How did Pharmeasy go from $5.6B to $500M?

Hey there,

Pharmeasy, once India's highest-valued health-tech startup at $5.6B, has now lost 95% of its value.

This spectacular fall reveals cracks in the empty promises made by health-tech startups.

Here is what led to the downfall of Pharmeasy and the whole health-tech industry 👇

1. Healthcare: A need first, business second

Pharmeasy treated healthcare primarily as a business. This approach was flawed. People don't want to be frequent customers in healthcare. The idea of setting sales targets in this sector is unrealistic and even inhumane.

And making the situation worse, Pristyn Care's aggressive sales tactics, including suggesting unnecessary surgeries, further deteriorated the health-tech industry's reputation.

2. The importance of trust in Healthcare

Trust is key in healthcare. People generally prefer a local doctor or a familiar pharmacy over a faceless online service. The uncertainty of who is treating you, where your medicine is coming from, and the involvement of middlemen makes online healthcare less appealing (& trustworthy).

3. Acquisitions that were not needed

Pharmeasy made some questionable acquisitions.

For example; They bought Thyrocare at a 40% premium and funded it mostly through debt (~2000 Cr).

Then they acquired Aknamed in an all-stock deal. However, Aknamed itself was struggling financially, meaning Pharmeasy had to inject more capital to keep it afloat.

4. IPO: A failed escape plan

A common strategy for startups is to accumulate debt, dilute equity, and then launch an IPO. This allows major investors to exit, and the company can pay off its debts.

Pharmeasy planned an IPO too, but market conditions weren't right for these plans. And, they missed the opportunity to capitalize on inflated Covid-19 health numbers.

In conclusion, Pharmeasy's story is a BIG lesson. It highlights the risks of prioritizing business gains over genuine customer needs. The sector's struggle isn't just about financial missteps; it's about losing sight of the core principle of healthcare – trust and care.

As these startups grapple with their self-created challenges, the question remains: Can they realign their focus and restore faith in a sector critical to human well-being? Only time will tell.

✍️ Jargon of the day

Rights Issue - A rights issue is when a company offers more shares for sale at a discounted price, but only to its current shareholders. It's like a special deal for existing investors to buy more shares cheaper than the market price. Companies do this to get money quickly, often for growth or paying debts.

For example, if Pharmeasy needs more funds, it could use a rights issue. Its shareholders get a limited-time offer to buy additional shares at a lower price, helping Pharmeasy raise the money it needs.

Loved this edition? Or have some thoughts to share? We'd love to hear from you

Cheers,
Karthik