How to make myself smarter at Healthcare

Currently, a junior analyst at an asset allocator and doing some due diligence on healthcare VC/PE managers both in the US and in Asia. Is there any industry research or some readings that could help make myself smarter in this sector? I sometimes find the conversation with managers (mostly biopharma managers) above my intellectual understanding...

 

Biopharma's an interesting one -- is it above your intellectual understanding on a business basis or scientific?

Otherwise, you're going to get two streams of very, very different answers

- Signed, a Biomedical-Engineer-turned-empty-corporate-finance-suit

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
 

I think it has to be a combination of both. It's not just understanding what the product in question does and how it works, but the financial and business aspects as well. 

 
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There are tons of resources out there that you should be reading to keep abreast of what's happening in the space such as Fierce" Family of websites (FiercePharma/Biotech/etc.), Beckers, Kaiser Health Network, Healthcare Dive, Modern Healthcare, Medgadget, Harvard Health, Medical Xpress, the HFMA, Medpage, Medscape, various Government agencies (CDC, NIH, FDA, etc.) that you should be reading. The same goes for understanding the approval process for new treatments, devices, and medication. I'd also invest in a few classic textbooks to actually understand what the products you're dealing with are and how they work. I would invest in a good medical dictionary and a copy of the Merck Manual. Read research papers with your dictionary and Merck Manual in hand and learn to translate Medical Speak to common English. Learning how to understand the material is a huge asset here because you can talk to managers more coherently when they are discussing the aspects of why these companies, these products, etc. 

I'd also look at trade groups and associations like MGMA. A lot of it comes with time, and I do want to emphasize time. Healthcare isn't the easiest sector to understand because of how expansive it is. Trade and Policy groups provide insight into where the market is heading and things you need to consider when allocating funds. If you're investing in managers with a Healthcare IT Focus, having an understanding of how your managers are handling a potential switchover to ICD-11 (which is policy, for example) definitely helps drive discussion points on how they are preparing for something that caused headaches the last time a switchover happened (ICD-10 was a clusterfuck of a rollout). 

Unlike other sectors, the question of how something works is just as important as what it does. Easy example - two different drugs treat the same thing by two vastly different mechanisms of action. If you're investing in a biotech company that is working on a new drug to treat RA, understanding how it works is important because 1) the RA space is crowded, and 2)  is your therapy novel enough to warrant insurers to cover it. Another example - if you're investing in a Medical Device company, questions like what makes the product unique enough to get doctors to switch to using that product or is there a financial incentive to switch to a new product/technique (take an XLIF vs an ALIF - both procedures provide the same value, but the financial incentive of an XLIF comes in the form of reduced direct and Indirect costs versus an ALIF, but not all patients who benefit from the results of one will have the same beneficial results with the other). 

For now, I would pick one of the managers you are allocating funds to and look at their portfolio of investments for as long back as they have records. I'd pick 3-4 companies and start with them - read everything about each company and learn to translate it into common English so you have some grounding in the space. As you get more experienced, reviewing newer managers or investments will become easier. 

 

Thank you! This is really helpful! I think what got me lost most of the time is the science. Sometimes our managers love talking about the science (which I had no idea about) and it's hard for me to connect science with the business/finance side of things and evaluate a manager holistically. But I will definitely read through the list you recommended!

 

If you have access to / can get access to it Pitchbook has some decent industry reports, also people overlook this one too commonly but go find the leading companies in the sector and read their initiations of coverage. Great insight into how the analysts that cover the industry think about the industry. 

 

Just to add to this, @OP, I'm sure your firm has relationships across the street (or an internal research department). I would get ahold of sector research on the space to get a broad overview. Start with 2019 because Covid kind of fucked everything up and has caused a massive allocation of resources to deal with that. It'll give you a better look at things in a non-Pandemic environment as well. 

 

Yes our firm has access to Pitchbook etc and I have been reading through those. My colleague also shared with me some industry research reports from investment banks like Goldman. Does anyone know how I can subscribe to those research reports? My colleague seems to get it from his buddy working in those banks so I'm trying to figure out if there is a way for me to sign up before bothering him. 

 

So I cover the sector in IB, and you may be way more advanced than I am, but some things I have done include:

-Reading medical journals: read something by NEJM, the AHA, Circulation, etc. Read this stuff a lot. Not only will you learn a lot about some random topic, you will familiarize yourself with how this material is presented. 

-FDA minutes: if you have companies that you work with that have shared FDA minutes regarding an approval--read them. Learn what kinds of questions the FDA asks, and you will learn to ask these types of questions too.

-SEC Filings: Have you read a 10-k cover to cover? It is worth it. You really see how these companies talk about themselves, and I find that insightful.

-Company trial data: If you can find any good clinical study data or something like a KOL's analysis of a study, read that. You will get better at sponging up data and understand how experts think about it.

-Building off that, read data from a company that killed it in clinical trials and one that didn't. Learn how to identify good data from mediocre data, even if that data is still passable. This stuff matters a lot come M&A or investment time!

-News: yeah, simple. FiercePharma, Endpoints, etc. Know what the Pfizers, Roche's, Regeneron's, and Vertex's of the world are up to. Having a sense of their clinical and strategic priorities can give you a clue as to what the overarching direction the space is moving into is. 

-Equity Research: good and bad, depends who writes it, but this stuff can be quite useful to read. Reports by Mark Schonenbaum (RIP) protégé Umer Raffat are always solid in my opinion and provide a good stock analyst POV. 

-Frieds comment about looking at trade groups seems spot on. Not something I do now, but something I now really want to do because it sounds like a good idea and he/she seems to know what they're talking about.

Dayman?
 

Sure thing! It's such an interesting sector. For me it took a little while to truly get interested and immerse myself in it, but once you get over that hump, it all becomes really cool, even for someone like me who came from a economic academic background and not a science one.

Dayman?
 

Thanks. Yeah, I've been around healthcare for far too long. A lot of this comes with experience. Some things you can pick up in minutes (for example, I understand Devices better than any other area in Healthcare because it makes sense to me in ways that Small Molecules, Biologics, IT, and RE will never do without the extra work), others it takes a lifetime to master.  I'm sure you've seen it yourself - certain sectors within the space require significantly more knowledge than others in order to make sense of them. This is why I recommend having a Merck Manual and a Medical Dictionary handy. 

I do like your suggestion on the Medical Journals. I think it's a great way to understand how researchers think and what they are looking at with results, treatments, and new areas to treat. The same holds true for trial data. I would caution though, that trial data has its limitations. It also depends on where in the investment cycle you're jumping into and what you're looking at. If you're doing early-stage VC, that may not be a good indicator for individual companies, but can be a good proxy for finding a VC that knows what to look for. If you're looking at PE, I think it's a better gauge of a company's success record in terms of bringing products to market. In addition, I would scour everything for recalls if you are dealing with existing products in a portfolio. Both to gauge the effect and understand the impact of them. 

In terms of filings, it's a good way to get a sense of things at a high level and further understand the space. I'd hope that you're doing that anyway. 

Yeah, the trade group and policy stuff is huge. Knowing what the industry and specific sectors are thinking is great for trying to understand where things are going, what issues are on the horizon, and what key points may be important for your investment thesis

Oh, and it's He in case you are wondering. 

 

Looking at some of the ones that do incubation can be especially interesting, at least to me. Even though I am not the biggest fan of Flagship, I like seeing the companies that VentureLabs shits out because they typically go in a pretty cool direction i.e. Moderna, Rubius, Kaleido, KSQ, etc.

Dayman?
 

Would read all of the available material related to the large vertically-integrated companies (United, CVS, Cigna, Humana, WBA, etc.) IQVA is helpful for all things pharmaceutical. McKinsey (and I'm sure other large consulting firms) produces insights/surveys/thought pieces. CMS/HHS produced reports. Annual reports of large health systems (Northwestern, NYU, NYP, UPMC, etc.)

 

If you really want to do a Good Will Hunting and understand from first principles, - read a medical physiology (Guyton and Hall) and a broad medical disease textbook (Kumar, Clarke). Lots of the stuff will be too detailed but it will help you speak the language and IMHO will give you more of a conceptual basis to reading papers. 80% of what healthcare aims to prevent or treat is in those books. Reading medical papers can sometimes be esoteric without knowing where it fits in in a broader system of medical info.

 

Question: why wasting our time in the healthcare sector as non-med school people? 

For those who did not do biology, chemistry, or med school, we will never be as good as those who studied the subject in college in terms of understanding the academic part o the industry. Plenty of threads here mentioned that if you want to do HC HF and/or PE, you pretty much need to have at least undergraduate degree, preferably a PhD or MD in this field. 

My understanding is, it's extremely hard to break into a HC PE/HF without having this kind of degree, and your opinion will never be taken seriously if your healthcare coverage group has someone who did med school (like a girl in my current group). 

 

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