Contributed by: Show Editorial Team
Hannah Kuchler, Alex Denner, Annie Lamont, Jason Bonadio, and TJ Carella discuss Healthcare Innovation at Greenwich Economic Forum (Greenwich, CT)
- Companies like Amazon and Google are driving change in healthcare
- The past 20 years have seen tremendous advances in biotherapeutic approaches to disease
- The role of the consumer in healthcare has changed significantly and directs private equity investment
INTERVIEW TRANSCRIPTS: Hannah Kuchler, US Pharma & Biotech Correspondent for Financial Times, Alex Denner, Founder/CIO of Sarissa Capital Management, Annie Lamont, Co-founder/Managing Partner at Oak HC/FT, Jason Bonadio, Managing Partner/Portfolio Manager for Alera Partners, TJ Carella, Managing Director at Warburg Pincus.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 00:00
So I think that we look at healthcare at the moment, we can’t help but think of 2020 and you know, the market has, the sector has underperformed the market as there are the traditional concerns about the potential for political disruption to the healthcare system and perhaps you know, on the same traditional concerns ahead of election but on steroids with this one with drug pricing reform as an everyone on every side of the aisle has seems to have their own proposal for that. And of course Medicare for rural. But what I’m excited about today is that we get to look past 2020 into the future and see the, some of the fundamentals of health care you know, remain the same there as aging population. There is huge unmet need and now we are getting more and more exciting new technologies that will help us address some of those issues. So I thought that given you come from such different areas of healthcare and such different stages of investment, it would be great if we could start by sort of introducing yourself and saying what is the most sort of exciting opportunity in healthcare for you now? So Alex, do you want to start?
Alex Denner – Founder/CIO, Sairssa Capital Management: 01:13
Sure. my name is Alex from Sarissa Capital. As soon as a capital where an investment fund, basically the value based investment fund, we use the tool of activism in, in, in most of our investments to sort of bring the companies to be run more optimally for shareholders. We think one of the issues in healthcare is that when you have a product that is successful, it’s a really good business and they have very high margins, very high barriers to entry that can allow for lackadaisical or suboptimal behavior that just doesn’t occur or you can’t get away with in most other industries. And we try to bring that and leverage that through usually going on the boards of the companies. In terms of, we were very excited by the opportunities that it in healthcare.
Alex Denner – Founder/CIO, Sairssa Capital Management: 02:06
I think it’s really good. It’s a really a fun time for, you know, for the sector generally. We are sort of contrarian in the sense that, you know, we’re very excited about, we were talking earlier, we were very excited by let’s say gene therapy. We see on average sort of better investment opportunities in some of the sectors that are maybe a little bit more out of favor and less kind of sexy. And this is something that happens with the sectors where they sort of was in healthcare. There’s, you know, certain oncology become, nobody wants to do oncology, which was the case about a decade ago. And then a bunch of in most pharmaceutical companies got out of the business. And now it’s sort of one of the hottest sectors. And you know, similarly with gene therapy, those are two hot ones. And then some that have less hardware, you know, that we generally find more value say like in and diabetes. Some of those areas are something that I think pharmacy is still huge unmet need in the pharmaceutical industry is sort of becoming aware again about you know, how many patients you know, would benefit from new, from new therapies there.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 03:19
I’m Annie Lamont. So we think of this venture capitalists, we do venture and growth. And we’re early to late, so we’re all the way from million dollar investment seed investments to 60 to a hundred million dollar growth investments. And the way we think about innovation is that we are all about lowering costs and improving quality of life. Like that’s the mission. I mean, what do we get excited about? I mean, everything we do is about that. And if you define that innovation as sort of lowering costs and thinking about it that way, it’s software enabled services and solutions is what we’re focused on. And if you, in terms of what’s going on now on that front if you, if you’re going to lower costs, the reality is we are completely focused on the end of fee for service and that is our utopia.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 04:21
And with value based health care and a new payment models, it’s really all about business models and payment models. It’s not as much about technology. It really is about rethinking how you deliver care and what the business models are around it. And what we, I mean I’ll just give you an example that I think is emblematic. If you can create a business model or a payment model that makes sense in an area like palliative care, then you can create a company that affects thousands of people, hundreds of thousands of people, but you can also create a model that CMS can adopt and then affect millions of people and tens of millions of people. And that’s what we’ve done in palliative care with a company called Aspire. That is been focused on the end of life. You know, last year of life.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 05:07
And if you think about, you’ve probably heard of hospice is a benefit, which is really end of life. We actually backed an entrepreneur that had never worked in a company before us. His first company, first time CEO, but he created a model where insurance companies would pay him to go into homes and he could identify through an algorithm who was most likely to die within the healthcare claims, you know, most likely to die in the next 12 months, get on the phone and call people up and say, I have this great free service for you. And we are going to through in home visits and over the phone support your efforts, you know, and, and these are people you know, and you try say you, nobody’s saying, you know, and you were most likely to die in the next 12 months.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 05:54
It’s, we knows you were in distress as a family is caregivers. And 87% of the people called took the service. And then we had 90%, you know, net promoter scores and our NPS scores in terms of the care that we were giving. And then we had six times ROI in terms of the savings that we produced at the company. So this is the company that in a period of four years, you know, started went to 200 million was sold to Anthem. But what’s really exciting about it is that now CMS looked at their payment model and said, you know what, we can do this with palliative care too and over the next couple of years they are going to roll as a standard benefit in CMS. And to me that’s impactful. So I mean these are the things we’re doing and again, it’s all about payment models.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 06:41
The only other thing I’ll say Andrew was like exciting because it’s certainly be asked my kids, healthcare is not particularly exciting, but what we think is exciting is that companies like Amazon and Google are coming into healthcare and that is shifting the landscape in terms of what legacy players are doing. In anything like, you know, even the, I don’t think actually much comes out of the JPM Amazon Berkshire effort, at least we haven’t seen anything yet, maybe in the next five years. But just fear, you know, that fear factor and you’ll get Amazon buying PillPack and thinking about distribution. And now they bought a clinical care company. These are really important moves and it’s helping to drive innovation and they’re certainly much more likely to work with our small companies.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 07:24
Yeah, I definitely want to dig into to that and how those big companies are completely changing the market later on. But Jason, would you like to share your most exciting thing found a deal with Alera partners?
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 07:34
We invest in the public space and, you know, we look for disruptive opportunities, areas where there’s unmet medical need, and also you know being aware of where there’s excess hype in the marketplace and picking up on, you know, something that Alex had mentioned. You know, I look back, you know and when I started in the healthcare investment business back in 2001 the biopharmaceutical area industry basically had, you know, three general types of modalities or treatments that they could use to help treat patients. You had a traditional small molecule drugs. Aspirin is a, is a perfect example of that. You had protein, recombinant protein drugs. Insulin as an example of that. And you had the beginning of antibody therapeutics. So, you know, there were very limited in terms of, you know, how drug companies could come up with new ways to treat disease.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 08:34
You know, you fast forward, I mean, the proliferation of just the number of treatment modalities that companies have at their disposal really has ushered in an unprecedented amount of innovation. I mean, you still have you know, traditional small molecules were common or proteins. They had monoclonal antibody space has grown into a hundred billion dollar market, you know, five of them, top 10 pharmacy best-selling pharmaceuticals are monoclonal antibodies. But even within that space, you’ve now have companies engineering doing protein and genetic engineering on antibodies, linking them to toxins, creating antibody drug conjugates, designing antibodies that could called bi-specific antibodies that could, could target two cells at the same time. You have novel technologies like antisense, Oh, look, a new, I’ll look at nucleotides, which allow companies to develop biologics that can now treat targets within cells. You have gene therapy gene editing. So if you think about the number of treatment modalities that companies have at their disposal, you know, that’s why we’re seeing unprecedented amounts of innovation. When you even compare that to, you know, 20 years ago when companies really only had these sort of three tools in their toolbox.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 09:52
Yeah. Good and far beyond the pill, but also much more difficult to spell. TJ, what do you think is most exciting?
TJ Carella – Managing Director, Warburg Pincus: 10:00
So I’m with Warburg Pincus, lead healthcare investing. I think one of my colleagues was up here earlier, so I won’t repeat the commercial, but we’re large scale private equity in health care. We actually follow a lot of the same trends is Oak and how Annie described her practice. But I’d say in general, we’re the next phase of an investor and in terms of size of our target companies, but we’re always looking for companies that are at inflection points in their growth trajectory where we think we can bring something to the table other than just capital in the form of a strategic ideas as to how to help management teams reach their objectives and other resources that we can bring to bear as a large global firm. In terms of just kind of listening to the panel here, we plan a bunch of different areas across really the spectrum of healthcare and across geographies and there’s lots of exciting things going on in the world of healthcare innovation around the world.
TJ Carella – Managing Director, Warburg Pincus: 10:57
Just listening to Jason’s comments on gene therapies and cell therapies and oligos, which is the only way I can describe what you said. We tend to be the investor as opposed to investing directly in the therapeutic and in the technology, if you will, that is driving that innovation. We tend to be the next step, the derivative where we like to do, for example, picks and shovel. We call picks and shovel investing into those great end markets, which are seeing themselves a lot of capital accumulation. And so we’ll provide the infrastructure that will help support these technologies to get to where they’re going. So for example, contract manufacturing type operations that might house gene therapy products and technologies and or reagent companies that are providing the inputs to a lot of the research around novel therapeutics. So we do that type of investing, but in terms of kind of something that is maybe less esoteric and where we spend a lot of time, and I think what something that, you know, all of us in the room can you know, can think about and, and, and experience is just the role of the consumer.
TJ Carella – Managing Director, Warburg Pincus: 12:07
So a different area of innovation within healthcare. And maybe a little more along the lines of kind of what Annie was talking about. Pretty much as I look at my portfolio at Warburg, every investment, even ones that are really technology focused software type investments have some consumer oriented element to them. And I don’t think if I were up here 10 years ago looking at my portfolio 10 years ago or, or living in the healthcare environment of 10 years ago, I would be saying the same thing. I think that Obamacare legislation while imperfect in so many different ways. It did catalyze this sort of revolution of thinking around the consumer and empowerment of the consumer both in the form of deductible, high deductibles that sort of came out of some of the Obamacare legislation and the ACA reforms as well as you know, patient, other patient responsibility, co-insurance and things of that nature, which has pushed responsibility on healthcare decisions as well as a financial responsibility to the patient and the consumer.
TJ Carella – Managing Director, Warburg Pincus: 13:15
And from that has been birth so many companies that are trying to address that, whether it’s creating a digital front door, opportunities for primary care or primary care. It’s this kind of archaic aspect of the healthcare system. And a primary care doctor would be on this treadmill of seeing, you know, 30 patients a day and providing, you know, very little you know, direct insights with those patients who really needed the most help by using tools and technology and by providing support to a primary care doctor. You can do a lot more and we’ll get into it. But we make investments in companies that tried to address those consumer needs. So for example we have an investment in a business called city MD, which is a large scale urgent care player in the New York Metro area with about 120 locations around the Metro area.
TJ Carella – Managing Director, Warburg Pincus: 14:06
And it wasn’t that necessarily when we made that investment. We were thinking urgent care is the end all be all in, in terms of investment thesis. In fact, there are some barriers to entry issues that would have led us in most markets to be a little more discouraged. But what we saw in city MD was a pivotal role that that company was playing for consumers in the marketplace. Net promoter scores of 75 sort of Apple like experience when you walk in the door where you’re not ever happy to go see the doctor, but where you were experiencing things as a consumer, as you would want to on demand, when you need the care, a very short wait times, easy to understand financial responsibility. The things that I think you know, historically healthcare, it’s really failed consumers around are things that we’ve addressed through that investment. And now we’re vertically integrating. And because our patients, you know, like what we’re doing, we’re trying to do more for that patient population. And we did so through a big merger with a multispecialty medical group where we’re now able to provide seamless integrated care, which can serve 90 plus percent of all the healthcare needs of a consumer and their family. And so those are the types of things that we think about is innovating and trying to support the consumer on a very complicated journey which is healthcare.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 15:24
It’s a very complicated journey for the consumer. And I’m a very broad industry as we can see from, from your exciting opportunities. I wonder, Jason, if you could, you know, take us at the start of the process where the scientific discoveries start to become things that can be commercial opportunities. I mean, what’s laid the groundwork for this huge range of investment opportunities that you were describing?
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 15:49
All right. Not, that’s a great question. I think investors you know, even specialists forget about this. And you know, if you look back over the last 30 or 40 years, there’ve been, you know, remarkable scientific advances. But if you look at the big ones you go back to the early seventies and you had the first discovery of the enzymes called a restriction and a nucleuses and what those are molecular scissors. And you know, that that discovery basically ushered in the beginning of the biotech revolution. But it took 10 years to go from the discovery of these molecular scissors to the first biotech drug, which was human. Which was a recombinant insulin there was produced in a bacterial cells. What this technology enabled was to turn a bacteria into little factories to produce biologic proteins now, but that was a good 10 to 12 years from a scientific discovery to commercialization.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 16:46
Also in the mid 1970s, you had the discovery scientific discovery of production of monoclonal antibodies, which I had mentioned before. And scientists were able to take immortal cell lines from cancer cells, infuse those with plasma cells, which are the cells of your body that produce antibodies. But it took 10 years to get from that discovery, the creation of something that’s called a hybridoma to produce the first commercially available monoclonal antibody. And I think it was at 1986, however, you know, most of the antibodies produced at that time were made in mice and they had a really bad immunogenicity and there were side effects were really difficult for patients. So it took another 10 years from that point for the industry. The essentially humanizer re-engineer those antibodies. And in 1997, 98 you had the commercial launches of Rituxin and Herceptin.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 17:42
And that really ushered in the golden age of antibody technology. And like I said, now, you know, five of the top 10 best selling drugs are monoclonal antibodies. And the industry is North of 100 billion. You know, today it’d be probably if you wanted to you know, compare, you know, where we are with some of the seminal breakthroughs. You know, I think the discovery, you know, back in first publication back of the CRISPR CAS nine gene editing tool in 2012 is probably on par with some of those landmark discoveries that we saw back in the, you know, early seventies and early 1980s, you know, but just as we saw, you know, going through the recombinant evolution, there was hype. And then there was a letdown. And then there was a Renaissance. We saw the same thing in antibodies where there was a hype, there was a let down and then a Renaissance.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 18:36
And you know, now it’s a viable therapeutic, I think CRISPR also the gene editing companies. And I think it’s a remarkable tool. It’s going to accelerate the path of innovation. But if you look at history as a guide there’s a lot of iterative science that needs to be done between now and, you know, making a technology that really is safe and you know, it could be utilized in a lot of patients. So I think, you know, there was a lot of excitement around that when the first publication came out in Oh 12. And there’s a lot of companies that came public you know, promising a lot of things. And I think we’re going through a period right now where you know, investors like us have the opportunity to, to sip through the hype, you know, find opportunities where, you know, there’s a lot of hype but not a lot of substance, and also find companies that are really innovating and are going to, you know, provide those cures.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 19:28
But when it comes to CRISPR, what are you looking for? That will sort of, you know, last the duration and what might fall away.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 19:36
Well, the interesting about CRISPR is remember it’s a tool, it’s a research tool. So it enables, you know, a lot of you know, cellular engineering, you know, gene engineering that you can manipulate cells. You know, but one of the potential side effects is known off target gene editing and you know, that’s one of the things that we do.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 19:57
So you said that that’s editing the wrong genes or editing genes in the wrong way.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 20:02
Yeah. Where you can, you know, accidentally, you know, God forbid introducing mutation that could cause a cancer or something. So again, if you use history as a guide, you know, there’s a lot of hype around these new technologies and rightly so, but it takes a long time to get them to be commercial.
Alex Denner – Founder/CIO, Sairssa Capital Management: 20:23
I think a point to make to is that, it is just, you know, very well there can be off target effects, but there’s also a lot that’s not understood about these things. So gene therapies can go in the vector. You know, gene therapy is basically replacing a gene in a broken gene in someone’s body and you have a virus usually that infects the person that does that does that. And the virus can, can work properly in the sense that it can introduce that new, but our bodies are incredibly complex and they react in ways that are just not obvious or understood at this time so that everything can work well technically. And then you still end up having sort of bizarre you know, kind of unexplainable side effects potential, you know, potentially even years later.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 21:09
Yeah. There’s a lot of excitement about some of the technologies that doesn’t take into account necessarily how much we know about biology. So Jason gave us a great history of scientific discoveries and how they became commercialization. And what is your history of how we got to this point where there’s a lot of opportunity to save money in the system. Obviously we know there’s a lot spent in places that didn’t necessarily need to be said. And also, you know, a lot of pressure to save that money. Right now
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 21:41
What Jason’s reminding, I did 15 years of investing in biotech and I as I got older, I have less and less the patient. So I think it was fascinating about healthcare is it’s really the only industry where technology has only increased cost. I mean, if you think that technology everywhere else and even information technology, it’s all about efficiency, more productivity. And clearly in the, obviously from the life sciences side, the technology has been amazing in terms of, you know, lifesaving drugs and diagnostics, but there’s so many technologies that have been introduced because it isn’t a free market, right? It isn’t a inefficient well-functioning market. You know, if you just look at, I’m assuming protein, proton beam therapy or even surgical robots the reality, I just sat in a room with the heads of many of the major hospitals in America and they all admitted that surgical robots in 99% of the cases don’t do better than a good surgeon.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 22:40
You know, and yet it’s a marketing tool. So, but you know, who’s paying for that? I’m working. And if you think about what happened with EHR is, are just a really interesting example. I mean, absolutely we have to have interoperability of data. We did it, you know, so badly. And so that, you know, that scenario, if you think about all the downstream ramifications of it, I mean the intentions were good, but EHR is have made everyone so much less productive. And now we’re unwinding that with new software and technology. So I mean, I think what’s promising in the future is that, you know, there, there are two things that happen. So EHR is, came in and obviously there was meaningful use. So electronic health records what happened was that you were incented as doctors to, you know, to adopt them. And then doctors found that they really couldn’t be independent and that they needed to be part of a larger system to really pay for all the technology that was being required of them. And so you had this massive you know, acquisitions you get 60% of all primary care docs all of a sudden became part of hospital systems, which they became lost leaders and hospital systems. They were supposed to be referring people into the hospital systems. This is exactly the opposite of what should be happening in terms of primary care docs being separate from the hospital systems, controlling 80% of the downstream costs. And then selectively referring to hospital systems only in cases where somebody really needs to be in the hospital.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 24:12
And we are, you know, unwinding that now so that we have 30% of all physicians are primary care docs are employed by hospital systems. So we’re, you know, we’re moving in the right direction. But it’s one of those things where the good news is doctors now need to be aggregated. If you think about it, all care needs to be coordinated to really be good care. It’s not just a one-on-one. You go to a good doctor and then they, you know, they leave you with, you know, the door. It’s all about care coordination. It really all is about aggregated primary care practices, taking risk on individuals and caring about their downstream health. So that’s an area that I know TJ and I are very aligned to, we actually have five different investments in primary care.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 24:57
I think there will probably be four or five primary companies going public next year and that’s going to be I think a wave that you see over the next four or five years of companies that are coming to the public market and really, you know, sort of providing better care and having a new sort of risk model. I think what’s interesting in the end, the electronic health record area that’s actually technology base is that you now that we’ve invested in them to go notable and you know, with a very simple natural language processing from Google and, and I watch that we are now recording everything that’s going on in a doctor’s practice. And that is automatically being transcribed and automatically being put into an EHR. And it is also automatically doing order entry for your labs is doing prescription orders.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 25:47
So doctors don’t have to touch any of this, they don’t have to do any prescribed transcribing, they don’t have to do any orders that have to do any follow-up. It is all automatically taken care of. It is saving doctors about an hour to an hour and a half a day. It’s the first thing I’ve seen that actually transforms a provider experience. And it’s also the first thing that changes the whole electronic health record business, which is now sort of dominated by two providers, Cerner and Epic in the United States. And so it, you know, I think the evolution of that and workflow in the practice is, I mean, I always kept saying is we were investors in the Athena health channel, the bushes company. And that was a cloud based system and it was sort of like, how do we do best of breed? And you know, it never got to the hospital fast enough. And so we need, you know, I just thought like, how are we going to get to the best of breed? Well, I think you’re going to do this, you’re going to backdoor into it with actually populating and creating a different, whole different EHR to create a longitudinal record of for a patient.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 26:45
So just back on the primary care, I was fascinated to hear you say that you don’t think that Amazon, JP Morgan and Berkshire Hathaway’s venture is necessarily going to save the healthcare system. Obviously some people are, and as you said, some people are running scared, you know, what do you think, where do you think it potentially pulls down?
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 27:08
Well, I think right now it falls down. I may save it on management and alignment of the interests of the parties that own it. I think they’ve got a phenomenal individual and a tool. Blondie who’s running it. But he’s also a running a, Rodney is palliative care, you know, so you’d have sort of his own research entity and he’s applying some of those research methodologies into Haman. But they just, they don’t have a team, you know, and as I said to them from the beginning, if you’re not creating this sort of independent for profit entity, I’m afraid you know, where people are incented in a for profit way, then you’re not going to get the best people to come and figure this out. And again, maybe I’ll be wrong over five years, they’ll figure out something that’s fantastic, but I can tell you from our exposure to Amazon, they’re not focused on the drawl.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 27:57
They’re focused on what they’re doing within Amazon and they’re being very secretive about it. But you can just, you can see the pieces coming together. You can see PillPack, well obviously drug distribution and you know, sort of delivery to the home, it makes total sense to them. They’re going to like own that whole chain. You can see they’ve just are acquiring a primary care and employer-based primary care group in forever rolling out clinics. So you could see that in terms of, you know, the virtual integration and I talked about virtual primary care along with onsite. So I mean they’re moving, they’re doing things, you know, that are really interesting.
TJ Carella – Managing Director, Warburg Pincus: 28:32
I’ll weigh in on that too. So I think they’re joint venture or whatever they’re calling it is called Haven. And while I tend to agree with you that at least for now, we haven’t seen them make, make much progress. I think they’re onto the right problem. The problem being what Buffet describes as the tapeworm of the US economy, which is healthcare. The fact that there’s 150 million Americans who are insured through their employer is kind of a bizarre phenomenon to begin with. Which dates back to post world war II wage caps. And the advent of employer sponsored healthcare which has obviously huge tax benefits associated with it, which encourages overspending and which over time has evolved and employers have continued to use healthcare and associated benefits as a way to differentiate among themselves and to attract interesting and talented employees and to retain those employees.
TJ Carella – Managing Director, Warburg Pincus: 29:36
And so we’ve kind of come to a point where employers have sort of lost control and even though they’re the largest payer in the US healthcare system, they don’t act like it. And, so I think what Buffet and Amazon and JP Morgan have identified as something that needs to be changed. And with that comes opportunity and there’s a bunch of companies that are addressing those issues and doing it pragmatically in an a for profit way, which I think is absolutely consistent with trying to solve these problems. And there are companies that are really interesting that we like a lot of companies like quantum for example, in a business called accolade that is, they’re kind of in this world of what they call healthcare navigation where an employee doesn’t know where to go, what doctor to see, how to address some sort of a critical or chronic medical condition.
TJ Carella – Managing Director, Warburg Pincus: 30:27
There’s a lot of also point solution technology companies that have come up to help address issues for employers. Lovango was one that’s now public and it’s making headlines and there’s a bunch of others. And so it’s a big problem and it’s not isolated to the employer, but we spend a lot of time thinking about the employer and how we can solve problems. And as a derivative as I started earlier, the consumer and the employee, cause what the employers now doing is saying, okay, well I’m just going to push more responsibility and make it the consumer’s problem and turn what has been more of a defined contribution or rather a defined benefit into a defined contribution where they’re saying, okay, we’re going to pay this much. And then consumer you go and through a high deductible or otherwise figure it out.
TJ Carella – Managing Director, Warburg Pincus: 31:17
And you know, the, the, the employee and the, the consumer can’t just be left to do that on their own. And so now there’s all sorts of tools which are enabling that consumer to make better decisions. Whether it’s just simple stuff like transparency, understanding prices, which you would think in any industry around the world is kind of goes without saying. That’s the, the foundation of business. There’s a price and there’s demand and supply and consumers make decisions around whether they want to purchase it. Clearly that’s not the case in healthcare because of this archaic system that has developed over decades. And for reasons which I don’t think were originally intended, but the good news for us is that it does create opportunity to try to solve these big problems. And I do think Haven is trying to address that. We’ll see.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 32:04
And do you think, and I’m going to ask the other panelists this as well, but do you think that the political situation puts any of that innovation at risk?
TJ Carella – Managing Director, Warburg Pincus: 32:14
Absolutely. I think if the industry doesn’t self-regulate, and Annie was sort of speaking to this and in some regard as she talked about technology actually exacerbating costs, which is counterintuitive by almost any standard. And don’t think she meant it to be all encompassing. There are certainly technologies that are improving costs and productivity, but what I think this industry needs to do is address the issue of spiraling costs and that will likely have to happen and is happening through payment reform. And that’s something that CMS and CMI have been spending enormous amounts of time trying to shift the risk dollar away from the traditional houses of risk. The insurance companies or the employer in some cases to the provider organizations need to deliver quality but need to also have a value orientation.
TJ Carella – Managing Director, Warburg Pincus: 33:15
And that is, we agree a part of the solution here. And if that’s not accelerated because frankly it’s not moving fast enough, then regulators will come over the top and impose things like Medicare for all, which has a bunch of different definitions and we could talk all day about but which really doesn’t add its foundation, solve the problem. It, it sort of maintains more of a get paid for what you do paradigm. And that’s actually going backward in time and probably, you know, to the detriment of overall care and you know, the derivative impacts on the economy.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 33:53
Yeah. I mean, I couldn’t agree more and you’re right, it’s like I, but I want as much pressure as possible on payers and providers. So I actually think, you know, some government, you know, some fear-mongering might be a good thing. In the sense, and actually from an innovation perspective, it made it a good for legacy, but it’s from an innovation perspective, I think it’s a great thing because then they’re actually going to be, you know, forced to think about how do I deliver care differently? How do I think about insurance differently? And I think that’s a good thing. And, you know, it was worth thinking about every solution, you know, possible in terms of payment reform and how do you lower costs and improve quality of life. At the end of the day, you want, you know, bring it up, bring the pressure on you.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 34:33
I’m scared of Amazon and scatter the gun. Alex, what about in biotech? Is the political situation putting any of the innovation at risk?
Alex Denner – Founder/CIO, Sairssa Capital Management: 34:39
Yeah, I believe it is. I mean, with the biotech it really is very much about individual products that, you know, hopefully ameliorator or even cure disease. And if that if you’re successful there, you got to be able to kind of charge a price that allows a sort of a decent ROI for the industry. It’s a very hard business to be in. I mean 10% of products that enter human testing work, right? So 90% of them fail. And if, you know, if in an environment where people have to sort of re effectively raise the sort of cost of capital, but making these investments is a potential for, to sort of see if becoming harder to do that for fruitful things. I think that the, you know, there’s a spike when we talk of healthcare spending.
Alex Denner – Founder/CIO, Sairssa Capital Management: 35:38
I agree completely with what’s been said here. The specific part where it’s on the spending on therapeutics. To me it’s sort of a natural process that, you know, as innovation has produced new therapies that were basically, you know, kind of untrue therapies for the effectively untreatable diseases quality of life for society should go up. And you know, that that’s a measure that one can argue about. But over the long-term, it certainly has been. And you know, it’s, it’s reasonable to pay for that. So I would think, you know, as it’s true for society says for countries as this sort of economically become more developed into spending more on healthcare, it’s like food, shelter, healthcare, and then you sort of spend more. And then also within it develops that you’re going to end up needing to incent people to do it, you know, the more innovative things. But there are lots of therapies, like, you know, we were involved as the company. The medicines coming was not approved drug, but an injection that twice a year injection that, you know, if approved would be lowers cholesterol by 50%. And basically everyone who takes it, and that’s something that whatever the price point is, if it’s something reasonable, it saves a lot of money for the health business.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 37:01
People just have them in probably. Good. Yeah. Being able to come up with those calculations and agree on what value for money is.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 37:09
Well, yeah, I think one thing of just a piggyback on what Alex said, and maybe it ties everything in, and I think a lot of people aren’t aware of this, but you know, when I started out again, in the healthcare business, you know, back in, in 2001, you know, about five out of 10 prescriptions written by doctors were for generic drugs. Today it’s almost nine out of 10. So the genericization of the pharmaceutical prescribing has largely happened. And you know, another statistic that I think a lot of people don’t appreciate is that, you know, of all healthcare dollars spent in the United States, only about 14% of it is on branded biopharmaceutical drugs. So it’s a minority of healthcare spending. And, you know, as Alex alluded to, you know, a lot of these drugs, you know, save lives, you know, reduce morbidity, keep patients out of the hospital where a lot of the costs and curves. So, you know, in terms of finding big dollars to save in the overall healthcare system you know, targeting that industry, which they’ve been the scapegoat for years.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 38:15
The polymer industry, we’ll say 15% again and again. Yep. I’m going to quickly open the floor for questions. Is there any questions?
Speaker 1: 38:36
So I’m interested, there’s two drug people to process people. Where do you see the Amazon of healthcare? Like what is the big change that’s just going to flip it because you know, to TJ’s point it has, it’s an archaic system with the pharmacies and drug pricing is sometimes a bit random. Having worked with some of them do you see some big game changer, whether it be on a business model perspective for Annie and TJ or on an innovation with, you know, getting that drug to market quicker, you know, for the LPs and the other funds in the room. Is that on the horizon and where on either?
Alex Denner – Founder/CIO, Sairssa Capital Management: 39:22
Yeah. You know, I think everyone should speak to this. I believe it is. I believe that you know, there’s the system does, everyone in the room would agree the system doesn’t work well and you know, it takes time for these. There’s a lot of, you know, kind of principal agent issues with changing the system, but enough pressure is any mentioning of the political pressure, enough pressure and people will be focusing on, on, on things that create value. Like I said, you know, I think historically the pharma industry was sort of just sell a drug and it’s the most you can for it. Now the models have been much more about, or at least they’re attempting to be much more about delivering an outcome or delivering some quality improvement. You know, so I think that there’d be lots of incremental things like that and there’ll be some industries that are changed rapidly, you know, potentially, you know, there’s been a lot of pressure, PV inferences like that. That’s something that could be disintermediated.
Speaker 1: 40:25
Does it come from the industry or does it come from you know, Bezos. from outside counseling Shaw that says warehouse. They kind of got it. Like, is that okay?
Alex Denner – Founder/CIO, Sairssa Capital Management: 40:38
It’s going to be both I think. And it’s not just going to be inside the industry. I know other people.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 40:44
Yeah. I mean I think it’s, it’s inside and out. I mean, I think CMS actually under this administration has been great. I think TJ mentioned in terms of payment models that they’re working on that are really, you know, changing primary care kidney care, again, moving away from dialysis centers. So I think it’s very much around the payment models they’re driving. I think actually the most interesting thing they’re working on. And you touched on this and you think about other countries and what they do. You know, we have a healthcare bucket and in fact, we have a healthcare, it’s really focused on physical care, not social determinants of health and not mental, you know, like integrating mental health care with physical health care, medical care, and the way we think about it as, you know, we have a food stamp program, right?
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 41:28
The 10% of Americans get, and we have HUD over here and we, so we have all these social services affect these people. If you think about, you look at Medicaid, it’s the homeless that costs the most money. And so it was fascinating. I just saw today that United is actually investing in apartments and putting people that in their Medicaid programs, in apartments and in homes. And you know, looking at the dollar costs, because some of these people are spending, you know, $12,000 a month on, you know, showing up early. They’ve referenced, you know, some of you spent 170 days in the ER. And it’s a lot less expensive to get somebody, you know, home. So if you think about employment, if you think about all the money that’s being spent, not just in the healthcare bucket on these people, then you look at, okay, you know what, we can take the food stamp money and some HUD money and some and create a, and they’re looking at creating a model where we actually look at taking care of the whole person. You know, getting them in vision. Once you get somebody home, then they might actually think about and get it and getting employment, you know, feeding them properly. So putting the social room to help all the wrapping around that with healthcare is probably going to make the biggest difference in the next decade.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 42:39
Oh, we’re going to have to wrap up soon. But if you have a two-sentence answer to that question, I’ll leave it open if you get.
TJ Carella – Managing Director, Warburg Pincus: 42:45
Okay for there to be a one sort of pivotal event to occur. I think it has to be related to our overall fiscal situation as a country and someone’s going to have to decide not to lend us money at 0% interest rates for that too. I think really catalyze that the type of change maybe it may be, it occurs through the political process. Maybe it occurs with an Elizabeth Warren in office. I think the hurdles to actually doing what she suggests.
Annie Lamont – Co-founder/Managing Partner, Oak HC/FT: 43:14
I think there are shivers in people’s spine.
TJ Carella – Managing Director, Warburg Pincus: 43:18
Are very substantial. I don’t see that happening. But I think it will take something really extraordinary and exogenous like that to, to have some real revolutionary change. Other than that, I think it will be evolutionary, but still going in the right direction.
Jason Bonadio – Managing Partner/Portfolio Manager, Alera Partners: 43:33
And I’ll give you just to sort of crystal ball you know, one low tech, one high tech Geisinger health systems in Pennsylvania. I’ve read, they’ve got an innovative program where they’re paying for groceries for their low income diabetics and you know buying healthy foods and it’s saving quite a bit of money in terms of again, keeping patients out of the ER, you know, reducing amount of insulin and other expensive medications they’re on. And then the other thing, bigger picture and I don’t know who’s going to do this, but you know, in medical school, you know, we learned, you know, something called the differential diagnosis and that’s how doctors diagnose patients with illnesses. It’s essentially an algorithm. You know, computers are very good at our algorithms and I think someday, you know, some companies are going to figure out a way to democratize, you know, the diagnosis and management of patients. And when that happens, you know there’s a lot of dollars to be saved in that aspect of treating patients.
Hannah Kuchler – US Pharma & Biotech Correspondent, Financial Times: 44:30
Thank you all so much. We’ve got a lot of hope and opportunity.
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