Life Science Investing

Jeff Leerink is founder and CEO of Leerink Swann & Co., a boutique investment bank with its home office in Boston and an investment banking practice wholly centered on the life sciences.  Given the shrinking venture capital commitment to the life sciences, and the uncertainty in the investment community generally, I asked Jeff his thoughts on the life science marketplace.

Disclosure: Jeff is an old friend but we don’t always agree. Jeff’s participation does not indicate that he agrees with my politics, and parenthetically I can assure you that he does not.

Leerink’ view is that robust investments will continue in healthcare, but will be directed towards products and procedures that drive down costs and improve healthcare outcomes.  He sees a continued focus on filling unmet needs, including in further drug development.  In response to questions concerning which pharma companies are most likely to get funding, Leerink cautiously noted that today, notwithstanding high costs and long lead times, some companies are getting selectively funded even at the phase 1 level.

Leerink is a great believer in fostering the application of information technology and data mining to the delivery of life science products and services, and sees delivery of the medical arts in the 21st Century assisted by the use of electronic medical records.  He believes that effective, deeper data mining will create “less friction” in the understanding of medical situations and therefore foster better outcomes.

The day after my conversation with Leerink I attended the Massachusetts Medical Device Industry Council seminar on “Catalyzing Innovation.”  Several Leerink points were echoed by the speakers, who included representatives of universities, venture capital funds, and large medical device companies.  Noting that 18% of the gross domestic product of the United States presently is allocated to healthcare, an unsustainably high proportion, the emphasis was on identifying life science ideas that would reduce costs, if only by substitution, provided there is no deterioration in outcomes.  To the extent outcomes can be improved at reduced costs, that is a “better idea.”  The real rub comes when an idea does not reduce costs, but does improve outcomes.  Then the benefit of the improved outcomes must be weighed against the continuing costs involved, an analysis which fall somewhere between “rationing medicine” and comparing apples to oranges (or, perhaps more accurately, apples to machine guns).

The Mass Med Conference also struggled with the linkage between venture investment and the development of emerging companies.  With the FDA approval cycle lengthening, thereby driving up costs, what deals will catch the eye of the investor?

The Conference panels noted that the size of the market, the ease of working with the investigators to find a path from the laboratory to the market, proof of usefulness and, as noted by Leerink, reduction in costs would be the keys.  Some venture capitalists noted that they now expected life science entrepreneurs to have identified the size of the market, the regulatory and market hurdles, and the posture that a product or procedure will have in the reimbursement scheme.

These issues, coupled with the growth of overseas centers of life science expertise, caused the panels generally to be leery of the loss of United States predominance in the life sciences in the midterm.

What does Jeff Leerink recommend as an investment, if appropriate life science investments cannot be found or if one is scared away from the life sciences by reason of some of these factors?

Leerink still believes that healthcare in the near, mid and long terms will remain key growth drivers in our economy, but notes that there is an opportunistic counter-strategy that may appeal to some investors: anything that is for sale in any asset class that is depressed.  Leerink recommends buying anything that “everyone is running away from.  I sell euphoria, buy on depression.”


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