August 7, 2025 • 42 mins
“We don’t just invest — we bring knowledge, network and opportunity,” says Edward De Nor, partner at GHO Capital, as he joins Bloomberg Intelligence analyst Jonathan Palmer to discuss how the firm identifies and scales mid-market health-care companies that enable better, faster, more accessible care. He explains GHO’s investment thesis, its “picks and shovels” strategy and how innovation, not disruption, fuels compounding growth. The two explore case studies like BioAgilytix, the role of AI as an enabler and why boardrooms should obsess over the customer, not just the P&L.
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Episode Transcript
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Speaker 1 (00:00):
Welcome to another episode of Bloomberg Intelligence's Vanguards of Healthcare podcasts,
where we speak with the leaders at the forefront of
change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Boomberg Intelligence, the in
house research arm of Bloomberg. We're very happy to welcome
Edward Denar. He's a partner at GHO Capital, which he
joined about ten years ago. GHO is a specialist investor
(00:22):
in the healthcare industry with about I believe nine billion
euros under management. Edward got his start in engineering at IBM,
but has been primarily focused on private equity throughout his career,
with stops at Goldman Sachs, Kerrie Castle, and g Square.
Welcome to the podcast.
Speaker 2 (00:37):
Thank you, Jonathan. Great to be here today.
Speaker 1 (00:40):
Well, why don't we kick it off with a high
level view of GHO and where you kind of sit
in the ecosystem from a private equity perspective or even
a venture perspective.
Speaker 2 (00:49):
So we are what you would call a mid market
private equity firm. In our definition, what that means is
companies who generally have let's call it somewhere in the
fifty to two hundred million or so of revenue. They
probably have similar numbers of employees, maybe fifty to two
hundred or so million. They tend to be operating in
(01:10):
a particular geography, maybe in a particular niche, but they're
selling to some of the most important customers in the world,
major biopharma customers and major medtech customers. And so our
approach to investing is really to get behind these companies
and help them to scale and grow into that opportunity
(01:34):
set more globally with these customers.
Speaker 1 (01:38):
Fantastic and maybe maybe start us off with a little
bit with the origin story of GHO, maybe talk about
the founders a little bit and where the mid market
focus comes from.
Speaker 2 (01:47):
Yeah, so we've got three co founders and they come
from very different walks of life, which is part of
our own DNA. They all had a common ancestry and
a company that used to be called Quintals and is
known today as IQBA, which was one of the pioneers
in the contract services industry focused on contract research. One
(02:09):
of our co founders, Mike Mortimer, was one of the
top execs there and he ran the international business out
of London. Another one, Andrea Ponti, se career banker who
was focused on healthcare. He ran it at Coleman where
I used to work, and he went on to run
it at JP Morgan and in all those years did
a lot of deals with Quintals and Ikeva both and
(02:32):
then a third co founder, Alan McKay, used to run
through Eyes healthcare business and made a very successful and
very significant investment in Quintiles. When Quentals went public in
twenty thirteen, Mike decided that he'd retire within a year
(02:52):
and he got together with Andrea and Allen and hatched
this cunning plan. And that is our story.
Speaker 1 (03:00):
So you know, maybe with that in mind, you know,
if we think about Quintiles and the focus on services
to the biopharma industry, I mean, it seems like that's
really a big piece of the DNA of the company,
you know, that that picks and shovels, if you will.
Speaker 2 (03:13):
Indeed, it is I think the you know, Quintels grew
with the industry, right So Quintels started out as as
a small business trying to sell to the giants, and
we derive a lot of our DNA from that. Quintel's
itself today is a global company, it is digitized, it's
selling as much data and intelligence as it is selling
(03:36):
the core lab services and clinical services. That are absolute
requirements if you want to take a drug from discovery
all the way through an approval. So it's a very
important part of the ecosystem. And you know, we've we've
taken that journey to heart and we've thought about all
of the things that you need to do to get
businesses to that level. How do you get your people there,
(03:59):
how do you get your system and processes there? How
do you touch your customers in more places with more
products and services? And that's really become the core DNA
of who we are today.
Speaker 1 (04:09):
That's great. Maybe can you walk us through how you are?
I mean, I think we've touched on it a little bit,
but you know, if I look at the subsector focus
on your website, you know it spans a couple key categories.
How did you guys kind of arrive on those? And
I guess you know, with that in mind, why not
focus given some of the expertise on other areas maybe
(04:30):
like therapeutics that sort of thing.
Speaker 2 (04:32):
Yeah, so we think of ourselves as enablers ATCHA. One
of the great things about our origin story is we
centered it around a purpose, and the purpose is really
to of course deliver better risk adjusted returns to our investors.
But we do that by enabling better, faster, more accessible healthcare.
(04:54):
We used to say better, faster, cheaper, but that offended
some of our European sensibilities, so we say better, faster,
more accessible healthcare, right. And so fundamentally, what we want
to do is get behind innovation. And what innovation does
for an investor is innovation drives growth, it drives market
(05:16):
share gains, and it ultimately drives investment returns. And what
it does for the industry is it does help improve
the picture between payers, patients and providers. And if you
think about that triangle, that is the opposite of a
love triangle, right, that is a broken triangle. And you know,
healthcare is understandably a very conservative industry. So it's not
(05:41):
going to be revolution that changes the picture between payers, patients,
and providers. It's going to be innovation. And that's why
healthcare is not kind of a winner's takes all type industry.
It's a stock pickers industry. So you've got healthcare globally
growing about five percent, but you've got some areas of
(06:02):
healthcare that have a bit more tailwind in them and
they're growing closer to let's say ten percent. I would
say if you describe our subsector growth where we focus,
I'd say that's closer to the mark. And then if
you pick the winners and I look backwards at our
portfolio growth over the years, we're getting closer to twenty percent.
(06:23):
So you can take a sector that's growing at five
percent annually, but you can pick opportunities and choose opportunities
that you can grow kind of four x the market,
and that's where we choose to focus. So that's the
primary motivation behind those subsectors. I'd say the secondary motivation
is around going back to kind of our roots, the
(06:46):
core of what we do. You mentioned picks and shovels,
great description, So that's what we do. We sell picks
and shovels to biopharma and medtech, and we do that
through the five verticals that you've noticed on our website.
Two of them we call it biopharma and we call
it medtech. Very creative there with our naming conventions, and
(07:07):
in those verticals, really what we're focused on are the
contract service companies, so not only contract research organizations, but
contract development and Manufacturing et center, So the alphabet soup
of contract services, which are very specialized. So when people say,
for example, they like c DMOS, you know that that
term around GHO is very generic and it's it's like saying,
(07:29):
I like to invest in retail, right, so you've got
to know exactly what kind of retail and where you
want to invest, and so so our teams are quite
specialized in those areas. And then we look at the
advisory data vertical, which is really focused on you know,
ten years ago, these would be armies of consultants that
help you determine which indications you want to pursue for
(07:51):
a drug or a device, and how you might want
to think about your path to the market. Through market
access services, you might be thinking about medical affairs or
regulatory affairs, pricing, reimbursement, real world evidence. And this was
very very much people driven. But in this day and age,
these businesses can become a lot more tech enabled. So
(08:14):
this is really from an investor perspective, our opportunity to
kind of buy analog and sell digital as we kind
of create value through more digital tools. We've got another
vertical that we call life science tools and diagnostics. So
here again, as we think about the expense that goes
into drugs and devices in terms of bringing them to market,
(08:34):
and a lot of pharmaceutical and medtech companies are thinking
about their cost of goods sold. Are there inputs that
could go into the products that are bringing innovation that
can make those products the yields better, quality, better reduced
the dosage, improve the efficacy, improve the safety profile, all
those kinds of things. So a lot of innovation coming
down the pipe, and life science tools and diagnostics that
(08:56):
can facilitate that and make things more precise, more accurate,
and cheaper. And then finally digital what we call our
health tech vertical or digital health. And here we're not
focused on digital products you might use, for example, to
schedule booking with your GP or to look at your
(09:18):
revenue cycle or coordinate between your physician practice management organization resly.
So we're focused again on industrial software. So software that
helps you run your labs, better, run your manufacturing environments, better,
think about your supply chain and how you might be
able to improve your procurement through the supply chain, et cetera.
So we're looking at quite deep industrial technology there as well.
(09:42):
So those are the five verticals that we focus on.
Our team is staffed across those verticals and we're in
them every day.
Speaker 1 (09:50):
That was a great description. Thank you for that. You know,
maybe going back to the initial one and you brought
up CDMOS and I guess maybe you could talk about
deals we're seeing and how you know, how do you
close the aperture from that thirty thousand foot view of
CDOs into the more narrow we defined I want to
be in selling gene manufacturing or small molecule or large molecule,
(10:13):
whatever however you.
Speaker 2 (10:14):
Want to cut it.
Speaker 1 (10:15):
How do you think about scaling that down to kind
of the investment thesis and investment that you make.
Speaker 2 (10:22):
Yeah, that's a great question. So we talk about kind
of three things at GHO. We talk about knowledge, we
talk about network, and we talk about opportunity. And you
need all three of them to really start to form
a picture in terms of where you want to spend
your time and where you can be helpful as an investor.
(10:42):
And so we we sit down every Monday and we
go through all of the stuff that's bubbling up across
these subsectors. People we've met, things we've learned conferences, we've
been to companies, we've visited, et cetera. Right, And one
of the great things about GHOS we're a non attribution shop,
So all ideas come onto the table and we discuss
(11:06):
them freely and openly, and we share everything. And the
idea is what we want to do is we want
to find opportunities where we can actually make a difference,
and in those circumstances, the companies wind up selecting us,
and so for us, our deal sourcing is a bit
two ways. So it's about us figuring out where within
(11:28):
these incredibly large verticals should we spend our time because
we have something we can bring to the table there. Right,
there's a problem we've identified, there's a few companies that
are addressing that problem in different ways, and which one
of these companies can we really help with and we
want to get behind and why? And we approach those
(11:49):
companies and quite often a lot of those companies are
also looking for a way to do what we talked
about earlier in the podcast, which is how do I
get let's say, from Germany to the US, or from
the UK to the US, or if I'm in the US,
how do I address the opportunity in Europe. Both of
(12:09):
these are kind of age old problems right across many industries,
including ours, and more so in our case because we're regulated,
and so it's quite important if you're an entrepreneur to
find a partner who really can help you with that.
And so they're seeking partners like us just as much
(12:31):
as we're seeking companies like theirs, and where we meet,
I think we can be quite successful when we're like minded.
So a lot about us looking for opportunities is where
do we GHO have a right to play. Where we
see kind of if you look ten fifteen years out,
where's the horizon, and let's see if we can find
(12:54):
companies to align with us around that horizon, and then
we can help them grow know how to do the
scaling bit, and that's something we've built into quite an
extensive set of playbooks that we use internally here.
Speaker 1 (13:08):
Well, maybe it'd be good to just maybe walk us
through one of those examples. I'm sure everything that's in
your portfolio kind of fits that that framework, but it'd
be great to hear, you know, the genesis or kernel
of one of these and then how it came to
fruition and you know where you go from from here
to maybe an exit.
Speaker 2 (13:24):
Yeah, let me let me walk you through kind.
Speaker 1 (13:26):
Of I'm asking you to pick your favorite child.
Speaker 2 (13:29):
Unfortunately, Well, what I'll do is I'll give you let
me give you a bunch because they all fall into
a category. And so I'll give you a sense of
kind of how we how we work through the sub
sectors to develop a thesis and then use the thesis
to kind of drive investments, right, So, and then I'll
walk through through what we've done with some of those investments.
So the thesis that we had was the world is
(13:50):
turning to precision medicine, uh in a pretty important way.
There's many reasons driving that, right, So the first is
responder rates. So you think about, for example, biologic medicines.
The whole world loves biologic medicines, but with average responder
rates in the thirty forty percent range, payers are quite
unhappy and patients are unhappy, and physicians are unhappy because
(14:13):
how do you know what happens to the sixty or
seventy percent of the people who don't respond to that therapy,
you know, putting side effects aside, and so we're paying
for one hundred percent of them, but we're getting the
benefit thirty forty percent of the time. So we need
to get better at figuring out who that thirty forty
percent is with the medicines we do have, and we
need to get better at figuring out how we're going
(14:35):
to help the other sixty or seventy percent of the
people efficiently. So, like any other modality, biologic drugs are
becoming more and more specialized, which means testing becomes more complicated,
manufacturing becomes more complicated, the entire supply chain has to
specialize in ways that it never did before. So there's
(14:55):
a base requirement in biologic medicines for innovation and fueling.
All of that is what we have. The genomic revolution
on the one side, which you know, if you go
back to let's say long time now, if you go
back to two thousand and nine, it costs one hundred
thousand dollars in three weeks to sequence a human genome,
and today it costs you one hundred bucks and it
(15:16):
takes fifteen minutes, right, so it's it's a different paradigm.
And then you look back, going back, you know, kind
of in that timeframe, and you think about compute back
then and you think about compute today, it's a whole
nother story, right, And so we have both the computational
tools and the biological tools to really help inform how
(15:37):
we can get more precise with medicines. And so we
chose to focus on biologics as a modality. And we
made our first investment in a company that did biological
testing of samples coming out of clinical trials. And that
company was based in North Carolina, not far from a
QVUS old office, and it was called Bioagalytics, And okay,
(15:58):
so we made that first investment. And that company when
we first made our investment, had a headquarters in North
Carolina about seventy thousand square feet if memory serves me
correctly of lab space, and a very small academic center
in Hamburg, Germany. That was it. By the time we
exited that company, and they were only doing testing in biologics.
(16:23):
We could see, this was twenty nineteen. We could see
coming down the pike massive the aperture opening massively into
advanced therapies and nobody really understanding how to address that,
and the spillover effects into kind of virology and the
vaccine areas, and nobody was really addressing that either. And
(16:44):
so what we started to do we started to build
the platform. When we first entered the company, the senior
team had about six people in it and they really
operated very centrally in North Carolina. We helped that team grow.
We brought senior people in the science office into the company.
(17:06):
We put real it infrastructure into the company that's scalable,
that addresses things like your your your compliance with good
lab practices and quality management systems and all those kinds
of things, and we on the back of those investments,
we were able to start to scale. So if you
(17:28):
think about what we also began then to scale first
into into new product categories. So we built some lab
space specifically designed for advanced therapy testing and began to
build that capability internally organically and started to look externally
for M and A opportunities. We find one. We found
(17:48):
one up in Boston that was doing car TE testing
and we began to build on that and accelerate the pipeline.
We bought a business that was quite deep in virology
in Asia and started to knit that back through our
workflow in the core business and eventually through a series
(18:09):
of acquisitions and organic builds, we wound up with a
business that was operating in North Carolina, in Boston out
in Asia Hamburg had quintupled in size, and then another
constellation of labs in the US, and all of that
created quite a global footprint that the company was able
(18:31):
to accelerate into. What's interesting is when you do all
of this and you look back, you've got a very
different company, you know, when you're exiting than when you entered.
When when you entered again, you had kind of that
half a dozen people running a local shop in North Carolina.
When you exit, you have kind of a dozen or
more people running truly a global business. You have a
(18:53):
business that was growing compound annual growth of about forty
percent a year with very steady and and slightly rising
ebitdal margins and cash flow conversion. You've you've begun to
do regular business with a lot of very big customers
and a long tail of smaller customers, and they're calling
(19:14):
you on a regular basis, So your customer acquisition costs
goes way down, your sales efficiency goes way up. And
what's good is when you turn the crank a lot
on the service businesses, you get better and better at it,
so you're putting more distance between yourself and your competitors,
and so you become really the go to person and
that specialized niche, and that specialized niche is growing much
(19:37):
faster than the industry. So the growth in that part
of the industry was probably about fourteen percent or in
the years we own it, versus the forty percent we
are growing. So that's what I mean by you know,
get you get into an area where innovation is a
base requirement, and then you find a platform that's got
a DNA that really works with you, that really kind
(19:59):
of seem use the big picture of the way that
you see the big picture, you align on that. And
the importance of that is that along the way, you
are undoubtedly going to zig and zag, and you've got
to make lots of decisions along the way, and you
want to be you want to have kind of a
common north star so that every time, every time you
kind of attack a job on your way to that
north star, you're heading in the same direction and you
(20:24):
wind up with an opportunity to create something that's quite
different that conserve the industry on a scale that hasn't
existed previously, and the industry will reward you for that
and the investment returns which are a derivative of all
of this. So we stayed on that theme of precision
medicine and the role of biologics in precision medicine, and
(20:45):
we continue to invest in that area. So subsequent investments
have included another business called fair Journey Biologics, which develop
which helps companies discover biologic medicine. So from the very
early stages of when you've got biological target in mind
and you want to address it with a with a
biologic medicine, you would go to a place like fair Journey.
(21:08):
And again another crank the handle business. So you know,
the average large pharma company, they're all investing sixty seventy
percent of their R and D budgets are focused on biologics,
but they're all doing kind of two or three molecules
a year. Fair Journey's got about two hundred and fifty
active projects a year. So just to you know, it's
an area where when you do it enough the ten
(21:29):
thousand hour rule, you do it really well. We've invested
in upstream manufacturing and a company called Avid, which we
took private earlier this year. Then yeah, and then We've
invested in downstream product biologic product with a company called Alchemy,
again headquartered in North Carolina, but you know, with several facilities,
(21:55):
so you know, it's been a constant theme here at
GHO and some thing that you know, as you do
more and more of it, you learn more and more,
your network deepens, your knowledge based deepens, and and it's
just a very good example of how we think about
strategically investing in the sector.
Speaker 1 (22:13):
If you had to say which piece is harder, you know,
is it is it identifying the platform initially, or is
it the blocking and tackling to then scale it, or
or are they equally hard? And I'm sure every situation
is different, but but I I wonder which which piece
becomes you know, as you've done this over and over,
I imagine the blocking and tackling gets easier because, like
(22:33):
you mentioned before, you have the playbook of how to scale.
Speaker 2 (22:37):
It's I heard I heard. I heard this great joke
early in my career. I won't mention who told it,
but it was. It was a real industry veteran who
spoke at at one of the conferences I attended, and
he said, heaven is you know a bunch of private
equity guys, you know, standing around their pool the summer
(23:00):
time on their mobile phones doing deals. And hell is
those same private equity phone guys on the phone standing
around the pool in the summertime talking to the companies
whose deals they've just done right, And I think the
blocking and tackling, you know, it's easy to say, it's
very hard to do. If you think about a company,
(23:22):
you know, in the example I gave earlier, Biogalytics, we
went from about two hundred seventy people to over one
thousand people from one geography, well let's say two geographies
or one and a half with you know, a small
delta in time zones right to having a truly global
(23:42):
place with you know, kind of half a dozen facilities
across across the globe. You went from a more concentrated
customer set where the senior team had direct relationships with
the senior team at those customers, to or organization that
was capable of delegating that down to a much broader
(24:03):
commercial team and having a lot more linkages with very
important customers all around the world. The complexity of the organization,
the change management that needs to be implemented along the
way the people that you need to kind of bring in,
you know, again harmonizing culture. Remember you started with a
(24:26):
senior team of let's say half a dozen people, and
that you know, those guys have been together for a
decade or more and that culture is quite tight. So
how do you introduce new people into that team without
upsetting the apple cart? And so I think those things
are very hard to do. And you know I mentioned
the word playbook, and we definitely have one. And what
(24:49):
I can tell you about that is, you know, no
no battle plan survives first contact with the enemy, right.
Speaker 1 (24:56):
I know it's idiosyncratic to every every company and every day.
I mean, how do you keep testing as you're going
along this journey?
Speaker 2 (25:04):
You know?
Speaker 1 (25:05):
Can you talk about the process to just keep retesting
your thesis? And and and you know, if you think
about that north star of you know, scaling and growing
and and compounding, you know, is there a point where
you maybe have to say this isn't working?
Speaker 2 (25:20):
You know?
Speaker 1 (25:20):
And and and can you talk about that process of
retesting the thesis as you go along that journey?
Speaker 2 (25:26):
Yeah, I think AI is a good place to start
with that. So we've tested very topical you don't say, so,
we've we've tested AI with a few different companies and
and in the portfolio, the idea being that, you know,
(25:47):
if we build some AI software, it may be another
business line for the companies. And what we've found, in
large part is that we've had to kind of rethink
that our entire approach. Uh. And what we found is
that AI has become again yet another enabler. Right, So
(26:09):
it's it's not about AISS as a product, but AI
as an augmentor of products and services that already exist.
And how can you do that to really kind of
you know, ten x your your efficiency or your or
(26:31):
the value of the insights you're able to deliver or
those kinds of things, as opposed to just you know,
launching this thing as a new kind of business line,
a self service model for O those to use. And
and and I think that caused a bit of uh,
you know, several U turns along the way to kind
of say, Okay, we're not going to try this approach.
We're going to try another approach. And and and you
(26:52):
have to do that, and you have to be kind
of nimble. I think the most important thing to think
about when you think about that is you need a board.
It's very active, that's very switched on. And I don't
mean switched on in terms of we look at the
P and L and see what's working what isn't working.
I mean switched on in terms of what are the
customers thinking right, And ironically, we meet quite a few
(27:14):
of our would be portfolio candidates through their customers. So
because we spend a lot of time in the industry,
you know, the what we're trying to do is try
to understand the problems of the industry and ways that
we can solve them. And you know, the reality is
AI has not been the panacea that everybody thought it
(27:35):
might be. It's also not up in the doomsday device
that everybody thought it would be either, But but it
can be helpful in a certain way. And the reality is,
if you're always listening to the customers, you have a
pretty good sense for what's working long before it ever
shows up in the P and L. And that's really
(27:56):
where you need to be as an owner. You need
to really have a feel for the drivers of the
P and L, not necessarily the P and L itself.
And so for us, it's really about having a board
that's engaged in the end markets as much as it
is engaged in the governance of the companies that.
Speaker 1 (28:14):
We bat oh Well said. So, if I were to
put you on the spot and say, you know, where
do you think we'll be with AI? And this is
hard to pick a time frame because it's all moving
so quick, but maybe a near term one, two or
three years. I mean, do you think we'll see fundamental
changes in the companies or industries that you're looking at
driven by AI? Or do you think it will just
be table stakes or the anti that everybody needs to
(28:37):
incorporate these tools into their processes, into their workflows, and
it's not going to be necessarily as big a game
changer as we might see in some media reports or
speakers at conferences that sort of thing.
Speaker 2 (28:51):
I would say that that question is a good question,
but grammatically incorrect because you post it, you post it
in sort of the future tense, right, and and actually
I think it's already table stakes, so fair, very fair, right,
It's it's already table stakes. And the fact that it's
already table stakes is what's driving what I think of
(29:13):
as sort of fragmentation of AI. So there isn't gonna
be kind of one model to rule them all. This
is not kind of more door that we're building here.
I think what we're finding is that, yes, there are
large foundational models. And it's interesting. I was reading this,
uh this, this article on it, and apparently several of
(29:35):
the large lms were asked to pick a random number,
and I think three out of four picked seven, the
number seven. Imagine that, right, And so so it's you know,
the thing is these models are they're statistical. They're not deterministic, right,
And and that's how we have to think about them.
(29:55):
And because they're statistical models, they may be great statistical models, right,
but it's really you know, as it is with any
statistic you can massage it one way, and I can
massage it another way, right, and it's it's uh and
and so that means that your approach to these foundational
models is really what counts. And the approach you might
take if you're sitting here at g H O versus
(30:18):
some other place might be very different, right, And that's
really what the secret sauce is. And and so I
think it's here to stay. Number one. Number two is
I think we're going to see it used. I think
quite quite a lot in a diverse diversity of applications,
(30:41):
and I think the people who are using it well
are going to get ahead, and it's going to drive
all sorts of efficiencies. But it's also going to drive insights,
because one of the things AI is good at is
what we're bad at. So I think humans, you know,
we've evolved over million of years, we're quite good at
(31:02):
the physical world in the sense of if you want
to catch a ball, If I throw a ball to
you and you want to catch it, you kind of
know where your body needs to be, how to extend
your arm, how to grip it just at the right
time and pull the arm in so that you go
with the momentum of the ball and you don't give
the ball an excuse the bounce out of your hand.
And we've learned that through millions of years of evolution,
(31:22):
But we've only really started to think about knowledge and
information much more recently, you know, and how we use
that much more recently, and so the evolution in our
own brains is much younger. In that area. AI has
learned all of our knowledge and all of our information
very quickly. Right, these models are able to digest it
and they're very good at, for example, looking at a scan.
(31:43):
They're great at looking at a picture and parsing out
signal from noise in a picture if you teach it
what signal is and what noise is, and so for example,
and imaging AI is a great tool, again an augmenta
of productivity in certain ways, and so it's really good
in areas where we're actually pretty bad. And if we
(32:04):
think of it that way, it's just another tool. And
so how we put those tools to productive use, Like
any craftsman, we just need to get better at that,
and I think we're in that stage right now.
Speaker 1 (32:15):
No very well said, I like all those analogies, maybe
switching gears. You know, can we think about the regulatory
front and investing in this like regulatory climate. I mean,
there's a lot of news coming out of Washington, whether
it's most favored nation, whether it's what the FDA is doing.
You know, how do you think about where to place
(32:37):
your bets in this climate? And I guess maybe what
are the two or three I guess hot button issues
that you're focused on from a regulatory perspective right now?
And I'm sure that changes over time, So you.
Speaker 2 (32:52):
Know, I guess in mathematical systems, you can have systems
that are sensitive to initial conditions and systems that are
not sensitive to initial conditions. I think the policy backdrop
is one of the latter systems. Thankfully, We've got lots
and lots of volatility today, political noise, other kinds of noise.
But if you really kind of think about it, if
(33:13):
you drop that marble into the bowl, you know where
it's going to wind up, regardless of the path that
it takes. Right, So I step back and I look,
for example, at the NIH. NIH you know which is
you know, suffering all kinds of turbulence. Right now, it's
probably the best VC ever. Right. Ninety percent of all
(33:35):
the FDA drugs ever approved have been supported by the
NIH at some point in time. You know, you give
them full credit through the NCI for carti therapies for example. Right,
And you know the reality is can it get better?
Of course it can get better, you know it. You know,
my understanding is it takes ten to fifteen months to
(33:57):
approve a grant at the NIH. I hear that from
biotech people all the time. You know, they tend to
focus a little bit that they may be better serve
focusing a bit more on the translational element of research
rather than the fundamental element of research, for example. So
there may be some tweaks where you might say, Okay, well,
you know, you can get better at this, you can
get a bit more efficient with the tax dollars, et cetera,
(34:18):
et cetera. So there may be some justifiable ways to
think about, you know, questioning you know, what the what
the strategy of the NAH should be. But the reality is,
you know, why would you ever defund that, really, right
when it's such an engine of innovation and an engine
of of of productivity in in in the US. And
(34:43):
so I don't think you do. I think you probably
asked some questions, you make a few adjustments, and over
time you wind up with maybe hopefully a slightly better
version of itself, and and and they can grow again
from there. I'd say the same thing about the FDA.
You know, people talk of all the turbulence at the FDA.
We've just had another headline grabbing resignation, uh this week.
(35:06):
And what I would say is, again, you know, this
is kind of the world's regulator, right it and and
and they have been making real efficiency gains you know,
they've they've you know, been able to do these uh
fast track programs to break with therapies, et cetera. They've
done you know, they've started to use our we and
(35:27):
look at kind of you know, data coming through from
EHRs and other things like that to to augment safety
and efficacy analysis. You know, they're they've been getting better,
and they've been getting faster as a regulator, and I
think they're they've been kind of world leading in that regard.
And and again, why would you step away from that? Right?
And and and if you just take those two examples
(35:50):
and you stop there, and then you say, well, uh,
it's political, it's this, it's that. The reality is the
further back you step away from those institutions, the more,
if you're looking at it now from a US policy standpoint,
the more you're seeding ground to you know, the major
up and comer, which is China, which is you know,
(36:11):
really innovating and really grabbing share a pipeline. So I
think the reality is that we've got some short term turbulence.
We may get some longer term benefit out of it
in terms of better productivity, but we will certainly have
I think a functioning industry. When we get through some.
Speaker 1 (36:29):
Of this, well said, so to summarize, you don't lose
a lot of sleep over it at night.
Speaker 2 (36:33):
Yeah, yeah, not to worry about things I can't control.
Speaker 1 (36:37):
Yeah, I think it's fair if you think about the
cycles and the timelines, especially in this industry where where
you know, we're we're measuring things in you know, many
year periods, not you know, the next two to three months.
Speaker 2 (36:47):
Right.
Speaker 1 (36:49):
You know, in tech, the product innovation cycle is quick, right.
You know, a new iPhone comes out every year, probably
a new AI models coming out every six months. You know,
the next class of whatever drug you choose probably takes
seven to ten years, give or take. I mean, hopefully
we're speeding that up. But I think it's a fair point.
(37:11):
One of the other ones I wanted to to ask
you about before we wrap up is just your philosophy
around you know, we talked about some of the companies,
and we talked about some of the trends, but you know,
when is it the right time to exit? What is
a what does an ideal exit for you guys look like?
Speaker 2 (37:26):
Yeah, that's probably the toughest question in all of private equity, right,
And we tend to kind of as an industry, I
think sometimes we may hold on to things that we
love a little bit too long. And sometimes I think,
you know, the stock answer to that question is you
(37:48):
sell when you're no longer the right owner. The good
news is when you're operating in the mid market like
we are, you can kind of feel when that is.
It's kind of like raising a child, right, you sort
of know when they've become adults and they're fully formed
and able to kind of spread their wings and go
(38:08):
out on their own right. And and I think, you know,
for us, some of the financial cues could be, for example,
you know, a major need for capital to do something
very exciting but maybe not something we have the scale
to be able to do. It could be a geography
that we just have no experience in, or a product
(38:30):
category that we have no experience in. It could be
an opportunity to kind of combine with a larger strategic buyer.
And if you think about the kinds of companies we're building,
they're strategically very relevant in the biopharma and medtech space,
and there are much larger players in our ecosystem. So
(38:50):
in all of our five sub sectors, you have players
that are ten or hundreds of billions of dollars of
market value, and they you know, we'll look at our
portfolio and track our portfolio quite closely, so we generally
see the signs in the mid market, I think a
lot more clearly than maybe some of our larger cap
(39:11):
brethren see them because of the nature of the companies
that we're backing.
Speaker 1 (39:17):
No, that's a good point. I guess I never thought
about it through the lends of the signs might be
a little bit more queer at a smaller scale than
if you're let's say, like a large cap or something
with a little more scale, or have to it Edward.
One of the ways I like to wrap these conversations
up is really focusing on a life lesson that the
speaker holds to your You know, it could be something
(39:38):
from your personal life or your professional experience, but is
there something that maybe you see as your mission that
drives you day to day.
Speaker 2 (39:46):
If I start with where you started, which is lifeless,
and I'd say the one thing is it's really the
big lesson I've learned as an investor is you've got
to look out long term, way past your own horizon.
That north Star is critically important. Tells you everything you
need to know about the people you're dealing with, the
sustainability the businesses you back, whether they're heading in the
(40:06):
right direction or not. And it's very important to kind
of the well being of the combined team of GHO
and our portfolio companies as we sit down together. You know,
let's say, at dinner before a board meeting. You know,
you don't want to talk about, you know, last quarters
(40:26):
financial results. What you want to talk about is the dream.
You want to talk about where you're going, and the
things that you're doing to help them, and the things
that they're doing to help themselves, and and and actually
what that is actually doing for the industry as a whole.
And the lesson I've learned is I used to think
(40:48):
of life sciences as an oxymoron. Having studied engineering and
physics and loving maths, I never thought about, you know,
biology is the same science, if you would, because it's
very statistical again and and uh, and I've I've come
full circle on that. Then I have a huge respect
(41:09):
for all the the scientists that I've met over the
years in this in this role, and I can tell
you one of the things that I underappreciated in terms
of this industry, uh, is how people are called to
it and and it drives them they work that little
bit harder, myself included, all of us at GHO included,
(41:31):
We just worked that little bit harder because we think
we're actually doing some good as well. And that that
idea of better, faster, more accessible healthcare. If I say
that to any one of our portfolio companies, it will
resonate with them and they will actually say something back
that's very similar, which is their mission right or their
(41:52):
purpose And and I think it's a motivating factor for
people in a world where there's a lot of confusion
to have that north star, to have that long term view,
to be grounded in a purpose that makes things worthwhile,
I think is uh, you know, it brings people together
(42:12):
and it helps us do amazing things.
Speaker 1 (42:14):
That's really well said, and I love how you bookended
it with you know, that theme from from the very
start of the conversation. Thank you for sharing that story
and and.
Speaker 2 (42:23):
That that view. So with that we'll we'll wrap up.
Speaker 1 (42:26):
And that's Edward Denoir of g h O Capital. Thank
you so much for joining us on our Way to podcast. Episode,
and please to make sure to click the follow button
on your favorite podcast app or website so you never
miss a discussion with the leaders in healthcare innovation. I'm
Jonathan Palmer, and you've been listening to the Vanguards of
healthcare podcasts by Bloomberg Intelligence. Until next time, take care,
Welcome to another episode of Bloomberg Intelligence's Vanguards of Healthcare podcasts,
where we speak with the leaders at the forefront of
change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Boomberg Intelligence, the in
house research arm of Bloomberg. We're very happy to welcome
Edward Denar. He's a partner at GHO Capital, which he
joined about ten years ago. GHO is a specialist investor
(00:22):
in the healthcare industry with about I believe nine billion
euros under management. Edward got his start in engineering at IBM,
but has been primarily focused on private equity throughout his career,
with stops at Goldman Sachs, Kerrie Castle, and g Square.
Welcome to the podcast.
Speaker 2 (00:37):
Thank you, Jonathan. Great to be here today.
Speaker 1 (00:40):
Well, why don't we kick it off with a high
level view of GHO and where you kind of sit
in the ecosystem from a private equity perspective or even
a venture perspective.
Speaker 2 (00:49):
So we are what you would call a mid market
private equity firm. In our definition, what that means is
companies who generally have let's call it somewhere in the
fifty to two hundred million or so of revenue. They
probably have similar numbers of employees, maybe fifty to two
hundred or so million. They tend to be operating in
(01:10):
a particular geography, maybe in a particular niche, but they're
selling to some of the most important customers in the world,
major biopharma customers and major medtech customers. And so our
approach to investing is really to get behind these companies
and help them to scale and grow into that opportunity
(01:34):
set more globally with these customers.
Speaker 1 (01:38):
Fantastic and maybe maybe start us off with a little
bit with the origin story of GHO, maybe talk about
the founders a little bit and where the mid market
focus comes from.
Speaker 2 (01:47):
Yeah, so we've got three co founders and they come
from very different walks of life, which is part of
our own DNA. They all had a common ancestry and
a company that used to be called Quintals and is
known today as IQBA, which was one of the pioneers
in the contract services industry focused on contract research. One
(02:09):
of our co founders, Mike Mortimer, was one of the
top execs there and he ran the international business out
of London. Another one, Andrea Ponti, se career banker who
was focused on healthcare. He ran it at Coleman where
I used to work, and he went on to run
it at JP Morgan and in all those years did
a lot of deals with Quintals and Ikeva both and
(02:32):
then a third co founder, Alan McKay, used to run
through Eyes healthcare business and made a very successful and
very significant investment in Quintiles. When Quentals went public in
twenty thirteen, Mike decided that he'd retire within a year
(02:52):
and he got together with Andrea and Allen and hatched
this cunning plan. And that is our story.
Speaker 1 (03:00):
So you know, maybe with that in mind, you know,
if we think about Quintiles and the focus on services
to the biopharma industry, I mean, it seems like that's
really a big piece of the DNA of the company,
you know, that that picks and shovels, if you will.
Speaker 2 (03:13):
Indeed, it is I think the you know, Quintels grew
with the industry, right So Quintels started out as as
a small business trying to sell to the giants, and
we derive a lot of our DNA from that. Quintel's
itself today is a global company, it is digitized, it's
selling as much data and intelligence as it is selling
(03:36):
the core lab services and clinical services. That are absolute
requirements if you want to take a drug from discovery
all the way through an approval. So it's a very
important part of the ecosystem. And you know, we've we've
taken that journey to heart and we've thought about all
of the things that you need to do to get
businesses to that level. How do you get your people there,
(03:59):
how do you get your system and processes there? How
do you touch your customers in more places with more
products and services? And that's really become the core DNA
of who we are today.
Speaker 1 (04:09):
That's great. Maybe can you walk us through how you are?
I mean, I think we've touched on it a little bit,
but you know, if I look at the subsector focus
on your website, you know it spans a couple key categories.
How did you guys kind of arrive on those? And
I guess you know, with that in mind, why not
focus given some of the expertise on other areas maybe
(04:30):
like therapeutics that sort of thing.
Speaker 2 (04:32):
Yeah, so we think of ourselves as enablers ATCHA. One
of the great things about our origin story is we
centered it around a purpose, and the purpose is really
to of course deliver better risk adjusted returns to our investors.
But we do that by enabling better, faster, more accessible healthcare.
(04:54):
We used to say better, faster, cheaper, but that offended
some of our European sensibilities, so we say better, faster,
more accessible healthcare, right. And so fundamentally, what we want
to do is get behind innovation. And what innovation does
for an investor is innovation drives growth, it drives market
(05:16):
share gains, and it ultimately drives investment returns. And what
it does for the industry is it does help improve
the picture between payers, patients and providers. And if you
think about that triangle, that is the opposite of a
love triangle, right, that is a broken triangle. And you know,
healthcare is understandably a very conservative industry. So it's not
(05:41):
going to be revolution that changes the picture between payers, patients,
and providers. It's going to be innovation. And that's why
healthcare is not kind of a winner's takes all type industry.
It's a stock pickers industry. So you've got healthcare globally
growing about five percent, but you've got some areas of
(06:02):
healthcare that have a bit more tailwind in them and
they're growing closer to let's say ten percent. I would
say if you describe our subsector growth where we focus,
I'd say that's closer to the mark. And then if
you pick the winners and I look backwards at our
portfolio growth over the years, we're getting closer to twenty percent.
(06:23):
So you can take a sector that's growing at five
percent annually, but you can pick opportunities and choose opportunities
that you can grow kind of four x the market,
and that's where we choose to focus. So that's the
primary motivation behind those subsectors. I'd say the secondary motivation
is around going back to kind of our roots, the
(06:46):
core of what we do. You mentioned picks and shovels,
great description, So that's what we do. We sell picks
and shovels to biopharma and medtech, and we do that
through the five verticals that you've noticed on our website.
Two of them we call it biopharma and we call
it medtech. Very creative there with our naming conventions, and
(07:07):
in those verticals, really what we're focused on are the
contract service companies, so not only contract research organizations, but
contract development and Manufacturing et center, So the alphabet soup
of contract services, which are very specialized. So when people say,
for example, they like c DMOS, you know that that
term around GHO is very generic and it's it's like saying,
(07:29):
I like to invest in retail, right, so you've got
to know exactly what kind of retail and where you
want to invest, and so so our teams are quite
specialized in those areas. And then we look at the
advisory data vertical, which is really focused on you know,
ten years ago, these would be armies of consultants that
help you determine which indications you want to pursue for
(07:51):
a drug or a device, and how you might want
to think about your path to the market. Through market
access services, you might be thinking about medical affairs or
regulatory affairs, pricing, reimbursement, real world evidence. And this was
very very much people driven. But in this day and age,
these businesses can become a lot more tech enabled. So
(08:14):
this is really from an investor perspective, our opportunity to
kind of buy analog and sell digital as we kind
of create value through more digital tools. We've got another
vertical that we call life science tools and diagnostics. So
here again, as we think about the expense that goes
into drugs and devices in terms of bringing them to market,
(08:34):
and a lot of pharmaceutical and medtech companies are thinking
about their cost of goods sold. Are there inputs that
could go into the products that are bringing innovation that
can make those products the yields better, quality, better reduced
the dosage, improve the efficacy, improve the safety profile, all
those kinds of things. So a lot of innovation coming
down the pipe, and life science tools and diagnostics that
(08:56):
can facilitate that and make things more precise, more accurate,
and cheaper. And then finally digital what we call our
health tech vertical or digital health. And here we're not
focused on digital products you might use, for example, to
schedule booking with your GP or to look at your
(09:18):
revenue cycle or coordinate between your physician practice management organization resly.
So we're focused again on industrial software. So software that
helps you run your labs, better, run your manufacturing environments, better,
think about your supply chain and how you might be
able to improve your procurement through the supply chain, et cetera.
So we're looking at quite deep industrial technology there as well.
(09:42):
So those are the five verticals that we focus on.
Our team is staffed across those verticals and we're in
them every day.
Speaker 1 (09:50):
That was a great description. Thank you for that. You know,
maybe going back to the initial one and you brought
up CDMOS and I guess maybe you could talk about
deals we're seeing and how you know, how do you
close the aperture from that thirty thousand foot view of
CDOs into the more narrow we defined I want to
be in selling gene manufacturing or small molecule or large molecule,
(10:13):
whatever however you.
Speaker 2 (10:14):
Want to cut it.
Speaker 1 (10:15):
How do you think about scaling that down to kind
of the investment thesis and investment that you make.
Speaker 2 (10:22):
Yeah, that's a great question. So we talk about kind
of three things at GHO. We talk about knowledge, we
talk about network, and we talk about opportunity. And you
need all three of them to really start to form
a picture in terms of where you want to spend
your time and where you can be helpful as an investor.
(10:42):
And so we we sit down every Monday and we
go through all of the stuff that's bubbling up across
these subsectors. People we've met, things we've learned conferences, we've
been to companies, we've visited, et cetera. Right, And one
of the great things about GHOS we're a non attribution shop,
So all ideas come onto the table and we discuss
(11:06):
them freely and openly, and we share everything. And the
idea is what we want to do is we want
to find opportunities where we can actually make a difference,
and in those circumstances, the companies wind up selecting us,
and so for us, our deal sourcing is a bit
two ways. So it's about us figuring out where within
(11:28):
these incredibly large verticals should we spend our time because
we have something we can bring to the table there. Right,
there's a problem we've identified, there's a few companies that
are addressing that problem in different ways, and which one
of these companies can we really help with and we
want to get behind and why? And we approach those
(11:49):
companies and quite often a lot of those companies are
also looking for a way to do what we talked
about earlier in the podcast, which is how do I
get let's say, from Germany to the US, or from
the UK to the US, or if I'm in the US,
how do I address the opportunity in Europe. Both of
(12:09):
these are kind of age old problems right across many industries,
including ours, and more so in our case because we're regulated,
and so it's quite important if you're an entrepreneur to
find a partner who really can help you with that.
And so they're seeking partners like us just as much
(12:31):
as we're seeking companies like theirs, and where we meet,
I think we can be quite successful when we're like minded.
So a lot about us looking for opportunities is where
do we GHO have a right to play. Where we
see kind of if you look ten fifteen years out,
where's the horizon, and let's see if we can find
(12:54):
companies to align with us around that horizon, and then
we can help them grow know how to do the
scaling bit, and that's something we've built into quite an
extensive set of playbooks that we use internally here.
Speaker 1 (13:08):
Well, maybe it'd be good to just maybe walk us
through one of those examples. I'm sure everything that's in
your portfolio kind of fits that that framework, but it'd
be great to hear, you know, the genesis or kernel
of one of these and then how it came to
fruition and you know where you go from from here
to maybe an exit.
Speaker 2 (13:24):
Yeah, let me let me walk you through kind.
Speaker 1 (13:26):
Of I'm asking you to pick your favorite child.
Speaker 2 (13:29):
Unfortunately, Well, what I'll do is I'll give you let
me give you a bunch because they all fall into
a category. And so I'll give you a sense of
kind of how we how we work through the sub
sectors to develop a thesis and then use the thesis
to kind of drive investments, right, So, and then I'll
walk through through what we've done with some of those investments.
So the thesis that we had was the world is
(13:50):
turning to precision medicine, uh in a pretty important way.
There's many reasons driving that, right, So the first is
responder rates. So you think about, for example, biologic medicines.
The whole world loves biologic medicines, but with average responder
rates in the thirty forty percent range, payers are quite
unhappy and patients are unhappy, and physicians are unhappy because
(14:13):
how do you know what happens to the sixty or
seventy percent of the people who don't respond to that therapy,
you know, putting side effects aside, and so we're paying
for one hundred percent of them, but we're getting the
benefit thirty forty percent of the time. So we need
to get better at figuring out who that thirty forty
percent is with the medicines we do have, and we
need to get better at figuring out how we're going
(14:35):
to help the other sixty or seventy percent of the
people efficiently. So, like any other modality, biologic drugs are
becoming more and more specialized, which means testing becomes more complicated,
manufacturing becomes more complicated, the entire supply chain has to
specialize in ways that it never did before. So there's
(14:55):
a base requirement in biologic medicines for innovation and fueling.
All of that is what we have. The genomic revolution
on the one side, which you know, if you go
back to let's say long time now, if you go
back to two thousand and nine, it costs one hundred
thousand dollars in three weeks to sequence a human genome,
and today it costs you one hundred bucks and it
(15:16):
takes fifteen minutes, right, so it's it's a different paradigm.
And then you look back, going back, you know, kind
of in that timeframe, and you think about compute back
then and you think about compute today, it's a whole
nother story, right, And so we have both the computational
tools and the biological tools to really help inform how
(15:37):
we can get more precise with medicines. And so we
chose to focus on biologics as a modality. And we
made our first investment in a company that did biological
testing of samples coming out of clinical trials. And that
company was based in North Carolina, not far from a
QVUS old office, and it was called Bioagalytics, And okay,
(15:58):
so we made that first investment. And that company when
we first made our investment, had a headquarters in North
Carolina about seventy thousand square feet if memory serves me
correctly of lab space, and a very small academic center
in Hamburg, Germany. That was it. By the time we
exited that company, and they were only doing testing in biologics.
(16:23):
We could see, this was twenty nineteen. We could see
coming down the pike massive the aperture opening massively into
advanced therapies and nobody really understanding how to address that,
and the spillover effects into kind of virology and the
vaccine areas, and nobody was really addressing that either. And
(16:44):
so what we started to do we started to build
the platform. When we first entered the company, the senior
team had about six people in it and they really
operated very centrally in North Carolina. We helped that team grow.
We brought senior people in the science office into the company.
(17:06):
We put real it infrastructure into the company that's scalable,
that addresses things like your your your compliance with good
lab practices and quality management systems and all those kinds
of things, and we on the back of those investments,
we were able to start to scale. So if you
(17:28):
think about what we also began then to scale first
into into new product categories. So we built some lab
space specifically designed for advanced therapy testing and began to
build that capability internally organically and started to look externally
for M and A opportunities. We find one. We found
(17:48):
one up in Boston that was doing car TE testing
and we began to build on that and accelerate the pipeline.
We bought a business that was quite deep in virology
in Asia and started to knit that back through our
workflow in the core business and eventually through a series
(18:09):
of acquisitions and organic builds, we wound up with a
business that was operating in North Carolina, in Boston out
in Asia Hamburg had quintupled in size, and then another
constellation of labs in the US, and all of that
created quite a global footprint that the company was able
(18:31):
to accelerate into. What's interesting is when you do all
of this and you look back, you've got a very
different company, you know, when you're exiting than when you entered.
When when you entered again, you had kind of that
half a dozen people running a local shop in North Carolina.
When you exit, you have kind of a dozen or
more people running truly a global business. You have a
(18:53):
business that was growing compound annual growth of about forty
percent a year with very steady and and slightly rising
ebitdal margins and cash flow conversion. You've you've begun to
do regular business with a lot of very big customers
and a long tail of smaller customers, and they're calling
(19:14):
you on a regular basis, So your customer acquisition costs
goes way down, your sales efficiency goes way up. And
what's good is when you turn the crank a lot
on the service businesses, you get better and better at it,
so you're putting more distance between yourself and your competitors,
and so you become really the go to person and
that specialized niche, and that specialized niche is growing much
(19:37):
faster than the industry. So the growth in that part
of the industry was probably about fourteen percent or in
the years we own it, versus the forty percent we
are growing. So that's what I mean by you know,
get you get into an area where innovation is a
base requirement, and then you find a platform that's got
a DNA that really works with you, that really kind
(19:59):
of seem use the big picture of the way that
you see the big picture, you align on that. And
the importance of that is that along the way, you
are undoubtedly going to zig and zag, and you've got
to make lots of decisions along the way, and you
want to be you want to have kind of a
common north star so that every time, every time you
kind of attack a job on your way to that
north star, you're heading in the same direction and you
(20:24):
wind up with an opportunity to create something that's quite
different that conserve the industry on a scale that hasn't
existed previously, and the industry will reward you for that
and the investment returns which are a derivative of all
of this. So we stayed on that theme of precision
medicine and the role of biologics in precision medicine, and
(20:45):
we continue to invest in that area. So subsequent investments
have included another business called fair Journey Biologics, which develop
which helps companies discover biologic medicine. So from the very
early stages of when you've got biological target in mind
and you want to address it with a with a
biologic medicine, you would go to a place like fair Journey.
(21:08):
And again another crank the handle business. So you know,
the average large pharma company, they're all investing sixty seventy
percent of their R and D budgets are focused on biologics,
but they're all doing kind of two or three molecules
a year. Fair Journey's got about two hundred and fifty
active projects a year. So just to you know, it's
an area where when you do it enough the ten
(21:29):
thousand hour rule, you do it really well. We've invested
in upstream manufacturing and a company called Avid, which we
took private earlier this year. Then yeah, and then We've
invested in downstream product biologic product with a company called Alchemy,
again headquartered in North Carolina, but you know, with several facilities,
(21:55):
so you know, it's been a constant theme here at
GHO and some thing that you know, as you do
more and more of it, you learn more and more,
your network deepens, your knowledge based deepens, and and it's
just a very good example of how we think about
strategically investing in the sector.
Speaker 1 (22:13):
If you had to say which piece is harder, you know,
is it is it identifying the platform initially, or is
it the blocking and tackling to then scale it, or
or are they equally hard? And I'm sure every situation
is different, but but I I wonder which which piece
becomes you know, as you've done this over and over,
I imagine the blocking and tackling gets easier because, like
(22:33):
you mentioned before, you have the playbook of how to scale.
Speaker 2 (22:37):
It's I heard I heard. I heard this great joke
early in my career. I won't mention who told it,
but it was. It was a real industry veteran who
spoke at at one of the conferences I attended, and
he said, heaven is you know a bunch of private
equity guys, you know, standing around their pool the summer
(23:00):
time on their mobile phones doing deals. And hell is
those same private equity phone guys on the phone standing
around the pool in the summertime talking to the companies
whose deals they've just done right, And I think the
blocking and tackling, you know, it's easy to say, it's
very hard to do. If you think about a company,
(23:22):
you know, in the example I gave earlier, Biogalytics, we
went from about two hundred seventy people to over one
thousand people from one geography, well let's say two geographies
or one and a half with you know, a small
delta in time zones right to having a truly global
(23:42):
place with you know, kind of half a dozen facilities
across across the globe. You went from a more concentrated
customer set where the senior team had direct relationships with
the senior team at those customers, to or organization that
was capable of delegating that down to a much broader
(24:03):
commercial team and having a lot more linkages with very
important customers all around the world. The complexity of the organization,
the change management that needs to be implemented along the
way the people that you need to kind of bring in,
you know, again harmonizing culture. Remember you started with a
(24:26):
senior team of let's say half a dozen people, and
that you know, those guys have been together for a
decade or more and that culture is quite tight. So
how do you introduce new people into that team without
upsetting the apple cart? And so I think those things
are very hard to do. And you know I mentioned
the word playbook, and we definitely have one. And what
(24:49):
I can tell you about that is, you know, no
no battle plan survives first contact with the enemy, right.
Speaker 1 (24:56):
I know it's idiosyncratic to every every company and every day.
I mean, how do you keep testing as you're going
along this journey?
Speaker 2 (25:04):
You know?
Speaker 1 (25:05):
Can you talk about the process to just keep retesting
your thesis? And and and you know, if you think
about that north star of you know, scaling and growing
and and compounding, you know, is there a point where
you maybe have to say this isn't working?
Speaker 2 (25:20):
You know?
Speaker 1 (25:20):
And and and can you talk about that process of
retesting the thesis as you go along that journey?
Speaker 2 (25:26):
Yeah, I think AI is a good place to start
with that. So we've tested very topical you don't say, so,
we've we've tested AI with a few different companies and
and in the portfolio, the idea being that, you know,
(25:47):
if we build some AI software, it may be another
business line for the companies. And what we've found, in
large part is that we've had to kind of rethink
that our entire approach. Uh. And what we found is
that AI has become again yet another enabler. Right, So
(26:09):
it's it's not about AISS as a product, but AI
as an augmentor of products and services that already exist.
And how can you do that to really kind of
you know, ten x your your efficiency or your or
(26:31):
the value of the insights you're able to deliver or
those kinds of things, as opposed to just you know,
launching this thing as a new kind of business line,
a self service model for O those to use. And
and and I think that caused a bit of uh,
you know, several U turns along the way to kind
of say, Okay, we're not going to try this approach.
We're going to try another approach. And and and you
(26:52):
have to do that, and you have to be kind
of nimble. I think the most important thing to think
about when you think about that is you need a board.
It's very active, that's very switched on. And I don't
mean switched on in terms of we look at the
P and L and see what's working what isn't working.
I mean switched on in terms of what are the
customers thinking right, And ironically, we meet quite a few
(27:14):
of our would be portfolio candidates through their customers. So
because we spend a lot of time in the industry,
you know, the what we're trying to do is try
to understand the problems of the industry and ways that
we can solve them. And you know, the reality is
AI has not been the panacea that everybody thought it
(27:35):
might be. It's also not up in the doomsday device
that everybody thought it would be either, But but it
can be helpful in a certain way. And the reality is,
if you're always listening to the customers, you have a
pretty good sense for what's working long before it ever
shows up in the P and L. And that's really
(27:56):
where you need to be as an owner. You need
to really have a feel for the drivers of the
P and L, not necessarily the P and L itself.
And so for us, it's really about having a board
that's engaged in the end markets as much as it
is engaged in the governance of the companies that.
Speaker 1 (28:14):
We bat oh Well said. So, if I were to
put you on the spot and say, you know, where
do you think we'll be with AI? And this is
hard to pick a time frame because it's all moving
so quick, but maybe a near term one, two or
three years. I mean, do you think we'll see fundamental
changes in the companies or industries that you're looking at
driven by AI? Or do you think it will just
be table stakes or the anti that everybody needs to
(28:37):
incorporate these tools into their processes, into their workflows, and
it's not going to be necessarily as big a game
changer as we might see in some media reports or
speakers at conferences that sort of thing.
Speaker 2 (28:51):
I would say that that question is a good question,
but grammatically incorrect because you post it, you post it
in sort of the future tense, right, and and actually
I think it's already table stakes, so fair, very fair, right,
It's it's already table stakes. And the fact that it's
already table stakes is what's driving what I think of
(29:13):
as sort of fragmentation of AI. So there isn't gonna
be kind of one model to rule them all. This
is not kind of more door that we're building here.
I think what we're finding is that, yes, there are
large foundational models. And it's interesting. I was reading this,
uh this, this article on it, and apparently several of
(29:35):
the large lms were asked to pick a random number,
and I think three out of four picked seven, the
number seven. Imagine that, right, And so so it's you know,
the thing is these models are they're statistical. They're not deterministic, right,
And and that's how we have to think about them.
(29:55):
And because they're statistical models, they may be great statistical models, right,
but it's really you know, as it is with any
statistic you can massage it one way, and I can
massage it another way, right, and it's it's uh and
and so that means that your approach to these foundational
models is really what counts. And the approach you might
take if you're sitting here at g H O versus
(30:18):
some other place might be very different, right, And that's
really what the secret sauce is. And and so I
think it's here to stay. Number one. Number two is
I think we're going to see it used. I think
quite quite a lot in a diverse diversity of applications,
(30:41):
and I think the people who are using it well
are going to get ahead, and it's going to drive
all sorts of efficiencies. But it's also going to drive insights,
because one of the things AI is good at is
what we're bad at. So I think humans, you know,
we've evolved over million of years, we're quite good at
(31:02):
the physical world in the sense of if you want
to catch a ball, If I throw a ball to
you and you want to catch it, you kind of
know where your body needs to be, how to extend
your arm, how to grip it just at the right
time and pull the arm in so that you go
with the momentum of the ball and you don't give
the ball an excuse the bounce out of your hand.
And we've learned that through millions of years of evolution,
(31:22):
But we've only really started to think about knowledge and
information much more recently, you know, and how we use
that much more recently, and so the evolution in our
own brains is much younger. In that area. AI has
learned all of our knowledge and all of our information
very quickly. Right, these models are able to digest it
and they're very good at, for example, looking at a scan.
(31:43):
They're great at looking at a picture and parsing out
signal from noise in a picture if you teach it
what signal is and what noise is, and so for example,
and imaging AI is a great tool, again an augmenta
of productivity in certain ways, and so it's really good
in areas where we're actually pretty bad. And if we
(32:04):
think of it that way, it's just another tool. And
so how we put those tools to productive use, Like
any craftsman, we just need to get better at that,
and I think we're in that stage right now.
Speaker 1 (32:15):
No very well said, I like all those analogies, maybe
switching gears. You know, can we think about the regulatory
front and investing in this like regulatory climate. I mean,
there's a lot of news coming out of Washington, whether
it's most favored nation, whether it's what the FDA is doing.
You know, how do you think about where to place
(32:37):
your bets in this climate? And I guess maybe what
are the two or three I guess hot button issues
that you're focused on from a regulatory perspective right now?
And I'm sure that changes over time, So you.
Speaker 2 (32:52):
Know, I guess in mathematical systems, you can have systems
that are sensitive to initial conditions and systems that are
not sensitive to initial conditions. I think the policy backdrop
is one of the latter systems. Thankfully, We've got lots
and lots of volatility today, political noise, other kinds of noise.
But if you really kind of think about it, if
(33:13):
you drop that marble into the bowl, you know where
it's going to wind up, regardless of the path that
it takes. Right, So I step back and I look,
for example, at the NIH. NIH you know which is
you know, suffering all kinds of turbulence. Right now, it's
probably the best VC ever. Right. Ninety percent of all
(33:35):
the FDA drugs ever approved have been supported by the
NIH at some point in time. You know, you give
them full credit through the NCI for carti therapies for example. Right,
And you know the reality is can it get better?
Of course it can get better, you know it. You know,
my understanding is it takes ten to fifteen months to
(33:57):
approve a grant at the NIH. I hear that from
biotech people all the time. You know, they tend to
focus a little bit that they may be better serve
focusing a bit more on the translational element of research
rather than the fundamental element of research, for example. So
there may be some tweaks where you might say, Okay, well,
you know, you can get better at this, you can
get a bit more efficient with the tax dollars, et cetera,
(34:18):
et cetera. So there may be some justifiable ways to
think about, you know, questioning you know, what the what
the strategy of the NAH should be. But the reality is,
you know, why would you ever defund that, really, right
when it's such an engine of innovation and an engine
of of of productivity in in in the US. And
(34:43):
so I don't think you do. I think you probably
asked some questions, you make a few adjustments, and over
time you wind up with maybe hopefully a slightly better
version of itself, and and and they can grow again
from there. I'd say the same thing about the FDA.
You know, people talk of all the turbulence at the FDA.
We've just had another headline grabbing resignation, uh this week.
(35:06):
And what I would say is, again, you know, this
is kind of the world's regulator, right it and and
and they have been making real efficiency gains you know,
they've they've you know, been able to do these uh
fast track programs to break with therapies, et cetera. They've
done you know, they've started to use our we and
(35:27):
look at kind of you know, data coming through from
EHRs and other things like that to to augment safety
and efficacy analysis. You know, they're they've been getting better,
and they've been getting faster as a regulator, and I
think they're they've been kind of world leading in that regard.
And and again, why would you step away from that? Right?
And and and if you just take those two examples
(35:50):
and you stop there, and then you say, well, uh,
it's political, it's this, it's that. The reality is the
further back you step away from those institutions, the more,
if you're looking at it now from a US policy standpoint,
the more you're seeding ground to you know, the major
up and comer, which is China, which is you know,
(36:11):
really innovating and really grabbing share a pipeline. So I
think the reality is that we've got some short term turbulence.
We may get some longer term benefit out of it
in terms of better productivity, but we will certainly have
I think a functioning industry. When we get through some.
Speaker 1 (36:29):
Of this, well said, so to summarize, you don't lose
a lot of sleep over it at night.
Speaker 2 (36:33):
Yeah, yeah, not to worry about things I can't control.
Speaker 1 (36:37):
Yeah, I think it's fair if you think about the
cycles and the timelines, especially in this industry where where
you know, we're we're measuring things in you know, many
year periods, not you know, the next two to three months.
Speaker 2 (36:47):
Right.
Speaker 1 (36:49):
You know, in tech, the product innovation cycle is quick, right.
You know, a new iPhone comes out every year, probably
a new AI models coming out every six months. You know,
the next class of whatever drug you choose probably takes
seven to ten years, give or take. I mean, hopefully
we're speeding that up. But I think it's a fair point.
(37:11):
One of the other ones I wanted to to ask
you about before we wrap up is just your philosophy
around you know, we talked about some of the companies,
and we talked about some of the trends, but you know,
when is it the right time to exit? What is
a what does an ideal exit for you guys look like?
Speaker 2 (37:26):
Yeah, that's probably the toughest question in all of private equity, right,
And we tend to kind of as an industry, I
think sometimes we may hold on to things that we
love a little bit too long. And sometimes I think,
you know, the stock answer to that question is you
(37:48):
sell when you're no longer the right owner. The good
news is when you're operating in the mid market like
we are, you can kind of feel when that is.
It's kind of like raising a child, right, you sort
of know when they've become adults and they're fully formed
and able to kind of spread their wings and go
(38:08):
out on their own right. And and I think, you know,
for us, some of the financial cues could be, for example,
you know, a major need for capital to do something
very exciting but maybe not something we have the scale
to be able to do. It could be a geography
that we just have no experience in, or a product
(38:30):
category that we have no experience in. It could be
an opportunity to kind of combine with a larger strategic buyer.
And if you think about the kinds of companies we're building,
they're strategically very relevant in the biopharma and medtech space,
and there are much larger players in our ecosystem. So
(38:50):
in all of our five sub sectors, you have players
that are ten or hundreds of billions of dollars of
market value, and they you know, we'll look at our
portfolio and track our portfolio quite closely, so we generally
see the signs in the mid market, I think a
lot more clearly than maybe some of our larger cap
(39:11):
brethren see them because of the nature of the companies
that we're backing.
Speaker 1 (39:17):
No, that's a good point. I guess I never thought
about it through the lends of the signs might be
a little bit more queer at a smaller scale than
if you're let's say, like a large cap or something
with a little more scale, or have to it Edward.
One of the ways I like to wrap these conversations
up is really focusing on a life lesson that the
speaker holds to your You know, it could be something
(39:38):
from your personal life or your professional experience, but is
there something that maybe you see as your mission that
drives you day to day.
Speaker 2 (39:46):
If I start with where you started, which is lifeless,
and I'd say the one thing is it's really the
big lesson I've learned as an investor is you've got
to look out long term, way past your own horizon.
That north Star is critically important. Tells you everything you
need to know about the people you're dealing with, the
sustainability the businesses you back, whether they're heading in the
(40:06):
right direction or not. And it's very important to kind
of the well being of the combined team of GHO
and our portfolio companies as we sit down together. You know,
let's say, at dinner before a board meeting. You know,
you don't want to talk about, you know, last quarters
(40:26):
financial results. What you want to talk about is the dream.
You want to talk about where you're going, and the
things that you're doing to help them, and the things
that they're doing to help themselves, and and and actually
what that is actually doing for the industry as a whole.
And the lesson I've learned is I used to think
(40:48):
of life sciences as an oxymoron. Having studied engineering and
physics and loving maths, I never thought about, you know,
biology is the same science, if you would, because it's
very statistical again and and uh, and I've I've come
full circle on that. Then I have a huge respect
(41:09):
for all the the scientists that I've met over the
years in this in this role, and I can tell
you one of the things that I underappreciated in terms
of this industry, uh, is how people are called to
it and and it drives them they work that little
bit harder, myself included, all of us at GHO included,
(41:31):
We just worked that little bit harder because we think
we're actually doing some good as well. And that that
idea of better, faster, more accessible healthcare. If I say
that to any one of our portfolio companies, it will
resonate with them and they will actually say something back
that's very similar, which is their mission right or their
(41:52):
purpose And and I think it's a motivating factor for
people in a world where there's a lot of confusion
to have that north star, to have that long term view,
to be grounded in a purpose that makes things worthwhile,
I think is uh, you know, it brings people together
(42:12):
and it helps us do amazing things.
Speaker 1 (42:14):
That's really well said, and I love how you bookended
it with you know, that theme from from the very
start of the conversation. Thank you for sharing that story
and and.
Speaker 2 (42:23):
That that view. So with that we'll we'll wrap up.
Speaker 1 (42:26):
And that's Edward Denoir of g h O Capital. Thank
you so much for joining us on our Way to podcast. Episode,
and please to make sure to click the follow button
on your favorite podcast app or website so you never
miss a discussion with the leaders in healthcare innovation. I'm
Jonathan Palmer, and you've been listening to the Vanguards of
healthcare podcasts by Bloomberg Intelligence. Until next time, take care,
Host
Jonathan Palmer
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