24 BARRON’S September 28, 2020
trying to deliver a better private
insurance plan than Medicare’s fee-for-
service plan, and at lower cost, by
putting the patient and physician at the
center of decision-making. Throughout
the Covid crisis, the company has been
sending its people to seniors’ homes to
make sure they have enough food and
are getting their drug prescriptions
refilled, and that chronically ill people
are seeing their specialists. Humana is
operating in a marketplace that has
secular tailwinds, given the
demographic backdrop in the U.S. This
is a win/win for the key stakeholders,
and shareholders should benefit, too.
We were private investors in Oak
Street Health [OSH], which went
public in August. The company is
building primary-care clinics for
Medicare patients and dramatically
lowering costs. Its NPS [net promoter
score, a measure of customer
satisfaction] is through the roof. When
this can be done at a national scale,
which will happen over the next five to
10 years, it will create a very different
experience for the next generation of
people using Medicare. This is yet
another secular grower with long-term
tailwinds that can take costs out of the
system.
We are also investors in Alignment
Healthcare, a privately held provider
of Medicare Advantage plans in
Southern California. It is delivering a
similar experience. Agilon Health,
which we don’t own, is partnering
with physicians to replace the fee-for-
service model with one focused on
value-based care. You’re starting to
see these companies gain scale in
their local communities. At scale, they
will deliver better care and a more
modern health-care solution that
consumers are used to in other parts
of their lives, all at lower cost to the
system. There is a long runway for
growth for the entire category of
companies in this area.
Dozens of health-care companies
have come public this year. Does the
market for health-care IPOs look
frothy?
Yoon: Companies are going public
earlier, and at higher valuations than in
the past. Some of the prices will be
justified, and some might not be.
Hopefully, those with great
fundamentals will create long-term
value for shareholders.
Abbie, as someone actively involved
in venture-capital investing, what is
your view?
Celniker: I wouldn’t say the market is
ahead of itself. People need a place to
put their money, and they are putting it
where they see value. We are seeing
nonspecialists, or general-interest
investors, buy into a lot of biotech
IPOs. This is due to a unique time—as
a result of Covid, there is increased
awareness about our industry. That’s a
bit different from the froth we have
seen in past IPO cycles, when people
were just chasing hot names.
Casdin: What is expensive for
companies growing 30%, 40%, 50%,
60% a year? Growth is always
expensive. Today, the total addressable
market for some of these businesses is
enormous, which supports multiples.
For a long time, biotech investing was
event-driven: Buy the rumor, sell the
news. Most companies were no-hit or
one-hit wonders. Sometimes, when the
generalists move in, it is a sign of
trouble coming, but in this case, the
predictability of product development
in the industry is getting much better.
We are moving past the 5% success rate
of drugs in development to success
rates of 30%, 40%, 50%. The
enthusiasm rests on a stronger
foundation than it ever has before.
Porges: Again, I will take a
controversial view. These stocks are
ridiculously cheap! AbbVie [ABBV]
yields 5.5%. What can you buy in the
Abbie Celniker
Pliant
Therapeutics
PLRX
$22.42
Revolution
Medicines
RVMD
$31.41
Goldfinch Bio*
Tango
Therapeutics*
*Privately held
Prices as of 9/24/20
Source: FactSet