered, with the application of newer, better IT systems and applications. Adoption of IT has become one of the top priorities for the Indian healthcare providers.

According to Frost & Sullivan reports, spending on information technology (IT) by Indian healthcare players was estimated at $244 million in 2010 and is expected to grow at 22 per cent pa over the next 10 years.

This throws up a lot of opportunities for IT players as large number of hospitals will be adopting information technology apart from medical technology. Moreover, experts believe that with new and upcoming applications such as telemedicine and e-prescriptions penetrating the healthcare vertical in India, IT investments on software would further increase with a focus on integrated billing and online availability of patient records across hospitals.

With all this buzz around health-IT there has been massive influx of funds in this sector as investors are increasing their bets on health-IT.

Global investments in HIT

Global Venture Capital (VC) funding in the HIT sector continued to scale new heights reaching $293 million in Q2 2012 in 28 deals. Both the total amount and the number of deals were at their highest levels since 2010. According to a report by Mercom Capital Group, in Q2 2012, Health Information Management (HIM) companies received the most funding as a technology group with $247 million in 19 deals followed by Telemedicine companies with $19 million in three deals and Personal Health Record (PHR) companies with $16 million in four deals.

The top VC funding deal this quarter was the $100 million raised by Castlight Health, a provider of healthcare web and mobile-based transparency solutions that enable comparisons of doctors, hospitals, medical procedures based on price and quality, followed by $34 million raised by Practice Fusion, a provider of free web-based EMR, and $30 million each raised by Valence Health, a provider of clinical integration, data collection and analysis software and Liaison Technologies, a provider of cloud-based integration and data management solutions. Other top deals were $14 million each raised by Carena, a provider of healthcare services 24 hours a day via phone, secure video, and the traditional house calls and Aware Point Corporation, a provider of real-time location system (RTLS) solutions for healthcare. The average VC deal size in Q2 was $10.5 million.

There were 39 M&A transactions in Q2 2012 amounting to $2.9 billion, of which only seven transactions disclosed details. Top M&A transactions included Thomson Reuters’ HIT business acquired by Veritas Capital for $1.25 billion, Decision Resource Group, a health information company acquired by Piramal Healthcare for $635 million and Extend Health, a private medicare insurance exchange acquired by Towers Watson for $435 million.

The Indian story

"Availability of quality investments available in India is scarce."
Suchet Singh 
CEO, Srishti Software

Experts believe that the global enthusiasm could also rub off on India. “Potential investors looking for opportunities in health-IT companies have become fully aware of the healthcare-IT market and the fitment of the solution offered by the companies operating in that area,” says Suchet Singh, CEO, Srishti Software, Bangalore. “Availability of quality investments available in India is scarce. Although, there are many health-IT companies in India, the quality of assets, product portfolio, technology, revenues, margins, focus and management are serious concerns,” he adds.

"The investors are mostly funds focused on technology and IT." 
Ramesh Emani
Insta Health Solutions

While, recent activity in this area has been encouraging with major Indian drug manufacturer leading the way, experts believe that much is left to be desired. “Healthy activity is happening in the Indian Health-IT market, but we are still not there yet,” opines Suchet. “The investors are mostly funds focused on technology and IT. I have not seen many ‘healthcare only’ focused VCs,” laments Ramesh Emani, CEO, Insta Health Solutions, Bangalore.


Recently, Piramal Healthcare acquired US-based Decision Resources Group, a healthcare information company which provides web-enabled research, predictive analysis via proprietary databases, for $635 million, the second largest M&A transaction for Q2 2012. This has brought the spotlight back on investment in this sector and in future more such activity is expected.

"Both domestic as well as foreign VCs are vying for a piece of the pie in India."
Suresh Singh
Head of Marketing, 
Anthelio Business Technologies

“Both domestic as well as foreign VCs are vying for a piece of the pie in India. The healthcare sector in India is considered a good alternative for investment to the usual IT/ BPO start-ups since it is expected to grow four-fold in the next decade. Though still considered in its infancy, that has not prevented investors from pouring close to $320.4 billion into healthcare firms through 2010,” opines Suresh Singh, Head of Marketing, Anthelio Business Technologies, Hyderabad

Inviting opportunities

Opportunities in HIT in India are galore. Rising number of private healthcare providers are looking at streamlining their operations with HIT. “India is a huge canvas for opportunities in Health-IT. There is huge potential waiting to be realised, especially after corporates have started investing into healthcare space either to get market entry or expand their business portfolio,” says Suchet.

In addition rising use of electronic health record and IT based technology like telemedicine is also fueling the growth of HIT in India. “With the commencement of newer IT applications, the healthcare industry in India is experiencing a transformation. Telemedicine is seen as a fast-emerging IT trend in the healthcare sector in India, supported by exponential growth in the country’s information and communications technology (ICT) sector, and plummeting telecom costs. Several major private hospitals have adopted telemedicine services, including those that have developed public-private partnerships (PPPs). Another opportunity in the healthcare IT sector is the use of technologies such as HIS and EMR. The spate of new private hospitals is likely to boost this further, with investment in EMR being seen as a necessity. With the introduction of 3G, usage of mobile phones for diagnostic and treatment support, remote disease monitoring, health awareness and communication is also being considered,” says Singh.

The advent of cloud solutions and maturing of providers, has also started to have an impact. “There is lot of interest since this is a growth sector and technology is under-penetrated in this segment. But the market fragmentation and consequent inability to get good prices, is deterring the investors to invest in HCIT companies. But I think with the advent of cloud solutions and maturing of providers, will start having an impact. The growth of local clinic chains and hospital chains will also have a positive impact. I am bullish on this market. The big investment garnered by Practo (Practo has secured an investment of Rs 25 crore from Sequoia Capital) is an example of that,” informs Emani.

Potential problems

HIT is an emerging market in India, with only a small percentage of total hospitals adopting and implementing it. However, a fragmented market and lack of awareness on IT’s role to improve profitability has hampered market growth. “The Indian healthcare provider market is very fragmented, with very few large companies. Investors normally do not like such hugely fragmented markets as deals tend to be smaller and will take longer time to close. Smaller provider players also tend not to invest much in IT. The investors are also not seeing signs of consolidation. Investors love (it) if the market is today fragmented but will consolidate in future. Then they can bet on winners and make good return on investment. Though there is lot of interest in healthcare IT, this fragmented nature is deterring them,” analyses Emani.

In addition, most investment opportunities in HIT involve early-stage companies with a long gestation cycle and challenging business models. “Investors also demand a proper assessment of the product/company and the value proposition for investors in the growth of the company before investing. In that sense, health-IT companies have to really scale up their operations to attract investment,” warns Suchet. “Major risks involved in investment are proper assessment of the quality of assets; alignment of the solution portfolio according to the business plan; ability of the top management to lead the organisation,” he adds.

HIT in India is a growing and dynamic market and an area of investment where only a few investors are ready to venture at this point in time, but the sector has the potential to grow many-fold and will attract a wider investor base in future.


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