Despite uncertainty over the future of the Affordable Care Act, investors continue to see opportunities to build successful businesses in healthcare technology and related services.
For several years, the common refrain among healthtech investors has been that the implementation of electronic medical records (EMRs) and the shift from a fee-for-service payments structure to so-called value-based care are the two most significant trends reshaping the healthcare industry—and they will continue to be important, regardless of what happens in Washington.
Count Todd Cozzens in that camp. He’s a co-founder and managing partner of Leerink Transformation Partners (LTP), a Boston-based healthcare investment firm affiliated with Leerink Partners, an investment bank focused on healthcare. LTP recently announced it raised $313 million for its first growth equity fund that invests in healthcare IT and services companies.
The rise of EMRs and value-based care “have really made healthcare an interesting place for a fund like ours, and they’re not much to do with the Affordable Care Act,” Cozzens says. “The ACA does have an effect on things—whether it’s repealed, replaced, adjusted, whatever—it’s all going to have some effect. But as we’ve all seen, not a heck of a lot has changed either way.”
I recently chatted with Cozzens to learn more about his new firm’s investment strategy. He also shared some interesting views on the healthcare technologies he’s avoiding, the hype around artificial intelligence, and Silicon Valley’s hubris when it comes to solving healthcare’s challenges. (More on those thoughts in a minute.)
Cozzens has worked in this field for over two decades. He was a top executive at Marquette Medical Systems in the 1990s, helping guide the Milwaukee-based company through an IPO and subsequent sale to General Electric’s healthcare business. After that, he founded and led Picis, which developed an EMR system for high-acuity care settings. Wakefield, MA-based Picis grew to a $200 million annual revenue run rate and was considering going public, he says, but instead was acquired by a subsidiary of UnitedHealth Group in 2010.
“United thought that hospitals would just become large intensive care units, and everything else would just move outside the hospital,” Cozzens says. “They were correct about that.”
Cozzens later joined Sequoia Capital, and was one of the partners overseeing its healthcare investments. His deals included investments in MedExpress, which was sold to UnitedHealth Group’s Optum business for $1.5 billion in 2015, and ZirMed, which reached an agreement last month to sell itself to Bain Capital-backed Navicure for a reported $750 million.
Cozzens joined Leerink two years ago. His LTP co-founder and fellow managing partner is Jared Kesselheim, a trained physician who previously led the healthcare investing team at Bain Capital Ventures.
“With founders wanting more than money [from their investors] today, we figured this would be the ultimate team, with also the capabilities of Leerink, not just to invest in companies, but help them juice their growth with everything we can do,” Cozzens says. That means mentorship and helping portfolio companies make industry contacts and find talented employees, he says. Companies will also be able to tap into Leerink’s network of industry experts, which includes more than 20,000 physicians, regulatory and care reimbursement specialists, and business managers and researchers from hospitals and insurance companies.
LTP will invest between $10 million and $30 million in each portfolio company, Cozzens says. It will invest in both young and mature companies, as long as they’re generating revenue from customers. LTP’s early investments include Outcome Health, Scientist.com, Vera Whole Health, PatientPing, Health Catalyst, and Kyruus.
LTP also manages the Massachusetts Innovation Catalyst Fund (MICF), a $28 million fund that backs Massachusetts healthtech companies. MICF’s investors include members of the Massachusetts Competitive Partnership (MACP), Cozzens says, and the fund is part of a broader imitative, led by private and public-sector stakeholders, aimed at boosting the state’s digital health cluster. MICF and LTP’s main fund will co-invest in promising healthtech companies that have a Massachusetts presence, or plan to move or hire people here.
Here are some other highlights from my conversation with Cozzens:
Xconomy: Are there any types of digital health products that have fallen out of favor, that your fund will avoid?
Todd Cozzens: Unless you’ve got a real specialty EMR [product], the EMR space is covered. … But that’s the digital foundation. On top of that, that’s where all the opportunity is—using the EMR data.
X: What are your thoughts on the applications for artificial intelligence in healthcare?
TC: Every year we’ve got the buzzword, and all of a sudden, everything that we used to call analytics or business intelligence or whatever is now called artificial intelligence.
Machine learning is table stakes now. I think it’s a natural progression of once you have the data layer, and then you start to analyze that data, and then you start to have software that can automate the workflow, and then you want to build in the closed-loop, feedback systems upon which machine learning and A.I. are based, that give more and more power to the machine.
I think you will see more tasks automated, more closed-loop care processes as these [technologies] get better and better going forward. But I wouldn’t say there is a particular thesis around artificial intelligence. It’s like mobile or cloud—it’s more of
