Babylon Health CEO Ali Parsa doesn't seem overly concerned that the company’s shares have plummeted in just over a year.
“When I look at the stock price of Babylon, we are supposedly worth less today after generating more than $1 billion in revenue in 2022 than we were in 2016 as a private company that was doing about $1 million in revenue,” Parsa said at the J.P. Morgan Healthcare Conference in San Francisco on Thursday. “Stock markets are usually either too optimistic or too negative, but eventually they settle on the right [value]. This will settle itself in time.”
Babylon Health shares have fallen from a high of $272.50 per share right after its initial public offering in October 2021 to $8.99 at market close on Thursday.
The company has suffered in part because of investor backlash to special purpose acquisition company IPOs, Parsa said. “Our SPAC happened in October 2021 when all the other SPACs were falling apart,” he said.
Babylon Health generated $1.05 billion in revenue last year, a three-fold increase from 2021, but remains unprofitable. The company recorded a $89.9 million loss in the third quarter and a -20% margin on an earnings before interest, taxes, depreciation, and amortization basis, Parsa said.
Parsa predicted his company would be profitable in the near term. "It might be the end of [2024] or the beginning of [2025]. It doesn’t matter,” Parsa said. “We will break even.”
In an August interview with Digital Health Business & Technology, Parsa similarly said it would take two or three years to break even. The company plans to cut $100 million in costs, including through a planned sale of Meritage Medical Network, an independent association of about 1,800 California physicians.
Babylon has shifted in recent years from contracts with the U.K.'s National Health Service to working with U.S.-based insurers such as UnitedHealthcare and Aetna. Parsa said that because the U.S. spends so much on healthcare compared to the rest of the world, it’s imperative that Babylon focuses its efforts domestically before looking abroad.
In the third quarter, Babylon’s value-based and commercial contracts represented nearly half of its revenue. But while value-based revenue was around $267 million, claims expenses were $264 million. Low medical margins have hampered the company’s path to profitability.
Parsa said the virtual-first model will be more profitable and scalable than companies adopting brick-and-mortar and hybrid models. He said 90% of the company’s interactions were virtual and nearly half are done without any human involvement.
“Physical [locations] are all the rage and everyone is spending billions on these shops that will sooner or later become redundant,” Parsa said. “I believe we can take most things away from the physical world and deal with them virtually.”
Parsa predicted that in five years, brick-and-mortar stocks would bust while Babylon's would rebound.
Nevertheless, rivals and investors remain interested in physical sites of care. At the same conference on Tuesday, virtual physical therapy provider Hinge Health said it would introduce in-person visits in certain markets alongside its telehealth offerings. “We see hybrid care as a fundamental shift and evolution in healthcare delivery,” CEO Dan Perez said. “We don’t think healthcare should be exclusively digital or in person.”
