January 23, 2025 • 54 mins
“We sit at the intersection of those large-scale incumbents and entrepreneurs, to help bridge the gap,” Josh Flum, managing partner at LRVHealth, tells Bloomberg Intelligence in this episode of the Vanguards of Health Care podcast. Flum joins BI analyst Jonathan Palmer to discuss how LRV’s purpose-built model looks to identify and capitalize on durable long-term trends emerging in health care. With only strategic investors as limited partners, LRV believes it has a differentiated perspective on where the market is headed. The conversation delves into the evolution of pharmacy services and why it’s important to build high-performing teams. The exchange wraps up with the state of the IPO market and key takeaways from the JPMorgan Healthcare conference.
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Episode Transcript
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Speaker 1 (00:22):
Welcome to another episode of the Bloomberg Intelligence Fanguards of
Healthcare podcast, where we speak with leaders at the forefront
of change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Bloomberg Intelligence, the in
house research arm of Bloomberg. We're very excited to have
Josh Flum, managing partner of LRV Health, joining us here today.
Prior to joining LRV, Josh had a very long career
(00:44):
at CBS Health, culminating in the Chief Strategy Officer and
head of CBS Health Ventures role. Earlier in his career,
he was also a consultant at BCG. Welcome to the podcast, Josh.
Speaker 2 (00:55):
Thanks Jonathan, and appreciate having me joining me.
Speaker 1 (00:58):
Well, why don't we just kick it off with what
LRV does and where you kind of sit in the
venture ecosystem.
Speaker 2 (01:04):
Yeah, excellent, So, Jonathan, LRB helped. We're a dedicated healthcare
venture capital investor. We've firm has been around since two thousand,
sold long experience and track record across many market cycles.
We're currently investing out of our fifth fund and I
joined about two and a half years ago as a
(01:25):
managing partner. Just as we were starting to invest out
of that fund, I would say our primary focus is
earlier stage Series A and B, but we will invest
that heed we've incubated and we've had Series C entry points,
and I think really in that regard, the first kind
of evolved into what I would call and we call
kind of a venture agnostic platform across the stages a
(01:47):
venture capital. A few things that I think individually and
collectively make us a little bit unique in the space.
So one is that all of our LPs, so the
folks that invest in us are healthcare and companies. So
we have North through twenty five health system. We have
several national and regional health plan so will many firms,
(02:10):
I would say, have some strategic investors and a mass
strategic and traditional financial investors' family office, pension funds. We
only have strategic investors, and so we were therefore really
purpose built our model around that to be an extension
of their internal team and to kind of advance and
inform their strategic agendas as true partners. So I think
(02:33):
of it as a platform built for and with strategic incumbents.
And you know what that means is we all spend
probably thirty percent of our time working directly with LPs.
We have discussions often several of the stuff just to
be quite honest on a weekly basis, so understanding their
view of the world, but also sharing with them from
(02:54):
the outside in what's happening, what they should be thinking about,
where are the future is going, and then working with
entrepreneurs in those spaces to try to bring the two
together to create change. I would say the other part
of differentiation is that our firm is made up of
really people with like kind of proven operational and leadership
(03:15):
experience in strategic incumbents. And so you talked a little bit,
and I think we may go deeper into it. My
background at DVS for twenty years leading business technology strategy,
but deep experience, but the team has that as well.
So I guess what I would say to sum it
up is that we really have a team and an
(03:37):
operating model that's like very purpose built around our differentiated
position and kind of works together in unison in a
way that I think collectively, you know, is quite unique
in your space.
Speaker 1 (03:49):
With those strategics, Does it come with a mandate in
terms of what you look at? Are they asking you
to look at spaces that would be you know, potential
add ons for their businesses or places they'd like to
be deeper in the future.
Speaker 2 (04:03):
Yeah, I would say it's not a mandate. It's more
of a collaboration or partnership. So it's really an understanding
as we look collectively across the network about those areas
of interest. But I would also say that they really
want us to be and to do our job. Well,
we kind of need to be kind of thought partners
that may push that sort of say, let's raise the aperture,
(04:25):
let's look out, let's look at the things that are
coming that might matter that you need to understand. Now,
let's look at the things that sometimes people don't want
to look at because it's you know, they're hard or
challenging or difficult. But we can have a very unique
perspective on that. So it's less a mandate than really
what really pleases me and sort of invigorates me about
it is the nature of that collaboration and partnership within
(04:49):
and across the network.
Speaker 1 (04:51):
And if I'm an entrepreneur coming to RV, does it
help me, you know, get it inroad into those strategics
for a pilot. That sort of thing is that one
of the key value adds in terms of your pitch.
Speaker 2 (05:02):
Yeah, I think there are kind of a couple of
value adds right, so within it, and you certainly hit
on one of them. And I'll come around to that
in a second. But I think like the sort of
main focus around the firm, right is that we sit
at that intersection of what I call kind of those
large scale incumbents and entrepreneurs and sort of help to
bridge the gap. We've been in both of them and
(05:23):
they often misunderstand each other. Both arms misunderstand how they work,
what matters, How do you collaborate both actually frankly have
a real desire. But it's hard. As you know, healthcare
is hard. One thing I always sort of say about
health care is like you can't go viral in healthcare, right,
It's hard. You have to fit into workflows, you have
(05:45):
to fit into payment models, you have to fit into
and work within the system that you also want to
change and evolve. So we help the kind of shape
and bring together those perspectives. And then the other thing
I would say is that a strategic part partners do
help advance the companies we invest in. They often are
in the vast majority of cases, pilot partners are enter
(06:07):
into commercial arrangements over time. That's not a requirement, but
by the nature of how we work, that's generally speaking
how it ends up. So there is real value creation.
I think, Jonathan, as you point out in your question,
you know kind of around that in addition to the
broader set of kind of like expertise and sort of
know how that we can bring when we find really
that writing buss.
Speaker 1 (06:28):
So where do you guys start off from an investment
thesis perspective? Is there something that's overarching across the company
or the portfolio that kind of defines how where you
guys want to play and where you want to make
your investments.
Speaker 2 (06:41):
We are a very thematically driven firm. We have a
pretty significant research agenda that you know, sort of we
all collaborate into because you know, as you said, right
like healthcare, I guess it's sort of it changes over
time transformation and healthcare. I guess it's like a relative
(07:03):
term in terms of right like pacement change. So I
think we think about our job as being finding those
sort of durable long term trends that will play out
over time in healthcare, then link that back into like
our investing process em thematic. So if it's helpful, I
can hit on a few of the trends we're looking
at now.
Speaker 1 (07:23):
I'd love to hear a couple of investment are a
couple examples of where you've seen that inflection and then
you know, made a bed on that market growing over time.
Speaker 2 (07:31):
Yeah, so I'll hit you know, kind of like maybe
two or three of those, and we can hit on
some investments, you know. First, you know, I think to
always think about when you're inside of kind of the
healthcare industry is like what is the sort of trend
around insurance models and how is the nature of insurance
going to play out over time? And I think in
the longitudinal sense, right, you're continuing to see a shift
(07:54):
of insurance model into government programs Medicare, Medicaid, ACA exchange,
I would say, all leading to a continued decline probably
over time in the commercial business. And there's a view
of the cathedral from people that I know that I
really respect that maybe traditional employers sponsored insurance models may
even go away over time to a more medicare advantage
(08:18):
like model something that's portable. Yes, so I think you'll
see regardless of how far that change goes, there is
definitely that shift. And what you're seeing then is those
government models are almost all risk based insurance models, true
risk based models, premium management and medical costs, and therefore
what you start to see is the shift of risk
(08:39):
models into care delivery. So we saw that first in
primary care, a lot of value based players from learnings there.
It's driving into specialty care areas where you have a
primary care like relationship in places like chronic kidney to need,
but I think over time it will go into other
sort of specialty particularly when there are therapeutic choices and
(09:01):
care pathways like oncology neurology over time where you can
control costs, and you'll drive insurance functions into the delivery
system like managing risks and networks and utilization. So we
are really exploring those areas. We've made some early investments
there in a company called main Street Out which does
value based care and oral health Greater Good Health, which
(09:24):
has a nurse practitioner led value based care model. We're
looking deeply into our coology. We made an investment there
in a company called Reimagine Care, Neurology and others. I
would say Jonathan I have time, I'll do one or
two other quick shifts that sort of I think will
go out one where I spend I would say the
bulk of my time is in a dramatic shift and
(09:46):
kind of the role of therapeutics and pharmacy what we've
taken to call like therapeutic driven care evolution. I sort
of came out of this world a lot, and so
coming in Mentor, he said to me, once, where you
come out on something depends on where you know where
you started. It's actually cheap judge of the Third Circuit
(10:08):
Court of Appeals, and he said that to be back
when I was clerky in the day, and it's always
stuck with me. So I had a real thesis there,
but I think it became stronger actually as I worked
with our platform. But what you're you're seeing there underlying
it is, you know, a wave of complex drug innovation,
primarily in specialty pharmacy. Right, So I think twenty twenty
three about deventy percent of drug improved by the FDA
(10:30):
or specialty drug YEP, that's right. One note there, Jonathan,
is that I think new products entered the market. I
saw data with a median annual price of three hundred
thousand dollars, which was thirty percent higher than the products
that entered the market twenty twenty two price escalation, but
amazing therapeutics. In the net of all this, I think
(10:51):
is that pharmacy is becoming the most visible and utilized
part of the healthcare benefit. If ten years ago it
was fifty percent of the total healthcare pie, today it's
closer to thirty five percent. People think over time it
may grow to fifty percent. You're talking about specialty drugs
already being a four hundred billion dollar market and growing quickly.
(11:12):
But attendant to that is I think a real crisis
around access, around affordability, not just for individuals, but for
employers and honestly even for governments. So there are a
lot of questions to be asked and a lot of
innovation that's needed. Not just in the drug development R
and D. We don't do that right, but I do
(11:33):
everything else, from patient access to new fulfillment models to
new payment models. In those spaces, how do you position
yourself around that growth? How do you sustain that cost
for your employees? If you're a health system, what happens
to your procedural volume over time? And how do you
think differently about the clinical enterprise. We spend a lot
(11:54):
of time there and we've made probably five investments in
that space, relatively in a fund. And then the last place,
which I would say, and we could talk for hours
solid a high level, but it just the application of
technology in healthcare, which often today means AI. But I
think more broadly, and I think just as at a
high level, I would say, never bet against the ability
(12:17):
of healthcare to slow down in the adoption of technology.
But I would also say, ultimately the application of disruptive
technology is fundamental to the change, right because you have
an industry where productivity gains have been minimal right over
the last ten to fifteen plus years, so you have
(12:39):
constrained supply, you have growing demand from an agent population.
And also, frankly, there's something we've subsidized demand because of
an insurance model. For what happens in that is you
have escalating costs. You have a growing percentage of GDP.
I saw somewhere when Medicare was first initiated legislatively. I
think you know healthcare is by five percent of GDP,
(13:00):
it's twenty percent. Now. There are a lot of things
that we have to do to change that. But one
thing is going to be that application of technology around it.
It's not just a political fix. So it's how do
you extend workforce capacity. We have investments in companies doing
that in cardiology like Story Health. Oncology, we talked about
like we imagine care, virtual care, like keat Care. How
(13:23):
do you enhance workforce productivity. You're seeing a lot of
that with the scribes of Bridge Nuanced, often now in
kind of non clinical workflows, but moving I think into
clinical workflows. So that application of technology and how that
plays out. We as a firm and my partner Keith,
spend a tremendous amount of time. So maybe I lost
your question a bit. I don't think so. Actually that's
(13:44):
all right.
Speaker 1 (13:45):
I could listen to this for an hour. They keep going.
Speaker 2 (13:47):
But those are kind of a set of broad themes
and there are others, and then with the form those
we go very deep to kind of understand what matters.
And the only sort of some of it would be
we've got to always be on track to those big,
durable trends because in the moment, and today's the moment
right day after the inauguration, there's always what's going to
happen based on what happened yesterday, but a lot of
(14:08):
this plays out you know, over time as you well know, yeah,
that's right.
Speaker 1 (14:12):
I mean there's that friction at the margin, right, and
so there's so many things to unpack there. But you know,
as a as an analyst on the on the public
equity side who looks at the pharmacies, I'd love to
get your take on just the evolution of the pharmacy
services business, you know, through your career and like now
that you're you know, outside of the four walls of
a you know, a vertically integrated enterprise. You know, what's
(14:33):
your take on what's happened and where are we going
in that evolution of pharmacy services.
Speaker 2 (14:39):
Yeah, well, I think there are a couple of ways
to think about that question. So you know, one is
like I would say, is you like kind of path
forward and we talk about where I started the last
conversation around sort of therapeutic advancements. I do think we're
on the cusp of some things that are are really
quite like astonishing if you think about, you know, the
(15:00):
ability to not just free but the cure sure.
Speaker 1 (15:04):
The seal gene therapies that are going to be I
don't know, a seven figure price tag maybe.
Speaker 2 (15:09):
More so really amazing. And I think of the specialty
fargacy business where there growing in kind of three different
buckets that will have to be managed out over over time, Gentle.
So the first one is you have what I would
call specialty sort of light drugs. These are things like
GLP ones, right, they're high costs for certain they're not
ultrive costs, they're highly prevalent. And there's those come into market.
(15:33):
How do you think about the distribution system there? And
they run into the traditional distribution system because they come
through traditional pharmacies and kind of PBM relationships, and so
how pricing pays out there, how access plays out there,
and we can talk about that is a big part
of the story. The next is what I would think
of as more traditional specialty. So this isn't the genius
(15:54):
self therapy. These are high costs, so you know, are
you know are abumtor threat is drug others where you
have in those spaces. I think it's like fifty percent
of the top twenty drugs on biosimilar is coming and
now you have a wave of sort of generics coming
but you have barriers to access to how those get
down to patients for a variety of reasons, how the
(16:16):
system manages that, and how that becomes something that truly
takes costs out as other new costs come in A
really critical aspect of how this model plays out of
a public on the last is the one you hit,
which is what i'd call like ultra high cost therapy, right,
and those create real conundrums for the system about how
(16:37):
to pay for them. If you think that the vast
majority of Americans today are still in models of employer
based insurance and the vast majority of those are in
self insured relationships, tells are relatively small firm sizes, how
do they pay for right, even just from a cash
flow perspective, if one patient has a need for a
(16:58):
drug that costs three million dollars, there is a total
remaking I think of the system around how that has
to work to create the kind of access that we
would like to see. So that I think writ large
and there are multiple stories underneath that we have to
play out, and I think there's often today in today's marketplace.
The one thing I would say is that this is
(17:20):
a multi tenant problem and I think there's a desire
to have things not a lot of nuance in the
public conversation around a lot of this. So I think
people want things there to be good guys and bad guys,
and if we just get rid of the bad guys,
then things will be good. And in truth, I think
one thing I would say that I've observed over the
years Duncan, is that I think because we say healthcare
(17:43):
is a system and we call it the healthcare system,
I think it makes people think that it was like
built in one day and designed in a systematic way,
but as you know, it really was actually a set
of actions, unintended consequences, right reactions, and then ultimately is
instead of competing business models that kind of work some
(18:07):
ways together in some ways antagonistic to each other, right
ultimately to drive outcome, and so there's no singular good
or bad actor, I think everybody's sort of moving across incentives,
and so I think there are some you know, when
you come to the PBM debate, there are some really
great things PBMs have done around assembling networks and helping
(18:28):
to manage utilization, helping to drive ultra high generic penetration
and reduce off in traditional pharmacy, but there are areas
where it's become opaque or not as transparent, and that
leads people to believe that there are things being hidden there.
And I think there is reform that needs to come.
But I think there's a danger of removing things like that,
(18:49):
and what that would do, I think would really escalate
round costs fairly dramatically in the system.
Speaker 1 (18:55):
All topics we could talk about for a long time now.
I mean, well, we'll try and do a little greatest
hits here. You know, you mentioned biosimilars. How do you
think of the specialty pharmacies, you know, contracting with their
own entity, whether it's Cordabus or the express scripts one
to supply those biosimilars and putting those as the preferred
(19:15):
product on the on the formulary. I mean, is that
a sustainable solution in your mind over the long term
or is it just more of the same I guess
from from the industry.
Speaker 2 (19:25):
You know, it's hard, it's hard to know. I do think.
You know, one thing you saw subsequent to those moves
was a lot of unlock in terms of utilization. So
you did see you know, kind of the interchange go
so in that way. I think there's a good argument
that it was beneficial. Now very within the question the
(19:46):
question of does it make sense to do it in
that way or or different way? You know, I think
there are pluses and minuses. I think the positive was
that you did see it, you know. I think one
of the sort of fundamental things within this sort of
bius similar space, phill Look, let me step back. I
was really deep involved in pharmacy on the traditional pharmacy side.
(20:06):
As we shift in brands to generic, we went from
a generic penetration right GDR we would call generic dispensing
fifty percent to high nineties. Now. Now, part of that
was driven by an alignment of incentives across the channel,
and part of it was driven by the allowance of
direct interchange, which was if somebody came in with a
multisort brand prescription for lipidtur you could dispend to tourist
(20:27):
that and you could dispense one of several manufacturers at
the pharmacy without going back to the position, which created
competition and lowered prices. And I think in biosimilar traditionally
the tradition is not Today you don't have that same interchange, right,
So you have to go back to petition, you have
to write, and it leads to I think a little
bit of like friction.
Speaker 1 (20:48):
Yep, absolutely, so.
Speaker 2 (20:49):
Some of these things are solving that friction. I think
there are other ways I'm for like all the things
that can drive increase utilization because that frankly, I think
the system needs to move back there to reduce falls
if it's going to be able to create any room
for some of these other common high falls therapeutics that
we need to knowledge to deal with.
Speaker 1 (21:08):
You know, one of the things I was thinking about
as you were speaking, you know, just your past career
in the industry at CBS, Could you take me back
to maybe ten years ago. You know, I spent a
whole lot of time talking about Amazon and the potential
of Amazon to wholesale disrupt.
Speaker 2 (21:24):
The pharmacy and distribution model.
Speaker 1 (21:27):
Was that a concern, a realistic concern at CBS, And
I guess one of the questions I always got asked was, well,
did that lead to the and a transaction as a
way to diversify itself the company out of out of that,
out of that space a little.
Speaker 2 (21:41):
Bit more, Well, I would say, one is you know,
at any company, you are you know, mindful of the
competitive forces you know at work around you, you know,
traditional and non traditional, and so certainly you know you're
aware of you know, companies like you know Amazon, Right,
(22:05):
there was a time you know Amazon, could you know
drop a drone package in the middle of a field
somewhere and you know, the United Kingdom.
Speaker 1 (22:12):
And the stock com half the uh you know, the
ups and FedEx go to you know, go.
Speaker 2 (22:17):
Down twenty percent and everyone right like, whatever would happen?
You know, somebody once said to me, it's like the
eye of wardor you know, you know cafull, you know
when they look at you. You know. But I would say
in many ways that is very positive effect, as you know, right,
because it's first people to say, okay, companies like that
are going to expose whatever friction you at in your
relationship with the consumer. So you have to a right, yeah,
(22:39):
better you have to remove that friction right in The
battle is somewhat between when will they get enough expertise
to disrupt your industry versus when can you get enough
uh write what I would say sort of digital and
patient first and customer first and help. There wasn't always
built around the consumer, built a lot of times around
(22:59):
the DigiTAb that kind of the high water mark was
not that high in consumer spread. So we invested a
ton in that as it does, and I think it
had great change over time right in the system. And
I would say, as you think about CBS moving helped
the stack into health but I think all of those
moves right when a company does that, right is looking
(23:22):
at the mix of headwinds and tailwaings. It's looking at
the macro environment, right, and what's your view on the
long range trends? Right, It's thinking about what type of
move to make. Is it a bold move or is
it one where you're just doing something complementary. And I
think variety of reasons that made a lot of sense
for CBS to move up the stack into a health plan,
(23:43):
unlock the value of consumer relationship with community touch points,
the clinically appropriate side of players, the ability to really
engage consumers to change behavior. So I think that that
was like the right move strategically. Certainly the competitive dynamics
played a role, but I think would be people say
did you do it? Because no, it's not one get
(24:03):
sure excited? Yeah, right, it's those are long term changes
and when you do vertical integration. In particular, you're looking
to build something new. You're looking to take hearts and
put them together in a way where one and one
equals three. It's not traditional host synergies. So it takes
time to find the right products and services. It takes
time to bring together cut of different cultures. It takes
(24:25):
time for the consumer and the patient and other stakehold
to see the value of change. It takes time for investors.
They get excited, and they get upset, and they get
excited again. And so I've lived through that. I've lived
through that with care Mark and CBS. We came together
in two thousand and seven. Four years later, five years later,
people are saying we should break them off. Larry Murlow
came in a CEO. We doubled down on really building
(24:48):
that model, thinking like an enterprise, building those products and services.
And you know that the next four or five years
of that was really dramatic in terms of the impact
that we had and the growth we had. And so
I think the companies a similar place now four years
post that. And then as a great team and the
ability I think to hit the mark on the opportunity
to present itself there as well, maybe.
Speaker 1 (25:10):
Just shifting gears, but staying on the CVS van. I mean,
you were the head of CBS Health Ventures. I think
that was a relatively new enterprise while you were there,
wasn't it.
Speaker 2 (25:18):
It was we actually launched it, you know, during that time,
towards the time, about a year or so before I left,
we were launching at I.
Speaker 1 (25:29):
Guess if you think about the different hats that you've
worn in the venture community, as you know, the strategic
versus now the more traditional venture capitalist, you know, what
was kind of maybe what was interesting about doing it
from the CBS side versus the traditional side, and how
has that helped inform what you're doing today.
Speaker 2 (25:47):
Yeah, I think there are I think some real similarities.
What I liked about what we were doing at CBS
was it the ventures was and when we started it
was in strategy part of when I was Chief strategy officer,
and it was really something that was meant to both
be great in terms of being investors, but also to
help us strategically right to challenge us around some of
(26:10):
these very same questions around where the market is going,
what's happening, how do you see that from the inside,
And also it's a full time job, quite honestly, right,
that team is dedicated to like what's changing in the market.
You can't just episodically jump in. You really have to
dedicate yourself into it. And so that part of it
was very similar. The other part of it that was
(26:31):
very similar was although CVS was one company, of course
it operated across multiple business right, so we needed to
be able to again bredge that gap between the incumbent
and the entrepreneur work right within our own entity as
we thought about the companies that made the most sense
for us to invest in, but also as we learned
(26:52):
and found companies that we could partner with. So I
see a lot of similarity there. So I think it
was fertile training ground. But I would say more broadly, Jonathan,
I would say the training I had at CBS, and
really I think I'm very thankful for how it positioned
me for where I am in my career now. I
had kind of the opportunity to look across various domains
(27:15):
and healthcare at a very big level pharmacy, pvns, health plans,
care delivery, and then within that I was fortunate to
have opportunities acause very different types of roles. I ran
large businesses, I started new businesses. I owned p and LS,
but I also owned strategy and innovation. I led large
(27:37):
scale m and A. And to your point, I was
able to lead early stage venture messing. So really fortunate
that kind of like CBS threw, my roles grew. I
had great mentors, I had great teams, and so I
feel very fortunate that that predictioned me individually and learnings
I can bring to LARV as a platform that really
(27:58):
fits I think, you know to I think I can
add the most value you know in this phase of mind.
Speaker 1 (28:05):
Well, you touched in your original comments of Aaron the
people having operational experience you know on the team at LRB.
Is that one of the key components you're looking for
is you build out your team maybe below you?
Speaker 2 (28:16):
I mean, I guess what is it? What is it
you're looking for in terms of the folks that teams. Yeah,
I think that's a great question, you know. I it's
It's funny. I have a developed over time, a very
very strong belief Jonathan, that you know, as you progress
in your career, actually like the most important thing you
do is like hire, develop and meant to work talent
(28:40):
literally in many ways, like is the job and and
I say that, and I maybe digress in it for
two or three minutes on it because it is really
kind of near and dear to me, right, Like to
accomplish great things anywhere requires a team. If you don't
have a great team, you're fighting the world with like
one hand time bandlement because because people don't change their
(29:01):
expectation of you, it just means you have to do
it all right.
Speaker 1 (29:05):
And so there you need that one plus one plus
equals three, right, you.
Speaker 2 (29:09):
Really need that. Right, There is no better experience in
my in my feeling than a big challenge with the
right team. It's almost invigorating, right, a hard challenge when
you know I have the right team. There is no
worse of a feeling, no more lonely of a feeling
than having a big challenge when you don't have the
right team. And once you've experienced it with the wrong
team and experienced it with the right team, you will
(29:30):
start to building great teams. And so I look for
a couple of things in teams. And this is true
at LRB. That has been true throughout my career. And
you know, I didn't always have it codified, I think
maybe I do more now. It's all great stories and
careers are true in insight, but I would say you
want people who want to be there and have a persistence.
(29:51):
So it's volunteers, not hostages. Right. Healthcare is hard. Any
job done right is hard. So you need people that
connect with some purpose, some desire to grow and feed
collectively and individually. And the way I sort of paraphrase
that for myself is you're looking for people with intrinsic motivation,
meaning they want to do their best work. They have
(30:12):
a high internal standard that they're motivated by. Not everybody's
motivated somewhat by external rewards, but not solely by that.
The second thing I always paraphrase at horsepower, this is
a little bit of that. You know when you see
it right. It's people that can connect, understand and process
unfamiliar information, communicate clearly right as they learn. I would
(30:37):
say you don't always see that. That's hard to ferret
in an interview. It's hard because it's hard to describe,
but you see it when you meet people. And so
one thing is i've taken over or moved into new
jobs always is I try to meet as many people
as I can, because you feel it and see it
in certain people at any level, that this person has
right and how to take and then how do you
(30:57):
drive them. I actually knew one person well I thought
did a good job of thill to people, and they
actually carried a notebook and if you went to the
last page of their notebook. I always knew this. I
don't know if they knew any of it. They would
keep a list and it would go backwards of people
they met in different settings that felt like they felt
like had is you know what, and they would write
them down so that right and always keep track so
that oh as things came up an opportunity to come up,
(31:19):
they can circle back. I would say. One other thing
I would say is willingness to fill a back. You
desire to do more than your job. Right, I would say,
there are a lot of people you asked to do
something and when they come back, you say, well what
about this, and they said, well, we didn't talk about
doing that, or I didn't realize you wanted that, And
then you have other people that come back and they've
(31:39):
done so much more than you ask. And so the
way I encapsulate that is I tend to prefer people
you have to pull back versus people you have to
push forward. It's easier for me. I like to pull
people back and say, wait, you did what a way
it worked out? Okay, let's just talk maybe a little
bit here. But good versus people you're constantly pushing forward
(32:00):
because you won't have the time, but also they're waiting
for your idea when their idea may actually be better.
So you need the people that will push forward. And
to me, that's become critically important. I would say one
side note to that is many times people will look
back in their career and say, I didn't really get
an opportunity, right, And the truth is many of those
(32:22):
people do, but they didn't do this. They didn't push
forward and seize that opportunity. And you don't know when
what you're working on really managed to someone who can
help your career. Nobody says this is the moment, So
you have to sort of be in that moment, be
in that mindset all the time. And then I would
say the last and Jonathan, without going too much, would
be I think it's kind of really important. I sort
(32:44):
of started a pieces together a lot of my career.
It's people who want to be leaders but also teammates
and recognize that you're allers both so, and I say
that in two ways. Within your own team, even if
you're leading it, you're part of it. Your job is
to actually help make that help that team reach its
full potential, and you can be in the way of that.
(33:04):
So teams can fail because of their leader and how
they participate in the team. The second is, it's rare
that I can think of a time when you are
just a leader or not a team member. So I'll
give you an example when I was a cbside led functions,
but I was also on the leadership team of the CEO,
and I wore two hats, and it was a learning
for me to say, when I come into that room
with that leadership team, I'm thinking about the enterprise, right,
(33:28):
I'm not just here about my function. And I have
to be able to wear both of those hats and
think across those. So you're never my point being, you're
really never not part of a team, your own team,
but also a broader team. And so I look for
people that can start to recognize that aren't afraid to lead,
but also don't think leading is not also participating and
(33:49):
being part of the team that's trying to trap forward.
So I would say we think across all of that
ventures a lean organization. So we have a small but
very mighty team that has expertise, that has experien but
I think also with a lot of these characteristics you
know that we look for, So.
Speaker 1 (34:05):
Maybe that's a perfect opportunity. And imagine there's a lot
of these same buckets in this answer. But you know,
when you're speaking to a new founder or entrepreneur who
maybe would like to partner with RB, how are you
evaluating that person as well? I mean, what's the framework
for you know, getting a meeting and having that discussion
with you guys.
Speaker 2 (34:24):
Yeah, that's a great question. It's actually one of the
I think real joys of this job, to be honest
with you, is that you are constantly out and talking
right to founders and leaders and I think you know
it all cases is s thought provoking and sometimes right
it's just like wow, you know do you talk to
(34:45):
people and you just are like this is great. And
I would say, you know, one thing there a little
bit of an aside, and I will come back to
your question, is that you know I don't even talk
about it a lot, but I really do think it,
which is like you know, when you off COVID was
a healthcare crisis, and there's a lot of things we
can talk about about the impact of that, and I
think we may may a bit later, but I would
(35:06):
say it brought healthcare to the forefront of the mindset
of a lot of people informative years kind of working
through that. And so the quality of entrepreneur that I
see that's been drawn into healthcare and into like very
neat basis of healthcare, and because of these experience, I
think is even higher, you know, than it has been historically.
(35:27):
So you just meet great people that sometimes I think
might have been in some other sector kind of innovating
and being entrepreneurs in there at health and they're now
in healthcare. So that part is really invigorating. But what
I would say, going back to your question around it,
is like, so for us, as I told you, we
started as thematic approach, we look into markets, we look
we talked to tons of companies. Then as we map markets,
(35:48):
if we're really interested in it in a company or founder,
we do a fault team meeting early, so we have
to meet everybody much earlier in our process, and I
think most two that's the really let everybody hear and
experience what they're doing, but also help us defind those
kind of white hot questions that we want a diligence.
But to your point, we always go deep on the
team because early stage investing is a lot of qualitative
(36:12):
and quantitative, and you're really betting on somebody that you
can work with. So there's a degree of pattern recognition there,
but you're really trying to find somebody that has the ability,
you know, the vision, the ability for change. I think
it's flexible, so it kind of knows their strength, but
as some sense of like here's the area right where
(36:33):
I need help.
Speaker 1 (36:34):
Yeah, right, I'm not going to build the tech stack
I need I need right, I'm not.
Speaker 2 (36:37):
Going to build that, or like I understand this, but
I don't think I understand that. The best founders of
found if you look for something that maybe is a pattern,
but you know is the almost ask more questions than
they answer. So when you're talking to them, they're also
they're they're interviewing, they're interviewing you, they're asking questions. Right,
It's very bi directional, you know, with those kinds of
(37:00):
as you as you sort of have those kind of conversations,
and then also you kind of watch them so you
put them in situations where we'll bring in someone from
our network and we'll say, okay, talk to them about
your product or service or vision. And these are the experts.
These are the people you want to be in front
of one day. Maybe you're ready, maybe you're not, But
how does that conversation go? And you learn it on
(37:21):
that way. But in the end, it really is about
people and founders in this business. And I think the
way people get to us is either they find us
directly other investors, you know, our themes bring us to them,
or else. We are very proactive about going into the
market and talking to everybody, and that really is a
(37:43):
critical part of this job, is like sourcing and finding
the great entrs.
Speaker 1 (37:48):
That's a great answer. One of the things I love
to ask folks who sit in your seat is there
is there a white whale one that got away that
you said I should have I should have done this one.
But I you know, for whatever reason, maybe the stars
in the line, and I don't know, maybe on the
venture side and at CBS, you know, maybe the check
was too big. I don't know what the answer is,
but do you ever look back. I always love to
(38:10):
hear the one that got away.
Speaker 2 (38:11):
You know. What I would say is you know, and
I'll think through I guess that there's there's one in particular.
You know. The one thing I would say about this,
this job, is you can't be in this if you
don't want to make mistakes. In fact, I think you
almost need to make mistakes, Like it's that kind of
(38:33):
part of the process. It's that kind of a journey
right where you're you're trying to push the envelope, So
you will make mistakes, you will miss things. And I
contrast that, by the way, too large incumbents, right, sometimes
it's hard for them to know, no matter how much
they want to, because they're not built around that. Right.
So this is no knock. And sometimes people get offended
when I say this, Like there are gating functions in
(38:55):
big companies, HR, finance, others. They're built to make sure
things are harmonized, no mistakes are made, the tree grows up.
Now in venture, it's very different, right, It's built around
potential for pivots, change failure. That's in the mechanisms of
how you fond things change, the kind of people, as
(39:16):
we talked about, and so one thing I always say,
you are on the in this job. People always ask
you how you're doing, and I always say, you know,
you are on the oppressive of great failure and great success,
sometimes in the same day, definitely in this same month,
and so you'll make mistakes about the team, about the market.
I think the biggest mistake you often make here sometimes
(39:37):
is you're too early. So you think something's right, but
you're too early. And I had a great colleague of
mine who was always out of the curve when we
were at CS. I think I put ideas and often
too far ahead of the curve. And I always say
that just feel better to be too early than to
be wrong. I mean, it's the same result, but it
probably feels better, and I think there's some vindication through
(39:57):
it over time. So I don't know that I have
the one. I kind of want them to to prove
me wrong. Quite frankly, like I wouldn't feel bad if
they did. You know, I think maybe you missed out
on the journey and the ride, and that would have
been fund And the good news is there's other entry
points for you to come in potentially, but they're they're
(40:18):
all trying to do such amazing things that I like,
I get a kick out of people. And and maybe
if we ever give them some motivation in some way
to prove a strong but I think that's yeah, I
think that's a good thing too. So And and the
other thing is I would say and anything that we
can't hear because maybe it doesn't them, it's too early,
or you know, we're just wrong, I would say, I
(40:41):
try to always leave it that I would continue to
be a resource. And so with the Farman, with Gomple
and I have actually a lot of people you'd be
spread and take me up on that that call and
reach out or still say connected even though we didn't
make the investment, and I like consider those I'm just
as excited for their success. Is uh, you know the
ones we did get into. So but next time I
(41:04):
come back, I'll tell you. But then all I've had
the big miss, I'm sure if I haven't on that
time and write as I told.
Speaker 1 (41:09):
You, no, I think I think we'll definitely have to
have you back on because I feel like we could
go on for hours. One are the other things, you know,
as we come up to you know, our time here
that I want to talk about is just your perception
of where we are in the cycle between public and
private markets. You know, we saw a couple IPOs last year,
you know, whether it's wastar tempest, you know, what are
your expectations for I don't know what time what is
(41:31):
the right time frame this year, this year or next year?
Like how do you see the the market for exits.
Speaker 2 (41:36):
Kind of unfolding?
Speaker 1 (41:37):
And you know, if we think about that venture cycle
over the last couple of years, you know, we saw
a lot of people get some great term sheets mid pandemic,
you know, and then the pendulum swung the other way, right,
and so you know, where are we in this cycle
between public and private and how do you see that folding?
Speaker 2 (41:55):
Well? You used I think, Jonathan there one of my
kind of favorite phrases about mare Get tonight. I think
maybe I, like many people, I borrowed it from like
Howard Marks at Okchu Capitol, which is this metaphor of
a pendulum.
Speaker 1 (42:07):
He's great reading.
Speaker 2 (42:09):
Yes, it's great reading. I think it's some of the
best reading just in general. Right, And I would say
you're not just about markets, but that's always really resonated
for me, right, because markets, by their nature, right, are
never at like some point to be equilibriate. Things are
never perfectly valued. You're always like moving along, and so
where you are is often a function of where you
(42:31):
came from, right, and then informs where you're going. So
to your point, like COVID drove this, you in digital health,
just given the necessity of the crisis, right, it wasn't
a financial crisis like two thousand and eight. This was
a healthcare crisis, and so we saw huge upticking utilization,
gifts and how care was delivered, ramatic removal of regulator barriers.
(42:52):
We can have a conversation there as well. Right, it's
an irony to me that to solve a healthcare crisis
we needed to to a certain extent. This may thought
the regulatory environment that we built to govern the industry,
but that's a topic for another day. You had a
financial environment, right, sustained low interest rates, high stimulus flooded
(43:13):
the markets for capital, A lot of dollars floated in
so to your point, record investments, aggressive valuations. Twenty twenty
to you know, twenty twenty two, bunch of companies got public,
IPO or you know, sacks. We can't remember how many
people called me about spats and like, my dad wants
it to me eased to run a hedge funding said,
people will come to me with things I don't understand,
(43:35):
you know, right, you know, so I want to be
able to sell a dollar for fifty cents, and you know,
if you don't understand it, don't do it. So you
have spats, right and so. And then you followed then
by difficult right time in the market, as you pointed out,
changing the pendulum. A lot of those companies public did
not do very well. You had a bunch of uperfunded
(43:58):
companies that maybe weren't a durble in their business model.
A number of inside A rounds people try to manage
their portfolio. You had really low M and A activity
then in that period as well this year to a
large part of the year. Some of that was evaluation
over egg. How do you meet on price when you
are in that situation again, high interest rates, liquidity challenges,
(44:18):
maybe an unfavorable FTC climate, and I think that we're
like feel fins now of normalization. So there's been value resets.
A lot of those I think in undisclosed or insider routes.
But I think it's starting to normalize. I said to
you before, you're starting to see great companies come to market.
I think in part because of this new entrepreneur, again
(44:39):
spurred on by that difficult period. I've actually heard the
phrase animal spirits used in kind of digital health, which
you're twelve to eighteen months ago would have been unfathomable.
But you have the IPOs, right, You've had a few coming,
you have some digital health coming in the first half, right,
I think it's Hinge and Omada. You've had an M
and A pickup. Actually, we had a great company upfront,
(45:02):
patient engagement platform. You saw JPM purchased by health Catalysts.
One of our first growth investments when I was at
CBS was a company called Carebridge, recently sold to Elevance
two point seven million dollars. So you're seeing a sort
of uptick. I think in M and A, I think
there's hope that you have an FTC environment, more tavable,
(45:23):
you have a somewhat better interest rate environment, And paradoxically,
some of those struggling companies are now either going to
be stronger and come to market, they're going to close
or they're going to merge over time, so I think
you'll see some M and A activity, And so I
think an answer to your question, I kind of feel
like twenty twenty five is a really important year for
health valuations. How do those IPOs write price? How do
(45:47):
they do does the exit activity start to pick up
with strategics and private equity, And as you know, there's
a momentum to that, and that trickles down to the
early stage. And so we're trying to find the durable
companies with durable business models to navigate through any cycle.
But you may be getting into one that I think
(46:08):
is a little bit more favorable now. The one thing
i'd say there is, and I don't that we could
ever a drink about this maybe in ten years, is
that everybody's write down in their notebook what happened in
the last three years, because you'll say it won't happen again,
but it tends defendum so and so we're trying to
build the right companies for any market. But I think
we're all getting more optimistic now than certainly we were,
(46:32):
as you know, maybe twelve or eighteen months ago. And
I am exciting to it. Like I said about the
quality of the entrepreneur. The quality of the business is
the quality now even if some of these later stage businesses.
So I think this will be an exciting year. Right.
Speaker 1 (46:46):
It sounds like you're saying some of these have been
pressure tested, you know, just based on that experience, you know,
between the funding environment and then come to I don't know,
come to Jesus for lack of a better term, that
they have to be maybe more proud, profitable, or more focused,
whatever it might be.
Speaker 2 (47:02):
Yeah, I think of it a lot around sort of
having a durable business model. It doesn't mean there are
a lot of problems in health contness that I think
should be solved, and there are a lot of people
that kind of want to self there are not as
many that went solved. Will also lead to kind of
durable business models over time of the nature that I
(47:23):
think later stage and public market investors would look for,
and I think we're trying to find. But also there
are more of those, to your pig I think that
have come out of this period, and I think hard
times tend to do that, intend to really harden and sharpen,
you know. I think a lot of the best among us,
So I think we are sitting that for sure.
Speaker 1 (47:44):
Maybe just two quick ones before we wrap up here.
You know, we're recording this, not filming as his audio only.
Thank God for our listeners. We're doing this right after
JP Morgan. I was just wondering, from your perspective, has
the tent was the tenor this year any difer than
years past? Was there anything you noted in terms of
the conversations you were having, or or maybe the exuberants
(48:06):
around public markets? What what would you take? What were
your Kate takeaways from from last week?
Speaker 2 (48:12):
Yeah, you know, it's always interesting, I would say, you know,
and I don't say it's facitiously. Actually, I think the
most uplifting thing about Jake Moreen this year was the
weather and uh, you know, it was like beautiful, And
I think that actually usually a very difficult conference and
just because you're traveling everywhere and it's pouring rain, and
this time I think it was really, uh, you know,
quite beautiful, So that actually takes the spirits. But I
(48:34):
would say, actually I felt a lot of what we've
been talking about here there, which I think people feel
as though there's been a great application of a lot
of these lessons learned. There's a lot of high quality
now coming to the coming to the market, there's some
light at the end of the tunnel as it relates
to some of these eggs and opportunities. So I felt
(48:55):
like it was a much more kind of invigorated group
than maybe it was at that time last year, not
only because of you know, not only because of the weather.
And I think you saw that, by the way, a
lot of the health system presentation, some of the public
company presentations, a lot of the health plans weren't there unfortunately,
I think, you know, based on you know, this sort
of horrendous incident and very complicated security environment. But I
(49:19):
would say again just from that perception, I think is
of more optimism cost is optimism, which I think is appropriate.
Speaker 1 (49:29):
Well, well, you mentioned lessons learned, and that's how I
like to wrap up these conversations by by asking the guests,
you know, what's one lesson that you learned and either
your personal or professional life that really drives you in
your day to day and maybe informs the mission, whether
it's your personal mission or how you communicate with your
team and what their mission should be. Is there anything
that stands out?
Speaker 2 (49:50):
Yeah, right, it's a great question. And I've been really
fortunate in that I've had a lot of great mentors
and I've learned a lot of if this stas along
the way, but I would say, you know, we didn't
get into my backgrounds and media to stand for this.
And it's like I started off as a white collar
criminal defense attorney. I'm now managing partner of an adventure fund.
So there's a kind of evolution there of how I
approached my career, and that comes from a player so
(50:13):
which I'll hope out in the second right. So I've
tried to be curious, always open to a challenge, and
dre a very non linear kind of career path with
high potential for failure. Left being an attorney to join BCG,
joined CBS because I was enamored by the power of
pharmacy and the impact healthcare ran our pharmacy business at
the one time, even though I wasn't a pharmacist, was
a Keith strategy officer. Started our venture fund all out
(50:36):
of a few curiosity and the sire of impact and
great mentorship. But one thing that stands out to me
was I've had been blessed by very supportive family, and
I think that's actually really critical to stand behind you.
But you may not believe that when I tell you
the story. So when I was first deciding to leave
BFG at the time and go to CBS or remember,
I was talking to my father. It probably doesn't even
remember this, and I said, you know, I'm really thinking
(50:58):
about doing this, and he said to me, I think
you should do it. I think it's great. I think
you'll probably fail, but you should do it. So I
was like, you know, listen, that's not the most uplifting sentiment.
Uh so, so why is it? And would I would
say that? He said, listen, it's not a bad thing.
You like to get into the middle of things. You
(51:19):
like to do the hearts. And when you like to
do the hard stuff in a big company, eventually you
have some failures and you'll be surrounded by some people
that don't try to do the hard stuff and they
don't then have those failures, and those people may progress
right because right there's nothing to pay to you that
they didn't do, and you may not be able to
progress this par because of the things you want to do. Now,
(51:41):
two things come into that that I think we're important.
One was the advice, and that wasn't don't do it,
it was do it. Have fun. That's a better way
to do it. You'll find things to do. And the
second was I was really fortunate that I ended up
with mentors like Larry Murlow or John Roberts or others
at CBS that actually saw, indeed that desire to do
(52:02):
that and gave me those chances, help me accountable, but
also pushed me forward. It gave me the right way
and they gave me the wrong way, and so it
ended up actually working out well. See this, But I
still often think back to that advice because that really
was very thinking for me to push myself into things
that were hard and actually to have a lot of
(52:23):
empathy for people that push themselves into things that are hard.
And even if it's not always about success, if you
push yourself into enough hard places and you can, you
will eventually right get to some real success that then
can build on itself, and experience that can build on itself.
So I think maybe that's the answer to your question.
(52:45):
He'll be glad to hear that story, because I don't
know if I ever thought that, damn. So he probably
one of the people that will definitely listen to this
post to the end as well. Of course, my mother,
who I should note really pushed me forward in many
tremendous ways, so we't want to hear just a story
about father, so we'll give credit to the both of
them for sure.
Speaker 1 (53:02):
Well said, So with that, Josh, we'll wrap up. Thank
you so much for joining us. That's Josh fu, managing
partner of LRB Health. Thank you so much for joining
us on our latest episode, and please make sure to
click the follow button on your favorite podcast app or
site so you never missed a discussion with the leaders
in healthcare innovation. I'm Jonathan Palmer, and you've been listening
to the Vanguards of Healthcare podcast by Bloomberg Intelligence. Until
(53:24):
next time, take care,
Welcome to another episode of the Bloomberg Intelligence Fanguards of
Healthcare podcast, where we speak with leaders at the forefront
of change in the healthcare industry. My name is Jonathan Palmer,
and I'm a healthcare analyst at Bloomberg Intelligence, the in
house research arm of Bloomberg. We're very excited to have
Josh Flum, managing partner of LRV Health, joining us here today.
Prior to joining LRV, Josh had a very long career
(00:44):
at CBS Health, culminating in the Chief Strategy Officer and
head of CBS Health Ventures role. Earlier in his career,
he was also a consultant at BCG. Welcome to the podcast, Josh.
Speaker 2 (00:55):
Thanks Jonathan, and appreciate having me joining me.
Speaker 1 (00:58):
Well, why don't we just kick it off with what
LRV does and where you kind of sit in the
venture ecosystem.
Speaker 2 (01:04):
Yeah, excellent, So, Jonathan, LRB helped. We're a dedicated healthcare
venture capital investor. We've firm has been around since two thousand,
sold long experience and track record across many market cycles.
We're currently investing out of our fifth fund and I
joined about two and a half years ago as a
(01:25):
managing partner. Just as we were starting to invest out
of that fund, I would say our primary focus is
earlier stage Series A and B, but we will invest
that heed we've incubated and we've had Series C entry points,
and I think really in that regard, the first kind
of evolved into what I would call and we call
kind of a venture agnostic platform across the stages a
(01:47):
venture capital. A few things that I think individually and
collectively make us a little bit unique in the space.
So one is that all of our LPs, so the
folks that invest in us are healthcare and companies. So
we have North through twenty five health system. We have
several national and regional health plan so will many firms,
(02:10):
I would say, have some strategic investors and a mass
strategic and traditional financial investors' family office, pension funds. We
only have strategic investors, and so we were therefore really
purpose built our model around that to be an extension
of their internal team and to kind of advance and
inform their strategic agendas as true partners. So I think
(02:33):
of it as a platform built for and with strategic incumbents.
And you know what that means is we all spend
probably thirty percent of our time working directly with LPs.
We have discussions often several of the stuff just to
be quite honest on a weekly basis, so understanding their
view of the world, but also sharing with them from
(02:54):
the outside in what's happening, what they should be thinking about,
where are the future is going, and then working with
entrepreneurs in those spaces to try to bring the two
together to create change. I would say the other part
of differentiation is that our firm is made up of
really people with like kind of proven operational and leadership
(03:15):
experience in strategic incumbents. And so you talked a little bit,
and I think we may go deeper into it. My
background at DVS for twenty years leading business technology strategy,
but deep experience, but the team has that as well.
So I guess what I would say to sum it
up is that we really have a team and an
(03:37):
operating model that's like very purpose built around our differentiated
position and kind of works together in unison in a
way that I think collectively, you know, is quite unique
in your space.
Speaker 1 (03:49):
With those strategics, Does it come with a mandate in
terms of what you look at? Are they asking you
to look at spaces that would be you know, potential
add ons for their businesses or places they'd like to
be deeper in the future.
Speaker 2 (04:03):
Yeah, I would say it's not a mandate. It's more
of a collaboration or partnership. So it's really an understanding
as we look collectively across the network about those areas
of interest. But I would also say that they really
want us to be and to do our job. Well,
we kind of need to be kind of thought partners
that may push that sort of say, let's raise the aperture,
(04:25):
let's look out, let's look at the things that are
coming that might matter that you need to understand. Now,
let's look at the things that sometimes people don't want
to look at because it's you know, they're hard or
challenging or difficult. But we can have a very unique
perspective on that. So it's less a mandate than really
what really pleases me and sort of invigorates me about
it is the nature of that collaboration and partnership within
(04:49):
and across the network.
Speaker 1 (04:51):
And if I'm an entrepreneur coming to RV, does it
help me, you know, get it inroad into those strategics
for a pilot. That sort of thing is that one
of the key value adds in terms of your pitch.
Speaker 2 (05:02):
Yeah, I think there are kind of a couple of
value adds right, so within it, and you certainly hit
on one of them. And I'll come around to that
in a second. But I think like the sort of
main focus around the firm, right is that we sit
at that intersection of what I call kind of those
large scale incumbents and entrepreneurs and sort of help to
bridge the gap. We've been in both of them and
(05:23):
they often misunderstand each other. Both arms misunderstand how they work,
what matters, How do you collaborate both actually frankly have
a real desire. But it's hard. As you know, healthcare
is hard. One thing I always sort of say about
health care is like you can't go viral in healthcare, right,
It's hard. You have to fit into workflows, you have
(05:45):
to fit into payment models, you have to fit into
and work within the system that you also want to
change and evolve. So we help the kind of shape
and bring together those perspectives. And then the other thing
I would say is that a strategic part partners do
help advance the companies we invest in. They often are
in the vast majority of cases, pilot partners are enter
(06:07):
into commercial arrangements over time. That's not a requirement, but
by the nature of how we work, that's generally speaking
how it ends up. So there is real value creation.
I think, Jonathan, as you point out in your question,
you know kind of around that in addition to the
broader set of kind of like expertise and sort of
know how that we can bring when we find really
that writing buss.
Speaker 1 (06:28):
So where do you guys start off from an investment
thesis perspective? Is there something that's overarching across the company
or the portfolio that kind of defines how where you
guys want to play and where you want to make
your investments.
Speaker 2 (06:41):
We are a very thematically driven firm. We have a
pretty significant research agenda that you know, sort of we
all collaborate into because you know, as you said, right
like healthcare, I guess it's sort of it changes over
time transformation and healthcare. I guess it's like a relative
(07:03):
term in terms of right like pacement change. So I
think we think about our job as being finding those
sort of durable long term trends that will play out
over time in healthcare, then link that back into like
our investing process em thematic. So if it's helpful, I
can hit on a few of the trends we're looking
at now.
Speaker 1 (07:23):
I'd love to hear a couple of investment are a
couple examples of where you've seen that inflection and then
you know, made a bed on that market growing over time.
Speaker 2 (07:31):
Yeah, so I'll hit you know, kind of like maybe
two or three of those, and we can hit on
some investments, you know. First, you know, I think to
always think about when you're inside of kind of the
healthcare industry is like what is the sort of trend
around insurance models and how is the nature of insurance
going to play out over time? And I think in
the longitudinal sense, right, you're continuing to see a shift
(07:54):
of insurance model into government programs Medicare, Medicaid, ACA exchange,
I would say, all leading to a continued decline probably
over time in the commercial business. And there's a view
of the cathedral from people that I know that I
really respect that maybe traditional employers sponsored insurance models may
even go away over time to a more medicare advantage
(08:18):
like model something that's portable. Yes, so I think you'll
see regardless of how far that change goes, there is
definitely that shift. And what you're seeing then is those
government models are almost all risk based insurance models, true
risk based models, premium management and medical costs, and therefore
what you start to see is the shift of risk
(08:39):
models into care delivery. So we saw that first in
primary care, a lot of value based players from learnings there.
It's driving into specialty care areas where you have a
primary care like relationship in places like chronic kidney to need,
but I think over time it will go into other
sort of specialty particularly when there are therapeutic choices and
(09:01):
care pathways like oncology neurology over time where you can
control costs, and you'll drive insurance functions into the delivery
system like managing risks and networks and utilization. So we
are really exploring those areas. We've made some early investments
there in a company called main Street Out which does
value based care and oral health Greater Good Health, which
(09:24):
has a nurse practitioner led value based care model. We're
looking deeply into our coology. We made an investment there
in a company called Reimagine Care, Neurology and others. I
would say Jonathan I have time, I'll do one or
two other quick shifts that sort of I think will
go out one where I spend I would say the
bulk of my time is in a dramatic shift and
(09:46):
kind of the role of therapeutics and pharmacy what we've
taken to call like therapeutic driven care evolution. I sort
of came out of this world a lot, and so
coming in Mentor, he said to me, once, where you
come out on something depends on where you know where
you started. It's actually cheap judge of the Third Circuit
(10:08):
Court of Appeals, and he said that to be back
when I was clerky in the day, and it's always
stuck with me. So I had a real thesis there,
but I think it became stronger actually as I worked
with our platform. But what you're you're seeing there underlying
it is, you know, a wave of complex drug innovation,
primarily in specialty pharmacy. Right, So I think twenty twenty
three about deventy percent of drug improved by the FDA
(10:30):
or specialty drug YEP, that's right. One note there, Jonathan,
is that I think new products entered the market. I
saw data with a median annual price of three hundred
thousand dollars, which was thirty percent higher than the products
that entered the market twenty twenty two price escalation, but
amazing therapeutics. In the net of all this, I think
(10:51):
is that pharmacy is becoming the most visible and utilized
part of the healthcare benefit. If ten years ago it
was fifty percent of the total healthcare pie, today it's
closer to thirty five percent. People think over time it
may grow to fifty percent. You're talking about specialty drugs
already being a four hundred billion dollar market and growing quickly.
(11:12):
But attendant to that is I think a real crisis
around access, around affordability, not just for individuals, but for
employers and honestly even for governments. So there are a
lot of questions to be asked and a lot of
innovation that's needed. Not just in the drug development R
and D. We don't do that right, but I do
(11:33):
everything else, from patient access to new fulfillment models to
new payment models. In those spaces, how do you position
yourself around that growth? How do you sustain that cost
for your employees? If you're a health system, what happens
to your procedural volume over time? And how do you
think differently about the clinical enterprise. We spend a lot
(11:54):
of time there and we've made probably five investments in
that space, relatively in a fund. And then the last place,
which I would say, and we could talk for hours
solid a high level, but it just the application of
technology in healthcare, which often today means AI. But I
think more broadly, and I think just as at a
high level, I would say, never bet against the ability
(12:17):
of healthcare to slow down in the adoption of technology.
But I would also say, ultimately the application of disruptive
technology is fundamental to the change, right because you have
an industry where productivity gains have been minimal right over
the last ten to fifteen plus years, so you have
(12:39):
constrained supply, you have growing demand from an agent population.
And also, frankly, there's something we've subsidized demand because of
an insurance model. For what happens in that is you
have escalating costs. You have a growing percentage of GDP.
I saw somewhere when Medicare was first initiated legislatively. I
think you know healthcare is by five percent of GDP,
(13:00):
it's twenty percent. Now. There are a lot of things
that we have to do to change that. But one
thing is going to be that application of technology around it.
It's not just a political fix. So it's how do
you extend workforce capacity. We have investments in companies doing
that in cardiology like Story Health. Oncology, we talked about
like we imagine care, virtual care, like keat Care. How
(13:23):
do you enhance workforce productivity. You're seeing a lot of
that with the scribes of Bridge Nuanced, often now in
kind of non clinical workflows, but moving I think into
clinical workflows. So that application of technology and how that
plays out. We as a firm and my partner Keith,
spend a tremendous amount of time. So maybe I lost
your question a bit. I don't think so. Actually that's
(13:44):
all right.
Speaker 1 (13:45):
I could listen to this for an hour. They keep going.
Speaker 2 (13:47):
But those are kind of a set of broad themes
and there are others, and then with the form those
we go very deep to kind of understand what matters.
And the only sort of some of it would be
we've got to always be on track to those big,
durable trends because in the moment, and today's the moment
right day after the inauguration, there's always what's going to
happen based on what happened yesterday, but a lot of
(14:08):
this plays out you know, over time as you well know, yeah,
that's right.
Speaker 1 (14:12):
I mean there's that friction at the margin, right, and
so there's so many things to unpack there. But you know,
as a as an analyst on the on the public
equity side who looks at the pharmacies, I'd love to
get your take on just the evolution of the pharmacy
services business, you know, through your career and like now
that you're you know, outside of the four walls of
a you know, a vertically integrated enterprise. You know, what's
(14:33):
your take on what's happened and where are we going
in that evolution of pharmacy services.
Speaker 2 (14:39):
Yeah, well, I think there are a couple of ways
to think about that question. So you know, one is
like I would say, is you like kind of path
forward and we talk about where I started the last
conversation around sort of therapeutic advancements. I do think we're
on the cusp of some things that are are really
quite like astonishing if you think about, you know, the
(15:00):
ability to not just free but the cure sure.
Speaker 1 (15:04):
The seal gene therapies that are going to be I
don't know, a seven figure price tag maybe.
Speaker 2 (15:09):
More so really amazing. And I think of the specialty
fargacy business where there growing in kind of three different
buckets that will have to be managed out over over time, Gentle.
So the first one is you have what I would
call specialty sort of light drugs. These are things like
GLP ones, right, they're high costs for certain they're not
ultrive costs, they're highly prevalent. And there's those come into market.
(15:33):
How do you think about the distribution system there? And
they run into the traditional distribution system because they come
through traditional pharmacies and kind of PBM relationships, and so
how pricing pays out there, how access plays out there,
and we can talk about that is a big part
of the story. The next is what I would think
of as more traditional specialty. So this isn't the genius
(15:54):
self therapy. These are high costs, so you know, are
you know are abumtor threat is drug others where you
have in those spaces. I think it's like fifty percent
of the top twenty drugs on biosimilar is coming and
now you have a wave of sort of generics coming
but you have barriers to access to how those get
down to patients for a variety of reasons, how the
(16:16):
system manages that, and how that becomes something that truly
takes costs out as other new costs come in A
really critical aspect of how this model plays out of
a public on the last is the one you hit,
which is what i'd call like ultra high cost therapy, right,
and those create real conundrums for the system about how
(16:37):
to pay for them. If you think that the vast
majority of Americans today are still in models of employer
based insurance and the vast majority of those are in
self insured relationships, tells are relatively small firm sizes, how
do they pay for right, even just from a cash
flow perspective, if one patient has a need for a
(16:58):
drug that costs three million dollars, there is a total
remaking I think of the system around how that has
to work to create the kind of access that we
would like to see. So that I think writ large
and there are multiple stories underneath that we have to
play out, and I think there's often today in today's marketplace.
The one thing I would say is that this is
(17:20):
a multi tenant problem and I think there's a desire
to have things not a lot of nuance in the
public conversation around a lot of this. So I think
people want things there to be good guys and bad guys,
and if we just get rid of the bad guys,
then things will be good. And in truth, I think
one thing I would say that I've observed over the
years Duncan, is that I think because we say healthcare
(17:43):
is a system and we call it the healthcare system,
I think it makes people think that it was like
built in one day and designed in a systematic way,
but as you know, it really was actually a set
of actions, unintended consequences, right reactions, and then ultimately is
instead of competing business models that kind of work some
(18:07):
ways together in some ways antagonistic to each other, right
ultimately to drive outcome, and so there's no singular good
or bad actor, I think everybody's sort of moving across incentives,
and so I think there are some you know, when
you come to the PBM debate, there are some really
great things PBMs have done around assembling networks and helping
(18:28):
to manage utilization, helping to drive ultra high generic penetration
and reduce off in traditional pharmacy, but there are areas
where it's become opaque or not as transparent, and that
leads people to believe that there are things being hidden there.
And I think there is reform that needs to come.
But I think there's a danger of removing things like that,
(18:49):
and what that would do, I think would really escalate
round costs fairly dramatically in the system.
Speaker 1 (18:55):
All topics we could talk about for a long time now.
I mean, well, we'll try and do a little greatest
hits here. You know, you mentioned biosimilars. How do you
think of the specialty pharmacies, you know, contracting with their
own entity, whether it's Cordabus or the express scripts one
to supply those biosimilars and putting those as the preferred
(19:15):
product on the on the formulary. I mean, is that
a sustainable solution in your mind over the long term
or is it just more of the same I guess
from from the industry.
Speaker 2 (19:25):
You know, it's hard, it's hard to know. I do think.
You know, one thing you saw subsequent to those moves
was a lot of unlock in terms of utilization. So
you did see you know, kind of the interchange go
so in that way. I think there's a good argument
that it was beneficial. Now very within the question the
(19:46):
question of does it make sense to do it in
that way or or different way? You know, I think
there are pluses and minuses. I think the positive was
that you did see it, you know. I think one
of the sort of fundamental things within this sort of
bius similar space, phill Look, let me step back. I
was really deep involved in pharmacy on the traditional pharmacy side.
(20:06):
As we shift in brands to generic, we went from
a generic penetration right GDR we would call generic dispensing
fifty percent to high nineties. Now. Now, part of that
was driven by an alignment of incentives across the channel,
and part of it was driven by the allowance of
direct interchange, which was if somebody came in with a
multisort brand prescription for lipidtur you could dispend to tourist
(20:27):
that and you could dispense one of several manufacturers at
the pharmacy without going back to the position, which created
competition and lowered prices. And I think in biosimilar traditionally
the tradition is not Today you don't have that same interchange, right,
So you have to go back to petition, you have
to write, and it leads to I think a little
bit of like friction.
Speaker 1 (20:48):
Yep, absolutely, so.
Speaker 2 (20:49):
Some of these things are solving that friction. I think
there are other ways I'm for like all the things
that can drive increase utilization because that frankly, I think
the system needs to move back there to reduce falls
if it's going to be able to create any room
for some of these other common high falls therapeutics that
we need to knowledge to deal with.
Speaker 1 (21:08):
You know, one of the things I was thinking about
as you were speaking, you know, just your past career
in the industry at CBS, Could you take me back
to maybe ten years ago. You know, I spent a
whole lot of time talking about Amazon and the potential
of Amazon to wholesale disrupt.
Speaker 2 (21:24):
The pharmacy and distribution model.
Speaker 1 (21:27):
Was that a concern, a realistic concern at CBS, And
I guess one of the questions I always got asked was, well,
did that lead to the and a transaction as a
way to diversify itself the company out of out of that,
out of that space a little.
Speaker 2 (21:41):
Bit more, Well, I would say, one is you know,
at any company, you are you know, mindful of the
competitive forces you know at work around you, you know,
traditional and non traditional, and so certainly you know you're
aware of you know, companies like you know Amazon, Right,
(22:05):
there was a time you know Amazon, could you know
drop a drone package in the middle of a field
somewhere and you know, the United Kingdom.
Speaker 1 (22:12):
And the stock com half the uh you know, the
ups and FedEx go to you know, go.
Speaker 2 (22:17):
Down twenty percent and everyone right like, whatever would happen?
You know, somebody once said to me, it's like the
eye of wardor you know, you know cafull, you know
when they look at you. You know. But I would say
in many ways that is very positive effect, as you know, right,
because it's first people to say, okay, companies like that
are going to expose whatever friction you at in your
relationship with the consumer. So you have to a right, yeah,
(22:39):
better you have to remove that friction right in The
battle is somewhat between when will they get enough expertise
to disrupt your industry versus when can you get enough
uh write what I would say sort of digital and
patient first and customer first and help. There wasn't always
built around the consumer, built a lot of times around
(22:59):
the DigiTAb that kind of the high water mark was
not that high in consumer spread. So we invested a
ton in that as it does, and I think it
had great change over time right in the system. And
I would say, as you think about CBS moving helped
the stack into health but I think all of those
moves right when a company does that, right is looking
(23:22):
at the mix of headwinds and tailwaings. It's looking at
the macro environment, right, and what's your view on the
long range trends? Right, It's thinking about what type of
move to make. Is it a bold move or is
it one where you're just doing something complementary. And I
think variety of reasons that made a lot of sense
for CBS to move up the stack into a health plan,
(23:43):
unlock the value of consumer relationship with community touch points,
the clinically appropriate side of players, the ability to really
engage consumers to change behavior. So I think that that
was like the right move strategically. Certainly the competitive dynamics
played a role, but I think would be people say
did you do it? Because no, it's not one get
(24:03):
sure excited? Yeah, right, it's those are long term changes
and when you do vertical integration. In particular, you're looking
to build something new. You're looking to take hearts and
put them together in a way where one and one
equals three. It's not traditional host synergies. So it takes
time to find the right products and services. It takes
time to bring together cut of different cultures. It takes
(24:25):
time for the consumer and the patient and other stakehold
to see the value of change. It takes time for investors.
They get excited, and they get upset, and they get
excited again. And so I've lived through that. I've lived
through that with care Mark and CBS. We came together
in two thousand and seven. Four years later, five years later,
people are saying we should break them off. Larry Murlow
came in a CEO. We doubled down on really building
(24:48):
that model, thinking like an enterprise, building those products and services.
And you know that the next four or five years
of that was really dramatic in terms of the impact
that we had and the growth we had. And so
I think the companies a similar place now four years
post that. And then as a great team and the
ability I think to hit the mark on the opportunity
to present itself there as well, maybe.
Speaker 1 (25:10):
Just shifting gears, but staying on the CVS van. I mean,
you were the head of CBS Health Ventures. I think
that was a relatively new enterprise while you were there,
wasn't it.
Speaker 2 (25:18):
It was we actually launched it, you know, during that time,
towards the time, about a year or so before I left,
we were launching at I.
Speaker 1 (25:29):
Guess if you think about the different hats that you've
worn in the venture community, as you know, the strategic
versus now the more traditional venture capitalist, you know, what
was kind of maybe what was interesting about doing it
from the CBS side versus the traditional side, and how
has that helped inform what you're doing today.
Speaker 2 (25:47):
Yeah, I think there are I think some real similarities.
What I liked about what we were doing at CBS
was it the ventures was and when we started it
was in strategy part of when I was Chief strategy officer,
and it was really something that was meant to both
be great in terms of being investors, but also to
help us strategically right to challenge us around some of
(26:10):
these very same questions around where the market is going,
what's happening, how do you see that from the inside,
And also it's a full time job, quite honestly, right,
that team is dedicated to like what's changing in the market.
You can't just episodically jump in. You really have to
dedicate yourself into it. And so that part of it
was very similar. The other part of it that was
(26:31):
very similar was although CVS was one company, of course
it operated across multiple business right, so we needed to
be able to again bredge that gap between the incumbent
and the entrepreneur work right within our own entity as
we thought about the companies that made the most sense
for us to invest in, but also as we learned
(26:52):
and found companies that we could partner with. So I
see a lot of similarity there. So I think it
was fertile training ground. But I would say more broadly, Jonathan,
I would say the training I had at CBS, and
really I think I'm very thankful for how it positioned
me for where I am in my career now. I
had kind of the opportunity to look across various domains
(27:15):
and healthcare at a very big level pharmacy, pvns, health plans,
care delivery, and then within that I was fortunate to
have opportunities acause very different types of roles. I ran
large businesses, I started new businesses. I owned p and LS,
but I also owned strategy and innovation. I led large
(27:37):
scale m and A. And to your point, I was
able to lead early stage venture messing. So really fortunate
that kind of like CBS threw, my roles grew. I
had great mentors, I had great teams, and so I
feel very fortunate that that predictioned me individually and learnings
I can bring to LARV as a platform that really
(27:58):
fits I think, you know to I think I can
add the most value you know in this phase of mind.
Speaker 1 (28:05):
Well, you touched in your original comments of Aaron the
people having operational experience you know on the team at LRB.
Is that one of the key components you're looking for
is you build out your team maybe below you?
Speaker 2 (28:16):
I mean, I guess what is it? What is it
you're looking for in terms of the folks that teams. Yeah,
I think that's a great question, you know. I it's
It's funny. I have a developed over time, a very
very strong belief Jonathan, that you know, as you progress
in your career, actually like the most important thing you
do is like hire, develop and meant to work talent
(28:40):
literally in many ways, like is the job and and
I say that, and I maybe digress in it for
two or three minutes on it because it is really
kind of near and dear to me, right, Like to
accomplish great things anywhere requires a team. If you don't
have a great team, you're fighting the world with like
one hand time bandlement because because people don't change their
(29:01):
expectation of you, it just means you have to do
it all right.
Speaker 1 (29:05):
And so there you need that one plus one plus
equals three, right, you.
Speaker 2 (29:09):
Really need that. Right, There is no better experience in
my in my feeling than a big challenge with the
right team. It's almost invigorating, right, a hard challenge when
you know I have the right team. There is no
worse of a feeling, no more lonely of a feeling
than having a big challenge when you don't have the
right team. And once you've experienced it with the wrong
team and experienced it with the right team, you will
(29:30):
start to building great teams. And so I look for
a couple of things in teams. And this is true
at LRB. That has been true throughout my career. And
you know, I didn't always have it codified, I think
maybe I do more now. It's all great stories and
careers are true in insight, but I would say you
want people who want to be there and have a persistence.
(29:51):
So it's volunteers, not hostages. Right. Healthcare is hard. Any
job done right is hard. So you need people that
connect with some purpose, some desire to grow and feed
collectively and individually. And the way I sort of paraphrase
that for myself is you're looking for people with intrinsic motivation,
meaning they want to do their best work. They have
(30:12):
a high internal standard that they're motivated by. Not everybody's
motivated somewhat by external rewards, but not solely by that.
The second thing I always paraphrase at horsepower, this is
a little bit of that. You know when you see
it right. It's people that can connect, understand and process
unfamiliar information, communicate clearly right as they learn. I would
(30:37):
say you don't always see that. That's hard to ferret
in an interview. It's hard because it's hard to describe,
but you see it when you meet people. And so
one thing is i've taken over or moved into new
jobs always is I try to meet as many people
as I can, because you feel it and see it
in certain people at any level, that this person has
right and how to take and then how do you
(30:57):
drive them. I actually knew one person well I thought
did a good job of thill to people, and they
actually carried a notebook and if you went to the
last page of their notebook. I always knew this. I
don't know if they knew any of it. They would
keep a list and it would go backwards of people
they met in different settings that felt like they felt
like had is you know what, and they would write
them down so that right and always keep track so
that oh as things came up an opportunity to come up,
(31:19):
they can circle back. I would say. One other thing
I would say is willingness to fill a back. You
desire to do more than your job. Right, I would say,
there are a lot of people you asked to do
something and when they come back, you say, well what
about this, and they said, well, we didn't talk about
doing that, or I didn't realize you wanted that, And
then you have other people that come back and they've
(31:39):
done so much more than you ask. And so the
way I encapsulate that is I tend to prefer people
you have to pull back versus people you have to
push forward. It's easier for me. I like to pull
people back and say, wait, you did what a way
it worked out? Okay, let's just talk maybe a little
bit here. But good versus people you're constantly pushing forward
(32:00):
because you won't have the time, but also they're waiting
for your idea when their idea may actually be better.
So you need the people that will push forward. And
to me, that's become critically important. I would say one
side note to that is many times people will look
back in their career and say, I didn't really get
an opportunity, right, And the truth is many of those
(32:22):
people do, but they didn't do this. They didn't push
forward and seize that opportunity. And you don't know when
what you're working on really managed to someone who can
help your career. Nobody says this is the moment, So
you have to sort of be in that moment, be
in that mindset all the time. And then I would
say the last and Jonathan, without going too much, would
be I think it's kind of really important. I sort
(32:44):
of started a pieces together a lot of my career.
It's people who want to be leaders but also teammates
and recognize that you're allers both so, and I say
that in two ways. Within your own team, even if
you're leading it, you're part of it. Your job is
to actually help make that help that team reach its
full potential, and you can be in the way of that.
(33:04):
So teams can fail because of their leader and how
they participate in the team. The second is, it's rare
that I can think of a time when you are
just a leader or not a team member. So I'll
give you an example when I was a cbside led functions,
but I was also on the leadership team of the CEO,
and I wore two hats, and it was a learning
for me to say, when I come into that room
with that leadership team, I'm thinking about the enterprise, right,
(33:28):
I'm not just here about my function. And I have
to be able to wear both of those hats and
think across those. So you're never my point being, you're
really never not part of a team, your own team,
but also a broader team. And so I look for
people that can start to recognize that aren't afraid to lead,
but also don't think leading is not also participating and
(33:49):
being part of the team that's trying to trap forward.
So I would say we think across all of that
ventures a lean organization. So we have a small but
very mighty team that has expertise, that has experien but
I think also with a lot of these characteristics you
know that we look for, So.
Speaker 1 (34:05):
Maybe that's a perfect opportunity. And imagine there's a lot
of these same buckets in this answer. But you know,
when you're speaking to a new founder or entrepreneur who
maybe would like to partner with RB, how are you
evaluating that person as well? I mean, what's the framework
for you know, getting a meeting and having that discussion
with you guys.
Speaker 2 (34:24):
Yeah, that's a great question. It's actually one of the
I think real joys of this job, to be honest
with you, is that you are constantly out and talking
right to founders and leaders and I think you know
it all cases is s thought provoking and sometimes right
it's just like wow, you know do you talk to
(34:45):
people and you just are like this is great. And
I would say, you know, one thing there a little
bit of an aside, and I will come back to
your question, is that you know I don't even talk
about it a lot, but I really do think it,
which is like you know, when you off COVID was
a healthcare crisis, and there's a lot of things we
can talk about about the impact of that, and I
think we may may a bit later, but I would
(35:06):
say it brought healthcare to the forefront of the mindset
of a lot of people informative years kind of working
through that. And so the quality of entrepreneur that I
see that's been drawn into healthcare and into like very
neat basis of healthcare, and because of these experience, I
think is even higher, you know, than it has been historically.
(35:27):
So you just meet great people that sometimes I think
might have been in some other sector kind of innovating
and being entrepreneurs in there at health and they're now
in healthcare. So that part is really invigorating. But what
I would say, going back to your question around it,
is like, so for us, as I told you, we
started as thematic approach, we look into markets, we look
we talked to tons of companies. Then as we map markets,
(35:48):
if we're really interested in it in a company or founder,
we do a fault team meeting early, so we have
to meet everybody much earlier in our process, and I
think most two that's the really let everybody hear and
experience what they're doing, but also help us defind those
kind of white hot questions that we want a diligence.
But to your point, we always go deep on the
team because early stage investing is a lot of qualitative
(36:12):
and quantitative, and you're really betting on somebody that you
can work with. So there's a degree of pattern recognition there,
but you're really trying to find somebody that has the ability,
you know, the vision, the ability for change. I think
it's flexible, so it kind of knows their strength, but
as some sense of like here's the area right where
(36:33):
I need help.
Speaker 1 (36:34):
Yeah, right, I'm not going to build the tech stack
I need I need right, I'm not.
Speaker 2 (36:37):
Going to build that, or like I understand this, but
I don't think I understand that. The best founders of
found if you look for something that maybe is a pattern,
but you know is the almost ask more questions than
they answer. So when you're talking to them, they're also
they're they're interviewing, they're interviewing you, they're asking questions. Right,
It's very bi directional, you know, with those kinds of
(37:00):
as you as you sort of have those kind of conversations,
and then also you kind of watch them so you
put them in situations where we'll bring in someone from
our network and we'll say, okay, talk to them about
your product or service or vision. And these are the experts.
These are the people you want to be in front
of one day. Maybe you're ready, maybe you're not, But
how does that conversation go? And you learn it on
(37:21):
that way. But in the end, it really is about
people and founders in this business. And I think the
way people get to us is either they find us
directly other investors, you know, our themes bring us to them,
or else. We are very proactive about going into the
market and talking to everybody, and that really is a
(37:43):
critical part of this job, is like sourcing and finding
the great entrs.
Speaker 1 (37:48):
That's a great answer. One of the things I love
to ask folks who sit in your seat is there
is there a white whale one that got away that
you said I should have I should have done this one.
But I you know, for whatever reason, maybe the stars
in the line, and I don't know, maybe on the
venture side and at CBS, you know, maybe the check
was too big. I don't know what the answer is,
but do you ever look back. I always love to
(38:10):
hear the one that got away.
Speaker 2 (38:11):
You know. What I would say is you know, and
I'll think through I guess that there's there's one in particular.
You know. The one thing I would say about this,
this job, is you can't be in this if you
don't want to make mistakes. In fact, I think you
almost need to make mistakes, Like it's that kind of
(38:33):
part of the process. It's that kind of a journey
right where you're you're trying to push the envelope, So
you will make mistakes, you will miss things. And I
contrast that, by the way, too large incumbents, right, sometimes
it's hard for them to know, no matter how much
they want to, because they're not built around that. Right.
So this is no knock. And sometimes people get offended
when I say this, Like there are gating functions in
(38:55):
big companies, HR, finance, others. They're built to make sure
things are harmonized, no mistakes are made, the tree grows up.
Now in venture, it's very different, right, It's built around
potential for pivots, change failure. That's in the mechanisms of
how you fond things change, the kind of people, as
(39:16):
we talked about, and so one thing I always say,
you are on the in this job. People always ask
you how you're doing, and I always say, you know,
you are on the oppressive of great failure and great success,
sometimes in the same day, definitely in this same month,
and so you'll make mistakes about the team, about the market.
I think the biggest mistake you often make here sometimes
(39:37):
is you're too early. So you think something's right, but
you're too early. And I had a great colleague of
mine who was always out of the curve when we
were at CS. I think I put ideas and often
too far ahead of the curve. And I always say
that just feel better to be too early than to
be wrong. I mean, it's the same result, but it
probably feels better, and I think there's some vindication through
(39:57):
it over time. So I don't know that I have
the one. I kind of want them to to prove
me wrong. Quite frankly, like I wouldn't feel bad if
they did. You know, I think maybe you missed out
on the journey and the ride, and that would have
been fund And the good news is there's other entry
points for you to come in potentially, but they're they're
(40:18):
all trying to do such amazing things that I like,
I get a kick out of people. And and maybe
if we ever give them some motivation in some way
to prove a strong but I think that's yeah, I
think that's a good thing too. So And and the
other thing is I would say and anything that we
can't hear because maybe it doesn't them, it's too early,
or you know, we're just wrong, I would say, I
(40:41):
try to always leave it that I would continue to
be a resource. And so with the Farman, with Gomple
and I have actually a lot of people you'd be
spread and take me up on that that call and
reach out or still say connected even though we didn't
make the investment, and I like consider those I'm just
as excited for their success. Is uh, you know the
ones we did get into. So but next time I
(41:04):
come back, I'll tell you. But then all I've had
the big miss, I'm sure if I haven't on that
time and write as I told.
Speaker 1 (41:09):
You, no, I think I think we'll definitely have to
have you back on because I feel like we could
go on for hours. One are the other things, you know,
as we come up to you know, our time here
that I want to talk about is just your perception
of where we are in the cycle between public and
private markets. You know, we saw a couple IPOs last year,
you know, whether it's wastar tempest, you know, what are
your expectations for I don't know what time what is
(41:31):
the right time frame this year, this year or next year?
Like how do you see the the market for exits.
Speaker 2 (41:36):
Kind of unfolding?
Speaker 1 (41:37):
And you know, if we think about that venture cycle
over the last couple of years, you know, we saw
a lot of people get some great term sheets mid pandemic,
you know, and then the pendulum swung the other way, right,
and so you know, where are we in this cycle
between public and private and how do you see that folding?
Speaker 2 (41:55):
Well? You used I think, Jonathan there one of my
kind of favorite phrases about mare Get tonight. I think
maybe I, like many people, I borrowed it from like
Howard Marks at Okchu Capitol, which is this metaphor of
a pendulum.
Speaker 1 (42:07):
He's great reading.
Speaker 2 (42:09):
Yes, it's great reading. I think it's some of the
best reading just in general. Right, And I would say
you're not just about markets, but that's always really resonated
for me, right, because markets, by their nature, right, are
never at like some point to be equilibriate. Things are
never perfectly valued. You're always like moving along, and so
where you are is often a function of where you
(42:31):
came from, right, and then informs where you're going. So
to your point, like COVID drove this, you in digital health,
just given the necessity of the crisis, right, it wasn't
a financial crisis like two thousand and eight. This was
a healthcare crisis, and so we saw huge upticking utilization,
gifts and how care was delivered, ramatic removal of regulator barriers.
(42:52):
We can have a conversation there as well. Right, it's
an irony to me that to solve a healthcare crisis
we needed to to a certain extent. This may thought
the regulatory environment that we built to govern the industry,
but that's a topic for another day. You had a
financial environment, right, sustained low interest rates, high stimulus flooded
(43:13):
the markets for capital, A lot of dollars floated in
so to your point, record investments, aggressive valuations. Twenty twenty
to you know, twenty twenty two, bunch of companies got public,
IPO or you know, sacks. We can't remember how many
people called me about spats and like, my dad wants
it to me eased to run a hedge funding said,
people will come to me with things I don't understand,
(43:35):
you know, right, you know, so I want to be
able to sell a dollar for fifty cents, and you know,
if you don't understand it, don't do it. So you
have spats, right and so. And then you followed then
by difficult right time in the market, as you pointed out,
changing the pendulum. A lot of those companies public did
not do very well. You had a bunch of uperfunded
(43:58):
companies that maybe weren't a durble in their business model.
A number of inside A rounds people try to manage
their portfolio. You had really low M and A activity
then in that period as well this year to a
large part of the year. Some of that was evaluation
over egg. How do you meet on price when you
are in that situation again, high interest rates, liquidity challenges,
(44:18):
maybe an unfavorable FTC climate, and I think that we're
like feel fins now of normalization. So there's been value resets.
A lot of those I think in undisclosed or insider routes.
But I think it's starting to normalize. I said to
you before, you're starting to see great companies come to market.
I think in part because of this new entrepreneur, again
(44:39):
spurred on by that difficult period. I've actually heard the
phrase animal spirits used in kind of digital health, which
you're twelve to eighteen months ago would have been unfathomable.
But you have the IPOs, right, You've had a few coming,
you have some digital health coming in the first half, right,
I think it's Hinge and Omada. You've had an M
and A pickup. Actually, we had a great company upfront,
(45:02):
patient engagement platform. You saw JPM purchased by health Catalysts.
One of our first growth investments when I was at
CBS was a company called Carebridge, recently sold to Elevance
two point seven million dollars. So you're seeing a sort
of uptick. I think in M and A, I think
there's hope that you have an FTC environment, more tavable,
(45:23):
you have a somewhat better interest rate environment, And paradoxically,
some of those struggling companies are now either going to
be stronger and come to market, they're going to close
or they're going to merge over time, so I think
you'll see some M and A activity, And so I
think an answer to your question, I kind of feel
like twenty twenty five is a really important year for
health valuations. How do those IPOs write price? How do
(45:47):
they do does the exit activity start to pick up
with strategics and private equity, And as you know, there's
a momentum to that, and that trickles down to the
early stage. And so we're trying to find the durable
companies with durable business models to navigate through any cycle.
But you may be getting into one that I think
(46:08):
is a little bit more favorable now. The one thing
i'd say there is, and I don't that we could
ever a drink about this maybe in ten years, is
that everybody's write down in their notebook what happened in
the last three years, because you'll say it won't happen again,
but it tends defendum so and so we're trying to
build the right companies for any market. But I think
we're all getting more optimistic now than certainly we were,
(46:32):
as you know, maybe twelve or eighteen months ago. And
I am exciting to it. Like I said about the
quality of the entrepreneur. The quality of the business is
the quality now even if some of these later stage businesses.
So I think this will be an exciting year. Right.
Speaker 1 (46:46):
It sounds like you're saying some of these have been
pressure tested, you know, just based on that experience, you know,
between the funding environment and then come to I don't know,
come to Jesus for lack of a better term, that
they have to be maybe more proud, profitable, or more focused,
whatever it might be.
Speaker 2 (47:02):
Yeah, I think of it a lot around sort of
having a durable business model. It doesn't mean there are
a lot of problems in health contness that I think
should be solved, and there are a lot of people
that kind of want to self there are not as
many that went solved. Will also lead to kind of
durable business models over time of the nature that I
(47:23):
think later stage and public market investors would look for,
and I think we're trying to find. But also there
are more of those, to your pig I think that
have come out of this period, and I think hard
times tend to do that, intend to really harden and sharpen,
you know. I think a lot of the best among us,
So I think we are sitting that for sure.
Speaker 1 (47:44):
Maybe just two quick ones before we wrap up here.
You know, we're recording this, not filming as his audio only.
Thank God for our listeners. We're doing this right after
JP Morgan. I was just wondering, from your perspective, has
the tent was the tenor this year any difer than
years past? Was there anything you noted in terms of
the conversations you were having, or or maybe the exuberants
(48:06):
around public markets? What what would you take? What were
your Kate takeaways from from last week?
Speaker 2 (48:12):
Yeah, you know, it's always interesting, I would say, you know,
and I don't say it's facitiously. Actually, I think the
most uplifting thing about Jake Moreen this year was the
weather and uh, you know, it was like beautiful, And
I think that actually usually a very difficult conference and
just because you're traveling everywhere and it's pouring rain, and
this time I think it was really, uh, you know,
quite beautiful, So that actually takes the spirits. But I
(48:34):
would say, actually I felt a lot of what we've
been talking about here there, which I think people feel
as though there's been a great application of a lot
of these lessons learned. There's a lot of high quality
now coming to the coming to the market, there's some
light at the end of the tunnel as it relates
to some of these eggs and opportunities. So I felt
(48:55):
like it was a much more kind of invigorated group
than maybe it was at that time last year, not
only because of you know, not only because of the weather.
And I think you saw that, by the way, a
lot of the health system presentation, some of the public
company presentations, a lot of the health plans weren't there unfortunately,
I think, you know, based on you know, this sort
of horrendous incident and very complicated security environment. But I
(49:19):
would say again just from that perception, I think is
of more optimism cost is optimism, which I think is appropriate.
Speaker 1 (49:29):
Well, well, you mentioned lessons learned, and that's how I
like to wrap up these conversations by by asking the guests,
you know, what's one lesson that you learned and either
your personal or professional life that really drives you in
your day to day and maybe informs the mission, whether
it's your personal mission or how you communicate with your
team and what their mission should be. Is there anything
that stands out?
Speaker 2 (49:50):
Yeah, right, it's a great question. And I've been really
fortunate in that I've had a lot of great mentors
and I've learned a lot of if this stas along
the way, but I would say, you know, we didn't
get into my backgrounds and media to stand for this.
And it's like I started off as a white collar
criminal defense attorney. I'm now managing partner of an adventure fund.
So there's a kind of evolution there of how I
approached my career, and that comes from a player so
(50:13):
which I'll hope out in the second right. So I've
tried to be curious, always open to a challenge, and
dre a very non linear kind of career path with
high potential for failure. Left being an attorney to join BCG,
joined CBS because I was enamored by the power of
pharmacy and the impact healthcare ran our pharmacy business at
the one time, even though I wasn't a pharmacist, was
a Keith strategy officer. Started our venture fund all out
(50:36):
of a few curiosity and the sire of impact and
great mentorship. But one thing that stands out to me
was I've had been blessed by very supportive family, and
I think that's actually really critical to stand behind you.
But you may not believe that when I tell you
the story. So when I was first deciding to leave
BFG at the time and go to CBS or remember,
I was talking to my father. It probably doesn't even
remember this, and I said, you know, I'm really thinking
(50:58):
about doing this, and he said to me, I think
you should do it. I think it's great. I think
you'll probably fail, but you should do it. So I
was like, you know, listen, that's not the most uplifting sentiment.
Uh so, so why is it? And would I would
say that? He said, listen, it's not a bad thing.
You like to get into the middle of things. You
(51:19):
like to do the hearts. And when you like to
do the hard stuff in a big company, eventually you
have some failures and you'll be surrounded by some people
that don't try to do the hard stuff and they
don't then have those failures, and those people may progress
right because right there's nothing to pay to you that
they didn't do, and you may not be able to
progress this par because of the things you want to do. Now,
(51:41):
two things come into that that I think we're important.
One was the advice, and that wasn't don't do it,
it was do it. Have fun. That's a better way
to do it. You'll find things to do. And the
second was I was really fortunate that I ended up
with mentors like Larry Murlow or John Roberts or others
at CBS that actually saw, indeed that desire to do
(52:02):
that and gave me those chances, help me accountable, but
also pushed me forward. It gave me the right way
and they gave me the wrong way, and so it
ended up actually working out well. See this, But I
still often think back to that advice because that really
was very thinking for me to push myself into things
that were hard and actually to have a lot of
(52:23):
empathy for people that push themselves into things that are hard.
And even if it's not always about success, if you
push yourself into enough hard places and you can, you
will eventually right get to some real success that then
can build on itself, and experience that can build on itself.
So I think maybe that's the answer to your question.
(52:45):
He'll be glad to hear that story, because I don't
know if I ever thought that, damn. So he probably
one of the people that will definitely listen to this
post to the end as well. Of course, my mother,
who I should note really pushed me forward in many
tremendous ways, so we't want to hear just a story
about father, so we'll give credit to the both of
them for sure.
Speaker 1 (53:02):
Well said, So with that, Josh, we'll wrap up. Thank
you so much for joining us. That's Josh fu, managing
partner of LRB Health. Thank you so much for joining
us on our latest episode, and please make sure to
click the follow button on your favorite podcast app or
site so you never missed a discussion with the leaders
in healthcare innovation. I'm Jonathan Palmer, and you've been listening
to the Vanguards of Healthcare podcast by Bloomberg Intelligence. Until
(53:24):
next time, take care,
Host
Jonathan Palmer
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