Wednesday, May 9, 2012

Will the Supreme Court Affect Investment in Healthcare?

What will the Supreme Court decide about the Patient Protection and Affordable Care Act (PPACA)? A panel of experts at the 2012 Milken Institute Global Conference agreed that no matter what the court’s decision, opportunities for investment in healthcare will continue to abound.

Kneeland Youngblood, founding partner of Pharos Capital Group, predicted with some hesitance that the law will be upheld. But even without the law, he said, many of its provisions for cost cutting and data management will continue to go forward. Bob Kocher, partner at Venrock, agreed, noting that Rep. Paul Ryan’s recently released budget plan included the cost control mechanisms from PPACA.

Nandini Tandon, board member of C21 BioVenture, also predicted that the law will stand but either way the decision would not have a major impact on investment in healthcare. Paul Kusserow, senior vice president and chief strategy and corporate development officer at Humana, Inc., added that with change and tumult come investment opportunities. 

The panel explored a number of promising investment areas, including alternative and holistic medicine, virtual medicine, and capitalizing on the growing understanding of genetics. Panelists agreed that one of the hottest investment areas right now is healthcare information technology. “Data is going to be king,” said Kusserow. Kocher said that he sees investment potential in ideas that make healthcare more affordable for the consumer. He is particularly excited about devices that replace drugs, for example vagal nerve stimulation as a treatment strategy to control certain neurological disorders. Tandon sees a new investment focus on blending the U.S. penchant for innovation with emerging markets like India, which has younger-trending age demographics, a large talent pool, and an interest in considering the cost-effectiveness of new products early in the development process. 

Led by moderator Aaron Task, host of Daily Ticker on Yahoo Finance, the panel wrapped up with a view of personalized medicine research from the venture capitalist (VC) perspective. Panelists agreed that with the VC tendency to look at an investment with an eye toward an exit (e.g., an initial public offering or a merger/acquisition opportunity) within three to five years, most VCs would decline opportunities to invest in personalized medicine projects. “Personalized medicine is showing that things are more complex than we thought,” said Kocher, and the science is not sufficiently developed to attract VC interest. However, panelists noted that VCs can be appealing partners for large pharmaceutical companies looking to introduce a more entrepreneurial character into their activities. Tandon noted that VCs can provide increased “deal flow,” and assume some of the risk for the partnership, and Kusserow added that VCs are more knowledgeable about how to “migrate companies.”

In response to questions from the audience, the panelists provided additional insight into the idea development process from the investor perspective. Kocher said that VC organizations are looking for big ideas. “They will pass on the $30 million ideas in favor of the $300 million ideas – the test is could it be big enough to change the world, create markets,” he said. The panel agreed that early stage companies are most likely to find traction with angel investors like friends and family members. As Kusserow put it, “the process is like an evolution – you have to embrace the journey.”

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