Fueling Innovations in Health Care: Leveraging Capital in Markets | Future of Health Summit 2023

US Healthcare Context & Investment Landscape

• The US spends nearly 20% of its GDP on healthcare, yet faces a two-decade low in life expectancy and rising infant/maternal mortality rates.
• Chronic diseases remain underfunded despite the potential of AI and emerging technologies to transform care delivery.
• Investors currently face headwinds including rising interest rates, supply chain shortages, and ongoing geopolitical tensions.
• Unlike the government's mandate to address global and national crises (e.g., Ebola, Zika), private equity operates within a circumscribed addressable market with specific exit strategies.
• The US remains the "cradle of healthcare innovation," accounting for over 60% of the panelist's portfolio due to its size as a payer, speed of adoption, and scientific output.

Sovereign Wealth & Strategic Investment Philosophies

• Qatar's Sovereign Wealth Fund views healthcare investing as essential for long-term national prosperity, targeting businesses that solve unmet medical needs at the lowest possible cost.
• Investments are geographically diversified to address local endemic diseases (e.g., diabetes, working diseases) while recognizing that societal approaches to health vary globally.
• Welsh Carson (private equity) avoids companies that exploit regulatory crevices, prioritizing durable business models that can withstand immediate regulatory changes.
• The current investment thesis emphasizes "time to ROI" of approximately three months for cash-on-cash returns, contrasting sharply with the longer patience tolerated during the low-interest-rate era.
• Capital efficiency is now a primary filter, shifting focus from capital-consuming "float" strategies to those that generate revenue quickly to survive high-cost environments.

Technology, Early-Stage Innovation, & Biotech

• Early-stage investors (e.g., PRAIR) now prioritize operational discipline and clear product pathways over hype-driven platform technologies that were common during the 2020-2021 biotech bubble.
• The IPO window for 2023 failed to materialize as anticipated due to interest rate volatility, causing a shift in exit strategies toward large-cap corporate acquisitions.
• AI and advanced biology (genomics, cell therapy) are driving a transition from an "art" to an "engineering science," with genomic sequencing costs dropping from $1 billion to $1,000 per genome.
• Despite optimism for AI's future impact, current healthcare AI adoption has been modest, with investors waiting for proof of differentiated business models and data validation.
• Companies like Garden Health are demonstrating the viability of moving from platform technology to specific clinical applications (e.g., liquid biopsies) to secure prescription volume among thousands of oncologists.

Access, Rural Care, & Social Determinants

• One in five Americans lives in rural communities without access to basic healthcare, creating specific investment opportunities for tech-enabled rural care expansion.
• Rural providers face acute challenges in recruiting talent and maintaining margins, necessitating partnerships with incumbents like LifePoint rather than standalone market entry.
• Social determinants of health account for over 80% of the variation in health outcomes, forcing investors to broaden their lens beyond clinical interventions to include housing, education, and access.
• Medicaid coverage is identified as a critical market; for instance, over 50% of patients served by Liberty Dental are on Medicaid, linking oral health directly to emergency department utilization.
• Reimbursement rails act as the primary de-risking mechanism for social determinant-focused ventures, as seen in the scaling of early childhood speech therapy models enabled by Medicaid payment codes.

Regulatory Environment & Policy Levers

• Regulatory uncertainty, including FDA approval processes and CMS payment rules, significantly impacts capital flows; regulators are often disincentivized from approving unproven innovations due to liability risks.
• The Orphan Drug Act (1984) serves as a model for addressing unmet needs, successfully spurring cystic fibrosis treatments before patent expiration lowers costs.
• Recent regulations like the Inflation Reduction Act and Surprise Billing Act aim to protect patients but alter the economic landscape, occasionally leading to bankruptcies in affected sectors.
• Policy levers to unlock capital include creating specific fee-for-service incentives or shared savings opportunities to guide innovation toward specific high-impact pain points.
• Durable companies must align with long-term payer-provider relationships rather than relying on temporary payment model gaps.

Forward-Looking Optimism

• Panelists express optimism about the convergence of mature digital tooling, experienced founders on their third ventures, and improved partnership capabilities among large incumbents (insurers/health systems).
• The shift from an "art" to an engineering science in biology, driven by omics and AI, is expected to enable outpatient care models that bend the healthcare cost curve over the next 10-12 years.
• Investors anticipate that recognizing the inherent complexity of healthcare, rather than oversimplifying it, will lead to more robust policy frameworks and capital deployment strategies.
• Continued innovation in reducing the manufacturing costs of biologics and peptides is viewed as critical for expanding the accessibility of treatments for obesity and diabetes.
• There is a growing consensus that private capital partners are increasingly willing to support disruptive entrepreneurs across the full lifecycle of business development.