The Future of Investing in Healthcare Innovation

Katherine Andersen
  • March 15, 2021
  • 6 min listen

Key Takeaways

  • We may miss face-to-face interactions but some things – as disparate as routine care and IPOs – may be better done remotely.
  • In a time of growing complexity, systemic approaches to care and patient-focused services are resonating with investors and consumers alike.
  • The ideal team of healthcare investors should have two things besides cash: a diversity of experience and patience.

Despite the Covid-19 pandemic and its impact on communities and workplaces, 2020 was a banner year for healthcare innovation. Venture investments in four sectors – biopharma, health-tech, diagnostics and tools, and devices – hit a record, climbing 57% from the previous year. Overall investment in those areas topped $52 billion. There was an unprecedented number of IPOs, whose performance also broke records. Large M&A deals also reached a new high. The outlook is for continued growth in 2021.

What does it all mean for the healthcare industry? At the Innovate Next summit, Silicon Valley Bank convened a panel of top investors and industry executives to discuss what’s driving this growth and where it’s heading. Here are some of the highlights. (A replay of the full conversation is available here.)

For IPOs, virtual can be a good thing

Most people thought the end of practically all face-to-face interactions mandated by the pandemic would pour sand into the gears of the industry. In a few areas, going virtual had the opposite effect. IPOs, for example, became cheaper and easier to conduct. That’s in part because in-person roadshows – which typically involve entire management teams trudging from meeting to meeting to court investors across the country – became impossible. As roadshows moved to video, it allowed executives to meet more investors more quickly. The virtual road show was so efficient that it may well become the way this IPO ritual is conducted from now on. 

“What surprised me most was how amazingly easy it was to do an IPO in a global pandemic,” said Paul Hastings, whose biotech company Nkarta Therapeutics went public in July 2020. “Video conferencing,” Hastings added, “is the way of the future for IPOs. It’s ten times more efficient.”

When it came to doctor visits, the virtual kind also proved better than the physical in many situations. During the pandemic, the use of telehealth surged, especially for routine appointments. That opened the door for new businesses to come to market, and neither patients nor doctors were pining for the old ways of doing business. “When you've had an experience enabled by these tools, you're not going to want to go back to the way it was before,” said Lee Shapiro, managing partner of healthcare investment firm, 7wireVentures. “You're not going to want to drive 45 minutes and wait 30 minutes in a waiting room to get a prescription renewed. You’re going to expect to do it over the phone and have the prescription show up at your house.”

A system-wide approach to innovation

At the same time, many healthcare entrepreneurs and investors are finding positive results by taking a more systemic approach to healthcare innovation. “In healthcare we don't need applications, or even necessarily new therapies, but solutions or systems-level thinking,” said Emily Melton, co-founder of healthcare technology venture capital firm, Threshold. This kind of thinking led to the runaway success of Livongo, which instead of focusing on particular therapeutics, developed a platform for managing chronic conditions like diabetes. In October, Livongo was acquired by Teladoc for $18.5 billion, a more than 7x premium over its IPO price little more than a year earlier. Similarly, Vir Biotechnology, a clinical-stage immunology company, has seen its share price quadruple since its October 2019 IPO, based on its focus on preventing serious infectious diseases.

There’s this whole next generation of businesses … thinking about how we bring that consumer experience into different categories.

- Isabelle Kenyon, founder and CEO, Calibrate

The need for a diverse set of investors

As they embrace these types of more systemic approaches, entrepreneurs are also seeking guidance and funding from a more cross-disciplinarily group of investors. “There are so many great consumer technology investors and so many great healthcare technology investors, but it's been really important for me to find people who have already had experience in consumer and healthcare to understand how you bridge between the two,” said Isabelle Kenyon, founder and CEO of Calibrate, a healthtech company focused on weight loss programming.

Working with cross-disciplinary investors is also a strategic advantage for entrepreneurs looking to expand beyond traditional healthcare models. “We were really creating a new category, so we've taken a kind of a Lincoln's cabinet approach to getting different expertise sets,” said Amy DuRoss, CEO of Vineti, a cell and gene therapy platform. For Vineti that has meant bringing on investors with experience in disparate fields, including molecular diagnostics, enterprise software, and gene therapy manufacturing. “We get to the best answers by creating a common vernacular from very disparate viewpoints … leveraging one another's expertise to get there,” DuRoss said.

Putting consumers at the center

One of the biggest shifts in the healthcare industry over the past year has been the acceleration of a move toward customer-centric solutions. Direct-to-consumer businesses like Hims & Hers, which sells health products and services to millennials, and Ro, which targets older customers and offers telehealth visits including an online pharmacy, are examples of companies that have cut out the messy logistics of insurance, copays and doctor visits to give customers more of an e-commerce experience. “Those were some really quickly growing healthcare businesses,” Kenyon said. “It looked a lot like e-commerce and felt comfortable for people.”  

Calibrate, which Kenyon launched in 2020, followed that model, offering a streamlined, direct-to-consumer service that connects patients with obesity specialists and doctors and works directly with insurance companies to cover the cost of lab work and medications. “There’s this whole next generation of businesses … thinking about how we bring that consumer experience into different categories,” Kenyon added.

Stay focused on the long term

But as entrepreneurs and market participants are entranced by the possibilities in a sector that is going through boom times, investors warned that the surest way to ensure success hasn’t changed: focus on long-term value creation. “I have been involved on boards where they're working super hard and galvanize everybody in the company to get behind the vision. And then when they get the data that's really inspiring, they say, ‘Okay, let's hit the exit button,’ and it’s extremely deflating,” said Srini Akkaraju, who started the venture capital firm, Samsara BioCapital, with the goal of partnering with companies over the long-term.

At the same time, Akkaraju added, abundant capital is often the ingredient that allows companies to focus on the long term, especially those that are tackling complex problems. “We invest in risky companies, so what are the ways to de-risk? A big pile of money is actually an interesting way to de-risk, even though it can cause you to not be disciplined,” he said. “Having more capital allows you to bring in great people and really try to understand what your drug is actually doing so you can make better decisions about the clinical strategy.”

Stay connected with SVB’s Life Science and Healthcare Practice to get updates on Innovate Next 2022.

Katherine Andersen Headshot
Written by
Katherine Andersen
Katherine serves as Head of Life Science & Healthcare and sits on the board of SVB's joint venture in China, SPD Silicon Valley Bank.

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