One sign you’re living through a golden age is that there’s a lot of gold being tossed around.
Michael Greeley, a venture capitalist at Boston-based Flare Capital Partners, asserts that our region is indeed experiencing such a bounty of ideas when it comes to health care innovation. The amount of money being invested in companies trying to create cancer drugs, apps to treat addiction, and new kinds of health care plans is setting records. According to the data provider CB Insights, roughly $100 billion has been invested in health care-related companies so far this year — topping the record $80 billion that went into the sector in 2020. (Greeley offers his perspective on the latest investment activity on his blog, On the Flying Bridge.)
Of course, not all that money will back winning companies. And some of what emerges will carry lofty price tags to recoup all that invested capital.
I sat down for breakfast with Greeley to talk about the dynamics he’s seeing in the health care technology sector — the software and services startups in which his firm invests — as well as in biotech. He optimistically envisions a health care system that will be “more responsive, virtual, on-demand, and intelligent,” which he says could lead to “dramatically less friction” for all of us when we interact with it.
Q. Part of your thesis around a golden age is that software and computing are helping companies develop effective drugs and vaccines, and rule out things that don’t work, faster and more efficiently. But it’s not getting faster or more efficient to get drugs approved, is it?
A. It’s certainly highly nuanced. You have the advances on the tech side, around high-performance computing and analytics, which have enabled those processes to be so much more efficient. There used to be such brute force [required] to find a molecule that had any impact or any efficacy, and now you can design these things very rapidly, and relatively inexpensively. As tragic as the pandemic has been for billions of people, it has been an enormous validation that Moderna can do what it did in [developing a COVID vaccine in less than a year.]
I don’t know if the regulatory frameworks have caught up to that. The cycle time for drug development far exceeds the ability for regulators to approve and get their head around these things.
Q. The emergency-use authorization process from the Food and Drug Administration may have been faster than many people are ready to accept.
A. First, people were saying, “Oh, because it’s not formally approved, I’m not going to take it.” Now we have this entrenched constituency that says, “It was rushed.” So, I think the regulatory pathways are going to be quite a challenge to sort through because the ability to create designer therapeutics is far faster than [the FDA’s] ability to understand and prove efficacy and outcomes.
Q. There is also now software and apps that have been approved for use by the FDA, essentially as treatments for attention deficit disorder or addiction, from companies like Akili Therapeutics and Pear Therapeutics. I bet 99 percent of Americans don’t know that there are therapeutic apps like that.
A. We’re pretty negative on that space. I love some of those management teams. But the next impediment they hit is, will insurers reimburse for the product? And insurers, they have a set amount of dollars they’re going to spend on any one member, and it’s going to come at the expense of other programs. The insurers are having a really hard time getting their heads around these digital therapeutics. And, ultimately, if they don’t reimburse, there’s no revenue stream for those products.
Q. You’re more bullish on health care delivery being reinvented, and maybe becoming more efficient? You were an early investor in Iora Health, which just sold for $2 billion this past summer.
A. This move to value-based health care models is a really profound shift in how you’re oriented, because if you’re building a product that you can manage a population differently, and you have high confidence in your product having some impact, you have a very different business model, which is [saying to Medicare or other insurers], “Just give me that population and I’ll manage them. And then, you and I will share in the savings, or the benefits, that accrue.” It could be pregnant women or people with gastrointestinal conditions.
That is not a fee-for-service model. And I think the transition will be hard and long, but it creates an enormous set of interesting companies. Iora was a perfect example of that. The way they just managed a Medicare Advantage population differently, their life expectancies were dramatically improved, by years — not days — and the cost of those people to the system were dramatically improved. And people’s outcomes improved. I’m excited about those kinds of models.
Q. There’s always a game of musical chairs when there’s this much capital sloshing around. Entrepreneurs are thinking, “OK, let me raise it while it’s available, and go public while I can.” And sometimes the music stops.
A. What happens then? It’s going to be tricky. I think we’re seeing, just in the last quarter or two, some recalibration of how you value these health care tech companies.
Q. But with companies developing a drug, you’ve noted that some of them are going public before that potential drug is even in clinical trials with humans. If the music stops and people sour on the sector...
A. That company, potentially, could be worth nothing. An unfinished product isn’t very valuable. But if the companies are raising such large rounds, do they get another year or two of runway [with that money in the bank]? Does it carry them through any real correction?
The [spending] rates of our companies, which are on the software and services side, tend to be $15,000 to $18,000 per full-time employee, per month. You can pretty much game out how much capital you need to build a business — though not with great precision. I think that on the biotech side, your ability to project that runway is much more complicated because there are so many unknowns in the process of discovering of and improving a therapeutic. Our strategy is, we’re transforming the business of health care. With those models, you have a pretty good handle of what that beginning-to-end trajectory can look like.
Q. Is there anything that worries you politically, where you think, “Oh, the current administration could do X,” and suddenly you see capital just leave the health care sector?
A. I probably should be more concerned. I think that if the Affordable Care Act just fundamentally goes away, which was really the enabling framework for these value-based models, I’d be concerned. It doesn’t feel like that’s going to happen.
Q. I sometimes worry about the gravitational pull of specific cities in this era where you could start a company in Tel Aviv and keep it there and have great sales and marketing people in Dallas and your research happening in Boston. Over the pandemic era, a lot of companies have gotten more comfortable with distributed staff. I don’t think that Boston’s gravitational pull goes away overnight, but does it concern you?
A. Certainly, on the therapeutic side, you need that physical infrastructure — labs for developing new drugs.
But right now, we have [invested in] more companies in Philadelphia than Boston. I’m shocked at that. As we think about our opportunity set [for future investments], it’s in 30 different cities. We need to keep telling the commercial for Boston on the health care tech side because it’s now way too easy for people to be doing this anywhere. And the big hospital systems, the big insurance companies — they’re not all in Boston. Those guys have budgets, and startup ecosystems pop up around them in health care tech. And today, it’s so easy to do these companies virtually. But not on the therapeutic side. Scientists have to be in a lab; they can’t do it in their homes.
I have other worries — like we’re now really over-weighted to one sector, which is never good. But I think that the physical plant that we’ve built here, in Kendall, the Seaport, and Fenway, is very, very enduring.
This interview was edited for length.