AH059 - Healthcare Sector Update & Outlook, with Bloomberg Intelligence's Jonathan Palmer

Transcript

Lightly edited for clarity.

[00:27] Justin Venneri:

Hello and thanks for listening to Astonishing Healthcare. This is Justin Venneri, your host and Director of Communications at Capital Rx. And today, Jonathan Palmer, Senior Equity Research Analyst and Team Lead at Bloomberg Intelligence, is joining me in the studio. I'm excited to have a discussion about the markets and what's going on, especially to start 2025 here, as things have been pretty interesting.  

Jonathan, thanks for joining me today.

[00:49] Jonathan Palmer: Yeah, it's a pleasure to be here. Thanks for having me.

[00:51] Justin Venneri: So tell us a little bit about what you do and what your team does at Bloomberg to frame things up.

[00:55] Jonathan Palmer: Yeah, sure. So maybe by way of background, my background, I got started in the healthcare industry, gosh, more than 20 years ago at a drug company, Pfizer, and then after about five years made the jump into healthcare-focused financial services at a small boutique investment bank focused on equity research. And in that equity research world, we delineate between, like, the buy side and the sell side. So the sell side are the investment banks who are selling their service, and the buy side are the customers who are consuming those services. So you could think about the mutual funds like a Fidelity or a Capital Group, or maybe some of the big hedge funds like Millennium or Point 72. Those are the customers for equity research.  

And so I had a pretty varied career on the sell side, moving from a boutique bank into an asset management shop and then back to the sell side. And a little over 10 years ago in 2014, I joined Bloomberg Intelligence Group, which at the time was about five years old. And it's an interesting background. You know, Bloomberg was founded in the ‘80s as a data company and their terminal product is synonymous with financial markets. There's about 300,000 of those Bloomberg terminals globally being used for a whole host of things that I don't even understand at this point.  

But they built a research group in 2009, and originally that was seen as almost like a marketing play for the data that sits on the Bloomberg terminal. So, let's get some smart people who know companies and industries and they'll write industry research about some of the data that's sitting on the Bloomberg terminal. And they were going along for a little while doing that. And then Mike Bloomberg, the founder of Bloomberg and former Mayor of New York City, when his term ended, he came back as CEO in 2013 and he asked his management team, what are some of the growth initiatives on the table? And one of the things that was pitched to him was, well, there's a lot of dislocation in the world of research. There's regulations coming around, MiFID, bigger banks, exiting research, some of the boutiques had failed. And so they really saw an opportunity to provide a maybe a little bit differentiated sort of research product.  

And so with that, Bloomberg's a private company and does things maybe a little bit differently. And Mike said, that's great, why don't we invest in that? What are your plans? And they said, well, we want to hire maybe a hundred people over the next three years. We've got 75 people, let's maybe get it to 200 over three years. He said, why don't we hire 200 people in the next six months to a year. And so that's how I came on board. I was part of that big wave of hiring in 2014.  

And what happened then is we also switched the focus of our product. And so previously it had been really focused on high level industry research. But really our clients, Bloomberg's clients, aren't really focused on industries, they're focused on individual stocks and bonds or commodities, you know, you kind of name it. And so we really dove into doing deeper research along those lines. And so today we have about 500 analysts globally, cover 200 companies. We look at credit, strategy, commodities. We do functional research around areas like tax or antitrust or policy, which is a big one for healthcare. Same with litigation.  

And so we're a little bit different than traditional research providers in that we're not an investment bank. We don't have the conflicts of a trading arm; we don't have the conflicts of an investment bank that's trying to do deals. We really look at ourselves as almost like a sell side light doing really thought-provoking independent research in the marketplace.  

And so I've been there about 10 years, and in that time I focused on everything. I mean I used to work in pharma, I used to be a MedTech analyst on the sell side. On the buy side, I looked at everything that wasn't therapeutics. But today my focus is really around healthcare services and also do a little bit of life science technology and diagnostics.

[04:33] Justin Venneri: And you're in a good spot because of all those terminals, because of all the data, and because of all the journalists, right? You have the ability to pull everything together. Is that kind of the concept behind the research you're doing?

[04:44] Jonathan Palmer: Yeah, the way our team adds value to Bloomberg and our clients is through a whole host of different  metrics or ways.  

And so, I think the simplest way is to think about, we provide research and commentary about companies and industries. And that's, you know, probably our day-to-day job. We also kind of work as an internal consultant for the organization at large. And so you mentioned there's a big media arm at Bloomberg, whether it's reporters or TV or radio, we help those folks get smarter when they're interviewing a CEO. They use us as sources for stories.  

And then within the Bloomberg architecture, if you think about that terminal product, which has a whole host of different functions for investment professionals, we're a sounding board for those folks who are developing those new products and functionalities because we've sat in a lot of those seats. We've sat in the investment banks, or we've sat on the investment side. And so the way we add values may be a little bit different than just the narrow research focus an equity analyst might have at an investment bank.

[05:38] Justin Venneri: Makes sense. So this year, new administration, what are the biggest drivers of the volatility we've seen to start the year? And for health care stocks right now, tell us a little bit about what's going on. Is it all Washington, D.C., health policy, is there risk appetite? Is there something else driving markets?

[05:56] Jonathan Palmer: Well, I think you, I think you hit the nail on the head. I think it really revolves around D.C. And when I say that, it's really more about uncertainty. Investors don't love ambiguity. And there's a lot of that these days. And I think the trade and tariff discussions that we're seeing right now are kind of the perfect example of that. It seems like every other day the messaging is changing, you know, from what countries might be hit by what tariffs and the scope of those tariffs. I think it's really difficult for investors to have a view and place a bet when the playing field is constantly changing.  

And so, I think the trade example is maybe the highest profile one. But it's not just trade when we think about what's happening in Washington. And healthcare wasn't really a big part of the Trump campaign. But we now have RFK at HHS, we have Oz at CMS, we have a new head of FDA. And there's a lot of unknowns in terms of how those folks are going to proceed and whether it's going to be business as usual or wholesale change. And I think that uncertainty has put a lot of money on the sidelines, and a lot of people, you know, focused on putting bets into safe havens, if you will, versus areas where they don't know what the outcome might be six months from now, a year from now.  

I think it's easy to say this is broader, a broader discussion than just healthcare, but it feels pretty acute in healthcare right now.

[07:11] Justin Venneri: Yeah, I agree. And we almost saw some pretty meaningful reform in the PBM space at the end of the year, but it got stripped out of the bill. So we're hopefully going to see that come back, the delinking and the drug price indices and things along those lines.  

So given that level of uncertainty, sounds like the risk appetite's low. How receptive would you say the capital markets are to health tech right now, within the whole pie of healthcare?

[07:36] Jonathan Palmer: It's an interesting question. I think the reception to health tech is actually better than it's been in years. If we think about the wave of companies that came public in that 2021 timeframe, there were a lot of interesting tech-enabled healthcare services that went public, either via an IPO or a SPAC. And there was also a ton of money put into privates at pretty lofty post money valuations.  

And so if we think back to that time, money was easy. The idea that tech enabled healthcare was going to really change the world in the middle of the pandemic, you know, was at the forefront of a lot of people's minds and very investable thesis. And I think the reality turned out to be a little bit different, and that tech enabled, while a very good story, where the rubber met the road from a business application and profitability of those companies, there was still something that needed to be done.  

And so I think we've had a little bit of a wholesale reset on that front. If we think about a lot of those companies that came public, you know, many of those have failed. On the private side, we've seen a bunch of down rounds, and some of the companies that are potentially looking to come public in the near term, whether it's this year or next year, it's most likely going to be below the high watermark that they had from a post money valuation perspective.

[08:48] Justin Venneri: So if there's a little bit of a brighter light on health tech within the sector, what's the feedback like or what's the IPO activity like? I think I saw the first SPAC deal I've seen in healthcare in quite a while the other day. Can you give us a little bit of an update on the capital market side of things?

[09:05] Jonathan Palmer: Sure. There's a lot of companies waiting in the wings to go public. You mentioned that SPAC deal. I mean, we recently saw Hinge Health file an S-1 here. I think that's going to be a little bit of the canary in the coal mine. We'll see how that one does and then we'll go from there.  

But there's a whole host of healthcare tech enabled unicorns that are sitting on the sidelines that could be public companies, I think if they wanted to be. They have the scale, they have the revenues, they have the growth, they have a clear pathway to profitability. I think if we think about our 2020, 2021 hat, you know, a lot of VCs probably weren't talking about unit economics and how you get to profitability. There's a clear appetite that you have to be able to show that you can be a profitable company going forward and get to break even or EBITDA positive, whatever the right metric is for the specific company at least, maybe not right out of the gate from coming public, but in a reasonable timeframe.  

And so I think the Hinge one is a great example of testing the markets and we'll see where that goes. And I'm sure you know there's a whole host of other companies that are out there who also would like to go public should that window open up.

[10:11] Justin Venneri: You know, thinking back to like the pandemic, 2020, 2021, rates were so low, thus your comment that money was cheap, it was basically pretty close to free. Do you think we need to see rates come back in a little bit from here or how do interest rates play into this equation?

[10:26] Jonathan Palmer: Yeah, I don't think the IPO markets operate in a vacuum. And the rate discussion's a good one.  

I think the appetite's there to see some new assets come public. I don't know that the rates are necessarily going to be the biggest hurdle for those companies coming public. A lot of these VCs have been sitting on some of these investments for a number of years now and are looking for an exit before they do their next fund. So I think there's an appetite there and we've seen a lot of crossovers and we've seen some things get done that to me, point to the window being a little bit more robust than maybe we thought it was going to be a year ago.

[10:58] Justin Venneri: Cool. And you run a podcast too, Vanguards of Healthcare. Thanks for having AJ on recently. We appreciate that. I'm curious, what's your favorite thing about interviewing healthcare leaders? And a second part to this question, what's one of your favorite recent episodes and why?

[11:12] Jonathan Palmer: Well, thank you for mentioning the Vanguards of Healthcare podcast. And we started that about two years ago. And the genesis of it was our colleagues on the tech side of our business run one called Tech Disruptors. The only difference is that we really only focus on CEO and Founders. The reason for that is that we want to talk to those leaders who are really driving change in the industry and have a very strong view of where the industry can go and how to get there.  

And so with that in mind, I'm a healthcare junkie. You know, I could talk about healthcare and different facets of it till the cows come home. My dad was a pharmaceutical exec, and I grew up in northern New Jersey where everywhere you turn there was a large pharma company right around the corner or a medical device company. And so, healthcare has kind of always been part of the dinner table conversation for me. And having worked in pharma, done medtech, tools, services, I sit on the board of a small biotech, I like to get in the weeds. And so the best way to get in the weeds is actually talking to the brilliant people who have started companies and are really trying to change the industry.  

And I really enjoy the private company CEOs. Public company CEOs tend to be very filtered with their messages. On the private side, the conversations tend to be a little less scripted. And I just seem to learn more in those conversations.  

So you asked which are some of my favorite episodes. I mean, obviously I have to say AJ, your CEO and Founder from Capital Rx is one of the ones that's near and dear to my heart. But.

[12:36] Justin Venneri: Well, I had to say, I had to say A, the plug, but B, I need to link that in the show notes, of course, along with some other materials people might like. But go ahead.

[12:43] Jonathan Palmer: But in all seriousness, I personally tend to like the episodes where the company is in a sector that I've done some work on in the past or done a fair amount of work in my career. And so, for me, Capital Rx actually fits that pretty well because I cover public company pharmacies and PBMs, and that's right in my sweet spot from a discussion standpoint.  

Along that same vein, I also do a fair amount of work in life science, technology and genomics. And so one of the ones that I really liked and enjoyed was an episode with Tempus AI where the discussion was really around how genomics and how AI can transform genomics and how we're treating cancer. That one's great. And then one other one I'll maybe mention just to round it out at three is in addition to sitting down with public and private company CEOs, we also sit down with the Managing Partners of venture capital firms. And they have an interesting lens too, because they're really making those early investments in the companies that I, as an equity analyst, will ultimately see go into the public markets through an IPO or get bought by one of the incumbents down the road. And so hearing what they're seeing at the early stage and where they're placing their bets is fascinating to me as well, because I see a lot of those things come out the other end of the funnel a couple years later, if you will.  

And so one of the ones that I really enjoyed is we had Lynne Chou O'Keefe, who's the founder of Define Ventures, on in the fall, and that's probably my favorite VC episode that we've done so far.

Vanguards of Health Care Episodes

• ‍Vanguards of Health Care: How Capital Rx is Fixing America's Broken Drug Pricing
• Tempus Brings AI to Precision Medicine: Vanguards of Health Care
• Define Ventures' Focus on Early Stage: Vanguards of Health Care

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[14:02] Justin Venneri: Nice. I love those discussions where you learn something, you learn it early on. And then for me, just because I was always moving so fast with the things we were covering in my old life on Wall Street, I would like, forget. And then I would see something like nine months later or a year and a half later, I'm like, oh, yeah. And I have really great notes from that discussion. And wow, look at where they've come. It's really cool to see.

[14:23] Jonathan Palmer: Yeah, I couldn't agree more. I mean, the early view is, I think, invaluable. I mean, there's a selection bias in public markets where I play. These are companies that have gotten to scale, that are for the most part profitable. They have cash flows. Healthcare is a pretty healthy defensive business once you get up and running. And so, the early-stage piece where not everybody's going to make it, and the VCs have to have a thesis around where the market is going, and understanding what's driving that thesis is pretty fascinating.

[14:52] Justin Venneri: Yeah, the defensiveness of healthcare probably helps right about now quite a bit. A, people need healthcare, so it's kind of like an inelastic curve there, and B, there's a lot of good things going on. So I'm excited too to see how Hinge does and hopefully the appetite changes or the willingness of people to back some of these companies, because there's a lot of folks doing exciting things out there.  

And it's funny, growing up in North Jersey as well, I vividly remember seeing all the big buildings, and I'm like what are those?

[15:18] Jonathan Palmer: That's Exactly.

[15:20] Justin Venneri: It's the J & Js, it's the –.

[15:22] Jonathan Palmer: Right, the Mercks, the companies that are all part of Novartis or Sanofi now.

[15:29] Justin Venneri: So what couple of trends are you or are institutional investors watching most closely for the rest of the year and for 2026?

[15:37] Jonathan Palmer: Yeah, it's a good question. Our group and my team does a whole bunch of year ahead outlooks to start the year. And so, we touched on this a little bit earlier. But I think the overarching theme right now is what's going to happen on the policy front. I think that's where the greatest unknown is, to be honest with you. And we mentioned, you know, whether that's FDA, FTC, DOJ, CMS, all the acronyms, what's going to happen in each of those departments?  

And so that's where we're spending a lot of our time, trying to answer some of these questions of what is the ultimate downstream impact to those who play in those markets? You know, thinking about sector-specific things that are on the top of our mind.  

In pharma the GLP-1 craze is continuing. There's a lot of work being done around the follow-ons, whether it's oral, the new indications, all that sort of great stuff on the innovation front. Also in oncology, there's a bunch of interesting readouts happening this year. So that kind of really covers the biopharma sphere.  

In MedTech, the stories are really around product innovation and there's a whole host of things that are really interesting, whether that's cardioablation or the ever-changing insulin delivery market. And you know, particularly these days, there's a lot of focus on robotics, surgical robotics across the sector.  

But there's also some concerns around capital spending in that sector, whether that's in the US on the provider side or even globally in places like China, which has been a big growth engine for a lot of product companies in healthcare.  

So, rounding out the rest of the sector views, in tools, we're watching what's happening with pharma spending patterns. That market has seen a slowdown from things like the IRA causing pharma to rebalance their budgets and maybe reprioritize product and spending. There's also been a trend in bioproduction and that's the equipment and services for manufacturing biologics. And that marketplace had a huge swing upwards with the pandemic and all the vaccine production, and that's been repurposed now into other modalities. But that recovery has taken longer than expected.  

And so last but not least, the healthcare services world where you guys play. This encompasses a lot of different subsectors. And so a couple of things we're watching and in pharmacy we're really paying attention to how the adoption of new pricing models is going to play out. You know, whether that's on the pharmacy side or the PBM side. We're acutely aware of the shuttering of retail stores, you know, whether it's Walgreens or CVS. And we're really looking at the online trends that are happening as well. I think Amazon's not a big player in pharmacy, but I think if you ask me this question, in 10, 20 years they will be.  

Across the managed care space, the hot topic has been utilization and Medicare Advantage. There was a lot of angst last year for those players as utilization ticked higher and MORs just skyrocketed. So we're really watching what's happening in MA and in terms of enrollment trends.  

And then within the tech-enabled services, we talked about the IPO window and there's companies waiting in the wings to go public. So we're just going to see how that kind of plays out because I think we're after maybe a couple years where investors weren't that interested in those stories in those companies. It seems like the tide has turned and now we have some new assets coming to market. It might be a good time to start looking at those stories again.

[18:43] Justin Venneri: That's an amazing overview. Thank you, Jonathan. I would love to link one or two of those reports in the show notes for listeners as well.

[18:49] Jonathan Palmer: We'd be happy to send that your way.

Reference Health Care Outlook Articles Courtesy of Bloomberg Intelligence

• North America Managed-Care Policy Outlook
• N.A. Health-Care Tech, Distribution: 2025 Outlook

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[18:50] Justin Venneri: Excellent. All right, and here we are. Thanks so much for spending the time with us today. Last question I ask everybody, and I'm sure you've seen a ton over the years, make sure it's a compliant one, but what's the most astonishing or surprising thing you've seen through the years as you've covered the healthcare space?

[19:06] Jonathan Palmer: That's a tough one. I'd be loath to point to one specific example, but I'd say having followed the industry and particularly the public markets now for about 20 years, you know, nothing really surprises me on that front at this juncture. I think anything that can happen under the sun kind of does at some point in time.  

But I say the one thing that always strikes me is that I'm always surprised at some of the deals that get done in this space that leave me scratching my head either on the strategic rationale or on the financial side wondering why this deal got done and who on the board voted that this was a good idea. And there's probably a graveyard full of those examples. And there's a couple in that tech-enabled healthcare space where people vastly overpaid for assets. There's deals that somebody wants to add a third leg to the stool in a business that they've never been in before, so they buy it and then a year later they're shutting it down and you're just going, oh my God, how did this -- I could have told you that's not a good idea.  

But nothing really surprises me at this juncture anymore. Anything that can happen will, and I think that's what actually makes the job really interesting from where I sit.  

There's always something new, whether it's on the innovation front or the business model front that keeps it fresh and keeps you on your toes. And so I love healthcare, and I think it's the most interesting sector to follow. Obviously, we're biased here, sitting where we do.

[20:27] Justin Venneri: Yep.

[20:28] Jonathan Palmer: But it's been an excellent run and I'm looking forward to see what happens the next 5 to 10 years in healthcare. And I know, even though I might prognosticate that I think this is going to happen or that's going to happen, the road is pretty windy, and we'll see where we wind up.

[20:40] Justin Venneri: Agreed. Yeah. And being an information junkie and healthcare enthusiast myself, I'd love to have you back on. Thanks so much for joining us today.

[20:49] Jonathan Palmer: Thank you so much for having me. It's been a pleasure. Justin.

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