Our report from the JPMorgan Conference

The confluence of events in Washington shows why no industry presents as much potential – or as many challenges – as healthcare.

On the one hand, President Trump and the GOP are working furiously to repeal and replace the Affordable Care Act with congressional Democrats attempting to delay or block the outcome. On the other hand, there is bipartisan cooperation in other pockets as illustrated with the passage of the 21st Century Cures Act.

Needless to say, there was an interesting backdrop for the 2017 JP Morgan Healthcare Conference in San Francisco, which attracts thousands of biotech and pharma executives, emerging growth companies, health technologists and investors.

Joshua Kaye, chair of DLA Piper’s US Healthcare sector, led a panel discussion at the event entitled "Healthcare M&A Exits: Who’s Buying, What Are They Buying and Why?” in which a room full of entrepreneurs and deal-makers heard expert prognostications for 2017.

The highlights of the panel are below. The participants were:

  • Lisa Suennen, Managing Director, GE Ventures and Managing Partner of Venture Valkyrie Consulting
  • Max Eisenberg, General Counsel, Polaris Partners
  • Dr. Richard Boxer, Managing Partner, Boxer Health Strategies

Lisa, for companies looking to build collaborative relationships with firms like GE Ventures, what is your sweet spot when assessing investment opportunities?

Lisa Suennen: We invest broadly across healthcare, which, to us means anything except pharmaceuticals, therapeutics and invasive medical devices. We must be able to tell a plausible story as to why such companies are relevant to GE’s healthcare business, and from a stage standpoint, we usually get involved in Series B or later.

Our portfolio has a pretty eclectic mix on both the provider and payer sides. The “slam dunk” opportunities are related to imaging analytics, clinical analytics, precision medicine and the business and financial aspects of delivering healthcare services.

Max, tell us a little bit about Polaris Partners and how a financial sponsor might distinguish itself from strategic investors.

Max Eisenberg: Polaris invests in both technology and healthcare and, of course, the overlap of the two. We partner with entrepreneurs and measure our success on repeat entrepreneurship based on relationships made through academia and other sectors like R&D. Our investment team is comprised of operators with deep industry expertise and can provide a lot of value with respect to serving on boards and working with CEOs to develop strategies and plans for execution.

We embrace the opportunity to seed companies at the very early stages, particularly those working in life sciences and biotech, take on the initial operator role and then step back when CEOs are ready to take their businesses forward.

Richard, tell us about the consulting role you play with healthcare companies, and where you believe the industry is headed from a political perspective.

Richard Boxer: My consulting is based on healthcare tech and, specifically, telemedicine, which is growing at 56 percent a year – and that’s just acute care. The next explosion will be remote care and monitoring every aspect of people’s health inside their homes. Although it sounds scary and Big Brother-ish, it will play a significant role in reducing the expenses associated with hospitalizations. As an example, the biggest cause of re-hospitalization is congestive heart failure, and a study of 3,000 patients showed that monitoring inside the home reduced readmission by half, which is astoundingly high. So not only does remote case save money, it saves lives and improves patient outcomes. The effect of telemedicine and remote care will be enormous, and there is great potential for more market penetration by companies getting into the space.

Regardless of the politics, there are certain things that aren’t changing, and those are the mega opportunities for those looking to invest. It doesn’t matter who’s in the White House if a large percentage of the US population is obese, still smoking tobacco or addicted to opioids; that’s where money is going to be spent.

On the issue of personalized medicine, how do you account for patient responsibility and the unhealthy decisions being made by many Americans?

Richard Boxer: The issue in the US is the population doesn’t like the nanny state, meaning being told what they should and shouldn’t be doing. And that has impacted the electorate. So when people say we have to change individual behavior – how do you do that? Knowledge and education are key and having the ability to monitor your weight gain, changing heartbeat, pulse oximetry and oxygen levels, among other vitals, may be the best way to change your behavior – as you’ll learn to eat one less potato chip.

Lisa Suennen: Knowledge is definitely part of it, and so are incentives. The trick on the micro level are personalized incentives rather than across-the-board behavioral change. There’s plenty of technology out there, but combining it with personalized approaches will make it more effective.

How does the looming healthcare reform impact the investor psyche, Lisa? Does it suggest sitting idle, or is there still a motivation to put capital to work?

Lisa Suennen: The pace is not going to slow down regardless of federal policy. With so many companies bordering on insolvency, the payer marketplace needs to be addressed. Employers are also paying a lot for healthcare and are hell-bent on solving that problem. I expect them [employers] to drive a lot of change over the next several years since they are exempt of policy.

Max, we’re focusing today on the exit, and a lot of people here are interested in putting together a deal. Can you triage an investment opportunity and give us a sense of what goes into diagnosing that?

Max Eisenberg: We consider the source of the deal and the company’s founders and team, which, again, is critical from a relationship standpoint. We’ll look at what the company is doing, how they’re making money, how they’re differentiating themselves in the market, as well as the competitive landscape; those [factors] will determine whether we feel we can impart positive change and help them better navigate the market. Once we discuss internally and weigh the risks and opportunities, we like to have a seat at the table but don’t normally have a majority stake.

Lisa Suennen: We also don’t typically take controlling positions on the venture side, but the range of ownership depends. We usually hold less than 25 percent but we’re not allergic to more. In addition, we have a unit that starts companies from scratch, either on our own or with partners. In those cases, we may own a larger portion.

Richard, can you talk about how the FDA is likely to be reformed under a Trump presidency?

Richard Boxer: The 21st Century Cures Act is a bipartisan bill in many ways, but there are a few FDA-related things that run counter to historical standards, namely accelerated drug approvals and the reduction of clinical trials. Along with the renewal of programs like the Children’s Health Insurance Program, there’s hope that Congress can get together on things that really help the health of Americans. It remains to be seen what the new administration’s policies will be, but they will be fundamentally pro-investment and business friendly.

By all appearances we’re in a golden age of innovation, but it seems the consumer experience remains unchanged. What will be the transformative areas in the next few years?

Lisa Suennen: First and foremost, the technology must solve a problem. Healthcare needs to reimagine itself, particularly in the delivery system and how people engage with clinical services. Generally, consumers don’t want to have to think about or pay for healthcare, so it has to feel like an “Amazon experience” when they need it. And then when they’re experiencing a crisis or have a serious health problem, they want it to be an emotionally supportive experience – not scientific. That’s an opportunity for providers to reduce the relationship friction. There’s a great opportunity for small companies to improve this too, as they can align the incentives for patients, providers and payers.

From an investment perspective, when working with these emerging companies, are there cap table no-no’s that can be problematic?

Max Eisenberg: We don’t run into broad-sourced, crowdfunding-type issues. However, it gets complicated when company founders leave and they have a significant portion of the cap table. How do you replace that person? What does the company look like after their departure?

If your house is in order from a legal and due diligence standpoint, whether it’s formation, equity structure or talent acquisition, you’re in a better position to deal with those changes. And, as an investor, you’re more attracted to those companies that are protected and organized in such way.