The chief executive of Babylon, the British healthcare service that soared in popularity during the pandemic, has described the company’s stock market performance since going public last year as an “unbelievable, unmitigated disaster” that has required a significant restructuring of the business.
Ali Parsa had spurned a London listing for the group, which had grown rapidly through partnerships with England’s NHS, in favour of floating on the New York Stock Exchange through a special acquisition company.
But shares in the digital healthcare service have dropped 90 per cent since its stock market debut in October last year, leading it to pivot its business to the US market and engage in painful cost-cutting.
“What an unbelievable, unmitigated disaster, with the benefit of hindsight it is super simple to understand,” Parsa told the Financial Times. “We learnt a big lesson, which is we should have done a lot more thinking through Spacs,”
“[We were] unlucky at the time, or we made the wrong decisions, but now we fix it,” he added.
Babylon was among the victims of the sudden change in enthusiasm for so-called Spac deals and struggled to secure support from US institutional investors at a time when the company was not well known in North America.
Parsa, a British-Iranian entrepreneur and former banker, founded the healthcare platform in 2013, and developed the GP at Hand app, which allows UK-based patients to access their NHS general physicians virtually, acting as their digital primary care practice.
But unable to make NHS partnerships economically viable, Parsa has wound down UK operations to focus on the US market, which accounts for more than 90 per cent of its revenues, through health insurance programmes like Medicaid and Medicare.
Ahead of the company’s stock market debut, Babylon was valued at $4.2bn and was set to receive $575mn from its merger with a blank-cheque company Alkuri Global.
But when the date to vote on the merger approached, around 90 per cent of shareholders asked to redeem their shares despite approving the deal, which left Babylon with only $275mn in cash. The majority of that sum came from a so-called private investment in public equity agreement from investors such as data company Palantir and Swedbank Robur.
To make up the $300mn shortfall, the company has cut staff, ended contracts early, and raised $80mn in additional funds from existing investors such as Swedish venture capital group Kinnevik.
Telemedicine, where healthcare is delivered remotely, surged during the pandemic as hospital costs rose and demand for services led to a rise in digital solutions.
The sector hit a peak of investment in 2021, with more than $29.2bn in US venture funding invested into digital health, according to figures from Rock Health venture firm. Its tracking from last month suggests only $12.6bn has been invested this year, as the market cools down and adjusts to pre-Covid levels.
Babylon almost halved its pre-tax losses to $89.6mn in the three months to the end of September from the previous quarter, while revenues have grown nearly threefold year-on-year to $288.9mn.
In September, the company received notice that it violated NYSE rules that require listed companies to maintain an average closing share price of at least $1 over a consecutive 30 trading-day period. As a result, Babylon has issued a reverse stock split, where existing shares are consolidated into fewer, higher-priced shares, due to complete in December before the notice period expires and it is kicked off the exchange.
The company is also in the process of selling Meritage Medical Network, its network of around 1,800 physicians in California, by the end of the year. Babylon bought the group for an undisclosed amount 18 months ago but Parsa said it was too difficult to convert to digital.
He added “the competition for it is significant” and believes that after the sale, Babylon will be able to become profitable.
Despite being headquartered in London, Babylon’s presence in the UK is dwindling this year: two NHS Trusts contracts were terminated early and the company has shut down its Symptom Checker, an artificial intelligence chatbot used to answer NHS 111 inquiries and triage patients.
Its GP at Hand service still has more than 100,000 patients on its books but Parsa said the company was slowing down its growth in the NHS as there was not currently a way to provide its service without losing money.
“We still lose money on every patient,” Parsa said. “There is a structural problem. The NHS doesn’t have enough funds itself . . . services do not get paid enough and therefore [it is] really hard for companies to make [it] work economically.”
However, Babylon has faced widespread criticism from some NHS doctors who argue it attracts younger, healthier patients, leaving already struggling traditional practices to deal with complex cases with limited resources, as well as the digital nature of the platform leading to doctors potentially missing signs of serious illness.
Babylon is slowing down its NHS partnerships until it can find a way to break even financially, Parsa said.
“Our team is killing itself providing [this service to the NHS] . . . because the money is so tight and because the connectivity in the system is so broken, the brand damage is on us right now,” he added.
Additional reporting by Ian Johnston and Rafe Uddin in London