Transcript
0:03 Eugene Borukhovich
Welcome to the Digital Therapeutics Edition of Digital Health Today. I’m your host, Eugene Borukhovich.
In the last episode, I had the pleasure of getting to know Ciara Clancy, CEO and Founder of Beats Medical. I enjoyed learning about their startup journey, their ability to listen closely to patients and customers, and the channel strategy they employed going to market.
In this episode, we now hop over from Dublin to London, to finally hear a venture capital perspective on the digital therapeutics market. In order to do that, I was happy to reconnect with Will Gibbs, principal at Octopus Ventures, whose ETF portfolio includes Big Health and Quit Genius.
But before we dive in, I was introduced to Will in January of 2020, as I joined my wife in building YourCoach Health. He was very responsive, polite, thoughtful, and his deep thoughts exuded in a “no BS” way. And now we jump to my conversation with Will.
I’m here with Will Gibbs, the principal at Octopus Ventures. And as always, the listeners of this podcast want to get to know you. So why don’t you tell us a little bit about yourself, Will? A little background, and of course, how you got into the investment space? And then I’ll follow on with more.
1:21 Will Gibbs
Yeah, thank you. Thanks for having me. So I suppose we’re probably taking a step back, like pre-Octopus. I’ve always been keen on building stuff, and learning [inaudible]. So pre-Octopus, I had the pleasure of setting up and building a rare breed pig farm in Essex where I grew up. Then I decided, actually, the way forward would be a career in medicine.
[I was] very excited about combining [my] interests in exploration, ocean sailing with medicine. [I] convinced myself of that, until I pretty much had a space lined up to go to med school and backed out and decided, actually, I don’t want to study for another five years.
In a fairly random encounter, I started finding out more about the investment/venture world. So I started Octopus about eight years ago. Day-to-day, I now work with about nine portfolio companies, run our health care team, and whilst it may not have been a straightforward transition from pig farming to leading European health businesses, I’d say that, yeah, as long as the learning bit and the building bit is there, then I remain excited.
2:41 Eugene Borukhovich
So you’re a self-made vet? No, kidding. That’s a fascinating journey. Let’s step back on Octopus as an investment fund. Many startups, especially in the DTx space, I’m sure will be listening to this episode. So give us a little bit more about the fund itself.
3:01 Will Gibbs
Yeah, so the team itself is broader than just health. We are a London headquartered fund, but we have an office in New York as well. We invest about one to $200 million a year.
In terms of Europe, we’re probably one of the most active investors. And then within the team– we’ve got about 90 portfolio companies now– there’s a number of specialist sub-teams. Looking only at health, we’ve got eight people, a mixture of academics, commercial folks that have worked in some of the largest healthcare businesses in the world, [and] clinicians.
We come at it from a fairly broad perspective, and we’ll look at everything from DTx, consumer health, to diagnostics, data, AI, biotech. Our belief is that by going broad, there’s an advantage to be had there. There are lots of very successful ones that we have a lot of respect for that only do biotech or only do consumer health, where[as] we try and take a particular theme or clinical area. It’s hard to be too specific about where that’s going to take you, and I think remaining broad has its advantages.
As a team, we focus mainly on seed and series A companies. The portfolio is broad as well. Everything from DTx, as we’ve talked about, with Big Health, Quit Genius to businesses in the cell and gene therapy arena, like Ori Biotech or hopefully into a Israeli-based digital pathology business. Actually, I think that thesis, or those themes broadly spoken, have meant that we’ve co-invested alongside the likes of Khosla, Merck, Sanofi– all the usual health suspects.
4:55 Eugene Borukhovich
To your point, there are funds that are dedicated to specific verticals and even sub verticals, and there are funds like yourself that are looking at everything from consumer to healthcare, etc. I can see some huge benefits, especially as it relates to the DTx space, which we’re going to dive deeper into. Any thoughts on the benefits of being broad versus focused?
5:21 Will Gibbs
Yeah, I’d say that some weeks I definitely wish we were more focused. Other weeks, you definitely feel the benefits of going broad. But I’d say that as a team, we have specialist teams as well, looking after fintech, consumer, deep tech. A lot of areas within health overlap with those areas. So if I take something like consumer, a lot of the time when we’re looking at investing in consumer businesses is spent obsessing over the product. I think that’s just as true for DTx, where the completion rates of a given course of therapy are pretty much linearly correlated with the quality of product.
I think product obsession is a great thing, and you can’t get away from that looking at consumer. And equally, I think when we look at businesses in deep tech– where it might be years from first product to first revenues, or the importance of investing in IP, or being well plugged in with strategics– there are other areas that our deep tech team are obsessed about, which are also very relevant to health. I think it’s an advantage that we definitely play when we’re investing in companies, but also post-investment. Something like Ori Biotech, which is a next-generation, cell-and-gene therapy manufacturing platform, a lot of what they do there involves micro fluidics, or robotics. They’re a really exciting/mega-geeky territory. But being able to pull in our robotics and deep tech folks to give a non-medical, but 100% robotics view is really useful. Because I think it’s naive to think that all of us accelerate at the same rate.
7:09 Eugene Borukhovich
You brought up earlier Big Health and Quit Genius. Both companies are very much focused on clinical research– we had Peter on this podcast earlier, but his obsession on that end-consumer was actually what impressed me at the time. I don’t think you were directly involved with that deal, but from your colleagues, that was your first investment into “DTx” at the time, which wasn’t even really a term. Maybe we can talk a little bit about the decision [and] what attracted you guys to the company, but also to the space.
7:55 Will Gibbs
I’d say that when we first invested in Big Health, which was back in 2016, I think DTx was probably…I’m not sure if it was even a term. I think we were probably just as curious– and maybe also skeptical in some ways– as maybe broader clinicians and health ecosystem folks were at that point. I think things have changed a lot between now and then.
But I think realistically, our decision to partner with Peter was largely based on him. That he has a both clinical and product bias, which I think is classic for this space. I think also, his more philosophical view of– and this is where the name Big Health comes from, as opposed to Big Pharma– of how you can increasingly treat conditions without using pharmaceuticals. I think that was a challenger view that resonated with us.
Another key pillar of the strategy that he articulated was, this is a medical business. This isn’t a consumer health play, and his dedication to prioritizing randomized controlled trials, having a medical co-founder in Professor Colin Espie was also testament to that the fact that he was intent to build a global huge health business, rather than something that maybe wanted to create impact but wouldn’t have the kind of raw materials and credibility to pull it off. I don’t want to make us sound smarter than we were, but at that point, Peter was a big part of it. So excited and so glad that we partnered with Peter when we did.
9:41 Eugene Borukhovich
It was very energizing and convincing, and to your point, there was that conviction of treating without molecules, etc. What I noticed also– in doing a little bit more research than I normally do– is that you guys also invested with Kaiser and co-led with Kaiser. As a fund going into this new space, having that clinical co-lead was a smart move.
10:13 Will Gibbs
Liz and the team at Kaiser are great. I suppose a few things to pull out there. One, we see a lot of European health businesses where the US is a key part of the strategy. I think for a lot of DTx businesses, the route to market is sometimes just as important as the quality of the product or other components. I think Livongo is testament to that. With that in mind, we’re always conscious of how we can build syndicates that maybe “cheat” the system and enable the company to take some of those risks off the table.
So when we first invested in Big Health, that was a UK company doing more and more in the US. Bringing in folks like Kaiser are helpful in bridging that gap. We have lots of conversations with portfolio companies about how to think about corporate venture capital funds. Within health, there’s actually a really impressive bunch of very specialist investors that are still financial investors– so you don’t necessarily have some of the downsides of corporate money. But an Optum or someone like that are one of the most active funds within health and probably held with high esteem globally.
I think the CVC stuff is always like classic pub chat of, what are the strings attached to this? But I think where route to market is so key, a lot of these folks– especially when they understand how the buyers think so well, when it comes down to ROI or health economics– they live, sleep and breathe this stuff. To have someone on your side of the table, who won’t bullshit you and will give you that view, rather than just hearing it as a prospective customer, I think can be really valuable.
12:08 Eugene Borukhovich
So let’s dive into I think your second investment than the DTx space, Quit Genius. One of the things that I noticed [is that] you guys decided to actually lead in that space. You already had some of the learnings and comfort level and connectivity. Step back on some of the decision-making processes you guys made to invest in Quit Genius. And secondarily, talk about your leading role in that.
12:34 Will Gibbs
Yeah, so I’m happy to talk at length about Quit Genius. This is a business that is very close to my heart. On a high level, they are a platform for substance addiction. Their first product is focused on smoking cessation, so they sell to large US self-insured employers. They recently announced a big partnership with Express Scripts as well. Really landing some impressive clients.
13:01 Eugene Borukhovich
Evernorth, don’t forget, they changed their name.
13:03 Will Gibbs
Sorry, renamed. Actually, I think [it’s] quite interesting as an example of DTx more broadly, where the customers for Quit Genius aren’t Google execs. They are folks that work in manufacturing, or automotive, or areas where digital therapeutics adoption has perhaps been slow. I found that exciting.
But I would say that our process to invest was slightly different with Quit Genius, in that one of our team had been trying to quit smoking for many years. So our product diligence was largely, “okay, Quit Genius, see if you can get her to quit, and if you can, and then we’ll be impressed.” And they did. So that was a key part of our diligence. I think as we talked about it more as a team, [we] realized that especially with a DTx, there is opportunity to back businesses that can scale. A growth rate that you’ve probably seen more commonly with consumer businesses, but with valuation multiples more associated with SaaS businesses or B2B companies.
Look at the Livongo, Teladoc, or look at Hinge or stuff like that. So almost, if you hit the company name and just looked at the numbers, you’d be like, okay, this is a consumer business. Or if you hit the name and looked at the valuation multiples, you’d be like, okay, this is a SaaS business. So, I suppose with an investor hat on, quite an exciting and quite a unique category of businesses, whereas you also have the more emotive side as well, of opioid addiction, smoking addiction, alcoholism– there’s a lot of interesting businesses playing in this space.
There is genuinely an opportunity to build billion-dollar businesses here, especially for the Quit Genius team, a team with strong medical credentials. The three founders, clinicians themselves, had got the business to a point where the founders had hustled customers over the line. They got a small number of RCTs in place or in progress. Then it was just a question of, “look, we’ve got product superiority here, how do we scale this to become the [inaudible]?” Which is hard not to be excited about.
15:26 Eugene Borukhovich
And maybe just a quick comment on you guys as a lead. Again, you’ve had some learnings and experiences with Big Health and co-leading with Kaiser. The decision to lead in that round specifically? Versus just invest[ing] and not be the lead.
15:45 Will Gibbs
I would say that our starting position is typically to lead rounds or build syndicates with folks that make sense. I think it’s probably linked closer to our conviction [that] there’s some entrepreneurs that can look you in the eyes and say, “we have got the best technology in the market, we just need to scale it.” And that’s definitely true of the Quit Genius team.
16:17 Eugene Borukhovich
It’s time for a question from my journalistic partner on this podcast, Brian Dolan, who is the founder of Exits & Outcomes, and as I like to call him, the digital health detective. Let’s see what question Brian has for our guest today.
16:30 Brian Dolan
Okay, here’s my question. One of your portfolio companies taught me a venture-backed startup concept that I’ve never heard of before. It’s when a startup is “orphaned” by an investor. And this happens when an individual investor at a firm leaves the firm. And when they do that, they typically also leave their board seats as well. So if that firm doesn’t replace that investor on the board of the startup, or does but it replaces them with someone who’s probably not as big of a believer in the startup as the original investor was, that can obviously be very detrimental to the startup. Can you help me understand how common this is, and also how hurtful it can be to the startup? And what you, as another one of this company’s investors, might be able to do to help them in that kind of situation?
17:20 Will Gibbs
Thanks, Brian. It’s a good question. And one that I’m sure founders probably talk about a lot between themselves. I would say that it does happen. I wouldn’t say it is very common. Typically, the economics of how venture funds work, the individuals commit to a fund or a team for 10+ years. If you look at many of the good and the great in the venture world, that’s probably more like 20 years within a team. It is a long game.
But it does happen. And I think when it does happen, there is an impact to the continuity of the board, especially if it’s been the same board that’s been together and operating well for 5+ years, which often it is. But I wouldn’t say the fallout from it is necessarily irreversible. I think it is clearly a transition period that has to be managed.
I think it is worth going eyes wide open, if you are a startup raising money from a fund to get a sense of, do I have an individual champion here, amongst a bunch of skeptics? Or is my business well suited to the broader pieces and themes this investor invests in? Because if it’s the latter, and there’s broad support for what you’re doing, and you continue to maintain relationships with a number of folks within that given fund, that’s clearly a better position to be in.
So I think it is a risk, and one that businesses should understand. But I think it is one as well that you can diligence to some extent. I think it’s always a good thing– something we try and proactively push– for our founders to have multiple touch points within our team, rather than it just being a single, one-to-one relationship.
19:05 Eugene Borukhovich
I’ll hop in here. Managing that board and board observers as a startup ourselves, at the end of the day, what we say is people work with people. It’s that continuous relationship-building with your existing board members and/or observers, but also surrounding in the firm. No startup wants to get orphaned.
But let’s jump back. If I look at Big Health and Quit Genius, the founders and the founding team are operating and discovering the models, but did you guys have any kind of a business thesis for DTx in internal discussions? Given the fact that you have consumer play, you have robotics, you have others? Curious to hear your thinking on that and how it evolved.
20:00 Will Gibbs
The piece around evolution is probably key in that when we first invested in Big Health, DTx was something where there were strong claims that digital solutions were superior (in some ways) to more traditional clinical approaches. Especially in the last couple of years, the amount of data being generated in robust and reliable studies– not just in addiction using CBT, insomnia, or broader behavioral change, whether that’s menopause, or gastrointestinal stuff– the breadth of data is impressive.
I would say that phase one of DTx was showing that you can actually drive clinically significant outcomes. That, I think, is done. There is acceptance of that. I think stage two– we’re in the midst of that now– is around distribution and access. If you take behavioral change driven by DTx businesses in weight loss or diabetes management, by having a coach, a human coach, in the loop, that anchors you to quite a specific price. Which means that for a lot of buyers, especially in the UK, getting their head around 100 pound/year subscriptions– for an individual to go through a Noom or a Second Nature, or something similar to that– can be quite a lot to stomach.
One area that we’re seeing quite a lot of interest in at the moment, within DTx, is how can you turn this into a population health tool that can be prescribed en masse. We’re seeing businesses that could charge $1 a year, per patient. It will be a pared back service [compared] maybe to what consumers expect today. But I see that as the next stage of DTx, in how you can make the unit economics and health economics work, outside of selling into large employer budgets.
I think the other part that we talk a lot about internally is the difference between vertical-specific DTx businesses and horizontal plays. If you look at the efficacy data of a Big Health or Quite Genius, who go narrow and deep and specialize, that is quite different to broader DTx businesses, where they have suites of products in quite different areas. I think there is a consumer challenge of how do you get the best of both of those worlds? And who is it that will stitch together each of these individual DTxs in a cartridge? Is there a cartridge with multiple DTx prescriptions that can slot in there?
There is also a world in which your data from Noom– and understanding how you operate, what your retention looks like, where you need nudges or more support– that learning is directly transferable and translatable into a Big Health, or a Quit Genius or Livongo. I think we’ll see this kind of infrastructure be invested in more and more. How can you plug together what can otherwise be quite siloed products? I see that as potentially quite an exciting step forward, as the whole field evolves.
23:33 Eugene Borukhovich
You touched on health coaches, and one of my questions always is, where do you see the humans in this? Because one would argue that the people that know they want to quit smoking, they will try their best, and they will use CBT and Quit Genius and these types of tools to help themselves. Others need quite a push, and therefore, interacting with human beings does help. We’ve seen some studies in health coaching, augmenting digital technologies. Where’s your head on all of this? [Is it] a spectrum? Big Health is going through the employer route (and the consumer, more or less), even though they clinically validate.
24:32 Will Gibbs
I think we would never be able to get our head around a business that operated in this space or wanted to be taken seriously as a medical business if they didn’t have the medical piece in the DNA– whether that is how they conceive of the product, how they ensure they’re hitting on a suitable outcomes, the governance piece. You have to have that medical DNA in any of these businesses.
It’s quite interesting, what format does that have to take? There are so many different examples that have shown that you can’t be too prescriptive about it. Something like Quit Genius, who uses health coaches but also has an impressive group of academics and advisors that help on the research side. They span the whole gamut, really, of medical professionals involved in some way or other.
But I think the digital/person/human bit is especially interesting when you’re dealing with areas of health that may be highly stigmatized. With Quit Genius, as we look to push further into opioid addiction, that will be quite a different puzzle in terms of how you can engage users. Compared to the messaging and the hook of how you engage talking about smoking, it is so much more stigmatized. But there, the opportunity of speaking with specialists– whether that’s doctors or coaches– in a more anonymized and distant way, we’re hopeful that that could be a really special recipe of how you break down barriers in some of these areas where seeking in-person support or going to speak to your employer is really challenging. So I think especially within some taboo areas of health, that digital piece, but without the tradeoff of losing professional expertise, is quite an interesting combination.
26:31 Eugene Borukhovich
You mentioned the concept Peter had early on, that you can treat without pills. I know some of the investments that you guys have– like Medisafe or Antidote– are actually working with pharma. I want to understand [what] your hypothesis is; I keep [repeating] in every episode, does DTx swallow that pill? If you think about what Big Health does, they know the consumer, they know what that experience is like, and while they’re going to attempt to treat insomnia or anxiety, there might be a pill involved as part of that. Or, as Peter grows and generates significant revenue, then a pharma says, “hey, this is a great add-on, and another modality.” One swallows the other?
27:25 Will Gibbs
It’s a great question. If you really strip back pharma, it is about delivering best-in-class medical treatments. I think [what] a lot of DTx businesses have shown is that they can deliver best-in-class medical treatment. So clearly, pharma has to do something here. And you could imagine that with the right business and the right strategy, the pharma could supercharge distribution. Distribution for DTx businesses isn’t always straightforward. So I think there’s the potential for something to be done there. But I think it’s probably quite hard to generalize.
I spent a lot of time recently looking at businesses operating within the menopause space. There’s quite a lot to suggest the use of CBT for managing symptoms; whereas if you took a pharma-only approach, they’re probably very happy continuing to prescribe hormone replacement therapy. You can imagine in some areas where there is a conflict or cannibalization of pharma revenues, if they went down a digital-only route. Whereas there are other areas within pharma where companion diagnostics or using advanced tests to be able to hone in on what the right therapeutic is, is far more established. Like you look at exact sciences within oncology.
I think pharma is definitely waking up and becoming more interested about how they build direct relationships with their customers and how they can have those conversations, because relying on an instruction–a piece of paper in a box– is a hard basis to build a relationship from. But I think as we’ve seen with Medisafe, there’s more and more interest in digital options. For Medisafe, it’s around increasing drug adherence, which is an easy step for pharma; there’s no downside there. But I’m hoping that as they take more and more steps– whether it’s from adherence, to how they manage, engage, and run clinical trials– all of this is definitely increasing their level of literacy and open mindedness around what a digital solution could bring.
I think it’ll be really interesting. And we’ve seen some DTx businesses that have focused heavily on regulatory [inaudible], whether it’s Pear or someone like that, investing heavily in FDA clearance, or other businesses really going hard after the pharma accreditation. I expect it will vary from geography to geography, but also from clinical area to clinical area.
30:02 Eugene Borukhovich
Thank you, Will. As we’ve been tracking– SPAC-tracking, let’s call it– the question for you [is] are you guys looking at SPACs? Just in the US alone, I saw a tweet [that said] something like 58 SPACs with no targets whatsoever, but obviously there’s room to maneuver. I guess at the same time, if you look at Hinge in the valuation or even the Livongo sale with “x” number of the population covered, are we in a bubble? And is that bubble going to bubble through the SPAC? Curious on the financial thinking that you guys have around this, from a liquidity and exit perspective.
30:42 Will Gibbs
Taking the valuation of bubble one first: if you actually look at Livongo’s year-on-year growth, it is pretty phenomenal to continue to grow at 100% year on year, even when you’re talking [inaudible] revenue numbers. Do I think DTx businesses are valued kind of highly? Yes, I think [inaudible], but I think the underlying fundamental is those businesses are exciting. So I’m not worried by those. But I think it’s definitely something to keep an eye on.
To the point about SPAC: we haven’t had any portfolio companies that have been through a SPAC yet. We’ve got a few conversations with different boards of portfolio companies. taking maybe a slightly more opportunist view of like, what is our policy? Because it’s too big a scene to completely dismiss. I’ve been on some quite interesting discussions with lawyers and advisors, just because I think a lot of people are trying to get up curve quickly here, like what does this actually mean to us? What are we getting ourselves involved in? I’m watching with heightened interest, although I haven’t had the conviction yet to press the button.
32:04 Eugene Borukhovich
I saw some notes that even Deutsche Bank said on our side of the pond, “the SPAC pipeline [is] looking healthy,” whatever that means. I’m sure opportunities are there. Finally, we started with you, what brought you here, but [I] also want to find out what gets you up every morning. What’s your why?
32:24 Will Gibbs
My why is probably linked most to the building bit. I had the privilege to work with some incredible founders in some very broad areas within health. Typically, I gravitate towards the less glamorous areas of health. And so that’s menopause, acne, substance addiction, oncology. So for me, building stuff in areas where people are surprised when you build to very significant scale, is personally very satisfying. I find it quite satisfying, where these are markets that people have just ignored for so long. And when you come back a few years later and rub it in their face, like okay, we’ve scaled a billion-dollar business in an area where you couldn’t even start discussing the topic is cool. So I think that the building bit, the taboo bit, and surprising people about the potential in some of what would otherwise be thought of as niches is powerful.
33:29 Eugene Borukhovich
Well, thank you for your wisdom, and thank you for making the time Will. We’ll be looking forward to your next investments in this space and elsewhere.
Thanks so much for tuning into Digital Therapeutics Edition of Digital Health Today, a production of Mission Based Media. Be sure to hit the subscribe button to this podcast on your favorite podcast player, so you’re then automatically notified when we post our upcoming episodes, where I speak with dozens of leaders and trailblazers who are forging the path for digital therapeutics. If you’d like to learn more about YourCoach Health, or Brian Dolan’s Exits & Outcomes, you can always find the links to this and more in the show notes for this episode. You can connect with me personally on Twitter @HealthEugene, or follow my journey of writing my first book, Hard Pill to Swallow at [email protected].
I’m Eugene Borukhovich, and catch you next time.
