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SaaS and Supply Chains (Bio + Health Newsletter November 2022)

Date:

What we’re looking for at HLTH

“The future is already here – it’s just unevenly distributed,” said science fiction writer William Gibson. As much as we hem and haw about the adoption of value-based care being slow, the fact is that it’s already here in various pockets, and in those pockets, it runs deep. We see it in Medicare (e.g. 11M traditional Medicare members covered under Shared Savings Program ACOs, and the majority of Medicare Advantage lives covered under a value-based arrangement), and amongst upstart providers, where traditional risk-bearing groups like Landmark Health and Oak Street Health, and digital-native groups like Patina, Firefly Health, and Thyme Care, have employed value-based business models since day 1.

At HLTH, I’ll be listening for new infrastructure plays that can continue to propel the scaling of value-based care and coverage models across multiple payor relationships and patient populations, in addition to helping traditional fee-for-service providers diversify into risk. —Julie Yoo, General Partner

The last few years have brought dramatic changes to the way we practice medicine and exacerbated existing trends, including provider burnout and severe provider shortages.

Now, more than ever, the path forward in healthcare delivery requires enabling the providers we already have. How do we free up administrative burden and cognitive load so doctors can focus on the patient in front of them? How do we scale both primary and specialty care delivery across our population, especially in areas and communities with provider shortages (for example, severe mental illness, or advanced cardiology)? The answer certainly involves technology — but how do we integrate it into provider workflow?

As a practicing physician myself, these are questions perpetually on my mind. At HLTH, I’ll be looking for founders and leaders who are also thinking about what a path forward could look like. —Vineeta Agarwala, General Partner

SaaS and supply chains

As software “eats” every step in the life sciences value chain — from discovery to development to delivery of new medicines — the industry will have to continue engineering new processes at each step, in order to actualize the productivity gains made possible by continued advancements in computer science. In other words, new tools are required. Today, bio companies launching to develop new therapeutics and diagnostics are also building new tools with which to engineer biology out of sheer necessity.

If this trend plays out as we expect, and we’re able to read, write, & execute biology, eventually there will be further specialization of labor between drug makers and tool makers. Drug makers will continue to focus their time, effort, and resources toward being the best at developing drugs — perhaps akin to OEMs (original equipment manufacturers) in the computer, automotive, and aircraft industries. Tool makers will focus on making the best tools. (See my colleague Chris Dixon’s piece from 2011 on “selling pickaxes during a gold rush.”)

The pandemic and the current macroeconomic environment are accelerating this trend toward engineering new tools. As approximately 300+ biotechs trade at market capitalizations below the cash on their balance sheet, and the cost of capital continues to rise, life sciences companies have an even greater need for better software & data tools to conduct science more efficiently. The industry’s appetite for science-native software-as-a-service tools is accelerating. —Jay Rughani, Investment Partner

If the pandemic represented war on supply chains, we’ve now entered somewhat of a detente. Pressures have begun to ease, but we’re left with the knowledge of the extreme vulnerabilities that Covid exposed. Modernizing supply chain processes and optimizing management during this detente could save providers up to 10% of their supply costs. In aggregate, these efforts could save U.S. hospital systems $25B annually.

Technology will play a critical role in realizing these savings. We believe solutions that will make the largest impact will be those that are:

  1. A platform: an effective supply chain management system will have visibility across a health system and will centralize procurement to command economies of scale.
  2. Data-centric: data needs to be real-time, accurate, and integrated across facilities. Analyses should be highly actionable and embedded into daily operations / points of action.
  3. Collaborative: providers & procurement teams and procurement teams & suppliers need to share input and have open lines of communication. Collaboration will ensure accurate demand forecasts and rapid resolution of procurement issues.

As we ease into supply chain peacetime, hospital systems may be tempted to deprioritize investing in optimization. However, the savings up for grabs are massive, even if pressures never return to Covid highs. Peacetime or wartime, supply chain optimization is critical and technology is paving the way. —Annie Collins, Deal Analyst

A new partnership

As a team comprised of builders and operators, part of our job at a16z is serving as the connective tissue between the industry and our founders — which is why, as an extension of the a16z Bio + Health business development platform, we’re so excited to announce our corporate strategic partnership with Bassett Healthcare Network. The collaboration will leverage innovations from our portfolio companies to address the systemic challenges of delivering healthcare to the rural patient populations Bassett serves in New York State. We’re proud to be both a catalyst and a convener in bringing tech-enabled innovations to patients through ecosystem partnerships like this. —Marina Kusserow, Business Development Partner

Things we’re thinking about

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