Despite its late start, Southeast Asia is now catching up with the rest of the globe with its rapidly accelerating technological adoptions. Changes that were expected to take a half-decade took place in just a year, as the pandemic forced the market to conform to more digital innovations coming from conservative and intricate industries such as healthcare.
According to an annual report from Facebook Inc. and Bain & Co, almost eight in 10 people (78 percent) among Southeast Asia's population of 15-year-olds and above will be digital consumers by the end of 2021. The region's online transaction growth has also outpaced Brazil, China, and India, with healthcare listed as one of these new customers' first purchases.
The Fuel of Investments in Healthtech
Investor sentiment in healthtech has never been better as it is currently sitting at an all-time high. The deal value has grown four times since 2017, albeit having a smaller number of deals than the years before. While this alone is already a record-breaking number for Southeast Asia, we have yet to see how it would perform throughout the last quarter of 2021.
Singapore continues to dominate SEA's investment activity throughout the years, while Indonesia comes second. Early-stage deals own the largest volume share but are slowly shrinking as growth-stage deals continue to gain momentum. These deal activities are also spread across multiple sub-verticals.
To categorize the sub-verticals more efficiently, we're using McKinsey's previously stated approach in one of its reports. According to them, healthtech can be separated into five value pools: research and development, wellness and disease prevention, screening and diagnosis, care delivery (including telemedicine, assisted living, health management solution, online pharmacy), and lastly, operational digitization.
By looking at the pie chart above, we can see that healthtech in Southeast Asia has branched into all of the value pools mentioned, with care delivery and research gaining the most considerable portions of the share. Naturally, most of the well-funded companies in the region are also coming from those sectors.
Although research deals have been getting the lion's share of funding, most of these deals are only happening in Singapore as it has the best research infrastructure in the region. Concurrently, we might be seeing more to come from care delivery and wellness and disease prevention from the rest of the region, as they are still battling key challenges such as uneven healthcare quality, amongst other things.
Key Challenges in the Current Healthcare System
Compared to the other verticals, healthtech is more problematic by nature as it has many more spectrums to cater to. Each of these spectrums has a different set of problems, which can be put into four umbrella categories below.
Challenge #1: Uneven distribution of healthcare quality
Southeast Asia is known to be a massive exporter of healthcare workers to the world. Too many of them have left that their exodus has created a significant supply and demand imbalance in their home countries.
This shortage has also impacted the overall experience. In some cases, patients would need to wait in a long queue to have a consultation, making it time-limited and decreasing the overall quality. These delays can be very crucial, especially to patients with time-sensitive illnesses.
As presented by the graph above, the numbers are even worse in Indonesia and the Philippines, whose rates are the lowest among its regional peers and globally. Their huge number of populations and their complex geographical structures are a logistical challenge to offer consistent health services across the countries while also being a critical driver for telehealth growth.
Challenge #2: Uneducated market with the absence of reliable information source
Health literacy is a critical determinant of how a person would effectively take control of their health. Unfortunately, research has pointed out that limited health literacy is still a recurring problem in Southeast Asian countries.
Many ways have been adapted to measure health literacy within the population. One of the most popular methods is the conceptual model developed by the European Health Literacy Consortium, which is then translated into twelve points mentioned in the table below.
The low rate of health literacy in Southeast Asia happens due to several factors, including the minimum knowledge of health topics, culture and specific characteristics of healthcare, state of public health, and availability of reliable health information sources. Communication skills are also just as essential, as health would suffer even more if these systems require knowledge or a language level that is too high for the public.
Additionally, Southeast Asia is also home to an abundance of traditional or alternative medications. These options are deeply ingrained in the culture and are more intriguing to the large masses as they can be more affordable than a doctor's visit. Telehealth can also address this pain point by providing a cheaper alternative with more time-efficient doctor consultations.
Challenge #3: Market fragmentation and lack of interoperability across health systems
The majority of data generated by private and public health providers in Southeast Asia are yet to be integrated and handled separately, making it extremely difficult for stakeholders to make informed decisions and navigate the entire healthcare system.
This disconnection has been causing snowball problems across multiple service providers. Patient referral procedure is crippled, primarily because diagnosis data is still being stored in a physical document. Not to mention, patients still have to go through multiple re-evaluations if they're moving to another facility, causing them to spend unnecessary time and money.
Despite these challenges, healthcare providers within the region are still reluctant to share their data or move it from papers to cloud services. Complex bureaucracy and policy issues create barriers that make tech implementations a slow and painful process.
On top of that, the government hasn't made many efforts to build an integrated data infrastructure. Take Indonesia, for example; their constitutions -- Law No. 29 2004 and Ministry of Health Regulation No. 269 2008 -- stated that a patient's medical records are strictly under the management of each healthcare provider. It's also still obligatory for providers to store the documents physically.
Nevertheless, the work of integrating real-time patient data is not the responsibility of the government alone. To combat the fragmentation, all stakeholders need to work on diverse issues, ranging from interoperability and standards, privacy and security to IT infrastructure. One of the ways to start on this is by implementing operational digitizations within facilities.
Challenge #4: Low spending on government health expenditure
Aside from Singapore, other governments in the region have not spent enough and have been spending lower investments in health, as shown in the graph below.
Albeit these low numbers may be influenced by a lower price of healthcare in most Southeast Asian countries, it is essential to highlight that their health expenditures by the percentage of GDP have stagnated over the past few years.
Instead of getting the necessary push from the government, the delivery and innovation of healthcare solutions in Southeast Asia are now being guided by consumer needs. The market of the affluent and middle-class has been escalating, thus increasing the demand for access to better healthcare. Arguably, digital technologies can fill in these gaps and can further help the region overcome these issues.
Healthtech Trends in Southeast Asia
If we take a step back to look at the frontliner of Southeast Asia's healthtech companies, we can see that they have one thing in common. Although they have different starting points, product offerings, or sets of clients to cater to, they only have one goal in mind: to make quality healthcare accessible for the masses. The region's already on its way to solve this matter of urgency by going through multiple waves of digital health adaptations.
The First Wave: Health Information Source
The first wave of Indonesian healthtech companies was focused on solving the one problem that could be addressed with the only existing technology back then: blogs. They tried to fix the absence of reliable health information sources by creating health discussion forums for patients and healthcare professionals.
Alodokter is one of the companies that started by doing this before eventually rolling out more services into the platform and finally became the digital health solution they are today.
The Rise of Telemedicine
By leveraging their network of doctors, these health information sources are familiarizing themselves with the early ideas of telemedicine. One of the models they came up with was an online booking appointment tool, which was adopted by some of the largest healthtech companies in the region as their entry point to the market. These companies include Halodoc, which now has reportedly secured more than $145M of funding from notable global and regional investors.
Besides that, health information sources have also allowed people to have indirect consultations with physicians across multiple specializations. As the technology gets better, the approach shifted to be more direct, where patients can have one-on-one consultations via chat or video chats. The most prominent digital health solution in Singapore, Doctor Anywhere, was initially launched as an online-only telehealth platform.
Naturally, the teleconsultation model has also expanded into offering drug delivery services while including pharmacies in the loop of this digital transformation. Another mature version of this model is remote patient support by leveraging IoT and other wearable medical devices.
Assisted living has benefited from telemedicine technologies as well. Homage has successfully provided personalized home care services to help families find the best caregivers while offering online medical consultations and screenings.
All these elements combined can create a more seamless digital health experience. As such, these companies can provide a much better solution to our urgent problem of unobtainable quality healthcare services while at the same time also able to collect patients' data.
Health-Deep Tech Waves in Singapore
Research and development are just as crucial to public health as they can add more scientific resources for decision-making among local health departments. However, the wave of health-deep tech in Southeast Asia mostly only happens in Singapore due to the quality of their research infrastructures.
Singapore is home to the most well-funded healthtech company in the region, Hummingbird Bioscience. It's a clinical-stage biotech company focused on developing precision therapies that have announced more than $150M of funding and is currently exploring IPO opportunities in the US.
In Singapore, healthtech has been branching from research and development subverticals, including AI and devices supporting screening and diagnostics. These technologies have also made it easier for disease prevention apps to surge. Nevertheless, the vertical is still at its infancy stage in Southeast Asia.
While the existing healthtech companies are already starting to reform the state of Southeast Asia's healthcare by solving the fundamental problems, companies coming from nascent sectors are poised to be what's next for the region.
Predicting What Comes Next
The rapid adoption of digital health solutions has proven that there's a silver lining to the pandemic after all. The current situation has further democratized the use of digital health solutions while at the same time helped lower the old barriers and created a once-in-a-lifetime momentum for the sector.
The situation has given plenty of room for the existing companies to grow their traction even more and for the emerging ones to seize the momentum. These companies are predicted to still be under the same sub-vertical umbrellas we see today, albeit going to narrow down to more specific offerings.
After discussing the existing challenges in the market and how the environment has evolved over the last couple of years, there are several trends and opportunities that the market can anticipate.
Early Ideas of Holistic Wellness
Southeast Asia's oldest and most well-funded companies have already built good enough fundamentals to roll out more products and services within their platforms while slowly heading towards becoming a holistic digital health solution.
These holistic digital health solutions usually check all the boxes of telehealth requirements, from teleconsultations, remote patient support, appointment booking, online pharmacy, and in some cases, wellness and disease prevention.
Take Doctor Anywhere as an example; in addition to its online consultations, it has included in-person clinics, home visits, drug deliveries, and an in-app marketplace for health and wellness products. The same goes with Halodoc. The company has been actively adding more services to the platform, in addition to its online booking tool for health screenings, tests, and vaccinations.
As digital health solutions are strengthening their grips on telehealth and remote patient support, more entrepreneurs are starting to see the opportunities within preventive healthcare.
More Room for Wellness and Disease Prevention
For a while, we witnessed the rise of fitness and lifestyle apps in Southeast Asia. The premise was simple: you subscribe to their services and get unlimited access to a network of offline workout studios.
It was going well until the pandemic came and the entire global fitness industry turned online almost overnight. One of the models that have emerged in response to this is a virtual health coach for nutrition and weight loss; following the footsteps of Noom in the US.
Many existing healthtech companies have been adopting the model from their predecessors in the more developed markets. There is a lot that they can learn from these comparables. However, it's important to highlight that localizations are necessary to meet the local market needs while adopting these models.
Although preventive healthtech might seem to focus on a relatively niche segment, the market might be more extensive than we think. Less than 10% of national health expenditures within the region are geared towards preventive measures, indicating that the market for wellness and disease prevention might be largely untapped.
Land Grab Opportunity for Operational Digitization Apps
COVID-19 has unlocked a land-grab opportunity for operational digitization apps as we're limiting human interactions. Collaborations are happening between existing providers and healthtech startups, signaling a deeper integration between the two counterparts. Hopefully, this can be the first step towards tackling system fragmentation.
Klinik Pintar, one of our portfolio companies, is addressing the disconnection problem in Indonesia's healthtech industry by being the country's first-ever network of smart clinics. The company works with offline clinics to provide accessible, standardized, and effective primary health care experience driven by a connected digital ecosystem. Med247 is also doing a comparable model in Vietnam.
The Role of Insurtech
Another important point to highlight would be the role of insurtech within the healthtech space or vice versa. Traditionally, the approach to insurance has always been more reactive as claims are only made when a case of hospitalization or a physician visit occurs.
With our technologies today, including wearable medical devices, screening, and preventive technologies, insurtech can now utilize various health data to perform better risk profiling.
One of the companies that is tapping into this opportunity is also our portfolio company, Prixa. It offers an AI-based technology to help identify health symptoms in less than 5 minutes alongside multiple telemedicine solutions within the ecosystem of their insurance partners.
M&A Opportunities As we're witnessing more tech giants from the other verticals continue to drive large-scale M&A, we might also be seeing this dynamic in the healthtech companies as their scale continues to soar. This might happen through consolidation among innovators or through M&A activities from large traditional healthcare firms.
The Southeast Asian healthtech market is predicted to soar even more within the next couple of years. The market is getting more crowded and it's exciting to see how good the market acceptance has been so far. It's a line grab opportunity, with scalability and execution being the key factors separating the winners and losers.
Nisrina Firyal Fadhlannisa is an analyst with venture capital firm Venturra, Raditya Pramana is a partner of the same company.