Conference Presentation, Panel
Fueling Innovations in Health Care: Leveraging Capital in Markets | Future of Health Summit 2023
Milken InstituteRichard Ditizio, Merrill Anovick, Eddie Eltoukhy, Adaeze Enekwechi, Mohamed Ghanem, Michael Guarino
- US healthcare spending consumes nearly 20% of GDP with a projected return on investment, despite life expectancy remaining at a two-decade low and rising infant/maternal mortality rates.
- Investors anticipate opportunities in AI-emerging technologies and expect healthcare technology capital formation to generate significant investor interest over the next five, 10, 15, and 20 years.
- Key market challenges include rising interest rates, supply shortages, geopolitical tensions, and the increased cost of capital making cheap capital-dependent value-based care models difficult to replicate.
- Rural healthcare providers face talent retention difficulties requiring higher wages, while patients without local services may need to travel "two and a half hours" for care, necessitating remote nutritional therapy solutions.
- Future capital deployment focuses on solving specific problems like diabetes and occupational diseases in Qatar and globally, aiming for "longevity returns" alongside financial gains.
- Early-stage founders require assistance refining narratives, developing business plans, and leveraging networks to de-risk technology, with a predicted timeline of "six seven years" or "10 years" from an exit.
- Biotech innovation is expected to persist despite a past "bubble kind of" COVID-era, with capital formation continuing as long as research funding exists.
- Public equity markets for differentiated businesses remain relevant even if IPO activity in the "back half of this year" does not materialize as expected.
- In the absence of public equity capital, companies are predicted to seek private equity and large corporate clients as an "increased attractiveness" exit path.
- Regulatory changes regarding payer-provider relationships, reimbursements, and FDA actions are expected to have a "tremendous impact" on capital flow, with regulators potentially prioritizing safety over fast approvals for unmet needs.
- Drug companies are expected to consistently wait for FDA approval before launching in the US, even if Europe offers faster approval timelines, keeping the US as the "cradle of health care innovation" for over 60% of portfolios.
- Investment strategies will shift toward differentiation, talent building, and governance to sustain companies over five-year regulatory cycles, avoiding unsustainable models exploiting payment system "crevices" expected to be closed within the "next year's regulatory cycle."
- Hold periods are expected to extend from three years to "pretty long hold periods" to build fundamental value, with a requirement for "real cash ROI within three months" or business failure.
- Businesses must demonstrate discipline in actuarial analysis, team management, and input costs, moving away from infinite time-to-ROI conversations.
- Investment check sizes are expected to remain in the "$300 million range," necessitating disciplined operations due to current input costs.
- Patient-centricity is critical for clinical outcomes, particularly regarding physician enablement, risk-based primary care, and improving electronic medical record provider experiences.
- Regulations like the surprise billing act and Inflation Reduction Act are projected to significantly impact investor behavior and potentially cause bankruptcies if favoring one party over another alters market economics.
- Orphan disease medications are expected to reach "very, very affordable price" levels globally 10 years after patents expire, driven by innovations in biologics and peptide manufacturing costs.
- Over 80% of health outcome variation is expected to remain explained by social determinants of health, driving investment in Medicaid dental platforms to reduce emergency department use.
- Innovative entrepreneurs are expected to receive support across their lifecycle to bring products to market, with payment constructs created to enable long-term durable business models.
- Delivering care in outpatient settings with lower costs is anticipated to bend the healthcare cost curve, freeing dollars for treating devastating diseases.
- Biology is shifting from an art to an engineering science, with changes occurring over a "10, 12 years" timeframe, aided by maturing tooling for digital native healthcare businesses.
- Founders in their third journey and partners at large incumbents are expected to become more effective due to learned experience, allowing for a convergence of tooling and experience to generate bigger impact.
- Partnerships are expected to reduce capital burn and improve survival chances for healthcare IT companies, while preventive measures and new diagnostics require de-risked commercial sides to become investable.
- Reimbursement incentives such as specific fee-for-service or shared savings opportunities are predicted to direct the innovation ecosystem toward specific pain points.
- A clinical model for early intervention services is planned for scaling in Massachusetts and across the country by following existing payment rails.
- Wrap-around consulting regarding GLP-1 usage is anticipated as a future need to help patients discontinue drugs, while GLP-1s represent specific usage management challenges.