We believe we are witnessing the dawn of something very special

To our shareholders,

We live in a world where half of our fellow human beings have little access to quality health services, and some five out of the seven billion lack any specialist care. Yet there are more connected devices than people on the planet, and these devices are getting smarter with accelerating advances in technology. Babylon has shown that in environments as diverse as the developed UK or developing Rwanda, urban New York or rural Missouri, for children on Medicaid, or the elderly on Medicare, it is absolutely possible today, by combining cutting-edge technology with the best in medical expertise, to make quality healthcare, accessible and affordable for every person on earth.

Today our technology and clinical services are contracted to serve over 24 million people in 16 countries, with 15 languages. In 2020, we helped one patient every 5 seconds, with approximately 6 million interactions. More importantly, we have more than 95% user retention rate and 5 star rating from circa 90% of our users. Babylon grew its revenues by 394% from 2020 to 2021, and by 472% for the half year ended June 30, 2021. And our momentum is picking up pace: For instance we have organically signed another estimated 135,000 value-based care lives so far, in the second half of this year in the US and the UK, more than doubling our value-based care covered lives in a few months, and increasing our estimated contracted revenue to over $60m per month from launch. Our track record puts Babylon as one of the fastest growing companies in the digital healthcare industry worldwide. For reasons I will describe later in this note, I believe our momentum is structural rather than incidental, and this is just the beginning for us.

We think growth is an early indicator of future market leadership. While ours may seem extraordinary in the healthcare universe, it is not unlike the levels of many disruptive digital innovators such as Amazon, Netflix, Facebook, or AirBnB, who also showed triple digit percentage growth in their “take-off” years. Similar to what happened in those sectors, we believe we are witnessing the dawn of a structural digital overhaul in healthcare. This transformation in one of the largest sectors of the world economy has the potential to give birth to some of the most valuable and impactful enterprises, with their members, partners and shareholders benefitting from extraordinary returns. I cannot guarantee to you that we will be amongst them, but I can promise you that we have the ambition, determination and single-minded focus to give our all. I hope that our track record demonstrates this.

The Winners Will be Those That Re-engineer a Superior “Value Proposition” for All

Many argue the healthcare sector is broken. Nothing could be further from the truth. It is not broken, it is misnamed. This is not a healthcare sector, it is a sick-care sector, and it is very well tuned to extract maximum economic benefit from it too. No wonder it has grown to become one of the world’s largest economic sectors. The entire sector is designed to wait for crises and emergencies, and then get to work, where the consequences and therefore the costs are significant. In Babylon we aim to transform this reactive model of sick care to a proactive healthcare service that works to keep people at the peak of their health, and help them to avoid those unwanted crises. Taking the analogy from another industry, the simple example of a dental root canal - while very expensive, and very painful, in the vast majority of cases, it is also very preventable with a simple dental checkup, monitoring and early intervention. The majority of healthcare costs are the same - predictable and preventable.

Most companies manage to a short term annual budget, and a few to an incremental 3-5 year plan. But history has shown that the winners of any sector are those that have the discipline and the ambition to overhaul the value proposition for the sector. We therefore, behave differently than most other companies. Everything we do at Babylon is focused on sequentially re-engineering every touch point in the healthcare continuum.

Michael Porter defined “value” in healthcare as quality of care (patient experience plus clinical outcome), divided by cost of delivery. As our physical world transforms into a digital one, we believe the winners will be those who use accelerating digital capabilities to reimagine the experience of healthcare and overhaul its cost, rather than those who replicate the existing models digitally. So for us, every investment decision comes down to answering a short and simple question: Does it make it better “value”? (Or said differently, does it improve the member’s experience, the clinical outcome, or reduce the unit cost of delivery?)

In our view, the compounding result will eventually create an ever deeper and wider moat that will set us apart. We are at the very start of this journey, but the early signs show we are on the right path:

• Member Experience: Over 90% of our members report being very satisfied with our service across all of our geographies, irrespective of their socio-economic background or demographics, from countries as varied as the US, UK and Rwanda.
• Clinical Outcome: Ratings of our clinical quality outcomes have been equally high in every one of our markets. For example: in the UK we have been rated as “Outstanding” in the ‘well-led’ domain by the Care Quality Commission, where we scored 96% in the NHS Quality Outcome Framework.
• Total Cost of Care: Again the impact is already clear in all our geographies. A peer-reviewed paper, based on independent NHS data in the UK, reported that we delivered up to 35% of acute care cost savings for our members compared to other similar cohorts, and in the US, our member data shows that we avoided around 34% of ER/Urgent care visits for our cohort.
• Unit Cost of Care: Our unit costs of care are falling in every one of our markets too. For example: in Rwanda there has been a 55% reduction in the unit cost of our consultation, while in the UK, our unit cost of deliver of primary care per person dropped by 33% in 2 years.

None of This Is Incidental: Our Business Model Gives Us a Structural Advantage

Advances in technology have made it possible to truly reimagine service experience and standardize clinical quality in healthcare at scale. In a sector where a significant amount of costs are people-related and spent on predictable and preventable ailments, technology can also be a powerful engine for automation and prediction. A bricks and mortar presence does not benefit from the application of Moore’s Law, and clinic-centric models have a structural disadvantage (remember the retail heros of the past like Borders and Toys R Us?), no matter how brilliant their management or how hard working their team. By having a digital-first model, we are the beneficiaries of accelerating advances in computing power, bandwidth, data collection, prescriptive analytics, artificial intelligence, robotic processing, virtual interfaces, remote monitoring, and so much more. In time, our cumulative, compounding advantages will create an unsurpassable ‘moat’.

We are building our products and services on a robust platform model to combine capabilities that can create integrated experiences and services. At the core of this, we are creating a world class data infrastructure to deliver a holistic single view of each individual’s health graph, and have platformized our artificial intelligence capabilities to enable them to be quickly embedded across our products. We expect our platform approach to compound the benefits of new features and capabilities. While we still have a long way to go in this process, we are already seeing the operational leverage of our technology:

• Our total technology costs only increased by 22% while our revenue increased by 472% for the six month period that ended June 30, 2021.
• Our total technology costs declined as a percentage of revenue from 200% for the six month period ended June 30, 2020 to 43% for the six month period that ended June 30, 2021, and is expected to further decline to below 15% of revenue for the year ended December 31, 2022.
• Meanwhile circa 48% of all our member interactions are done through our technology platform with no human involvement.
• In our longest standing market in the UK, 84% of all our primary consultations are now entirely virtual.
• We have already integrated over 100 data sources resulting in access to 80 billion data points fueling our AI efforts.
• In peer-reviewed research published in Frontiers in Artificial Intelligence, our technology, under selective test conditions achieved 80.0% average recall and 44.4% average precision, compared to doctors who took the same test and achieved, on average, 83.9% and 43.6%, respectively.

Babylon Is A Special Place For Exceptional People To Dream Big, Build Fast, and Be Brilliant

Most companies fail to deliver the extraordinary, not because their people don’t work hard enough, or are not smart or ambitious enough. They fall short because they succumb to short term pressures over long term ambition, favour present returns instead of investing in future growth, and make timid decisions from the fear of failing rather than risking bold plans that could produce game changing results. At the very start, we wrote on a wall of our first office, the annex studio at the end of my home’s garden terrace: Dream Big, Build Fast and Be Brilliant. Babylon is for people who believe two out of the three is not enough.

In Babylon we celebrate outstanding people who Dream Big, and do all we can to create an environment in which they can thrive. We understand that bringing a dream to life is hard work, so we want our people to Build Fast. We are in a race, and Babylon is a place for racers with a sense of urgency. However, building fast does not mean cutting corners or racing to the bottom. To truly go fast, Babylonians understand that we need to Be Brilliant, as our work matters to people’s lives and well being. It therefore takes a very special person to deliver all that we demand. I am super proud of my fellow Babylonians. We are determined to build one of the best managed companies in the world, and gather some of the best people in the world, to do their best work here. If we achieve that, everything else will follow. The data from our extensive internal anonymous surveys show we still have some way to go, but are on the right track:

• 91% of Babylonians are inspired by the purpose and mission of Babylon.
• 89% believe they make a difference in their teams.
• 88% would say that their work is meaningful.
• 86% are happy with Babylon's efforts to support Diversity and Inclusion.
• 84% understand what is expected of them every day.
• 83% feel like they are given enough freedom to decide how to do their work.

This Is Just the Start

Many companies go public for the founders and investors to go to the beach. They even call it an “exit.” We, on the other hand, are going public to increase our capital access and resources to deliver on our promise of re-engineering every touch point in the healthcare continuum. We have created significant returns for our shareholders so far, but we are just at the start of what we believe will be a transformative period for one of the largest sectors in the world economy. If we continue to deliver as we have, we believe we will continue to create extraordinary value for our shareholders, but more importantly, we plan to do so by creating an even more extraordinary value proposition for our customers and partners. We cannot promise you this will be a smooth ride; as Benjamin Graham wrote: “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” I can promise you however, that we will continue to focus on that long-term advantage. If you share our values and our mission, come and join us in our journey to help make quality healthcare accessible and affordable for every person on earth.

Ali Parsa

References

1. Based on user feedback following digital consultation with a clinician. User ratings measured between January 2021 and September 2021.
2. Quality and Outcomes Framework, 2019-20. Scores across segments totalled 536.6 points out of 559 points, or 96%.
3. A peer reviewed study commissioned by Babylon Holdings and published in Journal of Medical Internet Research. The study compared spending per patient for Babylon GP at Hand to the regional average spending over a two-year period from April 1, 2018 to March 31, 2019 in North West London, where Babylon GP at Hand is based.
4. Based on Babylon survey of patients who had a consultation as part of a specific health plan that has Alternative Health Choice (AHC) surveys as part of consultation booking flow. Data from January 2020 - February 2021.
5. Between 2019 and 2021.
6. Data from 2019 to 2021.
7. Data from January 2021 to September 2021
8. 84% of all GP at Hand, UK, completed appointments were digital between January 2021 and September 2021.
9. ‘A Comparison of Artificial Intelligence and Human Doctors for the Purpose of Triage and Diagnosis’, 2020