Good morning, everyone. I'm Jonathan Norris, the lead author for SVB Healthcare's Investments and Exits Report, and I'm managing director for SVB Healthcare. I'd like to welcome everyone to our webinar titled Navigating the Current: Down Cycle in Healthcare. Next slide, please. Just a couple of housekeeping notes before we begin. All lines have been placed on mute to prevent any background noise. The chat function has been disabled, but please feel free to submit your questions at any time in the Q&A panel at the bottom of the screen. To turn off the closed captioning feature, please click the live transcript button on the bottom Zoom bar. And just so you know, we'll send a link to the recording after the webinar. Next slide. So before we get to the panel and Q&A and learn from really some fantastic experts we have here, I'm going to set the stage by providing a quick overview of what we observed in 2022. Next slide. And speaking of which, we really have an amazing panel for you today with Julie Yoo from Andreessen Horowitz and Carolyn Ng from TPG Life Sciences Innovations, moderated by Erin Brodwin, who's a noted healthcare reporter at Axios. Next slide. So in the coming overview, I'll review venture fundraising and then detail how those dollars are being invested into biopharma, health tech, Dx tools, and device companies. Additionally, I'll go over the current M&A and IPO landscape and then talk about what we think 2023 will hold for the venture healthcare ecosystem. So let's get into it. Next slide. So let's start with fundraising and investment. Next slide, please. This first slide measures healthcare investor fundraising in the US. We look at every US fund and research whether any allocations planned for venture-backed healthcare companies. For firms like Frazier and 5AM, healthcare allocations are 100%. But for investors like Oak or Lightspeed or Tiger Global, we look at current and historical investment trends to estimate the percentage we believe will be allocated to venture healthcare investments. With that, we saw a huge fundraising increase from 2020 to 2021 to a record $28 billion. In 2022, the first half was very strong, but the second half dropped dramatically. And we ended up down about 20% from 2021, but still the second biggest year on record. Despite the drop, I think the important takeaway here is that there's been over $50 billion raised in new funds over the last two years dedicated for venture healthcare investment. It's a record amount and a welcome difference from the last downturn in 2009, where many firms were without fresh funds and had very limited dry powder. Next slide, please. So with record healthcare dollars available for investment, let's see how investments fared. When you look at this quarterly graph, please keep in mind that in 2018 and 2019, the yearly investment into venture-backed healthcare companies in the U.S. and Europe was only about $33 billion or so. 2020 almost doubled those to about $58 billion, and 2021 set the new record at $86 billion. So despite economic headwinds, when we look at 2022, investment was strong in the Q1. However, each successive quarter saw a decline in investment with what appeared to be a leveling out in Q4. In the end, though, 2022 came in ahead of 2020 investment. We think there's really two main reasons for the decrease from 2021. First, investors had to dedicate more time and capital to their existing portfolio in 2022 versus making new investments. Milestones to unlock the next outside or lead round have shifted, forcing many investors to work with their companies to revisit cash burn and business model. Second, in later stage, we see fewer large pre-IPO mezzanine rounds. Plus, later stage deals overall have declined as investors slowed their deal pace and tried to reconcile the current valuation environment, so now let's turn to our sector-specific analysis, starting with biopharma, so first, let's talk early stage. Seed/ Series A investment stayed strong in 2022 in biopharma, down from 2021, but equaling 2020 activity, and we noted a few interesting points for early stage biopharma. One was an increased syndication in institutional seed rounds, as VC sought another deep-pocketed investor to come in for financing protection, but it's also potentially pre-funding the A. Another interesting note was a decline in early stage oncology investment in deals, both decreasing 50% from first half to second half in 2022. We believe that many investors are pausing new oncology investments, waiting for their existing oncology bets to play out. But overall, as you can see in this slide, activity was similar to 2020, although second half numbers fell slightly below that pace. This decrease was led by a sharp decline in likely- to- IPO LIPO deals, which we define as $40 million plus pre-IPO private rounds that are led by the most active crossover investors. These deals declined to just single-digit activity per quarter in the second half of 2022 as crossover investors stepped back their investment and IPO activity reduced. We also noted the trend of companies closing more insider rounds in 2022 to defer valuation discussions with new investors. However, in Q4, we did see an increasing number of companies capitulated, sort of, to the current market and raise new rounds with new investors at slight down rounds, so basically right-sizing valuation in order to bring in new investor money and dry powder to support the company going forward. Next slide. After a very robust Series A activity in 2020 and 2021, we noted a steady decline in Series B deals in 2022, as many preclinical Series A companies found that B round investors are demanding clinical data. This has forced many Series A companies to raise insider extensions and bridges to provide more time and resources to meet these new milestone requirements. While these insider rounds deplete existing insider dry powder, the hope is that these companies will use the funding to hit milestones and unlock new investment. Many of these stories really are going to unfold in what we think will be a very crowded, difficult financing market in the second half of 2023. Now let's shift over to health tech. Next slide, please. We'll begin with early stage. Despite significant declines in overall investment in health tech, Seed/ Series A investment set a new record at $3.2 billion, eclipsing 2021 investment as investors focused on early stage deals that have not seen inflated round sizes and valuations from the previous few years. Provider operations, alternative care, and wellness education all saw investment increases over 2021 in early stage. We also noted an uptick in women's health investment with notable expansion in areas such as menopause, pelvic floor therapy, and sexual health. In health tech overall, as you see in this slide, we saw investment decrease each quarter in 2022, with Q4 actually below 2020's pace. The big financings, ones that were over $200 million, fell from $40 million in 2021 to just $14 million. Provider operations led all health tech investment in 2022, focused on the solutions to improve workflow, reduce burnout, and/or adopt managed care models. There's a healthy dose of concern although that there may be too many startups in the provider ops subsector, as provider adoption of new technology has historically been slow. But really, acquirer interest has been strong here, with provider operations companies leading all other health tech subsectors in M&A over the past few years. In other trends, you can see alternative care saw a free fall in overall investment, down 66% from 2021. However, within alternative care, mental health investment continued to be a bright spot. Some of the bigger financings highlighted mental health companies that could prove tangible value for patients, especially through employer-sponsored benefits. But we also saw some private-private consolidation of mental health, with point solution companies merging to offer whole-person platform care. Next slide. So similar to biopharma, we saw a decline in Series B activity in health tech. Many Series A's were forced to raise insider rounds as new potential investors sharpened their pencils on valuation and demanded strong unit economics. At the same time, revenue growth was tough, as we saw customers push for tangible improvements in clinical outcomes and cost effectiveness. While there's a lot of dedicated healthcare capital available, again, we think it could be a challenge for companies in the second half of 2023, with a large crowd of Series A deals coming back to the market. Now on to Dx tools. Next slide, please. In early stage, Dx tools was similar to health tech, with Seed A investment up versus 2021, while at the same time, the overall sector saw a steep drop in investment. Our hypothesis here is that with a difficult public market and slower M&A, the most active Dx tools investors will look to invest in larger Series A deals that provide burn into 2024 and hopefully navigate through the current tougher financing environment before raising Series B. Early stage Dx test investment deals doubled in dollars, with four of the six largest Dx test deals in cancer liquid biopsy companies. This continued to be a very hot area, although we do think there could be some private-private consolidation overall in liquid biopsy space in 2023. Overall, Dx tools investment dropped significantly in the second half of 2022. The larger $100 million financings reduced more than 50%. We really saw R&D tools and Dx test investment slump, but Dx analytics, which we describe as actionable data used to inform patient treatment options, typically in a SaaS format, stayed consistent. The biggest deals in Dx analytics obtained crossover growth support, with four of the top five also adding biopharma corporates, which seem to be active in both investments and collaborations in the Dx analytics subsector. So now on to device. Series A activity continues to be surprisingly strong in device, although investment did dip in Q4. Non-invasive monitoring, defined as sensor-based wearable technology that can track and send data, has dominated early stage activity over the previous two years, but pulled back in both deals and dollars in 2022. Instead, we saw increases in drug delivery technologies and continued surge in orthopedics and ophthalmology. Overall, device investment stayed strong, with the smallest investment decline in 2022 versus any other healthcare sector. $100 million financings actually increased in 2022, with 16 deals versus 11 in 2021. While non-invasive monitoring declined in early stage, later stage investment increased by 80% and had two companies with post-money values over a billion dollars. We believe later stage growth, crossover, and PE firms have identified revenue-generating device deals as a good area to invest during the cycle. Revenue stories with good gross margins and the ability to scale growth up and down seem like safer bets in this tumultuous market. That later stage financing spurt could spur some interesting device M&A and create some very strong IPO plays when the public market opens up. However, on the other hand, we've also seen later stage device deals start to include more structure, including pay-to-play provisions and liquidation preferences for new investors. We expect to see more structured deals in later stage device in 2023. Now let's turn to the exit environment. Next slide, starting with Biopharma. In Biopharma, venture-backed IPOs fell to just 19 in 2022, with only 11 in the U.S. and Europe. On the bottom right, you can see IPO cohort year and how post-IPO performance skyrocketed and then fell over the past few years. On the good news side, the U.S. and European post-IPO activity was actually pretty good this last year. Additionally, we noted several 2021 IPOs show early stage positive clinical results in the second half of 2022 that pushed their IPO share price upwards. Next slide. For M&A, we predicted M&A in 2022 would focus on public companies that were trading off their all-time highs. That really proved out. There were eight M&As of recent IPOs that generated total exit values in excess of $20 billion. It's been more difficult in the private market because the last valuation really is static. Later stage post-money valuations from the past few years looked frothy compared to current public market comps. While two of the private deals acquired in the first half of 2022 were large deal values, compared to the most recent private financing post-money values, the return multiples for the last round were on the lower side. The second half really reverted to early stage acquisitions, with five of the six exits at preclinical stage, with what appears to be strong returns. So we really do expect a barbell approach to M&A in 2023, consisting of preclinical plays that represent quicker high multiple exits and pre-IPO crossover funded deals at lower multiples, although I wouldn't be surprised to see a few billion-dollar private deals in 2023. So on to health tech. In health tech, while M&A transaction volumes remain at historic highs, venture-backed U.S. IPOs fell to zero. Health tech IPOs over the past few years have not really performed well as a class, and the SPACs that we've seen have actually performed even worse. Next slide. Venture-backed M&A activity for $50 million plus deal values was down significantly from the record in 2021, but was similar to 2020. Mirroring later stage biopharma, some deals have impacted multiples for investors, and there were a couple of M&A deals in 2022 that had lower exit value than last round post-money. We think traditional acquirers will continue to be more selective as most are still in kind of a wait-and-see mode around private company valuation and revenue ramp. We think private health tech companies, as well as big tech companies, will become opportunistic acquirers of health tech companies in 2023. Now, with public markets a struggle right now, some high-performing private companies with revenue growth could be in a good position for some big M&A. Next slide. So on to Dx tools. After an extraordinary 2021, Dx tools exits declined more than 70%. IPOs from 2020 and 2021 really have suffered. 21 of the 32 IPOs from 2021 are down more than 70% from their IPO price. And there were no US venture-backed offerings in 2022. Next slide. In M&A, deal sizes and time to exit are both down. The M&A focus in 2022 really was on Dx test deals, either to bolster underlying markets like health tech Ro pickup at Dadi, or else growing into new markets like Castle's acquisition of AltheaDx. We also saw a public biotech company pick up an R&D tools company to help with cell therapy manufacturing. We think we're going to see even more cross-sector pickups going forward in Dx tools. In device, the exits really were off the charts in terms of numbers in 2021, but in 2022, M&As declined more than 50%, and public markets appear closed. 2019 IPOs continue to be outliers in healthcare, reporting the best post-IPO performance of all sectors led by companies like Shockwave and TransMedics and Silk Road. However, 2020 and 2021 IPOs have given back all the post-IPO performance gains in 2022. On the M&A side, it set a record for transactions in 2021, but poor performance in the public markets has forced many public companies to revisit cash spend and push the thought of acquiring new technologies to the back burner. As a result, device M&A activity is much lower in 2022. Median upfront deal value was down 41% from 2021 numbers. But if we look historically, I think it's interesting. Since 2017, orthopedics deals lead all M&A activity, with seven deals in just the last two years. However, deal size and time to exit have lagged other indications. Cardiovascular was second, with the majority of deals being PMA pathway companies that were acquired prior to FDA approval. Next slide. So with that, let's look forward to 2023 and beyond. We really think venture fundraising will continue to slow as investors slow their deal pace, with 2023 fundraising probably coming in slightly below 2020 levels. But there's still a boatload of capital available for venture healthcare. Plus, we see the recent trend of venture firms closing opportunity funds that could provide additional dry powder for companies that can consider financing with a new lead investor. In biopharma, we predict Series A activity and valuations remain pretty strong. Overall, less crossover activity will keep investments around 2020 levels. We do think there's going to be some IPOs in 2023 by companies that have very strong crossover and venture syndicate with near-term data readouts. And we think private M&A should increase as well. In health tech, we think investment again will be similar to 2020 investment levels, with some private-private consolidation in two areas. First, to create a go-forward stronger company that can consider the next round of financing. And second, sort of traditional M&A, but by larger private companies to bolt on technology or expand platforms. We do anticipate an expanded set of acquirers, both tech and health tech, that could spur some big transactions in 2023, although I do think IPOs are going to be difficult. In Dx tools, we see a rebound to 2020 pace, especially as some very high-flying, high-value private companies will need to raise another round in 2023. I think there's going to be a continued slow pace in M&A, and hope the markets will be receptive for a few IPOs with strong revenue growth stories in this year. In device, many later stage deals already raised this last year, so we predict a slowdown in total investment. IPO window will probably stay closed, but we do think M&A will pick up from 2022 and may include some larger revenue story device deals that otherwise might have gone public. So that's a quick overview of the report. We have a lot more content that we didn't get to, so please feel free to review the full report. We'll include it in the link with the webinar replay email. So thanks so much for listening. I'm now excited to turn it over to Erin and our panelists. Erin, I think you're on mute. Classic. 2023. Everyone, I'm Erin, a tech reporter with Axios, and I'm super excited to be joined here by Jonathan Norris, SVB, Julie Yoo from Andreessen, and Carolyn Ng from TPG. I really want to start out with just a generic question because I enjoy this perspective of looking back to look forward, and I want to put everything that we're going to discuss today in context. And I'm just going to ask all of you, are we witnessing a typical cycle or not? I'll jump out. I think yes, in the sense that if you look at the charts that John just showed and sort of removed 2020 and 2021 and drew kind of the line of best fit, we are back on track relative to what the growth rates were prior to the pandemic versus 2019. And so in that sense, and that goes for the amount of capital raise, we've done internal versions of that looking at growth rates of our companies, lives under management and digital health, valuations, et cetera, et cetera. So any cut of metrics has that same characteristic that we're sort of on track if you just remove those two outlier years. So that's a lot of the messaging that we're giving to our founders is it's not that the industry crashed, it's just that the last two years were such outliers that we should just recalibrate our baseline to not overfit for those two years, but rather just kind of look at the straight path that exists relative to 2019. Yeah, I feel like that's what I'm hearing as well. Carolyn, Jonathan? I think for the XBI, if we track back sort of to the trough in the 2000s, right, we definitely have seen a historical impressive bull run for the last 10 years or so. And then the pandemic happened, and then we saw this over-exuberance of the bubble growing even further. So in a way, we should actually be expecting a market correction at this point with the bubble bursting, so to speak. But on the other hand, I think what is perhaps driving some of these negative market sentiment is that this down drop has lasted way longer than we've actually ever seen historically. So we're running the 70-plus weeks, and everyone's asking the question of when is that ending? And hopefully, the macro factors this year will help ease some of that, and hopefully, we're back to a recovery mode, right, to ride on and our way to another bull run for another 5 to 10 years, who knows. But that's something to remain to be seen. Yeah, and I'll just say, it's definitely been an unprecedented up cycle the last five, six years. And I think a lot of people almost forgot that things were cyclical, and now we're being reminded of that. I will say that the traditional venture investors always know that. Their fund cycle is 8-10 years to get all the way through their whole portfolio. They know it's very unexpected to have a full cycle of just up or down for those entire 10 years. So everyone understands the cyclicality. I think it's probably a little bit more difficult from the folks who have been in and out of the market, who are looking for that on the opportunistic side. I also think it's maybe a little bit of a challenge for new entrepreneurs who maybe have really been focused in this market the last four, five, six years and have seen just everything go up and to the right. And it's a challenge. And it's a challenge because money has been so readily available for so long, and now you have to really think about cash burn. You have to think about the next round of financing. It's not so easy. But I do think, again, the investors that have been here and done that understand that it is cyclical, and they can help educate the companies that are part of their portfolio. Yeah. On that note, a lot of companies, I won't name any here, raised capital at sky-high valuations in recent years. And the rubber is obviously going to hit the road here, if not in the next couple of months, probably second half of 2023 is my guess. I'd love to hear from all of you your advice on how to manage this next round of financing. Jonathan, you were kind of mentioning some ideas of institutional folks helping out the newer folks, but what's going to happen here? What do they do? So I think having to make a start, and Julie and Jonathan, feel free to jump in. I think this is really about value creation, I think, in the true sense of the word today. With any downturn, the bull market is gone and momentum plays are gone, so I think at this point, investors are going back to fundamentals-driven investment and a lot less so momentum, and I think how that translates to biopharma industry is that when it comes to core platform ideas, for example, people are going to want to see how you're going to apply them, what are specific clinical programs, and what are indications you're intending to treat, so I think during this period of time, I think we're going to see a lot more of that sort of coming out in investment underwriting, and people want to see sort of what the funding actually creates in terms of value creation. So there will be a lot more thought going into what kind of milestones are we actually really achieving here. Is it just an IND file, and perhaps that's meaningful for certain platforms, but perhaps that is not for some others? So there's going to be a lot more thinking around what this funding is going to take them to and whether or not that is truly a value-creating milestone. I think in most cases, that probably might be a clinical cut for a lot of indications, and people are going to want to see that, right? And I think secondly, the other area for companies who are raising money in this year is actually the prioritization of the pipeline programs. I think for many years, when cash is abundant, there is that whole idea of, "I'm going to test my novel platform technology with a tested indication that's sort of been tried and tested and the same targeted like 19 other countries' companies already gone after," right? I'm not sure whether those ideas are going to get those types of approaches going to get funded today. I think there is perhaps some thought going into, "Perhaps let's just put our best foot forward about what is truly the value driver for this platform, for this idea, for the science and technology, and let's conserve resources to go after them instead of being a 20th me- too in a lead indication. " Yeah, doesn't sound like a bad plan to me. Yeah. I think practically speaking, I'll just walk through what we're doing with our portfolio, the companies that might have to raise this year. One is just run the math and actually work backwards from whatever your valuation was in the last couple of years, calculate based on current multiples, what revenue you need to be at to be able to sort of earn your way into that valuation, and then see what your runway looks like from there. Do all the things that Carolyn just mentioned with regards to evaluating projects, shutting down things that are speculative, really focusing on your core, and then obviously shoring up the unit economics story. You don't have to prove that you're profitable today, of course, but understanding what that narrative, what you need to believe basically to have line of sight to cash flow breakeven, so that's kind of exercise number one. Number two is then if you do need to raise, just recognize that processes will take longer in this market. And again, everything's relative, so I consider it normal to take six to eight months to raise capital, but it will take six months or more, which is very different than what it was in the last couple of years. And so you'll want to go into your fundraising process with at least 12 months of runway, if not more, just to make sure that you have enough leverage in that discussion. And then third, which is also, I think, increasingly important, especially in digital health, which is less of a mature market, I would say, than life sciences in many ways, is to really spend time curating the downstream capital markets and really leveraging your existing VCs. This is a lot of the work that we're doing on behalf of our founders is meeting with all the downstream capital partners to say, "Who is actually deploying capital? Under what circumstances are you doing so? What VCs are you investing against? Which ones are aligned with our portfolio companies?" et cetera, so that people aren't spinning wheels with folks who have all the time in the world these days to be doing a lot of diligence but might not be able to pull the trigger on the basis of the profile of the business. So I think those are the three pillars that we sort of have outlined for any of our businesses that might be in a position to need to raise this year. Yeah. Honestly, those all sound like good things to be doing at any time, but especially in this market. Yeah. Maybe just to add on to that, the last thing that it's easy for me to say, sort of sitting back and looking at all the data and the numbers, is also just to understand what the current market is for public market comps and understand that valuation is under assault and it's different than what you saw in 2020 and 2021. Not to get too caught up in valuation and having new investing partners coming in with dry powder to help support your company going forward is probably a lot more important than trying to save valuation. Maybe resizing and right-sizing valuation from valuations that really were ahead of themselves a lot in 2021 for a lot of financing we saw is okay. And accepting that and just realizing it's more important to have great investors around the table and new investors that you can bring in rather than trying to save valuation. Yeah, I would definitely reinforce those two points that, one, people will have to make the tough decision about taking structured terms over just doing a down round on the valuation side and keeping it as clean as possible. And I said this on stage a few months ago, but any founder who has already gone public or is kind of looking in the rearview mirror at their founder journey says that there was always a round that was painful, and they regret the amount of hand-wringing that they did over optimizing for valuation in that round. Like 100% of people that you talk to after the fact say that. And so we try as much as possible to put our founders in front of those people so they hear it straight from the horse's mouth, of course. But I think that's one thing that will be very prevalent this year. And then the second, to your point, John, is I think we are going to be seeing increasing syndication. I mean, similar to what you already see in the life sciences space that I'm sure Carolyn is participating in all the time. But in health tech, we've been a little bit more like enterprise tech or consumer tech where there's generally a lead investor who's taking the majority of the round and not so much sort of partnership with other funds. But I do think that in health tech, especially just given the capital needs of a lot of the business models, that we will see more frenemies playing nice with each other on rounds where they're sharing equity. Yeah. What are you seeing? I'd love to hear more about that. I want to hear what you're seeing in terms of unique deal structures. It sounds like there's a lot of different things happening. Give me some examples. Yeah, I think that's one is just being willing to share cap table space with investors that genuinely have sort of complementary value propositions and things to bring to the table that might be unique between the two firms or three firms, however many it is. I think the other piece is definitely strategics getting involved in rounds. Again, this is something that we sort of historically saw over the course of the last decade prior to this phase, but tying equity investments from strategics to commercial commitments, I think will be. be. It's a good game to play. If you construct it in the right way, it sort of de-risks a lot of the commercial risk that is typically associated with these growth-stage healthcare companies. Again, taking kind of a syndicated approach where you have multiple parties around the table so that no single one has outsized power relative to others. But you've covered a ton of these deals, Erin, where you are seeing strategics really leaning in, leading deals, and always tying it to commercial milestones that ends up being a win-win for both sides. This definitely feels like a year of a strategic comeback. Carolyn, Jonathan, thoughts on that? Yeah, absolutely. I think we sort of talked about that a little bit during our prep call, is that during the bull run, especially in 2020 and early 2021, when there were a lot of crossover funds that were jumping into early and early rounds and also other, for lack of better word, tourist investors, right, in our sector that are perhaps a little bit more generalist and also more opportunistic. I think during those days, it was so difficult to get into any financing. And term sheets were being thrown around very quickly with very little scrutiny and diligence. And at that point, it was actually quite difficult for companies to actually get to squeeze in a corporate VC at that point because they always preferred to sort of take money from a non-strategic. I think now actually the tides have turned, and it's actually a really great time for companies to think about alternative sources of financing, and that includes non-traditional VC funds. And that could be strategics and corporate VCs. They could be great partners because they are not limited by the same type of cycles, right, that we as traditional closed-ended funds are subject to. So there are limitations in that kind of structure, which CVCs are not subject to, and they remain pretty committed to the innovation in sciences. So I think it's a whole point about being more creative as an entrepreneur to think about funding sources, that it could be new funding sources that open up even during a downturn market. Yeah. And I would just say on that, great points by both panelists. In fact, not giving away my age too much, but thinking back to 2009, what was interesting is I really felt like there was a retrenchment on the corporate strategic side in terms of support and dry powder for their existing companies. That was a real problem. I was a little bit interested to really dig in in 2022 when we were actually in the midst of a down cycle to see how strategics are thinking about things. I was really surprised in a good way with a lot of the conversations that we're having with corporates and CVCs that they're, if not doubling down, staying and keeping their same pace from 2020. They're supporting their companies. It's really good to see because they become a really important part of the ecosystem because not only are they help supporting companies, obviously. They can be the end buyer in these situations. So I would say definitely a bright spot in 2022 and going forward versus maybe what we saw in the last major downturn back in the day. Yeah. I love the pace of this conversation. I could talk about general questions probably for the next three hours, but I don't think we have the time. I want to transition to some more specific industry questions. Carolyn, I think let's start with you. How does med tech investing compare these days with other life science categories? What are you seeing? Is there a lag? I'm seeing some discussion of that. Do you expect to see more build-to-buy deals happening there? What are your thoughts there? I actually probably defer to John to take that one on, and I'll focus on the life sciences piece in biotech. John, you want to take that one? Yeah. I think med tech is really interesting. If I think overall about med tech, I sort of characterize it as the steady eddy of the healthcare sectors. You didn't see the huge valuations as well as potentially the huge exits that you saw in biopharma over the last few years. You saw a steady increase in investment, and actually, it was so interesting to see that med tech actually had the smallest decrease in investment in 2022 versus 2021. I think that sector is, again, always been sort of on the lower side in terms of invested capital, but really started to see a lot of late-stage interest from folks that are outside of the traditional med tech investor set coming in because I do think, in a sense, to your point, Erin, that there's a little bit of a safe haven for companies that have revenue that can take their foot on and off the accelerator. They can bump along and get close to profitability, or they can really scale and grow revenues. And you really kind of set a floor in terms of potential exit in those deals. And so we did see some of the biopharma crossovers get involved in device. You're seeing a lot of the hedge funds and the growth capital folks doing that. I do think it makes a lot of sense. What's exciting to that point is that while maybe the IPO market isn't open in med tech, but having these late-stage larger financings really empower these companies to grow. So it's really going to set a good crop of revenue-generating companies, 50 million plus in revs. Those are the types of stories that we'll likely think about IPO when the market opens up, or if they can be close to being accretive or they can change their model and leverage the sales force of a big corporate, those could be really big exits as well. So I'm excited about med tech. I think it's in a pretty good space right now. The other thing I'll highlight also, John, from your report is I think it's interesting that there is convergence between digital health and med tech, right? A lot of the names that you had out there were Biofourmis, Medically Home, even Current Health, which got acquired by Best Buy. Is that a digital health company or is it a device company? And I think the hybrid business models actually mitigate a lot of the risk of why people traditionally might not have been leaning into med tech, where you have manufacturing risk and supply chain risk. But if you can mitigate that with software-like revenue and margin streams, as well as being able to tap into value-based payment rails in the way that some of these companies are doing, I think that creates a really interesting hybrid opportunity. And I also think it's inevitable that if we're unbundling healthcare and care will be delivered outside of the hospital, that devices will have to play a very critical role, a foundational role in that equation. And so I think whereas maybe three years ago, our team probably would have said anything that had a device in it, we're not interested. I think we're actually being very eyes wide open about these hybrid models that actually have a lot of the characteristics, the favorable characteristics of more software and tech-type companies combined with the ability to generate novel measurements that actually have a real impact on care model. So given all of that, we've seen non-invasive remote monitoring companies raise triple-digit rounds. I think everyone mentioned Biofourmis already. But word on the street, at least from what I'm hearing, is that support for that is declining a bit, perhaps because of a lack of dedicated staff or other incentives to kind of act on those alerts. I was talking with one investor not too long ago. I think probably at JPMorgan, about how what we really need is not necessarily just traditional remote patient monitoring, but rather RPMM, or as he put it, remote patient monitoring and management. What are your thoughts on that? Yeah, maybe on the device side, I think it's not evident from the data that there's any sort of assault on that area. It feels like there's a lot of interest. And I think in the end, it's going to come down to the big medical device players are definitely very interested in this arena. It allows them to expand their reach with the patient. And I think remote monitoring solutions are going to be important. We've seen some big exits over the last couple of years that sort of put that into play in terms of actually getting these deals over the goal line. So, I'm feeling pretty strong about it's an important part of the ecosystem. Whether that sort of translates to some of these companies that are now in the billion-dollar-plus post-money valuation exiting in that arena or north of that, hard to know. But I definitely think that that continues to be a very interesting area in the venture ecosystem from my perspective. Yeah, I think the. Sorry, go ahead, Carolyn. Oh, I was going to say, I think in a way, it's interesting because it's a different risk profile for that type of investments for investors like us. So at TPG, we do take a blended portfolio approach where we have different partners that focus on different areas of the ecosystem. I think during a market like this, it's nice to actually have a different sector, like a device play potentially that is later stage, commercial stage, revenue stage, or post-approval stage that provides a different type of risk profile as an investment to funds like ours. So I think, yeah, just Erin, to your point about provider adoption, I mean, I think it's logical that you would expect that providers, given that they're facing so much staffing shortage constraints, would say that if there's any deployment of devices that requires my team to be doing something that they're not doing today, that there's going to be pressure on that model, which is where, again, I would come back to Biofourmis. And I think others are headed in this direction where they are starting to vertically integrate as a provider to be staff augmentation versus just the product itself. And I think it's things like that that will allow people to be able to capture value while getting into the operational flow without having to put burden on frontline staff that have all sorts of other fundamental issues to deal with these days. Yeah, that's a really fascinating point. I just made a note to myself to follow up on that because I need to think more about that. I like it. So Carolyn, when we were talking earlier, you mentioned this concept of inflection capital. I want to talk a little bit about life sciences since we've been talking a bit more about devices and digital health. I'd love to hear how that notion kind of guides your investments when it comes to oncology, for example. Yeah, absolutely. So the idea of inflection capital is to what value inflection is your capital taking you to, literally, right? And I think in the case of biopharma, what is the impact of benefit you're delivering to your patients? Because ultimately, at the end of the day, all these great science and tools and technology is going to be measured. It's what's going to be measured only in the clinic when the rubber hits the road. So if you were to, and I think somebody, at least one person in the audience sort of asked about what has been the main drivers or valuations outliers in the last two years, it's actually those companies that have generated real data that they're able to have an impact on patients. So for example, I think Karuna was a great example of our friends at ARCH that made an investment there and had a significant sort of share price jump, for example, in the past year because they were able to actually deliver and ensure that they could deliver benefit to schizophrenic patients. And there are multiple examples like that. I think CinCor at one point as well prior to its acquisition recently. So I think ultimately, that's what we're investing in. And the inflection capital is how we determine or define what is the maximum value that we can deliver to our patients with the capital that we are providing to the company and how do we execute on that. I think that is going to be playing into the fundamentals-driven type of investment approach, which I think is going to be even more prominent during this time of the market. Yeah. Since you mentioned schizophrenia, I saw a question from the audience members. Thanks to everybody who submitted those. And I see some coming in that several of which I plan to answer because they're great questions. But someone asked the very potentially controversial question, is neuroscience the new oncology? And I want to hear your thoughts on that. Yes, no, why, why not? My take is no. However, no but is a no but answer, at least personally in my view. I think on one hand, the good news is that we've seen some landmark approvals, I think last year, especially in Alzheimer's field and also in ALS field. I think that's great because we're definitely having new innovation being accessible to patients, at least from an approval standpoint, right? These are areas that for decades we haven't had a new drug or haven't had a breakthrough innovation. So all good and great. That should bring a lot of positive momentum to the surrounding field because neuroscience is hard. However, I think on the other hand, I think we've also seen that play out firsthand on the commercialization piece and whether or not the data package that's been submitted to approval, whether that's controversial, whether that's sufficient to really justify the use of these drugs within a community. I think we're making strides in that area, but the biology is difficult in neuroscience and a lot of times a lot more difficult than oncology because of the models that we use pre-clinically. We're making great strides there, but it's not the same as the way that we've developed drugs in genetically defined fashion, for example, in oncology, which now is increasingly getting applied to neuroscience, but we're making early strides there. And we don't have the same level of experience as we see in oncology. However, I think we are in the early innings, I would say, of that chapter for neuroscience, hopefully. And we're rooting for great science to tell a great story in the coming years. Yeah. And I would just mention on top of that, if you just look at the Series A data, neuro actually saw about a 50% drop in deals and dollars in 2022 from 2021. But we did see increases in areas like autoimmune and respiratory. So it's interesting to see. And actually, even some increases in cardiovascular. It's been interesting to see, actually, from my perspective, that because funds have grown larger over time in the venture arena for biopharma, and you see a lot of growth capital as well as private equity folks start to be interested in writing bigger checks into biopharma and actually be able to fund some of the larger trials that five, 10 years ago, venture folks couldn't really support on the early stages because the clinical trials were going to be so expensive, and you couldn't be sure that the company would be able to get public and raise big money to do the trial. We're starting to see a little bit more interest in those areas. So anyway, thought that that was an interesting point when we're talking about early stage. Yeah, definitely. Follow-up question there for you, actually, Julie. I'm seeing a lot of creativity in terms of startups that are coming out with kind of a digital health approach to supporting perhaps people who may have Alzheimer's or another neurological disorder and are taking a new drug. I'd love to hear from both Julie and Carolyn, actually, on this one because I'm thinking of one company that just raised a huge seed round. I can't recall the name off the top of my head. Maybe Rippl. Does that sound familiar to anyone? Anyway, yeah, I'm curious on your views on digital health approaches to neuroscience, basically, Alzheimer's, dementia. Yeah, anytime we're looking at so first of all, I do think specialty care will be the next era of digital health, whereas the last few years have been very focused on kind of telehealth, primary care, etc. And so the way that we think a lot about kind of the maturity spectrum of specialties that have kind of virtual care opportunity sets is that a lot of times the initial value proposition is all around access to care, right? So we saw this with primary care. We saw this with mental health, women's health, etc. And oncology, I would say, is actually a little bit more mature in that it's moved on to sort of what are the cost savings would be kind of the Phase II of that. So once you have access, then how can you prove cost savings? And then obviously, the Holy Grail is to prove outcomes that you're actually able to move the needle on patient impact. And so in that sense, I think neuro is just entering that access phase. But the challenge, to Carolyn's point, is that the number of actual tangible interventions that one can convey to a patient based on understanding their longitudinal care journey is much more limited than what you would see in the oncology space or other spaces. And so I think that's where a lot of those models become a little bit thin, where, yes, there is benefit to, of course, providing companionship and just support as people are trying to navigate those waters. But the number of actual sort of levers to pull in terms of really changing the trajectory of those journeys is, again, relatively limited. And therefore, I think the business models to support those companies are just not as robust as what you're seeing in behavioral health and oncology and other areas that do have a case to be made about taking risk and doing these bundles and taking more of a value-based care approach. So I think that's going to, I mean, this is where sort of the intersection between life sciences and healthcare is so important is that I think the way to unlock that is to have novel therapeutics and other modalities to be able to intervene such that you can make the case for a care model to get funded in the right way. But I think we're just too early to say on neuro in particular. Yeah, maybe I'll talk a little bit about neuro because I think what's interesting on the Dx tool side is that on the Dx test seed Series A, anti-infective was sort of the top area for Dx test sort of Series A, but neuro was right behind it. And on the Dx analytic side, which is sort of the actionable data to help with patient treatment, oncology was number one in terms of the focus outside of just platform, and neuro was second behind that. So I think we are seeing companies that are definitely interested in tackling this area, and we are seeing sort of an upswing in early-stage investment. But I do agree with Julie's kind of early days on that, but we definitely see that in the data. I want to jump to one question from the audience. Since we're talking, we've talked a lot about neuro and oncology. This question is just about alternative care generally from Dylan Richards. He said four of the eight largest financings in 2022 were for alternative care. Do you think this was a bubble? And what's your view on direct-to-consumer businesses in 2023? One of my favorite questions of all time. And what is the exact definition of alternative care, John, that you use in your report? Really just kind of treatment outside the hospital broadly. Yeah. Yeah. So in that sense, I would say, no, it's not a bubble. That is the whole point of this industry is to modify the site of care dynamic and take things outside of the most expensive and high-risk and fragile site of care that we have, which is the acute care setting. And so that, if anything, I would say why we're all of the eight largest financings in that domain. And I think some of it is just classification methodology where one could probably argue that a lot of the companies that you call provider enablement or whatever have some sort of value proposition against the notion of taking care outside of the four walls. So that would be my quick take on that. And then with regards to direct-to-consumer, our definition of direct-to-consumer is much more than just cash pay. So I think typically people think cash pay models solely, but we think it's mission-critical, actually, for any healthcare company that's delivering services to patients to have a direct-to-consumer strategy, whether it be how they acquire patients, how they engage patients, how they're able to subsidize the payment through insurance and otherwise and employer benefits and such to make it affordable for patients. So in that sense, we're very bullish on direct-to-consumer as a major pillar of the strategies of any digital health companies that are building today. I think companies like Ro, I won't call out specifics, but anyone in that category, I think, has shown that if you do take a cash pay approach as your wedge into the market, that you can build a real business, right? Then I think the question becomes, how do you then scale beyond that and ride the rails of reimbursement and employer-sponsored benefits to really get to scale that would move the needle on the overall healthcare system? Just Just because cash pay is still a non-trivial portion of the financial flow, but it's obviously a very small portion of it. So many of these founders have ambitions to tap into the broader TAM beyond just the cash pay markets. And I think that's going to be the test of these companies is can they sort of make that leap into kind of diversifying the source of funding for their services while maintaining that very consumer-centric approach, which is why they've been able to be so successful in their early stage. Yeah, I would say on alternative care, it's very interesting because we talk about 2022 as sort of the, okay, valuations are under assault from what you saw in 2020 and 2021. But when I do look at alternative care and I look at health tech, it's very interesting. There were 12 deals that were pre-money valuations at least $1 billion that raised in 2022 in health tech. And the median step- up for those 12 was a 2.3x. So I think alternative care, I mean, it's definitely real and there's definitely value and there will definitely be some huge winners there. It's really interesting to see even at the very, very top end of the spectrum for companies that already have really high valuations. They're still raising and they're still raising enough rounds. Okay. Jonathan, I know you talked earlier about concerns with provider ops. Are investors still interested in professional practice models or companies designed to support practice platforms? That's a good question. I'm going to defer to Julie on that. Yes. I would say so we definitely have a thesis around the pendulum swinging away from hospital-owned practices in general. And yes, there will always be PE roll-ups and Optum will continue to dominate the world and buy-up practices. And other payers are starting to do that as well, of course. But anything that's outside of the hospital, kind of to the point earlier about alternative care, we think that that is an opportunity set to create novel infrastructure to enable those practices to remain independent and also take risks. I mean, that to me is the big sort of central theme of many of these models is how do you just shore up their ability to contract with payers in a systematic fashion with leverage and then also deploy the appropriate tools into the practice to manage at the population scale and get proactive insight into their populations, including devices and all the things that we talked about earlier. So that is a central theme for us, and we've invested in a number of companies in that space. That would be actually one of the categories that I would say you can point to publicly traded comps that perform quite well, whether it be the Agilon and the Privia of the world, to demonstrate the robustness of those business models. A lot of the way that we look at it is imagine if those were tech companies and actually had the leverage that you get from using tech versus more of a managed services approach. That's kind of the upside that we see in that category. Okay. Speaking of tools, Carolyn, at a high level, do you find diagnostics or tools are leading indicators of indication interest? This is a question from Allison from our audience related to the neuro question just discussed. Or does investment into therapeutics come first, followed by other industries? Oh, that's a good one. So on one hand, you can't treat the patient. You can diagnose them, right? So I think part of the reason why what I've mentioned earlier, why there's this whole renaissance is sort of genetically defined cancer and the therapeutics that follow behind them is because of how sequencing has become so cutting-edge and prevalent and low cost. And now every cancer patient that comes in with a late-stage lung cancer, for example, you sequence them and determine how you would like to treat them accordingly. So I think in one way, and so I think if you think about sort of history of different sectors and how they develop, that definitely in a way comes first. But so in neuroscience, that has always been a difficult area because we're talking about, it sounds like the question is targeted towards neuro, and we still have gaps in there in terms of diagnosis. And the tools that we've been using, especially for some of these categorization of, let's say, mental health, there are tools that we've been using for decades that actually could potentially be outdated. And we're seeing here also renaissance in some of these digital health approaches or metric approaches that are trying to challenge those models and coming up with next-gen tools to potentially better select patients, better classify them in order for us to treat them. Yeah. Maybe on that side, I think what's really interesting, maybe shift the question a little bit to more of the computational bio side of therapeutics because I think that's an area where we've actually seen continued increase in investment. And while it was more focused with the tech investors over the previous two, three, four years, over the previous couple of years, we've actually seen the more traditional biopharma investors investing in these computational bio, which we define as sort of AI machine learning to discover new biological or chemical insights that has sort of a platform behind it. And what's really interesting here is that while we're seeing this cliff between Series A and B and looking for data in the therapeutic side to fund, the ones that are sort of exceptions to that rule are on the computational bio. We're actually seeing some strong step-up multiples for computational bio companies in the therapeutic side that are still preclinical, raising good money at big step-ups. Awesome. So it looks like we only have a couple of minutes left. I want to try and squeeze in one other audience question here. Just a general question about all the dry powder across PE and VC that we're seeing. This is from Banks Blackwell. With a record amount of dry powder across PE and VC, will that drive deal flow and will it fill LP demand, or will these firms sit on capital through 2024? So actually, this is an easy one to answer. As you know, most VC funds have a close-ended structure, and typically the investment once raised will be front-loaded in the first four to five years, so to speak. So the answer is actually, no, we can't sit on the capital. We need to deploy. And I think that's the good news, actually, because I think John's data actually clearly shows that there's been billions of dollars of venture capital funds that's been raised in the last two years, and we are actually deploying that capital. I think the question is, what kind of investments get funded and what kind of companies get funded? It is not that we're not investing, but that the bar is held really high, and we potentially see actually a bigger divide between the haves and have-nots because what will happen is that more investors will probably want to get involved with the top quarter high-quality companies if we agree that those are the ones, so to speak. But however, I think a lot of these, a lot of the companies that perhaps do not meet the bar for a variety of different reasons might not get there, but there's definitely capital to be deployed. Yeah, totally agree. And I think with maybe separate out the answer between early stage and late stage to some degree in terms of the nature of which capital deployment will happen, I do think on the early stage, we're seeing kind of business as usual, like prices have normalized a bit, but I think we paced actually kind of the same over the last three years. We didn't go up when the markets went up, nor did we stop when things were slowing down on the seed and Series A side. Founders are definitely leaning into being much more modest about their expectations on things like valuation, which at that stage, again, it's just not worth kind of squeezing water from that rock anyway. So that piece, I think, will continue. And then the big question is certainly on the growth stage and what's going to happen there. Like we said earlier, I think the construct of those rounds, whether it be on the syndicate side or just the nature of the terms that come with those rounds, will obviously be a couple of the levers that I think will modify in the out years. The other sort of potential answer to the question is kind of net new fundraising in terms of LPs' ability to support new funds. And I think that's going to be where there's going to be kind of a flight to quality. We've already heard anecdotally about funds that we're trying to raise, like new funds, new GPs trying to raise de novo vehicles last year that folks that you would think would have no problem in other times really struggle to get enough LP capital commitment to get something stood up. So I think that's where you're going to see a bit of fallout as well as just the ability of net new funds to get stood up, just given the pressures on the denominator effect as well as just the amount of capital that's already out there in the market. Yeah. That's operational. I think also, I think that Julie called out the good point is I think the difference between, I guess, early stage traditional venture investors and crossover type investors is definitely different level activity too because I think we do see a slowdown in crossover funds due to the market conditions because IPO remain closed. It's harder for them to deploy. And also, they have to play sort of a more defensive defense tactic to defend their existing positions and investments. But I think on the early side of things, we've seen at least on the deal side pretty steady activities, but of course, the bar remains really high for early stage investments. So I think a little bit of a divergence there between different types of investors, but there's definitely dry powder out there, and we'll encourage entrepreneurs to think creatively on how to access them. Great. Great note to end on. Thank you so much, everyone, for joining. Really appreciate it. Thank you, audience, for the thoughtful questions. Sorry we couldn't get to everything. I have tons of questions that I also didn't get to ask, but hopefully save them for another event in the future, and with that, I will let Jonathan close us out. Yeah. Just wanted to say thanks to everyone for joining the webinar, and obviously, a special thank you for Julie and Carolyn and Erin. Fantastic job sort of giving us a sense of what's happening in the market and where things are going to go. I again just wanted to thank everybody and let you know that you'll get an email with a replay of the webinar, which will also have a link to the report if you want to dive in a little bit more. And again, thanks everyone for joining and have a great rest of your day. Thank you. Thank you. Great.