You are here

Inside the disruptive rise of $2 billion Babylon Health, which sources say is considering a multibillion-dollar SPAC in 2021

Submitted by Tech Insider on March 6, 2021 - 4:01am

babylon health ali parsa spac 2x1

Summary List Placement

At the beginning of this year, Babylon Health CEO Ali Parsa told his 2,000-strong staff in an all-hands that the firm's partnership with the Canadian telecoms firm Telus was under review.

Babylon partnered with Telus' health division in 2019 to launch a doctor app for Canadians that offers virtual consultations with clinicians and a whizzy "chatbot" symptom checker. The app is free for patients across Canada. Telus does not release user numbers but has said during quarterly results that the service has grown rapidly.

Insider understands that Babylon will sell the Canadian operations to Telus and that it has signed a multi-year licensing deal to continue providing its software for the venture in a $70 million agreement.

"As such, we came to the conclusion that it would make more sense for one party to own the operations in Canada and another party to focus solely on the delivery technology," Parsa said at the all-hands, according to remarks obtained by Insider.

Babylon confirmed the new deal this week to Insider, saying Telus would take "operational control" of Babylon Canada while making use of the startup's platform. "We are delighted to have signed a new long-term strategic partnership and multi-year licensing agreement with TELUS," a spokeswoman said.

The new Telus deal comes as Babylon makes a concerted push into the US and, three sources told Insider, explores a potential listing, most likely through a merger with a special-purpose acquisition company, or SPAC.

$2 billion Babylon Health is said to be exploring a SPAC deal

Babylon Health

Babylon Health was founded in London in 2013 to effect Parsa's vision of making healthcare accessible for everyone.

It is primarily known for its easy-to-use app, which it has tweaked for different markets, and which promises patients quick access to a doctor via their smartphone. In the UK, the app boasts a 4.7-star rating on both app stores.

During its eight years in operation, Babylon has targeted patients directly through its app and signed deals with health agencies, insurance companies, and private tech firms in the UK, Rwanda, the US, Canada, and Asia.

The company was most recently valued at $2 billion in 2019, when it raised $550 million in funding, controversially led by Saudi Arabia's sovereign wealth fund.

Now, reports and sources indicate that the company is set to join the troupe of European technology firms looking to list in 2021.

The company has telegraphed an increasing interest in the US, hiring senior executives from Amazon and Google, and on Thursday announcing the acquisition of the California-based FirstChoice Medical Group.

Three sources told Insider that Babylon was considering a listing in 2021, and said Parsa was mulling a SPAC deal. This would potentially see Babylon Health merging with a listed SPAC, an increasingly popular way for companies to go public amid the market certainty caused by the coronavirus.

Bloomberg also reported last month that Babylon Health had been approached by several SPACs. It also reported the firm was considering a traditional US IPO, and eyeing a $4 billion valuation.

It isn't clear which listed vehicle Babylon may choose to merge with, and it may choose not to pursue any kind of listing or deal at all.

One name on the table however is Avanti Acquisition Corp., a SPAC set up in 2020 by the Egyptian billionaire Nassef Sawiris and the French businessman Ian Gallienne. Sawiris is an early investor in Babylon.

Avanti is listed on the New York Stock Exchange and is thought to be targeting European tech firms to take public.

One person with knowledge of Avanti's thinking said the firm was only one of several possible SPAC options for Babylon, and that other options were more likely. The person added that Babylon would need to prove its US growth for Avanti to consider taking the firm public.

A spokeswoman for Babylon Health declined to comment specifically on listing rumors. Avanti did not respond to a request for comment.

Insider interviewed Ali Parsa in February and asked about the firm's future funding plans. He said the firm already had considerable capital thanks to its fundraising and recent convertible loan notes.

He continued, in reference to his Iranian upbringing: "You know, I come from the Middle East, and in the Middle East they say if you want God to laugh, you give him your two-year plan," adding that the firm would "always be opportunistic" about putting itself in the strongest financial position.

A clearer focus, and clearer growth coincides with listing rumors

The rumors coincide with what insiders say has been a transformative year for Babylon.

Though the firm began with a UK focus, it formally launched in the US in 2020, and its new senior hires there cap a year of rapid growth. 

Babylon's corporate structure is complex, but financial filings showed its UK arm Babylon Partners was heavily loss-making for the full-year 2019. Revenues are considerably higher for 2020, insiders say, thanks to Babylon's focus on the US during the year.

"Our goal is that by the end of this year to have signed enough contracts to be a $1 billion revenue business," Parsa told Insider last month, adding that he was making this forecast "cautiously" since the firm was making "around $15 million a month" in revenue currently.

Babylon is increasingly focused on what it calls "Babylon 360," a more holistic approach to patients' health that focuses on preventing chronic disease and keeping them out of the hospital, rather than waiting for illness to strike. In the UK, the concept is called integrated care, while in the US this is known as value-based care.

Babylon's partnerships in this area include its work with Medicaid members in Missouri and a long-term contract with the Royal Wolverhampton NHS Hospital Trust in the UK.

The other area of focus is deals like the new Telus structure in Canada, which involves licensing its technology to other firms. It has a similar licensing deal with the UK insurer Prudential.

Earlier, buzzy tie-ups have been axed.

In 2019, Babylon Health announced a deal with Samsung to integrate its symptom checker and video consultations into the phone maker's Health app. That integration ended last May.

"We are constantly evaluating our partnerships in line with our customers' needs and as such, Samsung and Babylon took the decision to remove the Ask an Expert feature from the Samsung Health app from 21 May last year," a Samsung spokeswoman told Insider.

Likewise, Babylon and the Chinese technology giant Tencent announced a plan in 2018 to integrate Babylon's health services into the ubiquitous Chinese chat app WeChat.

That partnership also ended, a Tencent spokeswoman told Insider earlier in February.

Babylon Health was founded after Parsa split ways with his last venture

Babylon Health was born in part, one of its earliest investors says, of Parsa's "chip on his shoulder" about his earlier experiences setting up a healthcare company.

"He had, in a good way, a chip on his shoulder, there was something he wanted to prove, and some of it came from the previous business that he left," said Hussein Kanji, an investor with the early-stage venture-capital firm Hoxton Ventures, which backed Babylon Health in 2015.

Parsa, born Ali Parsadoust in Iran, came to the UK as a teenage refugee after the revolution. He attended the prestigious University College London, earned a doctorate in engineering physics. He also met his wife, Mairi Johnson, now Babylon's partnerships boss. He then went into banking, working at Credit Suisse, Merrill Lynch, and Goldman Sachs. Eventually, however, he turned to healthcare and set up a private healthcare firm, Circle Health.

Circle in 2011 was handed a contract by the UK's state-funded NHS to run Hinchingbrooke Hospital in the English county of Cambridgeshire, making it the first non-state provider of full hospital services. Parsa trumpeted the deal, Circle went public, but then, in a move that raised eyebrows among lawmakers at the time, Parsa unexpectedly stepped down from Circle in late 2012.

Circle Health was subsequently criticized for its handling of the hospital and withdrew from the contract, and the saga was criticized as a privatization failure.

Parsa hopes to get it right this time with Babylon Health.

Kanji said his firm, in about 2015, met several telemedicine startups but was most convinced by Parsa's vision.

"He painted a big, transformative vision for where he thought the future of primary-care medicine would go, in terms of technology and artificial intelligence," Kanji said. "He had this stepladder diagram he got on a chalkboard and drew out for us, and that's what we wrote the check to, that vision. Telemedicine was one piece, the early piece, of this wider vision of transforming primary care."

Other investors would eventually agree, with Babylon Health raising more than $600 million to date.

But for the worthiness of Parsa's vision, his tendency to talk up Babylon's abilities and technologies has irked critics who point out flaws in its offering. 

While venture capital and the startup world have a high tolerance for future-gazing, this has rubbed up clinicians who focus on the here-and-now safety and practicality of healthcare provision — particularly in the UK.

Babylon faces greater regulation in the UK, where clinicians have questioned its safety

Babylon's capacity to disrupt is evidenced by the long-running saga of GP at Hand, the name for Babylon's app in the UK.

As in other markets, the app offers virtual appointments, access to its chatbot symptom checker, and medical information.

Where it differs is that GP at Hand must register with the NHS as a GP surgery with a physical clinic, thanks to the quirks of a state-funded healthcare system. Babylon's real-world practice is based in Fulham, in southwest London, with outposts around the city. This practice has acted as one of the conduits for the taxpayer funding that flows into Babylon.

The fact that most patients access Babylon through its app and are located all around London, not just in Fulham, means it has scaled much, much faster than a normal GP surgery, with 92,000 patients. Data from the NHS in 2019 indicated that the average practice had more like 2,000 patients.

Since practices have conventionally been funded locally and on a per patient basis, Babylon's growth at one point nearly sank the local funding authority, the Hammersmith & Fulham Clinical Commissioning Group. In the summer of 2019, the CCG warned it had run up a £21.6 million deficit, raising alarm over the unseen impacts of disruptive, digital-first GP clinics.

A spokesman for the CCG told Insider the NHS subsequently proposed adapting its funding model, meaning Babylon would have to set up physical sites in areas where it registers 1,000 or more patients and receive funding from other local CCGs.

In theory, this would make Babylon less likely to send one particular funding authority into a deficit. It isn't clear whether the changes will actually come into effect, thanks to the coronavirus pandemic and wider government plans to overhaul the NHS. Babylon, as yet, has not begun setting up the extra practices, in part because it's awaiting further government guidance.

An end-of-year report by the CCG in 2019 indicated that continuing the current funding model could lead to a deficit above £43 million.

Babylon has previously argued that cracks in the NHS funding model are not its fault and that its most vocal critics happen to be its competitors — rival GPs.

Clinicians, riled by its model, argue that the company has gamed weaknesses in the NHS system.

Babylon's symptom checker faces greater regulation after pressure from clinicians

Babylon Health homescreen

Dr. David Watkins is an NHS consultant oncologist in London. He is also a longtime and highly vocal critic of Babylon's chatbot, often to his own professional peril.

Babylon's app features a chatbot-style symptom checker that asks patients for their symptoms and then provides a list of possible conditions and recommends whether to see a doctor. A disclaimer on its website says the chatbot does "not provide a diagnosis."

Watkins told Insider he first came across Babylon in 2017, when the company announced a local partnership with the NHS to integrate the symptom checker into its 111 urgent-advice service.

The 111 service was originally set up to reduce the number of unnecessary emergency visits to NHS hospitals. In 2017, the idea was that Babylon's chatbot would add an extra screening layer, triaging queries and then potentially recommending an appointment with a doctor or hospital without human intervention.

"I thought, that's something novel, I haven't come across a chatbot triage system before," Watkins told Insider. "I downloaded it to give it a go, and right from day one, I thought, 'This thing is absurd.'"

Concerned by its safety, Watkins contacted Babylon to ask whether the chatbot had been validated by the UK's medical regulator, the Medicines and Healthcare products Regulatory Agency, which must approve anything that qualifies as a medical device.

He discovered that symptom chatbots don't need to go through the MHRA's validation process, putting Babylon's system in a strange regulatory gray area. This is despite the fact Babylon's chatbot offers suggestions as to what may be wrong with you — and it isn't a qualified medical professional.

Watkins continued to test Babylon's chatbot and ran hundreds of "full triages" from 2017 to 2020. He estimates he discovered about 100 errors.

"Many of the chatbot's failings were simply amusing but harmless, such as asking 66-year-old women if they were pregnant or breastfeeding," Watkins said. "However, a number of flaws were potentially dangerous, including the failure of the chatbot to appropriately advise patients with 'red-flag' symptoms for a 'heart attack.'"

In one example he tweeted in 2018, Watkins said a fictitious 67-year-old male smoker reporting central chest pain would receive a suggestion of gastritis or sickle-cell crisis, rather than cardiac arrest. A fictitious 59-year-old female smoker reporting chest pain and nausea received suggestions she might have depression or be experiencing a panic attack.

He says he warned Babylon Health at least 28 times of flaws in its "cardiac" triaging process over a period of three years.

And yet the chatbot didn't require particularly close regulatory scrutiny.

"All Babylon had to do was register themselves as a manufacturer with the MHRA, but there's no testing required," Watkins said.

By way of comparison, he added, chatbots receive the same level of regulatory scrutiny in the UK as a walking stick. Babylon's symptom checker is defined as a "Class 1 medical device," meaning it poses a low-level risk akin to a wheelchair or spectacles.

Academics also took issue with Babylon's claims about the symptom checker's capabilities.

In June 2018, the company published a press release and a paper saying Babylon's chatbot achieved "equivalent accuracy" with human doctors.

It also held a public event at the Royal College of Physicians touting the chatbot's capabilities. This was all outwardly impressive, but the research had not been peer-reviewed and led to overblown headlines about the chatbot "beating" human doctors.

Ali Parsa

Academics in November 2018 published a study in The Lancet raising concerns about the way Babylon had conducted its research, describing it as an "internal evaluation" only.

Its lead author, Hamish Fraser, an associate professor of medical science at Brown University, told Insider last month that research around digital health apps "is an area where significant publicly funded research should be taking place, and it's not."

He added that Babylon's team, with its June 2018 paper, was "trying to do something useful" with the self-evaluation but that the results had been over-marketed. "The claims were overblown," he said. His paper, for example, highlighted the fact that data in Babylon's paper was entered by doctors, and to show clinical effectiveness requires real patients entering their own data.

When Insider asked Parsa about the research during the February interview, he said the paper had been published by Babylon's scientists on arXiv, an open-access site where research is approved by moderators but not necessarily peer-reviewed. "If you look at the reviews it received, it was more than what you do in a peer-review system, when two or three people look at it for a journal," he said. "In arXiv, many people look at it."

Babylon's scientists, he added, felt the publishing on arXiv would make their research available to the public faster.

Fraser went on to coauthor a study backed by a Babylon rival, Ada, which he says took in broader data and might be a good model for a future Babylon evaluation. Fraser added that he did not receive money from Ada for his work on the study.

Asked what Babylon should do, he added: "They should do an independent evaluation, where the company can collaborate to the level of offering a version [of its chatbot] that is easier to do the study with, but there's no other level of involvement in the study. That's the relationship I have with Ada."

Watkins likewise agreed that Babylon needed to conduct a "proper validation."

Like Watkins, Fraser sees Babylon's chatbot as a regulatory gray area. "It's fallen into a kind of gap in the regulation process — although there are moves afoot to try and tighten that up, at the moment these types of apps are pretty much unregulated," he said, adding that he didn't oppose such tools, but that more research was required to expose their risks.

It isn't necessarily up to Babylon to fix the UK's regulatory system — though in 2018, Forbes reported that Babylon's own doctors had raised concerns internally that its chatbot software missed signs of serious conditions in 10% to 15% of cases.

Watkins and other clinicians have pursued the MHRA and another regulator, the Care Quality Commission, to regulate Babylon Health more stringently.

His years-long efforts have earned him direct criticism from Babylon, which described him last year as "a troll" in a press release and said it had fixed the issues he flagged with its chatbot.

Watkins disputed the troll characterization and says Babylon took several years to fix the incidents he highlighted.

Parsa in his recent interview with Insider acknowledged Watkins' criticism. He repeated an earlier public estimate by Babylon that Watkins ran at least 2,000 tests or more, which would give the chatbot a lower rate of error than if Watkins performed fewer than 1,000 tests, as he estimated.

Nonetheless, Parsa shifted away from the earlier "troll" language and said he valued Watkins' findings.

"I always tell the team, you can't pay for somebody like that," he said, adding: "The things he discovered, we didn't discover. What do you do — do you say that person's done a bad job, or do you go and kiss their hand and say, 'Thank you'?"

This is not to say Babylon's chatbot is constantly inaccurate or useless. When Insider gave the bot symptoms of possible sinusitis, it appropriately suggested decongestants and a visit to the doctor. We found the service easy to use and intuitive, and, evidently, the swelling patient list for GP at Hand implies the service is popular with the people who use it.

The issue, Watkins said, is if the symptom checker ever fails to recognize a serious condition, especially when it acts as a layer between patients and emergency visits.

"The issue is that they have to have a low threshold to send patients to Accident & Emergency, or they're dangerous," Watkins said. "You can't have it both ways."

Many of the concerns raised by Watkins and Fraser date from 2017 and 2018, and in the years since Babylon has had time to improve its technology. Both Watkins and Fraser told Insider their own tests indicated that the symptom checker had improved.

Babylon has also started publishing peer-reviewed research, including on developments in artificial intelligence, which Fraser takes as a positive sign. "It's a step in the right direction," he said, adding that it was still a leap to providing clinical evidence of safety.

After years of back-and-forth, there are indications Babylon's symptom checker will be regulated more strictly in the UK, in a victory for the clinicians who are concerned by its safety.

In a leaked letter from December obtained by Insider this week, senior MHRA figures wrote that they agreed with Watkins' "valid" concerns over Babylon's chatbot and signaled more stringent regulation.

The regulator also appears to have previously rapped Babylon for its claims about its chatbot, though there was no formal investigation. The startup in 2019 quietly removed videos of its June 2018 promotional event for its chatbot and the accompanying press release about its research results.

A representative for the MHRA told Insider: "If the MHRA discovered claims in promotional material that were inconsistent with the manufacturer's intended purpose, the MHRA would either request these lines be removed or that the manufacturer revisit the classification of their device."

Babylon told Insider it regularly updated its site to showcase new products.

Asked about the possibility of stricter regulation, Babylon said it welcomed "any regulation that helps bring about positive change, whilst maintaining high standards of quality and safety."

The firm added that it constantly updated its products based on feedback and was in regular contact with regulators.

The future of Babylon Health

With the UK potentially poised to sharpen regulation, it's clear the US is the immediate priority for Babylon, where it might expect a friendlier environment to do business.

Parsa told Insider that Babylon Health made about 70% of 80% of its revenue in the US, where it has operated since early 2020.

Asked whether Babylon Health might reduce its presence in the UK, Parsa said no.

"Our position in the UK is what it is, we're not abandoning it, we're here to stay," he said. "We're growing in the UK, the UK is our home, it's where as a refugee gave me my first home, so I couldn't be more grateful to this country. The US is 40% of the world market, and you cannot not be in the US, and you cannot be not winning in the US."

Nonetheless, there is greater appetite for tech firms to operate in healthcare in the US.

As CB Insights analyst Jeffrey Becker told Insider last month, such tie-ups were broadly welcomed.

"There are many private telehealth companies like Babylon operating within the US today," he said, adding that Babylon's model of partnering US health insurers was a logical move.

He added: "During COVID-19, telehealth use grew significantly. However, even prior there was a well-established history of venture-backed startups offering healthcare services to US citizens successfully."

The early investor Kanji was pragmatic about the criticism Babylon had received, saying it was valid for clinicians to hold the firm accountable.

"Ali sells the future," he added. "There are some who think that because the future isn't here yet, it never will be. I'm relaxed about this, because I back the future. But in working with Babylon for six years, almost all of what they promised has played out. And they've grown into a real bona fide, big-revenue business."

Join the conversation about this story »

NOW WATCH: What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence

Full, story source published in: