Only 10,877 Days Left…

It is quite unsettling to now know how many days I have left. At least that is the number that the Social Security Administration’s “Life Expectancy Calculator told me. Admittedly, I was somewhat apprehensive to hit “submit” after filling out the form.

Over the last few months I have been struggling to reconcile what appears to be a societal asymmetry; that is, why do we spend so much on end of life care and spend relatively so little on wellness, prevention and other activities focused on early childhood and young adults. All of this has been brought into even sharper focus because of the recent debates on drug pricing and accusations of gouging, often for therapeutics focused on diseases associated with old age. The sound bites are plentiful: 25% of Medicare spending is incurred during the last year of life, median length of hospice care is over two weeks (and is very expensive), Medicare spends over $16,000 on someone who is 96 versus $7,500 on someone who is 70 years old, and on and on. Overall, Americans spend $8,915 each year per person on healthcare products and services, of which just over $1,000 was for drugs. The Centers for Medicare and Medicaid Services estimates that total healthcare spending for those over 85 in 2010 was $34,783. These are really big numbers when viewed across a large population.

And VC’s have noticed this phenomenon as well. According to StartUp Health data, of the $2.8 billion invested in “digital health” during the first half of 2015, over $1.3 billion of that amount was directed at technologies for the 50+ crowd. Quite consistently over the past five years roughly 50% of all healthcare technology funding has gone to solutions for older people.  While many of these technologies arguably have relevance for people of all ages, venture capital tends to follow where a lot of money is spent (or misspent) to hopefully make it more productive. And the elder population consumes a lot of healthcare resources. Interestingly, this balance may now be changing as the largest product category for venture investment in the first half of 2015 was Wellness, which secured $674 million of capital according to StartUp Health.

Undoubtedly the diagnostics sector has suffered over the last decade as technologies focused on early detection ran into extended development timelines, hostile regulatory hurdles and brutal reimbursement policies. The promise of “value-based” diagnostic pricing models continues to be elusive, which also baffles me – isn’t a couple hundred dollar test that will determine the course of very expensive treatments, and oh, flags early onset of disease, incredibly valuable?

Increasingly investors are focused on new emerging care delivery models (see Iora Health) which are powered by many of the innovative healthcare technologies being developed today. For example, 800 new palliative and hospice organizations have been launched just in the last five years bringing the number to over 5,800; these organizations provide care to over 1.5 million people. One should expect innovative new business models to emerge which will partner hospice organizations with traditional providers and payers. Better care coordination continues to be the great promise of all of these new technologies.

When I was born my parents might have been told that my life expectancy would be 66.6 years given my birthdate and race. Now, according to the Social Security Administration, my life expectancy is expected to be 82.6 years – a dramatic improvement arguably due to advances in healthcare technology, nutrition, wealth of the country, etc. Many economists now believe that these numbers are understated due to future advances we cannot even contemplate that are over the horizon. In fact a cottage industry exists to sort all this out as these calculations have significant societal, political and economic implications if they are wrong. Thus the debate around the adequacy of the Social Security Trust Fund. Since 1956, economists have looked to the QALY (“quality-adjusted life year”) index but are now focusing more on the VSL (“value of a statistical life”) paradigm to get a more precise forecast on life expectancy, and frankly, to determine how much cost we should incur as a society to extend life.

Traditionally, economists tend to calculate the value of one year of human life as the amount of economic wealth that person might create. After conducting detailed cost-benefit analyses in 2011, a number of governmental agencies came up with their own determination as to the value of a life: leading the pack was the Environment Protection Agency which concluded that one life was worth $9.1 million, while the Food and Drug Administration calculated that it was worth $7.9 million, although the Department of Transportation determined it was “only” worth $6 million. The Office of Management and Budget hedged by saying a human life was worth between $7 and $9 million.

The DoT pointed to some fascinating data to reach its conclusion. In 1987, the speed limit nationally was raised from 55 to 65 mph which evidently saved all of us collectively 125,000 hours of driving time for each incremental fatality, thus concluding that society valued one additional life for $6 million. Furthermore, the DoT goes on to argue that if the speed limit were set at 13 mph, there would be no fatalities on the road.

To put all of this into some context, the Centers for Disease Control and Prevention tallied the 2013 census data (most recent annual data) and reported that 2.596 million Americans died that year, which is 822 people per 100,000 inhabitants. That same year, 3.932 million Americans were born or 1,240 per 100,000 inhabitants (32.7% of which were by Cesarean if you were wondering). Obviously there are many more of us at the top of the “life funnel” which further underscores my puzzlement over the asymmetry of the healthcare spend on older people. Clearly, older people have a louder voice (unless sitting on a long flight) but like my diagnostics argument above, shouldn’t the rational investment decision be to over-investment in wellness and “beginning of life” activities like prevention and education.

Life Expectancy

So then imagine how disturbed I was to read the recently released report in the Proceedings of the National Academy of Sciences which observed a dramatic and unexpected spike in the mortality rates of middle-age white Americans, in part attributed to substance abuse and mental health issues (see chart above). So, notwithstanding all the healthcare resources committed to older Americans, their mortality rates are increasing. Analysts speculate that economic stress may account for both this elevated mortality rate as well as a decreased labor force participation rate. To further underscore this phenomenon, 10.6 of every 100,000 people aged between 45 and 54 overdosed on prescription painkillers. To put an even finer point on this, nearly 45,000 Americans died from an overdose as compared to over 35,000 in motor vehicle accidents and just over 16,000 homicides.

In 2013 the overall U.S. suicide rate was 12.6 per 100,000. Now that is an unacceptable cost.

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Expanding the Posse…

Over the course of any one fund, we will make a few dozen investment decisions together (a big deal), a couple of hundred “ordinary-course-of-business” decisions (less of a big deal), and debate thousands of other issues (many are often quickly forgotten) – but we will only make a few personnel decisions (a really big deal). So it is with great excitement that we welcome Jason Sibley as a Principal to the firm.

Jason is passionate about the transformation of healthcare first and foremost. Sure, he is super smart. And of course he has a great depth of investment experience, which is nice, but what we were all so struck by was his fascination with how the business of healthcare is being reinvented. Jason comes to us from GE Ventures, one of our most important partners, which is staffed by some of the most talented healthcare investors out there. GE Ventures enjoys a privileged relationship with GE Healthcare, which is a $20 billion business for GE and has deep customer relationships with virtually every healthcare institution around the world. GE Ventures is led by Sue Siegel, who also sits on Flare’s Industry Advisory Board and is a close friend of the firm.

But that is not all.

We are also excited to announce the Flare Scholar program, which is an initiative to add a set of young professionals from great graduate schools and important leading healthcare companies to our team. Our Scholars will be offered a court-side seat to the world of venture capital, principally assisting us in identifying great young entrepreneurial talent – people who are looking to be in the healthcare technology industry. We also expect that our Scholars will be helpful in thinking through industry trends and may even work with some of our portfolio companies.

Stay tuned for more as we expand the Flare posse…

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CO-OPs – “Innovation” Run Amok?

Innovation in healthcare is often associated with break-through scientific discoveries in the lab, which leads to profound new therapeutics and devices. This decade, however, will be characterized by innovative new business models powered by novel software and hardware platforms. Arguably these advances will have greater impact on outcomes and cost of care across large populations. At its core, there are a handful of trends driving this wave of innovation: (i) dramatic shift from acute care models to prevention and wellness; (ii) greater emphasis on point-of-care and decentralized care delivery; (iii) development of personalized, predictive and preventive solutions throughout healthcare; and, (iv) an increased role of data, adaptive learning systems and automation in every corner of the healthcare landscape. Of particular interest are technologies which create and support integrated platforms that manage and coordinate care and are location agnostic.

Central to this entire transformation is the dilemma that provider systems have historically been structured to treat the individual as an individual but are now being pushed to manage populations. In contrast to that, payors must do the reverse; that is, historically health insurance products and services were structured, priced and delivered as if each individual were the same, but now those same products need to be tailored to the individual given the obvious differences among members. Both are searching for successful models of “mass customization.” A fascinating set of conflicting industry dynamics indeed.

Among a protracted and unprecedented philosophical debate about the appropriate role of government in healthcare, perhaps one of the greatest experiments in healthcare business model innovation is playing out right in front of us today – and the results are decidedly mixed. In 2011 The Patient Protection and Affordable Care Act (affectionately known as ACA) provided $6 billion in funding to launch the Consumer Oriented and Operated Plan (CO-OP) program. CO-OPs were intended to be new non-profit, consumer-oriented health insurance providers by state, offering competitive insurance products on the health insurance exchanges established by the ACA. After a series of legislative actions, the total amount of funding available was reduced to $3.4 billion, and by the beginning of 2014 when the program was officially launched, 23 CO-OPs had been established with $2.4 billion in loans.

While a few CO-OPs experienced meaningful membership demand, even in some cases exceeding first year forecasts, the Office of Inspector General published a report this past quarter which found significant shortcomings with nearly every CO-OP. Overall eight CO-OPs have already failed, putting at risk nearly $1 billion in federal loans. In fact, just this past month, a handful of CO-OPs were decertified and are winding down operations (Colorado, Kentucky come to mind – Iowa/Nebraska already liquidated earlier this year). Notwithstanding that the ACA established three funding programs (Reinsurance, Risk Corridor, and Risk Adjustment – the “Three R’s”) to shield these CO-OPs against market risk while they sorted out their pricing models in the first three years, the losses have been staggering. Unfortunately the measurement models, particularly for Risk Adjustment, are both crude and imprecise, often leading to perverse subsidies to established insurers with the best provider network discounts to emerging payors.

The technical challenges of the launch of these CO-OPs were widely reported with websites crashing, long wait times and poorly designed interfaces. The forecasted enrollment across all 23 CO-OPs by the end of 2014 was 658,000 members, far in excess of the 475,000 who actually enrolled (although New York had forecasted 31,000 members and saw 155,000 enroll, highlighting that there were pockets of notable success). Most of these CO-OPs had to compete against entrenched insurers, underscoring the power that an incumbent brand may carry over new innovative products that are introduced to a market.

Perhaps what is more disturbing is when one reviews the financial statements for each of the CO-OPs (which I did), only one CO-OP (Maine) had its first year premium income exceed claims expense, raising questions around pricing and the ability to accurately assess the health of the members enrolled. Only three of the CO-OPs projected to make money in their first year of operations; in reality, none of them did. In aggregate, the 23 CO-OPs collected first year premiums of $1.65 billion as compared to $1.88 billion in claims. Most staggering though is the $380 million of first-year administrative costs incurred by the 23 CO-OPs. In the face of these losses, the federal risk corridor funding programs, whereby health plans with less healthy populations were subsidized by plans with healthier populations, were withheld for many of the CO-OPs, which have led to a severe cash shortfall for some. Overall, the 23 CO-OPs collectively lost $375 million to enroll 475,000 members in 2014 or roughly $800 per enrolled member.

It is not just the CO-OPs that have suffered mightily as a number of private insurers have announced significant losses in their individual plan businesses. Highmark Health of Pittsburgh recently shared that it has lost $318 million through the first half of 2015. In response to this unsettled environment, there is significant evidence that many insurers will move to more narrow networks, to channel consumer access to less expensive providers. Many state insurance commissioners have confronted filings for dramatic rate increases, often times in the significant double digits.

A number of questions remain unanswered. Where do these members go when their CO-OP is decertified? Would these people have enrolled in other insurance plans even if the CO-OPs did not exist? Fundamentally – what went so wrong? It is widely believed that many of the “entrepreneurs” who took the government up on its offer to start an insurance CO-OP likely lacked the depth of understanding for how to underwrite new members and did not fully appreciate the extraordinary associated regulatory burdens, much less how to run an insurance company. It certainly appears that the absence of significant up-front equity start-up capital shifted the entire financial risk to the government as to whether this experiment was successful. What the ultimate cost to U.S. taxpayers is still not known, but it is clear that the jury is decidedly out during the early innings of this grand experiment in business model innovation. Perhaps there will be another wave of entrepreneurs who will create interesting businesses from these failed CO-OPs?

These transitions, which providers and payors are currently undergoing, coupled with regulatory reform, the aging population and tremendous cost pressures, all point to a period of unprecedented upheaval. We continue to see extraordinary talent entering this sector to build the next-generation of product and service companies. The level of activity this past quarter underscores how exciting this sector is right now.

Specifically, the healthcare technology sector witnessed significant activity as 148 companies raised $1.6 billion this past quarter according to Mercom Capital Group, which is a sharp increase from the second quarter 2015 activity of $1.2 billion and 139 companies, respectively. Year-to-date over $3.5 billion was invested in the healthcare technology sector. This level of investor interest might cause one some pause as perhaps too many “me too” companies are being created.

An important barometer as to the overall state of the healthcare technology investment climate is the level of IPO and M&A activity, which was weaker than prior periods. In the third quarter 2015 there were only 2 IPOs and 57 M&A transactions, which may simply reflect the summer doldrums and volatile stock market.   Interestingly there was only $500 million of debt financings as compared to $1.6 billion in the second quarter 2015.

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Fat Lady is Clearing Her Throat…

Ouch. That was a slap in the face. I get that this past quarter included the languid summer months and that the stock market volatility was quite distracting, but the 3Q15 venture fundraising data caught many flat-footed. This past quarter saw only $4.4 billion of capital raised by 53 new funds, which is a 59% and 35% decrease from the prior quarter, respectively. And this is against a backdrop when venture capitalists invested $16.3 billion in 1,070 companies during that same quarter.

Before I point out some of the nuggets buried in the data, there were a series of fascinating announcements by three of the leading accelerators/incubators over the past few months which highlight a new phenomenon in the venture marketplace: Y Combinator, AngelList and Techstars all raised large institutional funds ($700, $400 and $150 million, respectively), proving that sitting at the turnstile of extraordinary and proprietary deal flow is a very valuable and coveted position – one that is easily “monetizable.” These developments also underscore that many large institutional investors are still clambering to invest in the earliest stages of the innovation economy (the AngelList platform will now support $400 million from China’s third-largest private equity firm, China Science & Merchants Investment Management Group, which has $12 billion under management).

One of the hallmarks of the venture capital industry over many cycles is its remarkable ability to re-invent itself. Arguably these three new funds above represent $1.25 billion of capital that otherwise would have been invested by traditional venture firms. New firms often are created by partners leaving established firms which is why the National Venture Capital Association (NVCA) so closely tracks “first time” funds. In 3Q15, 13 of the 53 funds raised were deemed “first time” funds and collectively, they raised $737 million or 17% of the total. On the face of it that is not too bad until one realizes that the largest “first time” fund was $460 million (congrats to my friends at Silversmith Capital) or nearly two-thirds of the total. Stripping out Silversmith, the average size of the remaining dozen “first time” funds was $23 million.

Other gems in the data:

  • Top 5 funds raised totaled $1.9 billion or 43% of the total
  • Top 10 funds captured $2.8 billion or 65% of the total – concentration continues unabated
  • Only 16 of the 53 funds were greater than $100 million.
  • And with great symmetry, 16 of the 53 million funds were less than $10 million in size
  • The median fund size was $39 million – the VC industry continues to be characterized by a handful of very large funds tethered to a myriad of small focused funds.
  • While California, Massachusetts and New York funds captured 81% of the total dollars raised, 19 other states housed new funds – reasonably good geographic diversity
  • My favorite nugget – the Bottom 10 funds raised $26 million or 0.6% of the total. Now that is a real slap in the face – one that leaves a mark.

The real question now is what trajectory is the VC industry on: if one were to annualize the year-to-date amount raised for one more quarter, the 2015 total raised would come in around $30 billion (which is sharply down from mid-year estimates of $40 billion). But if one were to simply annualize 3Q15 performance, the VC industry is on pace to raise only $17.5 billion. It certainly feels that, absent a more robust and predictable IPO market, the venture industry is now at risk of shrinking again as capital either sits on the sidelines or looks for non-traditional access points.

Through 3Q15 there have been only 51 venture-backed IPO’s and those have raised just over $5 billion in proceeds, which is tracking well below the 2014 amount of $9.3 billion for the full year. The M&A market year-to-date for venture-backed companies is also soft with only $40 billion of transactions versus over $80 billion for all of 2014, which was a high watermark over the last 5 years. Presumably, greater liquidity will result in an improved fundraising environment as investors see a return on all that invested capital. Hopefully that will happen before the Fat Lady hits the high notes.


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Capital Rotation…

In a period of negligible interest rates, which was just reaffirmed for at least another month or two, investors are desperately looking for returns and many continue to find it in healthcare. According to the National Venture Capital Association, VC’s invested $17.5 billion in 2Q15 across all sectors; this was a quarterly high-water mark going all the way back to 4Q00 (almost 15 years ago). Of course, much of this was invested in late-stage break-out companies (Uber, Zenefits, etc), which arguably skews some of the data, but directionally it is quite clear that large institutional investors have piled into VC quite late in the cycle – never a good thing. Some troubling undercurrents are starting to emerge when one looks closer at the data.

Over $3.2 billion or nearly 20% of the dollars invested this past quarter was in healthcare, which is clearly understated as it does not capture the surge in healthcare technology investment (software businesses). According to StartUp Health, there was another $1.7 billion invested in “digital health” companies in 2Q15. Approximately $2.3 billion was invested in 126 biotech companies which is meaningfully more than the $1.7 billion invested in 1Q15. In fact, three of the top ten VC financings this past quarter were for biotech companies which raised an aggregate of $620 million. The medtech and healthcare services sectors, on the other hand, continue to play relatively small roles in the overall healthcare investment activity.

Why is this? Broadly speaking there are three factors to account for this rotation: (i) the re-invention of the “business of healthcare” is well underway which requires a whole set of innovative new software solutions as we go from a transaction-based system to one predicated on outcomes; (ii) the hyper-valued flurry of successful biotech IPO’s in 2014 through the first part of 2015 attracted significant public investor attention and capital given the promising advances in gene therapy and immune-oncology treatments; and (iii) all of this is juxtaposed to the still hostile regulatory, reimbursement and development timeline dynamics in the medtech sector. It is expected that another one billion people will join us in the next ten years contributing to a doubling of global healthcare spending so the long-term continues to be promising.

Because of the significant public market volatility this summer (which was unlike anything we have seen since 2008) due to China’s acknowledgment of slower growth and an expected period of interest rate normalization, it does appear that the euphoria in biotech in the first half of the year drew in many investors who now must feel somewhat scorned given…

  • The NASDAQ biotech index, which had been up 580% from March 2009 to July 2015, is now off nearly 20% from its summer high, having surrendered over $150 billion of market capitalization
  • Hilary Clinton tweeted how “outrageous” price gouging is for therapeutics (which knocked another 5% off the NASDAQ biotech index earlier this week)
  • 90% of biotech stocks in the Russell 3000 traded down in August 2015
  • In more than half of all biotech mergers this year, the stock of the acquirer dropped
  • According to Silicon Valley Bank, 40% of all biotech IPO’s in 2014 were for companies that had yet to complete Phase I studies (that is public VC, my friends)
  • There were 84 biotech IPO’s in 2014, but the pace has slowed materially with only 37 year-to-date (there were only 11 in 2011)

An important catalyst to this activity has been the role of healthcare crossover funds which were often significant large investors in the final private mezzanine rounds for many of these now public companies. Notably of the 26 venture-backed IPO’s in 2Q15, 20 of them were healthcare companies, many of them featuring large crossover funds on their cap tables. The question this raises is how these investors will behave when the IPO and M&A markets for venture-backed companies slow, which it inevitably will.

How is this playing out in Europe? This past quarter 52 healthcare companies raised nearly $510 million in venture capital, which is down over 13% from the year-ago second quarter. Through the first half of 2015, healthcare investment activity is down nearly 15% from 1H14 according to Dow Jones VentureSource data. The European market has always been smaller than the U.S. – in healthcare, about one-sixth the size – but appear to have pulled back sooner in Europe than in the U.S.

There were some extraordinary milestones achieved in the healthcare technology sector in the first half of 2015, perhaps none more notable than the tremendous FitBit IPO and the $500 million private financing for Zenefits. StartUp Health estimates that globally there are over 7,600 “digital health” companies which underscores both the global nature of these healthcare issues and the enormity of the opportunity (and unfortunately that barriers-to-entry have all but collapsed leading to too many companies). According to StartUp Health, 551 companies raised $6.9 billion in 2014 which would suggest that the 2015 pace is tracking behind that of 2014.

There were two other “funding” announcements this summer which nicely puts the venture capital data in perspective.

  • The House of Representatives voted 344-77 in favor of additional federal funding over the next five years for medical research at the National Institutes of Health by $8.75 billion which is approximately five quarters of venture funding. This bill also attempts to accelerate the approval of new therapeutics and devices by the FDA.
  • The other number which surprisingly did not get as much attention was the $6.5 billion paid by biotechs and device companies in 2014 to providers for consulting, research and promotional speeches. The Sunshine Act, which was part of the 2010 Affordable Care Act, required the disclosure of these payments. Of this total, $404 million was for “food, beverage, travel and lodging” or just under how much VC’s invested in medtech companies in 1Q15. They gotta eat (and drink and party)…

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Singapore – Racing Ahead…

Somewhere Over Alaska – What a fascinating time to have been in Singapore this past weekend. Concurrent with the Singapore Formula One Grand Prix, the country hosted the Singapore Summit 2015, their version of Davos in Asia (I was an invited guest of one of my firm’s investors and was honored to have been included). Both of these events were within a week of the national elections which returned Prime Minister Lee Hsien Loong and the ruling People’s Action Party to office with 69.9% of the vote, winning 83 of the 89 seats in Parliament.

My visit was also on the heels of two relevant events in the States: the decision to not raise interest rates and the second Presidential debate – both of which I often felt that I had to apologize for. Late last week, once the U.S. Federal Reserve announced its decision, the Singapore Strait Times Index traded off only 0.5% (some had expected greater volatility – the Singapore dollar actually strengthened). When it came to the Presidential debate, I was at a loss to explain to my hosts what that was all about. Was it a game show? Was it reality TV? Was it serious? That last question was the most difficult to answer.

Prime Minister Lee, who was extraordinarily gracious, spoke to the group over lunch, readily acknowledging his commitment to “leadership renewal” whereby he would announce a new Cabinet next week with a set of younger ministers. The ruling party had only secured 60% of the vote during the last General Election in 2011, in large measure due to issues around an influx of foreign laborers, access to affordable healthcare and the aging population (more later), rising housing prices, inequitable distribution of wealth – many of the same issues “addressed” in some measure in the U.S. Presidential debate last week. Interestingly, well more than half the population of Singapore had not yet to be born at the time of the country’s independence in 1965, and with voting being compulsory, the eight smaller opposition parties thought that they would have a much greater voice coming out of this election. That was not to be.

Many expressed great relief with the outcome of the election, pointing to the turmoil that was witnessed in Hong Kong as smaller opposition groups also demanded greater representation there. While faced with many of the same issues in Hong Kong, notwithstanding the fact that China does not claim ownership of Singapore, the Prime Minister appears to have set an agenda to address many of these difficult issues.

As McKinsey & Company pointed out in a regional analysis of Asia recently, this part of the world is dealing with a set of very disruptive forces – all evident and playing themselves out in Singapore today: (i) high degree of urbanization, (ii) technological advancements creating new sets of winners and losers, (iii) aging population and the impact on economic productivity, and (iv) global interconnectedness and trade flows.

A number of the healthcare initiatives are striking and promise to keep Singapore on the leading edge of care. The new National Cancer Center to be completed in 2020 will address issues around cancer which claimed 30% of the 19,000 deaths in 2014 in Singapore. This new center is expected to be one of the leading Asian centers for cancer research and education, often provided in partnership with U.S. academic and medical centers. The new National Heart Center was opened in 2014 and by 2020 a major new 550-bed community hospital will open in collaboration with Singapore General Hospital (which today handles 2,500 patients per week). The Strait Times had a headline this weekend stating that the National Sciences Authority will now allow the importation of non-approved therapeutics on a “named patient” basis to ensure people are getting state-of-the-art care.

But much of the attention this weekend was on the Grand Prix, which initially was thought to be in jeopardy given the level of haze that had settled over the city. At this time of year, many of the plantations in Indonesia “slash and burn” their fields which caused smoke to drift east creating a sooty fog over the city-state. Thankfully, the rains earlier in the week moved the Pollutant Standards Index from the unhealthy to moderate range of 70 – 92 PSI. Evidently, prior to the wet weather, the readings eclipsed 200 PSI which caused race organizers to stock up on something called “protective respiratory masks.”

Singaopre Grand Prix 2015

Starting after the Singapore Summit this week is the TechVentures conference which was to bring together the entrepreneurial community across the region. Analysts estimate that there are 55,000 start-up’s in Singapore which employ at least one person, and that in 2014, 5,400 companies raised some amount of capital. The Asian Venture Capital Journal reported that $324 million of venture capital was invested in Singapore in 2014 (which is 10x that invested in Hong Kong), although other sources report that as much as $850 million (which would include the numerous government grant and loan programs) was invested in the start-up community in Singapore.

All of this activity must be paying off to some extent. RBC Wealth Management earlier this year announced that the Asia-Pacific region now has more millionaires than that of North America, furthering inflaming Candidate Trump (“make America great again…”). Evidently there are now 4.672 million Asian millionaires which share 28% of the $56.4 trillion of global wealth. Given the regional volatility, the report goes on to state that Asians keep 23% of their wealth in cash.

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London Calling – Part II

Having spent the past few days in London meeting with investors and entrepreneurs, it was impossible not to be drawn into the painfully tragic Syrian refugee debate, poignantly jarring as we struggled to look at the photo of the drowned little boy. Remarkably, in the aftermath of that photo, many European countries welcomed refugees – literally with open arms, in some cities hundreds of cars were driven to the Hungarian border to pick up as many Syrian families as they could carry.

Toward the end of my trip much of the narrative shifted to what the U.S. should be doing, what is our obligation, our responsibility? Many Londoners felt that the U.S. in a very real sense set in motion a chain of events last decade which resulted in the largest European refugee crisis since World War II. It is hard to refute that position.

Most notably though, was how (relatively) peaceful it was unfolding. Obviously the extraordinary hardships families suffered to get to Europe are unimaginable, but once in Europe, there were no large-scale riots, no reported lootings. Many of the commentators remarked that it is often the “best and the brightest” who are displaced and that no-one choses to put their families through such fateful journeys.

I was reminded of two things these past few days. One, while growing up in Hong Kong in the 1970’s, was the Vietnamese “boat people” crisis who were fleeing countries across Southeast Asia – often times capsizing in the South China Sea with horrifically similar outcomes. The other more pedestrian observation was that relatively easy actions – reasonable diet, clean water, basic healthcare – have outsized benefits. We all know that, of course, but to see 100,000’s of people without that drives home how privileged developed economies are with quality healthcare infrastructure.

Which brings me back to why I was there. Four years ago I visited Tech City UK, London’s concerted effort to build a vibrant tech ecosystem – “Silicon Roundabout.” The progress is impressive as it now supports 40,000 start-up’s across the UK with 74% of those companies outside of London (as one Sunday headline in The Independent proclaimed “The hipsters have gone national”). Of the 40 “unicorns” in Europe, 17 are in Britain with 13 of those in London. Impressively, the Government’s Seed Enterprise Investment Scheme has invested 280 million pounds in this initiative, which just year-to-date has attracted an additional 1 billion pounds of private capital – quite interesting leverage on government dollars.

In addition to the sheer breadth of new company formation, nearly as impressive was the scale that the break-out companies have been able to achieve. The “Tech Track 100” follows the fastest growing technology companies in the UK – in aggregate these companies employ over 13,000 people and had revenues of 2.4 billion pounds in 2014; 52 of them are in London. Most of these companies were in the e-commerce, media, telecom, IT consulting, gaming, travel and advertising sectors. While some of the entrepreneurs I met with talked about more complete, innovative end-to-end healthcare solutions, somewhat disappointing was to see the lack of healthcare companies on the list – there were only two. Coming in at #9 was Immunocore (cancer therapeutics) which actually had raised the most private capital (205 million pounds) of all the companies listed, and Exco InTouch at #73 which was developing a mobile platform to track clinical trial patients.

So where were all the hot healthcare tech companies? The lead editorial in Sunday’s Times was lauding the virtues of genetic engineering (“Smile! Genetic Engineering is Good For You”) so clearly there was plenty of awareness. Not to wade into the debate around socialized medicine, but it does appear that a more robust healthcare innovation ecosystem still needs to develop, notwithstanding some of the very pressing needs as evidenced by articles “ripped from the headlines” this past weekend….

  • Cancer Research UK published a report quite critical of the National Health System (NHS) lamenting the lack of adequate cancer testing, imaging and surveillance. Apparently there are only 9 CT and 7 MRI scanners per million Brits – Spain has twice as many.
  • The NHS has now proven that death rates in UK hospitals are at least 15% higher on the weekends, after studying 15 million hospital admissions in 2013-2014. This translated into 11,000 avoidable deaths in that time period. Evidently the best day to have an acute episode is on a Wednesday. The root cause of this seems to be that “senior doctors opt-out” of weekend work.
  • Somewhat in the face of this is the stated “ambitious” plan for round-the-clock care when the NHS is cutting 22 billion pounds of annual spending. This announcement generated a lot of negative press.
  • In line with that though, the Cancer Drugs Fund announced that it would stop reimbursing for 25 specific cancer treatments which will likely affect the 24,600 people who accessed cancer treatments through that program.
  • BUPA, one of the largest UK healthcare providers, announced that it was selling its homecare business which provides services to 30,000 people, generating nearly 400 million pounds in revenues (but it loses money). Clearly there is an opportunity for business model innovation to get that service to be profitable.
  • And with great excitement, researchers at King’s College in London announced the development of a new blood test for ageing that will predict dementia based on one’s “biological age.” Just do not go to the hospital over the weekend to take that test.
  • Lastly, researchers at Imperial College London announced a new mobile phone app that applies an electrical current to one’s head to reduce the nausea associated with sea sickness. Maybe this will be the third healthcare tech company to break the Tech Tracker 100. Better yet, maybe this app can alleviate the sickness experienced with extreme stock market volatility.

And that was just the lead stories in the last few days. Speaking of stock market volatility (and the crack down on Chinese corruption, the devalued Russian ruble, the precipitous decline in oil prices, regime changes in Africa, etc), high-end London real estate is now suffering; we learned this weekend that the number of transactions was down 23% last quarter over the same quarter in 2014.


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