Flare Capital Team Upgrade…

Last week we made two somewhat related announcements, both of which look to further deepen the Flare Capital bench.

Parth Desai, who joined us as a Senior Associate in March 2019, was promoted to Principal, largely in recognition of his tremendous contributions to the investment activities of the firm. Parth has identified a number of compelling new investment opportunities, and more importantly, has introduced us to extraordinary entrepreneurial talent. Venture capital is all about working with the best entrepreneurs and Parth has made a significant impact there. It was quickly evident to us that his industry insights and strength of network were viewed as real assets by many people we wanted to back. In addition to terrific investment judgement and being a lightning rod for great people, he is an absolute delight to have around.

Notably, Parth has also taken on the oversight of the Flare Scholars program,

Scholar Ventures

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Pharmacists in the Vortex…

Did you know that there are over 314k pharmacists in the United States? Amid all of the bluster around “Medicare For All” and cost of drugs, the front line of healthcare is often manned by the pharmacist standing sentry in over 67k pharmacies and hospitals. Medscape estimated that 5.8 billion prescriptions were filled in 2018 or 17.6 per person, underscoring the pharmacist’s role in potentially bending the cost curve and closing gaps in care.

The pharmacist has taken on a much more expanded set of responsibilities as the complexity of therapeutic options has increased and with the dramatic rise in chronic disease. Pharmacists are increasingly providing important clinical services, advising patients about drug selection, dosage, potential harmful drug interactions and side effects. They have also assumed a much more profound role in public health issues, while deploying strategies to better drive adherence and compliance, reduce medical errors, and

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London Calling…

A few days in London during the height of the impeachment hearings might be a good respite I somewhat foolishly thought. With the grinding Brexit debate, there is now a furious and contentious sprint to a snap general election on December 12 to largely determine whether the U.K. finally departs the European Union (EU), all of this after a 2016 referendum compelling it to do so. As polling data increasingly suggest a victory by Boris Johnson’s Conservative Party, there is increased investor anxiety as the U.K. economy appears to be weakening (see below – PMI is the weighted average of the Manufacturing Output Index and the Services Business Activity Index). According to a recent Merrill Lynch global fund manager survey, a net 21% of respondents are below global benchmark indices for U.K. holdings.

UK PMI

The spectacular weather did its best to mask all of the political turmoil and

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UK Sector Growth

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China in a Healthy Transition…

The first morning after arriving in China last week was the hardest. As I sipped an unusually strong blend of Chinese tea, reading the China Daily, I was pleased to see one of the lead articles describing in glorious detail the health benefits of tea, which evidently was first consumed in 2737 BC in China. Apparently, it has now been shown in a 25-year longitudinal study that tea drinkers had “better organized brain regions” which certainly sounded useful.

Obviously, it is a complicated time for an American to be in China, and absent one of my taxi drivers proclaiming deep affection for the President of the United States, most conversations steered quite clear of the geopolitical tensions. Frankly, it largely appeared to be business as usual, with a slight undercurrent of concern around general economic conditions. The 3Q19 economic growth rate of 6.0% was announced last week, a marked

China M&A
China Market Size
China Pharma

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Greek Life…

Having just returned from a week in Greece, I may well have taken a few years off my life. If you have spent time on some of the Greek islands, you certainly know what I mean. And what a time to have been there, on the heels of a dramatic transition in political power (July 2019) and a resurgent economic environment, there was a sense of optimism that one would not have expected for a country emerging from a crushing economic crisis over the past dozen years.

Analysts assessed the situation in Greece a decade ago as more dire than that of the U.S. during the Great Depression of 1929. Unemployment rates spiked to over 28% from 9.7% in 2009; it now stands at 17%. Promises of meaningful structural reform by incoming Prime Minister Mitsotakis of The New Democracy party were enthusiastically received by global investors this summer,

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Greek GDP
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Environmental Determinants of Health…

July 2019 was determined to be the hottest month in recorded history according to scientists at the U.S. National Oceanic and Atmospheric Administration. The temperature was 1.71 degrees above average July temperatures over the entire twentieth century. In fact, nine of the ten hottest Julys occurred since 2005.

The healthcare technology sector is all afire with identifying solutions to manage a range of social determinants of health such as access to quality food, affordable and safe housing, underemployment and relative economic and social stress levels. Irrefutably, at least for many of us, environmental conditions are known to play a dramatic and direct role in one’s overall health and well-being. Effective and comprehensive solutions are illusive though, in part because the problems are systemic, and the investment required for systemic solutions can really only be made by governments in a somewhat coordinated fashion. The investment models for therapeutics, medical

Climate Deaths
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Basking in Basque…

It is impossible to not appreciate the fierce sense of independence when traveling in the Basque Country. While I was fortunate to leave right before the brutal heat of the past month, it is clear that the somewhat tortured regional history of the last half century still influences much of the current narrative, and arguably this political history has influenced the healthcare framework now managing the 2.2 million residents of this beautiful but complicated region.

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For the nearly four decades since the end of the Spanish Civil War in 1939 until the establishment of the Spanish Constitution in 1978, this region was a set of quite independently governed territories which suffered through considerable political turmoil. The Constitution provided for a much greater degree of home rule and autonomy but was overshadowed by the rise of the Euskadi Ta Askatasuna (ETA) separatist group. While the ETA was formed in 1959,

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Flare Capital Lands #1 Draft Choice…

If a venture capital firm is like a baseball team, we may have just used the first pick in the draft to grab a terrific utility player with extraordinary range: he can hit for power, field anything that is hit to him, and is an all-around great teammate. Please welcome Ian Chiang to Flare Capital Partners.

On the heels of announcing a new dedicated healthcare technology fund, we are thrilled to announce that Ian Chiang has joined the firm as a Principal. Ian has been committed to the transformation of the “business of healthcare” over the course of his impressive career. Most recently, he served as a Senior Vice President and a founding member of CareAllies, Cigna’s family of multi-payer provider services, population health management, and home-based care businesses. All super relevant to our investment focus.

I first met Ian over six years ago just as he was launching his Continue reading “Flare Capital Lands #1 Draft Choice…”

Health Tech: What’s Not To Like?

There were a number of very exciting developments in the healthcare technology sector this past quarter. After a relatively modest investment pace in 1Q19 of $1.0 billion, nearly $3.2 billion was invested in 119 companies in 2Q19 according to Rock Health data, suggesting that the investment pace this year may be slightly ahead of last year’s record high of $8.2 billion. This level of activity reflects what continues to be an extraordinary market opportunity as the “business of healthcare” is transformed. Industry dynamics today demand innovative business models and novel technologies that will leverage advanced analytics and mobility to enable value-based healthcare. The overarching pressures for better outcomes at lower costs will create important and valuable new companies.

Furthermore, the adoption of healthcare technology solutions is accelerating. Many companies launched earlier this decade can now point to measurable impact on outcomes and costs. Companies more often than

1H19 Healthtech
1H19 Health Liquidity

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Let the Good Times Roll – 2Q19 In Review…

Accelerating out of 2Q19, both the S&P 500 and Nasdaq indices hit all-time highs, trading at close to 19.8x trailing earnings. Last week the U.S. Bureau of Economic Analysis announced that GDP increased 2.1% for the quarter, and while a marked decline from the prior quarter, it was still a reasonably compelling figure. Interestingly, consumer spending which accounts for approximately 70% of the activity, increased 2.9% in the quarter. Macroeconomic Advisors estimated that revenues for the S&P 500 companies grew 2.6% in 2Q19, while FactSet estimated that earnings declined 1.9% year-over-year (first time in recent memory), perhaps suggesting that operating costs have increased markedly over the past few months.

 

2Q19 GDP

Source: Axios

Against this narrative, the National Venture Capital Association and Pitchbook released their 2Q19 report with screaming headlines about investor liquidity. Quite simply, it was a tremendous quarter with $138.3 billion of

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Flare Capital Raises Its “Series B” …

This week we announced the close of Flare Capital Partners II, L.P. with a total of $255 million of committed capital.

This fund is considerably larger than our prior fund, which in large measure reflects what continues to be an extraordinary market opportunity as the “business of healthcare” is transformed. Industry dynamics today demand innovative business models and novel technologies that will leverage advanced analytics and mobility to enable value-based healthcare. The overarching pressures for better outcomes at lower costs will create important and valuable new companies.

Blah, blah, blah. Many of us already know all of that. Here is why the fund’s timing is so propitious. Adoption of healthcare technology solutions is accelerating. Many companies launched earlier this decade can now point to measurable impact on outcomes and costs (see IPO pipeline of healthcare technology companies). Companies more often than not are able to claim real attribution for

HC Adoption Accelerating

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Blood Money…

Not sure if it was the penultimate episode of “Game of Thrones” or recent press coverage of Ambrosia LLC, which was marketing, and subsequently reprimanded by the FDA, “longevity” blood plasma transfusions for $8,000 that caused me to look more closely at the blood supply industry. And what a strange set of dynamics at work – a product with a relatively short shelf life, largely dependent on donors, and one that appears to have terrific gross margins. With advances in technology and business model innovation, the amount of blood required to meet current needs has dropped dramatically but unfortunately for an increasing number of individuals, their precise blood type has likely become very hard to find.

First, some context. Over 13.6 million units of whole blood are collected every year in the U.S. for the 4.5 million Americans who will require a transfusion which is nearly

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Dazzling VC Activity in 1Q19…

At the 2018 year-end holidays, venture capitalists celebrated an unprecedented year of investment activity, certain that it could not be repeated. Now that the books on 1Q19 are closed, the pace seems to have only modestly unabated from an historic 4Q19 with $32.6 billion invested in 1,853 companies. All of this was punctuated by the Lyft IPO in the second to last day of the quarter.

While the activity in 1Q19 was indeed down from the prior quarter, it was still the second highest month in nearly 20 years. Now that the S&P 500 Index is within a few percentage points of its all-time high set in September 2018, the anticipation of sustained unicorn IPO activity has bolstered investor confidence. All of this is further energized by the 3.2% GDP growth in 1Q19.

 

1Q19 VC

Evidence of continued concentration of capital, by company and by venture capital fund, persists. The top ten deals accounted

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Quarterly Check-up On Healthcare…

Notwithstanding the quite significant stock market turmoil for publicly traded healthcare companies in recent months, the level of private investment actitivty continued to be quite strong this past quarter. According to Rock Health, 1Q19 registered just under $1.0 billion of investments made in 61 healthcare technology companies, which while below the trailing two year quarterly average of $1.4 billion, still suggests an annual investment pace running toward $4.0 billion. StartUp Health, which reports global funding data and inlcudes non-software healthcare companies, tabulated $2.8 billion invested in the quarter.

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It certainly appears that 2018 may well have been a high-water mark for digital health funding. Over the last five years, between 300 – 375 companies were funded annually in the healthcare technology sector. A more modest investment pace arguably will lead to a greater degree of consolidation, from which stronger companies should emerge. It also suggests that

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Income vs HC Spend

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Colombia – Peace Dividend Boosts Healthcare…

What a fascinating time to have traveled in Colombia. In addition to being scorching hot (it is bisected by the equator), the country recently settled a painful 55-year Marxist uprising, to say nothing of the extraordinary level of despair on its eastern border with Venezuela. Last week there were large street protests in the capital city of Bogota against proposed changes by President Duque to adjudicate the nearly one million pending cases from the half-century long conflict that claimed 250k lives.

Colombia measures over 440k square miles with a population of 50 million people, which is estimated to have just expanded by over one million Venezuelans fleeing the repressive and wholly incompetent regime of President Maduro. The last two decades saw dramatic GDP growth, which is estimated to be $345 billion in 2019 by Trading Economics (or approximately $7k per capita). Colombia is deemed to be one of only 18

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Santa Cruz del Islote

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Flare Capital Team Expands – Yet Again…

Today we are thrilled to welcome Parth Desai to the Flare Capital investment team as a Senior Associate. As a partnership we will make literally hundreds of decisions together every year but the decision to add to the team is a profoundly important one and one that is infrequently done. Parth’s background makes him almost uniquely prepared to help us right away.

Most recently, Parth was with the investment team at New York Presbyterian Hospital, focused on a wide array of innovative solutions to improve both the quality and the ability to access care while driving improved patient outcomes. Prior to his time there, he spent nearly five years at Deloitte Consulting advising provider systems as they re-architected their care models, often to arrange novel risk-bearing arrangements. Right after graduate school, Parth was a Health Policy Analyst for the Massachusetts House of Representatives, where he worked on critical oversight legislation Continue reading “Flare Capital Team Expands – Yet Again…”

Do Rich People Live Longer?

Undoubtedly – by almost 15 years according to a landmark National Institutes of Health study which looked at over 1.4 billion de-identified U.S. tax records from 1999 – 2014, comparing them to associated death records from the Social Security Administration. According to the National Center for Health Statistics (May 2017), life expectancy at birth increased from 72.6 to 78.8 years between 1975 to 2015. This improvement has been attributed to dramatic advances in medical technologies as well as resources devoted to enhanced public health and education programs. As impressive as this is, whether you are rich or not actually appears to play a greater role in how long you will live.

This is obviously a very complicated analysis, compounded by almost innumerable variables such as local health behaviors (e.g., prevalence of smoking, access to quality food and housing), strength of local governmental assistance

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Income by County
Life Expectancy At Birth

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What a Freaking Crazy Year…

Who thought that it could get any better? After nearly $83 billion of venture capital was invested in 2017, this past year clocked in at nearly $131 billion; in fact, 4Q18 registered $41.8 billion or nearly half of all of 2017 activity, according to National Venture Capital Association and PitchBook data. The level of activity was unprecedented and has left some industry observers somewhat befuddled as to the current state of the venture capital industry.

2018 VC

As always, the headlines risk obfuscating a number of significant trends and themes. Notwithstanding that the amount invested in 4Q18 was $10 billion more than just the immediate prior quarter, nearly 10% fewer companies were financed (2,071 in 4Q18 vs. 2,282 in 3Q18), further underscoring the recurring theme of capital concentration with fewer companies raising disproportionately larger rounds. Across the board, average deal size was markedly greater in 2018 than for any of the

2018 Round Size
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Healthcare Bubble Concerns – Likely Overblown….

By nearly every measure, 2018 was a banner year for the venture capital industry, particularly in the healthcare technology sector. Over $130 billion of venture capital was invested across all sectors, easily eclipsing the prior high-water mark in 2000 and nearly 4.8x of what was invested a decade ago. In the healthcare technology sector, according to Rock Health, $8.1 billion was invested in 368 companies which is notably greater than the $5.7 billion invested in 2017 (StartUp Health pegs 2018 at $14.8 billion globally).

But have we entered a healthcare technology bubble?

First, some context. Over the past five years, healthcare technology investors have funded consistently between 300 – 375 companies each year. Between 2014 – 2016, the amount of capital invested annually ranged between $4.1 – $4.7 billion. The average deal size spiked to $21.9 million in 2018 but otherwise

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“Pentafecta”

I did not know that “pentafecta” was actually a word, and while it does not perfectly describe the background of Flare Capital’s Dan Gebremedhin, it is serviceable as it suggests the extraordinary range he has.

Dan joined the firm in April 2015, just as we were getting started, and today we celebrate his promotion to Partner. Someone of enormous talent and range, Dan and I first met nearly ten years ago when he was raising capital for his healthcare technology start-up (“fecta” #1). While I did not end up investing in that company, it was clear that he had extraordinary potential. He had earned his MD and trained at Massachusetts General Hospital (“fecta” #2), and when we first met, was studying to get his MBA at Harvard University (“fecta” #3).

After graduation from Harvard Business School, Dan joined Harvard Pilgrim Health Plan where he served as Associate Medical Director Continue reading ““Pentafecta””