The Collapse of Babylon Health: The Problem with AI Technology

In the span of a little bit over a year, Babylon Health's stock price dropped by 99%. Here is everything that happened to this UK telemedicine unicorn startup company.

Babylon Health's Vision and Expansion

What is Babylon Health

Babylon Health was founded in 2013 by Ali Parsa, who taught himself the English language, attended UCL, and eventually graduated with a Ph.D. in engineering physics as an Iranian refugee in the UK. With this highly impressive resume, he started Babylon Health with a dream to become the "Google of health care", with a "mission to put an accessible and affordable health service in the hands of every person on earth".

Babylon Health is a digital service provider that utilizes artificial intelligence to serve as virtual clinical operations for patients. Patients can connect with their general practitioner (GP) through an App or website instead of having to attend appointments in person.

GP at Hands: The Supply-Induced Demand Problem

In November 2017, Babylon launched GP at Hand, an app that allows patients to book virtual appointments.  As a functioning clinic, GP at Hand also offers in-person appointments and is able to do all the things a clinic can do, like prescribing medication.

According to an article on GP Online, "a total of 46% of its patient list are aged between 20 and 29 years old, compared with 13% of the population as a whole, while 85% of GP at Hand patients are aged between 20 and 39, compared with just 28% nationally", as the user base if GP at Hands is highly skewed to the younger generation.

With the mission of providing an accessible and affordable health service, GP at Hands was, in fact, more expensive. There is a phenomenon in health care where demand is driven by supply. It is the opposite of a common business model due to the limited slots of appointments that are available. Babylon Health artificially inflated this supply and made appointments a lot faster, which attracted a lot of younger people who eventually paid more because they just attended more often. An even larger issue is that the GP at Hand service was not profitable. Babylon had to end a ten-year partnership with the Royal Wolverhampton NHS Trust after only two years due to the same reason: not generating enough revenue.

Misaligned interest and Friction

There is a fundamental misalignment of interest in primary care in that each health care provider is incentivized to serve more patients, while the patients want the GP to be more available and provide higher quality health care. As a result, traditional primary care has always had friction when it comes to booking appointments. GP at Hands is essentially an effort from Babylon Health to remove that friction.

However, there is a fine balance between ensuring the availability of appointments and not overserving the population, which makes this friction necessary. A decent portion of the people who attended GP appointments would be just fine if they did not.

This reveals the core issue of Babylon Health,  as one of the earliest AI envisioners, that the Babylon AI was never able to fully replace humans in terms of triage and medical service as a whole. GP at Hands still relies heavily on human operations, which makes it difficult to create a reliable business model.

The Disadvantages of First Explorer

Conflict of Business Models

As one of the first companies to step foot into the AI healthcare industry, Babylon's effort put into developing AI technology and building a successful business model was astronomically high. It takes a long time to build a whole new system from scratch and turn it into a profitable business, and it is even harder to recoup those investments the longer this process takes.

Healthcare is the biggest industry in the world. However, despite trying multiple business models, ranging from primary care, and health insurance to making deals with hospitals, operating in the UK, the US, Canada, Rwanda, and Asia, none of them are the solution to the problems. Attempting all these models is usually an ominous sign that shows an inability to profit.

Inflation in Evaluation: The SPAC Problem

Babylon received some of the highest investments for a European digital healthcare company. At the peak of its evaluation, the company was worth over $2 billion. As a result of this early high evaluation, the company had to scale exponentially in a short period of time. They had to expand to the US market and other places around the world when their business in the UK was far from sound. As said in this Wired article "Major concerns are being raised about Babylon's impact on the NHS", there are some serious concerns about the safety and legitimacy of the Babylon App as early as April 2019, and there are statements that they shouldn't expand to other markets like the US before these issues are addressed.

A special purpose acquisition company (SPAC) is a shell company formed with the sole purpose of raising capital through an initial public offering (IPO) and eventually acquiring or merging with an existing target company to be publicly listed. In the case of Babylon's merger with Alkuri Global Acquisition Corp., close to half of its SPAC investors withdrew their funds right when the merger happened. On top of that, the recent rise in interest rates also significantly shortens the window where Babylon can turn profitable, as they are constantly losing money with every unit they sell.

Bankruptcy of Babylon: The Illusion of AI Technology Company

At the end of the day, Babylon's biggest failure is the illusion of AI technology that they were never able to fully deliver. Traditional health care is a mature market that is known to have thin margins, especially when compared to SSAS or the tech market. Although it is difficult to say what really happened at Babylon Health, it is glaringly evident that they have major issues.

End of Babylon

On June 28, 2024, Babylon announced its plans to delist from the NYSE and transfer its core operating subsidiaries to MindMaze SA, which fell flat a month later, meaning its exit of core US business. Subsequently, on August 11, 2024, Forbes reported that Babylon's shutdown of its operations in Rwanda could potentially affect 2.8 million people. Finally, on August 15, 2024, Babylon announced its intention to liquidate within a Chapter 7 bankruptcy proceeding in the US. The majority of the company's assets were eventually sold to end, with all of their assets worth around merely $27 million.