4 – Pear Therapeutics Sold at Auction | Digital Therapeutics | An Uncertain Path Forward

Marcus: [00:00:00] All right. Back in the studio, episode four of health further. What’s up, Vic? How you doing? Excited to be back in the studio. Yeah, man. Me too. And, uh, this week we’re going to talk about pair therapeutics.

Vic: You know, it’s the first time that, uh, I feel like we actually have some investigative journalism going on here.

Yeah. I didn’t know that we had this.

Marcus: Well, this is a fascinating story. Because we’ve invested in and sold a company in the digital therapeutic space

Vic: to some of these players. And we know a lot of the players,

Marcus: right? So I think that was why this development last week, um, was so was the last week of this week, this week, this week.

Okay. Yeah. So that’s why this development was, was so striking and it’s just such a big numbers, right? Yeah. Big, big numbers. And, and also I think pair was the clear poster child leader for the digital therapeutic. Movement opportunity set. And so it’s very, very meaningful. It’s not like, you know, one of our companies that [00:01:00] was maybe smaller and looking

Vic: to them as how to do it, how to do it successfully.

Can I do it? Right. Yeah,

Marcus: correct. So, so, uh, this capitulation that we’re going to, we’re going to, we’re going to end with, uh, is. It’s, it’s a pretty major

Vic: story. I think the reason we’re talking about this week is they sold the assets out of bankruptcy this week. So, I mean, not to bury the lead, that’s, that’s the end of the story.

But the, but the run up to that, I think is pretty interesting and is. Is instructive for me as an investor. It’s instructive.

Marcus: So as, as VCs, we, it’s, it’s so funny whenever we hear about a company, it’s like, the first thing we do is we go to pitch book, right? Who else was in it? What was going on with evaluations?

Right. So I think, I always feel like that’s a very interesting, uh, Aspect of the way that we look at stories versus the way that other journalists might, might look at it.

Vic: Yeah. Well, if you don’t have a subscription, PitchBook is, is not inexpensive. So if you’re, if you’re in the business, it’s worth it. But if you’re not, [00:02:00] not everyone has access to that data.

Marcus: Let’s go ahead and start with, uh, this view of. The early capital stack into paratherapeutic. So seed investment happened in 2015 is actually when, when we started with Jennifer foundry, um, capital 5 million in, in the seed round post money value, 13 million. Wow. Back when, you know,

Vic: I mean, that’s a pretty healthy post money value for a, for a seed company then it got, I mean, more recently, the last couple of years it got higher, but in 15, I don’t remember a lot.

No, I don’t either. I don’t know 5am ventures. Um, but that seems like a healthy valuation.

Marcus: Yeah, it’s good valuation. Okay. 2016, they raise an A. So first of all, that’s very quick. Um, after a [00:03:00] $5 million round, you’re not, you’re not outta cash. So the fact that you’re able to then pull in 20 million Yeah. Right.

At a 32 million post money. So significant

Vic: three x step up. Yes. Right. And we know Arboreum, they’re, they’re a good firm. Yep, yep. It’s interesting that we invested in another digital therapeutic in 2016. Yes. Um, called AMB Tech. And it’s just interesting that we were, we were doing the, you know, it all rhymes of course, our post money value was 2 million, right?

So we’re maybe more conscious of valuations, but, but our breed is good firm. I

Marcus: mean, everyone has their own model, right? You know, uh, and then in 2017, a B round, I mean, look, it’s back to back to back. So every year in three years straight, we’ve, we’ve gone from 5 million to 20 million to now 50 million, uh, of capital coming in and it’s worth two 45.

In three years.

Vic: I mean, isn’t America great?

Marcus: All right. And, and, and now we’re getting strategics, right? So [00:04:00] Novartis is in, and I think we, we can just say, we, we invested in, um, Amblyotech, which was a digital therapeutic company targeting, uh, Yeah. Yeah. Ampliopia and sold that company to Novartis. So Novartis was had a digital therapeutic strategy.

They were, um, Novartis was the global

Vic: leader in digital therapeutics. Right? They really were focused. They had a CEO that wanted to move in that direction and they were putting a lot of effort into that. We, we were. We benefited from that. And I think pair benefited from that.

Marcus: Okay. So to continue on with the story, we’re going to go here to, uh, this press release, um, from Novartis.

Uh, it’s in the new section. So I assume it’s, it’s a, it’s a press release. Um, and it says Novartis and pair therapeutics to develop digital therapeutics for patients with schizophrenia and multiple sclerosis. So they’re going public with this partnership. They’ve, they’ve made a pretty significant investment.

Uh, in this company and it’s in a space that is not yet [00:05:00] coded, right? So there’s no CMS codes for this yet. There’s not a whole lot of clarity in 2018 from the FDA on this digital therapeutic, it’s, it’s generally pretty experimental. Yes. Um, and I, and probably for Novartis, the amount of capital they’re, they’re investing very small compared to, you know, the rest of their pipeline of, of, uh, more traditional therapeutics that they’re investing.

And they’re

Vic: global, right? This is from. Basel. Yeah, exactly. They are thinking about it. Certainly the U S is a big market, but they’re thinking about it globally and digital therapeutics and pair and amblyo tech. There was a lot of promise. There’s a, there is a lot of promise in that space. Okay. So they invested and immediately

Marcus: announced this partnership.

Yes. Um, and, and they’re, they’re talking about the, the, the target areas, right? Schizophrenia and multiple sclerosis. Okay, great. So 2019. So the year after that, that announcement, a C round 64 million comes in valuation. I mean, this valuation is just [00:06:00] getting bumped up. So now we’re at four 94, but basically half a billion dollars.

Valuation. Um,

Vic: I don’t know who Teki is. I assume they’re another strategic guess Teek. I think probably Teek. Yeah.

Marcus: Um, but that, that’s the lead investor in the C round. Mm-Hmm. , um, fair amount of capital. And, you know, this is, this is one of those, it’s one of those venture private market experiences whereby.

The, the social proof of the investors kind of leads to the next round. Right. So, you know, 5. 00 AM to, um, Arboretum to Novartis to now Temasek, right. It’s like, if these guys are in, you know,

Vic: Big global markets, they have a secret sauce. It’s going to be wonderful treating really problematic disease States.

And let’s go half a billion dollars.

Marcus: Yeah. And this happens all the time and similar to the way in like big corporate America, the old saying of, you know, no one ever gets fired for, um, choosing IBM, [00:07:00] you know, that old saying, it’s not that dissimilar in our world. Is it right. You know, isn’t, isn’t it true that when you’re talking to your alpaca or whatever, they’re like, You get a lot of social proof.

If you’ve got some blue chip fund or some corporate.

Vic: Yeah. Brand. Strategic’s um, whether they are brilliant or not brilliant, they bring a lot of credibility, a lot of clout, especially Novartis that, that was very active in the space. And, and I think from their point of view, it’s interesting. I think they, I think they look at it as a fairly small strategic investment where they’ll learn something.

And yet a lot of the VC and our, our limited partners and other VCs would look at it as a stamp of approval. So you have this interesting dichotomy of the outside views of strategic as confirmatory, and yet a lot of times they are trying to learn.

Marcus: I mean, let’s be honest. Had we been. In 5 a. m. shoes, having [00:08:00] made that seed investment, we would look like geniuses

Vic: 5 a.

m.

Marcus: I

Vic: mean, independent of how it ended. Five AM made a ton of money and their LPs

Marcus: are very happy. It’s amazing. Right. It’s amazing. So, so you, you have to sort of just acknowledge this dynamic in the venture world that shows itself over and over and over again. Um, and, and I, I believe we’re seeing it at play here.

Vic: Yeah. And there’s sort of two, there’s two strategies for a seed investor, right? Like you can either build up what it really is a product. To be sold to a strategic, uh, large company for a hundred million, 150 million. Um, that was our strategy with Amblyotech and, and we were able to do that with Novartis, or you can try to launch a company, let other really big partners take it and run with it and, you know, birth a new unicorn and.

I think it’s fair to say that a jumpstart, we think the risk of that is the risk return is not [00:09:00] right, but there are a lot of VC funds that do that and do that. Well, I think it’s challenging in healthcare.

Marcus: Agreed. Okay. Let’s keep moving because now, now, now the plot starts to thicken after four rounds over five years.

Uh, amounting to 140 million in capital, basically. Right. Yeah. Yeah, yeah, about, yeah, about 140 million in capital. Okay. So then January, 2021, this is from a Moby health news. Novartis trial shows no benefits from pairs, schizophrenia app as CEO sites, trial irregularities.

Vic: Uh, like, you know, record scratch, 150 billion, give or take 10, half a billion in valuation, I love the, uh, the sub tagline, this won’t impact the rollout at all.

Right.

Marcus: Yeah. Um, I mean, [00:10:00] this is, look, this is not uncommon in the world of, uh, drug discovery, um, and development. Um, but this was the, this was the key product that they were exploring in their partnership with Novartis. So it’s, it’s, it’s noteworthy. That it showed no benefits. I mean, no benefits.

Vic: I mean, no benefits for the patients that were in the trial.

And as we both know, as probably most listeners know, you select the patients for the trial that you think are most likely to get the most benefit. That’s right. And they were not correct on that. Maybe it would be beneficial in some other population set, but probably not as valuable patients.

Marcus: Okay. So this is, as you said, the record scratch.

So now let’s go to the next funding. So in 2021,

Vic: I think

Marcus: it’s March, two months later. Yeah. [00:11:00] A D round of capital. And we also need to say, where are we now? So every round up until now was pre pandemic. We’re now in the pandemic. We’re in 2021 and we’re in the crazy times, right? Where all the valuations were two X, what they were supposed to be.

Vic: Yeah. Right. And digital anything is on fire, right? Wonderful, exciting. Maybe it doesn’t work, but, but we still need digital stuff. Right.

Marcus: Right. And we’ve got all this outsider money in the venture space. And SoftBank

Vic: is the poster child

Marcus: for SoftBank and Tiger, right? I mean, those are the two big names.

Whenever we talk about the, the crazy 20, 20 ones, right? So D round 132 million of capital. So equal to all the capital previously invested, invested in this D round. At an undisclosed post money value, two months after the trial for schizophrenia showed [00:12:00] absolutely no benefits, benefits with their strategic partner.

Yes. So I don’t even know what to say about that. Um, except it’s. Representative of the kinds of deals and the investments that were being made during that window of time. And I think it’s why so many people believe that the 2021 vintage is going to be one of the worst of the last 25 years of venture capital.

I mean, yeah, we’re going to, we’re going to get to why everything I’m saying right now is wrong in this case, but I think just looking at, at this particular investment at

Vic: this point. Not knowing the end of the story, you would say SoftBank is a momentum investor. It’s an exciting digital leads, anything time, and they’re trying to deploy money because they have whatever they have, several billion dollars to deploy quickly.

And they don’t care about the terms or even what the company [00:13:00] does.

Marcus: Right. Okay. So, so up until

Vic: this point, Novartis has, it’s interesting that it’s undisclosed. PitchBook doesn’t usually leave it as undisclosed. I don’t really understand why.

Marcus: Well, it’s undisclosed if it’s undisclosed. Right. So, you know, usually post money values are shared in press releases and things like that, when everyone wants everyone to know sort of what the new value is.

You’re trying to kind of signal something. Yeah. So it.

Vic: I would assume it means it wasn’t a significant up round, probably, probably,

Marcus: but, but I think it also, but I think it also leads to where things go by the end of this year, by the end of 2021 for this company. So the next. Shoot a drop is November, the end of November, uh, 2021, it was on the 14th.

Um, CMS repealed a final rule on its Medicare coverage of initiative technology and definition of reasonable and necessary. Rule around digital therapeutics, [00:14:00] which, which didn’t mean they were never going to do anything around digital therapeutics, but what it meant was we’re not ready yet. And it means there’s a whole lot of uncertainty around when we’re going to be ready.

Right. Yeah.

Vic: And, and other payers certainly are not going to be likely to reimburse it. But if CMS is. Repealing it and holding off and doing more study and figuring out things over the next several years, that’s a really high hill to climb with other payers. Yep. Um, I think we might want to just touch on the FDA positioning around.

Um, digital therapies generally

Marcus: to the degree that we can definitively do that, because as we were kind of trying to research it, I think it was pretty vague and unclear, but let’s, I think you’re right. We do need to dig into it. So why don’t you start now? I’ll add some color based on what I interpreted from what I read.

Vic: Yeah, so it’s, it’s my understanding. I called our friend, [00:15:00] Emily has been a guest on here and tried to help her tutor me on it. I think the FDA has decided that they do not have full authorization to, to rule on software based digital therapies. And they’ve asked Congress to give them more clarity either.

Yes, you do have authority. And this is. A new mandate that we’re granting you, or no, you don’t have authority. And then position some other agency to have authority. They, they really are. Their mandate is to regulate drugs, uh, pharmaceutical, you know, drugs or devices, and so there are some digital therapies that have a hardware component.

Most of pairs did not. Um, and so if it’s software only, they [00:16:00] have stated and ask Congress to give them clarity that they, they don’t believe they have authority to regulate this. Um, they have established a track record of evaluating, um, clinical results, clinical studies. And determining if the software application is safe and they, if it is safe, they will clear it for use in the public.

Yeah. So the, so the word clear is the keyword is the keyword there. So when the FDA looks at. A digital therapy from, to my knowledge, they have never approved it for use in a healthcare setting when they approve something like a new drug or a device CMS is traditionally, they always reimburse for that.

There was, uh, some question about Alzheimer’s drug [00:17:00] recently. That was the first time CNS, CMS did not fully reimburse. But every other drug and device in the history of FDA, once the FDA approved it, the federal government, US federal government started paying for it in Medicaid, Medicare, and then pretty quickly, all the other payers follow suit.

And when they clear something that does not have the same weight, And as we’re seeing here, the reason I wanted to go there, CMS is saying that. They’re not going to reimburse it, at least right now.

Marcus: So my interpretation. So I, as I was searching about this, I saw different headlines, mostly saying clear, but I did see a couple of cases in which the language used was the FDA approved.

The digital therapeutic and what that alongside of this sort of CMS repeal of this final rule leads me to believe is that in this new category, [00:18:00] which is an innovative technology, it’s not clear who’s the lead dog here, and there’s not enough alignment to have the FDA in a position where their approval actually equals.

CMS coding, right? Whereas, you know, there’s so much prior work and precedent in general, small molecule drug development that once the FDA approves it, it’s got this clear path to get a code. Yeah. I think CMS knows its role. Right. Exactly. I think in this case, this is so new to everything. Right. And, and, and actually it’s one of the things that we, I’m not sure whether or not we’re going to reference the actual article, but But one of the things that was talked about is the difficulties of how digital therapeutics will actually be integrated into the healthcare services workflow today.

And that being a concern, right? As CMS is trying to lower the cost of care, do they actually want to, for the purposes of something that might be incrementally better, you know, isn’t proven yet to [00:19:00] fully replace the existing slate of therapeutics that we have in the market. Do we want to actually increase difficulty, the increased cost?

Of delivery by this supposedly less expensive digital means.

Vic: Yeah, I think no. So it’s not clear who is the lead dog. I think that’s a good way to say it. And furthermore, I think both agencies are backing away and don’t want to lead. And so you end up with kind of a, a very challenging regulatory environment because there is no one agency that will determine in a yes or no way, like with this is going to work and we want the American people to have access to it.

The FDA will say this is safe, but that is, that means they’re, you’re allowed to sell it. But it’s not clear that anyone will reimburse it. So you end up with a cash pay. Yeah.

Marcus: That’s right. That’s right. [00:20:00] Okay.

Vic: So, so the dates are important. This is November, 2021. Yes. And what’s the net? What’s the, I mean, pretty quickly thereafter.

Marcus: Yeah. So we’re going to, we’re going to move a couple of weeks ahead. December 6th. So November 14th was when, uh, November 14th was when CMS repealed the rule. Okay. Okay. December 3rd, we have this press release. Okay. Saying that pair is going public via spac. The ticker will start on December 6th on the nasdaq, and they’re, they’re, uh, they’re combining with thimble point, uh, acquisition company.

Yeah. That’s just a SPAC share to the spac. Yeah, right. Yeah. To, to to do the spac.

Vic: Yeah. For 1.6 billion valuation.

Marcus: Yes. So, so we didn’t have a disclosure on what the valuation was in the SoftBank round, but now we know. A year later, because that was, that was, no, that was in March. So nine months later, the valuation is now 1.

6 billion.

Vic: [00:21:00] Yes. And so I would assume that the soft bank round was less.

Marcus: You was one would

Vic: assume. And so, um, I think it’s fair to say that we’re showing publicly available information. Yeah. So everything we’re showing, everything we’re showing was known on December 6th. And, you know, the, the IP, uh, the SPAC IPO happened, people bought it, and there’s a lot of really exciting sales information, such as the FDA has cleared three of pairs, therapeutics, and To be used in the U S and as we just talked about, that may not be that valuable, it’s true, but I’m not sure that many people buying the SPAC understood the difference being cleared and approved.

Right. And so you might [00:22:00] say, well, these are investors. They’re trying to take it public and they’re going to keep working on this. And they need a better source of financing and everyone’s in together. And so, uh, you know, let’s, let’s just see how it pans out.

Marcus: Right.

Vic: Except that not everyone stayed in the SPAC.

Marcus: Yes.

Vic: And so that’s the really interesting piece is again, with PitchBook, we can see.

Marcus: Right. So reverse merger completed December 3rd and everyone gets out.

Vic: Everyone sold. Everyone gets out some, some, so Novartis sold in full. There’s a list of like 21 people. So I couldn’t get it all on this image. Some groups like SoftBank sold.

It just says so partial. And I think what that means is the investment [00:23:00] bankers and others. Like I just said, to SoftBank, you can’t, you can’t sell the whole thing, the whole thing. You’ve been in nine months, right? As you said, 5AM Ventures sold. And and God bless them, right? They did well. It’s a huge, I can’t, I mean, we could probably calculate it.

It’s a hundred X. It’s a big, big win. Yeah. And, you know, I’m a vc so I’m biased, but the early vc, I feel like they, they’re just trying to get something going. Mm-Hmm. , I’m not, I mean, I have no information, but I think SoftBank may have had this well as a possible, as a possible pathway. I,

Marcus: I, I don’t think there’s any question about that.

We have to remember that 2021 was really just SPAC fever. Yeah. Right. Yeah. Nonstop. Talk about the SPACs. Everyone was, was doing SPACs. People were super excited about SPACs and, and it was working. It was working, people were, how many SPACs did Chamath launch? I mean, they were, they, they had like letters, right?

It was [00:24:00] like A, B, C,

Vic: D, E. Because it’s Chamath, he did 26 SPACs. For the alphabet. For the alphabet. He didn’t get them all out because the music stopped before he got them all out. But he got, I don’t know, 10 or something out. And I think, um, they were working in the sense that the public was buying them.

Right. That’s the end of the story. Like that, it works. If, if the public buys it. The rest of the story doesn’t matter. And the argument

Marcus: was, Oh, we need to stop, you know, being beholden, uh, beholden to, to Goldman Sachs and these other, you know, super large IBs who are, you know, grifting and taking all of this, this money out of the process and they’re gatekeepers to the public market and we need to let these things.

Yeah, actually doing research on it. Uh, I mean, I mean, I mean, but, but like the idea that this company pair that had. A clinical trial that showed zero effectiveness. Yes. [00:25:00] And less than a month before the SPAC had CMS say, we got no clarity at all on when we’re ever going to reimburse this form of therapeutic.

Vic: The entire class of therapeutics

Marcus: of

Vic: which they are the

Marcus: leading one. This was able to get out into the market via SPAC for 1. And

Vic: all those people sold it’s just, and at some level it’s like, uh, buyer beware, like, like, okay. If, if you don’t do your own due diligence, you don’t understand. But at another level, like maybe there’s a reason that big investment banks kind of gate things more carefully.

It’s sort of both

Marcus: then like, look, think about the other side of this, right? This thing goes back, it goes out. And all the Robin hood, you know, people are buying this thing up. They don’t know anything about healthcare at all. They’re not tracking any [00:26:00] of this storyline that we just sort of ran through. I mean, yeah, it’s a decent amount

Vic: of work to even dig all this up.

And then to try to understand approve versus cleared is pretty nuanced.

Marcus: And isn’t this the kind of like bag holding behavior that everyone keeps saying crypto has been doing, you know, left and right.

Vic: Yeah. And, and this is. The same.

Marcus: Okay. I just, I just wanted to make sure we were on the same page about that.

Okay, great. Um, there, there’s just, there’s a little bit more to talk about here. So February of 2022. So this thing, this thing is out in

Vic: December. A lot of the people are

Marcus: gone.

Vic: Yeah. But Pear’s still out there though. But Pear’s still out there and the management’s still there and they’re trying to figure it out,

Marcus: right.

And, um, we have this article here saying CMS code seen as a major step towards reimbursement for digital therapeutics. Uh, what, what’s, what’s, what’s sort of the, the, the, the deal here, right? We, we have a pics code [00:27:00] that’s, you know,

Vic: this, this is, this two, this is the classic, um, pr, PR spin thing, right? Like there’s a lot of, if we could get a code that would be really valuable.

That’s right. In getting adoption. That’s right. And they say something like that multiple times and they talk a reporter into running the story. And it’s accurate, but, but not really meaningful. I mean, CMS already said pretty clearly, they weren’t going to rule on it. They could make a code, but

Marcus: they have not made a code.

Can I just drop to the, this brief here has a couple of bullet points and can I just drop to the, to this, this third one here real quick, just to read the revenue, because like. I’ve got portfolio companies that are tracking at this level. So, you know, pair, which went public in December through a SPAC merger, hasn’t yet reported as 2021 [00:28:00] earnings in January, the company shared it had met this January of 2022.

Right. The company shared it had met its target for the year to have 14, 000 prescriptions for its products. The company initially set guidance for 4 million in revenue in 2021, and hopes to increase that number to 22 million in 2022. A company targeting 4 million of revenue. What’s

Vic: that revenue

Marcus: multiple?

I mean,

Vic: I don’t know. 4 million, uh, 1. 6 billion divided by 4 million is a big ass fucking number. And also they can’t tell the revenue for last year. Like, okay, maybe earnings aren’t ready yet, but, but you ought to have some visibility to the revenue. And it’s only 4 million. How can you not tell this? Right?

Well, that was the guidance. Yeah. They’re not saying they actually had four, 4 million. Okay. So they’re hoping to increase to 22 million, still not [00:29:00] worth 1. 6 billion. It’s an okay growth rate. We have companies growing faster than that and we’re not worth a billion. Dude, the EPS on

Marcus: this is just like, it’s non existent.

There is

Vic: no, it’s EPS. So, so to, we don’t have a slide for it, but they then did two rounds of layoffs Yep. In 22, which was customary. Yeah. Everyone, everyone was, everyone market crashed. The feds pulling back. Yeah. Um, the Fed really started ramping up in the summer. Yep. A lot of people did two rounds of layoffs, um, but then wasn’t enough.

Marcus: Yeah. There was never gonna be enough. Never gonna be enough so, right. So the final shoe to drop, um, I, I believe the story was broken by, um, by, by stat news, but we’re, you know, we’re, we’re Axios fans over here. So, so we’ve got the Axios. Story up and digital therapeutics company pair [00:30:00] therapeutics was sold for parts to four companies for a combined 6.

05 million in an auction last week. That is less than the seed. Stage valuation post money it’s less than the pre money

Vic: 10 years ago, or I don’t know years ago and, and they, they sold it for the IP, the IP and the IP was worth 6 million, dude, like, like barely, I mean, I’m not sure that that even is worth it.

Marcus: So, I mean, what, there’s more to talk about here on this. On this bankruptcy and the value of these parts. What does this mean for digital therapeutics? I mean, if the biggest name in the space. Cells for parts for less than the pre money value of the [00:31:00] seed stage investment. What does that say for the entire category?

I mean, well, I mean, can we isolate this to this particular company was just a sham. I mean, I don’t know these people, but I think as healthcare investors, This, this is, this is a legitimate question. Is this category done? Don’t ever touch it. Or did this company do absolutely no favors to every good founder in this space that is actually trying to develop real digital therapeutics that we should be appropriately valuing, given the risk, given the fact that there are no codes in the space, given the fact that trials are going to be very, very hard, given the unknowns between who is the lead dog in the FDA or the CMS, like, how are we supposed to read into this?

Vic: I mean, I’m looking at a couple of digital therapy deals right now, and I am, [00:32:00] I’m a believer that pair is a terrible example and a huge black eye on digital therapies. And it can be done in a much better way. And so the, the areas to stay away from that Jumpstart Capital certainly staying away from is I don’t care about an adjunct extra, let me help you stay compliant on your medication.

Let me coach you through this process, but you still have to go to your doctor too. I said, if it’s extra and going to help me, my doctor, my nurse and my caregivers can do that. And if it is really helpful, then maybe it is, it is somehow bundled in a value based care thing, but, but it’s not a carve off separate company, its own thing.

It’s not its own thing. Right. It’s not its own thing. Right. It’s a, it’s a feature. It’s a feature that’s [00:33:00] part of the care delivery model. Correct. And the doctor can decide, or the caregiver with the right licensor can decide, but we don’t need FDA to allow it because the docs will, will manage it. So I’m interested in, I wouldn’t even call that a digital therapeutic.

I think that’s, I wouldn’t either. I think that’s a digital health coaching app. Yeah. And there’s lots of those. It’s a compliment. There’s, there’s a thousand things on both of our app stills. I, I have a bunch installed, but they don’t try to say they’re digital therapy. It’s a digital health app, and there’s nothing wrong with that.

It’s just you get a higher evaluation multiple if you say it’s a therapy, right. It’s not a fucking therapy if it doesn’t have therapeutic benefit. And so I think there are digital therapies, but they must replace. Another therapy. So you do not have to take as many, as higher dose of the drug, or you don’t have to take a drug at all, right?

Or I [00:34:00] don’t need a medical procedure because I’m doing this thing. If it is actually replacing some other interaction with the healthcare system, either a drug or a procedure, then I would give it the monocular digital therapy, but then that’s not enough. I think it has to be integrated into the existing workflow.

And therein lies the problem. And, and these coastal kind of, uh, hype go go things typically don’t take the time to, to understand the existing workflows, but I think there are incredible opportunities to work with physicians, work with health systems, work with payers. What do they need help with? Where are there existing therapies that are not really helping patients?

And some of those can be delivered digitally. I think a lot about how do I access the patient’s body? The [00:35:00] reason we did Amblyotech It was an eye care thing and the eyes through video and glasses, you can access, literally access the eye. You need to figure out how are you interacting, how are you interfacing with the human body, if you’re going to have it a digital, I mean, a therapeutic effect.

Marcus: Okay. So, so yes, to everything you said, and also we were dealing with something in the vision care space. Which

Vic: is, is sort

Marcus: of its own vision

Vic: is a fun place to play because it’s a very efficient. The docs are aligned. You can, we did. And one can talk to ophthalmologists and other eye care specialists and integrate with what they need help with.

Marcus: Yes. There are massive, massive, Challenges to this, to this space based on the lack of regulatory clarity, especially in our government today. Right. We, we, we spent a lot of time in the last show talking about the debt ceiling and our, you know, and a week

Vic: later, nothing’s happened. [00:36:00]

Marcus: Look, the TLDR of, of our view of the government, which is most people’s view of the government is.

It’s unbelievably inefficient right now, like, and it’s already inefficient by design, but now it’s inefficient because of, you know, bad behavior and, you know, an unwillingness to, to collaborate, right? So, so if FDA and CMS are not taking advantage of something like the Chevron deference doctrine and are saying, look, no, we, we, we don’t have enough clarity.

We need Congress to step in. I mean, this could be 10 plus years and oh, by the way, I think AI is a much bigger issue that they need to kind of get their act around their act together around now. So I just think this digital therapeutic thing is, look, when we invested in Emily attack, it was much less fraught now, given all given this whole pair situation is a huge

Vic: black mark.

Marcus: This, this is, this is going to be a problem. Yeah, this is going to be a problem. Yeah.

Vic: I agree with that, and I’m an optimist, right? So [00:37:00] I will say that if you are aligned with the healthcare providers and they are helping design how this tool will be used in treating patients and they, they want it, and it has a, uh, measurable therapeutic benefit that replaces some other, maybe another treatment has side effects.

That’s an easier adoption curve.

Marcus: And that is no easy feat

Vic: that’s really

Marcus: hard.

Vic: That’s

Marcus: really hard. And that’s actually a really great segue into our second segment. So let’s, let’s stop there because this has been a good breakdown of what’s happened with paratherapeutics. Um, let’s stop there and let’s go to, uh, a quick commercial for, um, our precede fund here at jumpstart health investors, jumpstart foundry.

Vic: I want to take a minute to talk about our investment vehicle, Jumpstart Foundry.

It is the product that Marcus and I put together first. It [00:38:00] invests in pre seeds companies at huge scale, 30, 40, 50 assets a year. Every year, Jumpstart Foundry invests in across the U. S., the best and brightest entrepreneurs that are really making a difference. making something better in health care. If you listen to this podcast, you hear all the challenges, everything we’re facing in health care.

Bottom line is we spend 4 trillion a year and we don’t get great outcomes. Jumpstart Foundry allows individuals for a very small minimum, 25k, you can come in and get to deploy that capital across the entire portfolio. You get immediate justification. There are no management fees, super easy to get involved and really make a difference and have an impact on learn more at www.

jsf. co. That’s Jumpstart Foundry. Thanks for listening. Now back to the show.

Marcus: All right, we’re back and, uh, let’s go back to the segue. So you were [00:39:00] saying, uh, in order for a digital therapeutic to work. You need to do it. You need to develop it in concert with the healthcare provider and yada, yada, yada, and on and on and on. And like, as I’m listening to that, I was like, dude, that’s like one of the hardest things in the world to do.

Like you’re like walking a tightrope between two buildings trying to get that done. Right. And that’s a pretty good segue into talking about Andreessen Horowitz. Um, uh, letter, they, they write these letters, you know, whenever they’re, they’re like kind of manifestos or kind of calls to action. Um, you know, it, it started, I mean,

Vic: Mark Andreessen’s first one started the whole company.

Yeah, yeah, yeah. Software is eating the world. Right. Right. And he had a lot of success for that. Yeah. He was, so they keep going. Right. They came out with this, Hey tech, it’s time to build a healthcare, sort of a call to arms to the technology. Innovator community come, come work in healthcare. And I sort of am [00:40:00] of two minds of this.

And one, I wanted to amplify it. And I love that, that they’re using their platform to encourage the best software engineers, the best innovators across the planet. I mean, I love our community. Thanks for listening. They have a bigger community right now. No question. And it’s great that they’re saying, come make things better in healthcare.

So that is wonderful. And hopefully some people will do it, but then the rest of the, the piece, I think it’s kind of tone deaf. It’s, it’s what you would say if you were sitting in Silicon Valley as a, you know, multi billion dollar fund.

Marcus: It only had one goal. Which was my problem with it, which was its goal was to encourage tech people to enter into healthcare.

And that’s great. You know, we do need more and more, uh, citizens, you know, look, we need more of everybody being interested in working in healthcare.

Vic: It’s a huge societal [00:41:00] problem and it needs a lot of work.

Marcus: Yes. So yes, I, I love the fact that they’re using their, their platform now. Look, this is a capitalist, uh, platform.

Environment. They are venture capitalists. They’re self interested. They’ve just, they’ve decided they want to make a big bet in healthcare. That’s been clear for a while. So their self interest is they want more tech talent to, to get into healthcare because these are their people. They’re tech people, you know, Andrews and Horowitz.

Right. Um, I think there were, there were a couple of areas in this call to action that just felt very, very tone deaf to me. Um, or maybe tone deaf is not really the right word, but. Um, mis misleading, if you really understand how healthcare works, right? Yeah. Um, I don’t want to go in any particular order, but since it’s on the screen, the first one that jumps out at me is this bottom sentence, uh, on the screen right now.

Um, so I’ll just read the sentence. It says the most impactful companies are built [00:42:00] at the frontier and healthcare is the next frontier. Okay. Agree with that. Yeah. It’s time to put our tech skills to work. The mother of all markets is ripe for disruption. Yeah. No, it’s not,

Vic: that’s not right for disruption, right?

And I’m not sure we want to disrupt an OR where people are being operated on. It’s not, it’s not right for that. No. And even if it was, I’m not sure that’s what we want to do.

Marcus: Right. Yeah. So, so to me, this begins. Yeah, that’s, that’s

Vic: the

Marcus: start of, yeah, that, that, that’s the start of the end. Because they’ve, it’s funny.

They’re like, they, they have the senses and they call it out here. Cause it’s, it’s an important, you know, sentence. Right. And then it kind of go into the whole, like, but healthcare is hard. And this

Vic: is my favorite line. Healthcare is undoubtedly intimidating, but we’ve learned it. And so can you, that is not.

Accurate. And that like, um, it’s just, uh, approaching, um, incompetence, but [00:43:00] how, how cavalier it is to say like, we have this totally dialed in. We’re done. We don’t learn anymore. We’ve learned it all. I’ve been investing in healthcare for 23 years and I learned stuff today. I mean, it’s, it’s the purpose of the show is so that we, you and I can learn.

That’s like, come on, man. And the more I learn, the more I realize how I have to learn. And so it’s just, it’s just arrogant and not right. It’s not, then they’re, they’re implying, like, if you, um, come to one of our meetups or you listen to our podcast, you can learn it too. And you can figure out a niche in healthcare.

I was just talking about working with clinicians around a particular use case and figuring out a digital solution. We invest in teams of people that do that all the time, but it’s hard and complex and you need to find a particular niche where you can get an advantage.

Marcus: So then, then they go into this, you know, bit about.

The scale [00:44:00] to say, but of course the massive scale of the market is a good thing. The United States healthcare market is five times the size of the global advertising market, which the, in which the majority of the major tech companies operate. The American healthcare market could support dozens of fangs.

Facebook, Amazon, Apple, Netflix, Google scale companies. But today only one exists United health group. So again, this is just a really very, very misleading thing. It doesn’t say anything about the fractured nature of this market. Even when you’re talking about United health group, it’s a false equivalent to compare it to, to Facebook or Amazon or Apple.

If you’re taught, like United health group does not have the market dominance that any of those companies have in their respective. Categories. And that’s by design that’s by regulatory design, they wouldn’t be allowed to that’s by regulatory design. Like, so again, this is just another kind of, yes, the scale of United health group is [00:45:00] significant, but you have to, that’s not, again, it, it just lacks the nuance, but that’s

Vic: right.

But not important to this discussion.

Marcus: That’s that’s right. That’s right. Then, then the next, the next paragraph is another one. I love second. We turned to the concern that healthcare is a high, first of all, this whole thing is like It’s maybe fits on two pages. Yeah. I mean, I I’m all for brevity, but like healthcare, it’s like, it’s, it’s just not anyway, so second, we turn to the concern that healthcare is a highly regulated industry.

This is indeed true, but many of the most iconic companies of our time, Lyft, Airbnb have been built in complex regulated markets. Furthermore, those that were built in unregulated markets, Google meta, Amazon have all come to face intense regulatory scrutiny and pressure. Eventually regulation seems to be either an input to, or a result of all great companies.

This, this is not in any way, shape, or form. Relative [00:46:00] that’s the level. That’s what I meant to the level of regulation in health

Vic: care.

Marcus: It’s not right. What would have been what would have been better would have would have been to say talk about the regulation in a in an environment like the, the, um, the airline industry.

Right. You need to talk about something where lives are on the line at scale. Lives are not on the line at scale in e commerce lives are not on the line at scale in advertising, right? There, you know, on the line at, at, at, in, in the hotel

Vic: industry, like they’re not at least FinTech. I mean, like FinTech is where a lot of people go because it has been, they have, they have made it somewhat deregulated.

Uh, but I agree the airline industry is, is better. I think it’s actually a little bit more educational, but less of a, of a good bullet point to say, to compare like eye care and plastic surgery to other parts of [00:47:00] healthcare and point out that in the 4 trillion market, there are some areas that are less regular than others.

And, you know, certainly the back office administrative stuff, you know, Is they get to eventually there are parts in health care where you could enter and really make it a big impact But not that’s not the right point.

Marcus: Yeah. And then, and then again, false equivalence third. And finally, we agree that healthcare is complex, but so are most markets, whether it’s the hotel industry, taxi industry, or the digital advertising industry, what makes healthcare feel even more complex is at scale, which we’ve established as a good thing.

I mean, again, it’s just false equivalence, false equivalent. I really, I really wish they didn’t even try to relate healthcare to these other tech companies. Like I know why they’re trying to do that, but it doesn’t work. It doesn’t actually play out that way. You know what they should have done was said, okay, how many successful IPOs have there been in, in, [00:48:00] in healthcare, you know, relative to the tech IPOs.

I mean, it’s going to be a super small fraction, but that’s not the kind of companies that we are building in healthcare. We’re building companies that are going to get tucked into, you know, these large platforms.

Vic: And it’s because of the regulatory environment that is. The better risk return profile.

Marcus: Yeah.

And okay. They go IPO for a second, like Oak street, and then they get bought up by CVS. I mean, you know, come on, like, what are we really talking about here? This, this is not so that then, then they get to a part where, where I start to agree with them again, which is why you should come to healthcare, which is more just the ethos of the work that we’re doing here.

Right. I mean, this is meaningful work. I was talking to, um, I was talking to somebody earlier today about why I got into healthcare from my, you know, technology background, which is And I used to do a bunch of digital marketing stuff. And by the end, it was so vapid and soul sucking because everything was talking about people from the perspective of converting them.[00:49:00]

It was just awful. Like you just felt everything was like pixeling people and driving them to convert to things and taking advantage of them. And how, how can I get more impressions in front of them? And it’s just awful. Whereas in healthcare, even with all of the nasty regulatory, you know, Barriers that we have to deal with at the end of the day, the work we’re doing is good work.

This is work that is, you know, helping our society, helping families, helping individuals. And that’s, that feels good. It feels good to work in this industry.

Vic: Yeah. It’s hard to build a successful healthcare company without also really helping people live better lives. Yeah. And there’s a reason that Jumpstart’s mission, not for either our funds, but at the holding up level is improve health for all.

It’s not how to have the highest internal rate of return, to get the most financial return. It’s improve health for all people. And I believe, I think we believe that in doing so, we end up having a [00:50:00] great financial return, right? And that’s, what’s wonderful about healthcare is it’s, it’s, You get to do both end, right?

Like whether you want to really change the world for the better or make a huge pile of money, or you want to do both of those things, either way, healthcare has a place for you and they could have said, they do say that, but they say that after they say a bunch of things that are misleading.

Marcus: Yeah. And, and one thing I really wish they would have talked about that they completely missed are here are the players.

Here’s who you will have to sell into. Cause guess what? Generally speaking, it ain’t the patient. Right. Um, they completely avoided talking about that.

Vic: I think They don’t understand. I’m not sure they understand that.

Marcus: No. Come on. They, I mean, I, I, I will give them the, the benefit of the doubt that they, that they know you’re selling into payers or you’re selling into, you know, hospital systems or you’re selling into surgery centers or whatever.

They know that, but the fact that they’re not like calling [00:51:00] out the fact that you’re not, you’re generally not selling into the patient in this industry and that these are. Really, really entrenched markets and that these people have spent, you know, if you’re talking about on the clinical side, you’re talking about people who have spent, you know, 10, 12 plus years in school, still continuing to go to school, you know, getting their continuing education credits.

Um, and they’re not like techies. Right. They, you know, in fact, they have, you know, on the whole, there’s a bit of a disdain for technology, right? So it’s like, this thing reads like, we’re waiting for you to bring your beautiful tech to this, to this awful world that, you know, and it’s like, that’s not how people in healthcare think about technology at all.

That’s right.

Vic: Yeah. And I, I went and looked at their last 10 investments. And the reason I question how well they understand that point is seven or eight of them are selling to non [00:52:00] healthcare groups, right? So they’re selling to patients to lose weight, or they’re selling to other entrepreneurs to build stuff, but we’re making money selling picks and shovels.

Or, you know, there are a couple that are selling, uh, physician practice groups. We talked last week about a AI based documentation thing. They have one of those. And so it’s not that they don’t have anything selling to health systems and payers. Many of them are direct consumer products or selling to other entrepreneurs.

And there’s nothing wrong with that. But, but that is a pretty niche part of the market.

Marcus: Yeah. It’s yeah. It doesn’t, it doesn’t align very well with your constant points about the 4 trillion and like the scale and the impact and all that kind of stuff. Yeah. All right. That’s right. Well, I, I, I don’t know if there’s much more to say about this again.

You know, thank you. A 16 Z for writing something that’s going to be read by many more people than we’ll hear this podcast. Um, and that’s good

Vic: to come on [00:53:00] and talk about it. We’re happy to have them.

Marcus: Yeah. Yeah. That, that is a plus. That is a good thing. Um, and you know, conversely, it’s, it’s not, it’s not completely.

Honest, I would, I would say it’s not completely honest there. There’s multiple false equivalents here. I wish they didn’t even feel the need to make those false equivalents. Like people in technology are also patients. Let you know that I think that was a total missed opportunity is to speak to the, speak to the part of technologists that actually are patients.

Vic: Yeah. They’re patients. They have. Parents need care. They have children that need care. You could, you could really pull on the purpose side. Yes. Big time. But what they didn’t want to do, I think, in my interpretation is I think you have to come to middle America. You have to sit with health systems. You have to talk to payers.

You have to actually understand how [00:54:00] is the work done in the facilities. This is not Vic Cadillac, this is Steve Blank, right? Like, from Stanford, like, you have to talk to the customers you’re selling to, do customer discovery, and unfortunately that, there’s not a lot of those in San Francisco. Right. And sure you could talk to Kaiser or Stanford medical, but, but a lot of the innovation is going on in Nashville.

It’s going on, not only in Nashville, it’s going on in Minneapolis and Houston. And there’s a lot of markets where I think you could learn a ton, but the, these software engineers should go learn what the customers need, right? And then they will build incredible things. Aligned with those customers, those are the customers, the nurse, the doctor, the nurse assistant, the caregiver in the home, the payer that’s doing the case management and on the phone with patients all the time, that’s who needs help, and they did not respond.[00:55:00]

They didn’t take advantage of that, which I think they could have.

Marcus: Okay, I don’t have anything more to say about this. This is, this actually kind of exhausts me a little bit just because, um, I think this is exactly why we only do healthcare as venture capitalists, right? Because it, it is, it’s so difficult that trying to split my brain between it and something else um, What would only make me that much less effective as a healthcare investor, right?

I don’t want to get confused at all about what I’m trying to do in this industry. And, um, I have to spend the VAT. In fact, look, who do we spend the vast majority of our time with technology people or healthcare people, healthcare people.

Vic: I mean, that’s, that’s what we need to understand, right? The technology, I mean, healthcare is adopting technology.

That’s 20 years old, right? It’s not, you’re not putting in some, some new. Vector based database with a crypto, uh, encryption, you’re just not doing that. I mean, it’s, you’re doing something that is, you know, fairly [00:56:00] outdated from a consumer tech point of view. But I want to end with, um, when we started, I mean, we’re the two co founders of Jumpstart, when we were in the Skunkworks phase and, and experimenting, we tried all kinds of things and it wasn’t only healthcare.

And my recollection, sometimes I misremember things, but my recollection is in Nashville, the place where we had a sustainable advantage was in healthcare. Yes. So there are wonderful, big markets that in Silicon Valley and Boston and New York and LA, they do good work. But in healthcare, you have to be in somewhere in middle America.

Nashville is one of several cities because that’s where the innovation is. That’s where the patients are. That’s where the actual, um, critical doctors and payers and people doing the real work are. [00:57:00] So you’d have to fly here, live here.

Marcus: Minneapolis, Denver. I mean, you know, like there’s a whole different set of ecosystems where actual healthcare innovation is happening and they’re not the coast.

Yeah.

Vic: Yeah. I think, you know, Ohio is kind of interesting. Cleveland, Columbus, Ohio, like Ohio, Texas is a lot of good stuff. Florida, a lot of, a lot of old people in Florida, a lot of work in Florida. Yep. Um, so I don’t know. I think that it is, um, that’s why we elected to do healthcare. Yep. And I mean, hold on,

Marcus: just to prove that point, can we just talk about the fact that the two biggest EMRs.

Epic and Cerner came out of Madison, Wisconsin and Kansas city. Yeah.

Vic: That that’s a perfect illustration. Right, right there. And they have, I don’t know, they probably have 95 percent market share. They might have a hundred percent.

Marcus: Oh, no, no, no, no, no, no, no. Meditech and Athena. [00:58:00] You know? Yeah.

Vic: I, I think Athena is more in the physician groups.

I was thinking on the health system, but it doesn’t matter. Like they are dominant. And then e clinical

Marcus: works, which is dwindling. I think, I think, but yeah. But the point is like the two biggest ones are literally in middle America. Yeah.

Vic: And I was in Kansas city two weeks ago. Like you have to go there and meet the people to understand what the Cerner and at Oracle, what, what are they doing?

Where are they headed? And what should I build that is not on their roadmap? And. You only get that from sitting with those people and understanding it. And then you got to talk to the health systems of what do you, how are you using this? What, what is, what’s pretty good. And maybe it’s not perfect, but I’m not going to change my behavior for a new thing.

And what is like, my hair’s on fire. I can’t deal with this anymore. I need a solution. And that’s called customer discovery. [00:59:00] And every startup needs to do that. And Andreessen Hortz knows that. So it’s great that they’re bringing attention to this. And then once they fail, the entrepreneurs can come to Nashville and we’ll back them.

Marcus: All right. On that note, uh, I think that wraps up episode four of a health further. Thanks for hanging in there with us. Uh, we’ll be back next week to talk about whatever happens next week.

Vic: Yes. Hopefully the debt.

Marcus: All right. See you

then.