The Prognosis of Healthcare Investing

Contributed by: Show Editorial Team

Panel discusses health innovations at the 2019 Greenwich Economic Forum

Hannah Kuchler, Alex Denner, Annie Lamont, Jason Bonadio, and TJ Carella discuss Healthcare Innovation at Greenwich Economic Forum (Greenwich, CT)

Progress comes slowly in the American healthcare system. Take just these two examples discussed during the Healthcare Innovations Panel at the 2019 Greenwich Economic Forum: 

1) Our pervasive employer-based health insurance model, which is universally viewed as an imperfect system, hasn’t been meaningfully reformed since becoming a popular way for employers to attract employees during the era of wage caps following World War II.

2) The discovery of “molecular scissors” in the early 1970s led to the biotech revolution. However, the first drug to come from that discovery—Humulin insulin—wasn’t introduced until nearly a decade later in 1982.

Archaic infrastructure and the constant threat of regulatory changes, as well as technology that takes years to effectively develop, can make healthcare a difficult space for investors. On the flipside, the payoff can be huge—and world-changing, to boot. If you invest in the company that finds the cure for cancer—or Covid-19—you’ve likely more than recouped the losses from the nine other healthcare investments that fizzled.

This was the pulse running through the panel discussion moderated by Hannah Kuchler, U.S. Pharma and Biotech Correspondent for the Financial Times. It featured Jason Bonadio, Managing Partner and Portfolio Manager at Alera Partners; T.J. Carella, Managing Director at Warburg Pincus; Alexander Denner, Founder and CIO of Sarissa Capital Management LP; and Anne Lamont, Co-Founder and Managing Partner of Oak HC/FT. 

“I think we are going through a period right now where investors like us have the opportunity to sift through the hype…and find companies that are really innovating,” said Bonadio. 

But that’s easier said than done. For example, when this panel took place, Amazon, Berkshire Hathaway and JP Morgan had recently formed Haven, a joint venture aimed at lowering healthcare costs and improving outcomes. The announcement sent shares of healthcare companies plummeting out of fear that their model would no longer be profitable. But earlier this year, Haven announced it was disbanding. 

By contrast, Amazon’s $753 million 2018 investment of PillPack, a full-service online pharmacy, is still going strong and could well change the model of medicine delivery in the U.S. 

So how can investors ensure they are putting their money in a PillPack rather than a Haven? Of course, there is no certain answer. But a smart bet could be to prioritize ventures that focus on the consumer. Carella said one impact of the Affordable Care Act was to place more of an onus on the patient. As a result, he said, many companies have developed products and services that can help individuals navigate a complex system. One could even argue that Amazon’s decision to buy PillPack resulted from this dynamic—as patients become more responsible for fulfilling their own healthcare needs, services that simplify the process stand to benefit.

Another example is that Carella’s firm backed CityMD. The New York-based urgent care company, now with locations across the country, emphasizes assets that consumers care about—short wait times, transparent payment systems. 

Similarly, Lamont said she was excited to support Notable, a company that uses technology to automate administrative healthcare duties like transcriptions and prescriptions, saving doctors more than an hour a day. She said she believed in the company because its service transformed the provider’s experience—much like PillPack and CityMD aim to transform the patient’s experience. 

In other words, a good investment is in something that people are actually going to use. That’s probably an obvious point, but even in healthcare investing, you don’t want to just be doing something for your health. The panel emphasized that healthcare providers aren’t going to change their business model unless they are financially incentivized to do so, and patients aren’t going to seek alternatives to their current healthcare routines until they have sufficient motivation. Investors are wise to keep this in mind.         

It’s worth noting, however, that some healthcare companies do seem to understand that major investments now can save money in the long run. For instance, Denner pointed out that even though 90% of biotech products that reach human testing fail, companies understand that those 10% that are actually successful can outweigh those that are unsuccessful. He pointed to a new drug that could lower cholesterol, which could therefore greatly reduce the huge costs of managing a patient’s high-cholesterol later down the line. 

Lamont, meanwhile, pointed to UnitedHealth Group’s investment in affordable housing. The company clearly saw that paying to take care of a basic need now could prevent compounding healthcare concerns—and costs—in the future. This kind of foresight could certainly help inform the individual healthcare investor’s decisions, as well.    

One of the most highly discussed technologies currently is CRISPR, a gene-editing tool—with roots dating to the molecular scissors of the 1970s—that allows scientists to effectively add, remove or change sequences in an organism’s DNA. There’s huge hope that this technology could lead to the cure or eradication of horrific diseases and conditions. 

Sounds like a great investment, right? Not so fast. For starters, there are ethical questions about being able to change someone’s DNA. Even worse, what if using the technology somehow introduces a cancer-causing mutation? Bonadio posited this concern during the panel. 

Essentially, he said, the jury is still out on CRISPR. “There is a lot of iterative science that needs to happen between now and then to make sure it really is safe and can be utilized in a lot of patients.” 

Still, CRISPR has been around since 2012. So, if it’s anything like its forebear set of molecular scissors, it might be just about ready to change the world. Only time will tell. 

(Written by Andrew Waite; Editing and revisions by Nicole Liddy)

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