00:00welcome to the a 16z podcast today we're
00:03having another of our hallway style
00:04conversations these episodes are based
00:06on videos that are also available on our
00:08YouTube channel youtube.com slash c /a
00:1116z videos given all the headlines
00:13lately around consolidation in the
00:15industry Walmart in Humana Aetna and CBS
00:18Amazon JP Morgan and Berkshire Hathaway
00:21our bio fun team including Jorge contain
00:24Vijay Pandey and Jeffrey Lowe discusses
00:26what these moves signal as well as their
00:28implications for customers costs and any
00:30new opportunities that may arise so hi
00:33you have the a 16 SZ bio team here and I
00:35think we wanted to spend a few minutes
00:37talking about a lot of the headlines
00:40that are hitting in health care in in
00:42the very in recent weeks so going back
00:45to late last week there was news that
00:48Walmart's in the early stages of
00:51potentially acquiring Humana so this is
00:53large retail chain buying large insurer
00:57and to me what's remarkable about that a
01:00couple of things really one the first
01:02one is that Walmart in its own right is
01:04a major pharmaceutical sorry pharmacy
01:07chain yes um so that's incredible in and
01:09of itself and the second is that you're
01:11going to see this sort of vertical
01:12integration or increased vertical
01:15integration between you know the entire
01:17value chain so just to like tick through
01:19it in a very simplistic form right you
01:21have you know your your your
01:23pharmaceutical companies that make drugs
01:25you have your drug wholesalers that go
01:27out and buy bulk drugs usually generics
01:29you have your pharmacies that
01:31essentially act as the channel to access
01:33medicines you have your specialty
01:36pharmacies that are responsible for
01:38ensuring that really high cost
01:39high-touch complex medicines get to
01:42where they need to be in hospitals in
01:43other places then you have your pharmacy
01:46benefit managers the PBMs that ensure
01:48that the insurers ensure that the
01:51insurers know the rules or have
01:54established rules to ensure to figure
01:56out who can get access to which drug as
01:58a way to control cost ensure that the
02:00right drugs are getting to the right
02:01patients so if you take all of those
02:02various players and I'm ignoring the
02:04hospital systems I'm ignoring the
02:05patient but if you take the insurers the
02:07pharmacies the PBM is the drug
02:09wholesalers the remarkable thing is that
02:11this entire industry is sort of
02:13integrated into one giant monolith so we
02:16have Walmart potentially buying Humana
02:20we have Edna's CVS yeah and then we have
02:24this sort of mystery thing on the
02:26employer side which I didn't touch on
02:27but you know Berkshire Hathaway and
02:30Amazon and JP Morgan are sort of teaming
02:33up to do some you know yet to be
02:34unveiled play in healthcare like what is
02:38what's going on yeah I mean one of the
02:40arguments is that this could be a way to
02:41decrease costs but uh we'll see I guess
02:45and also just consolidation in general I
02:48think in principle would allow for
02:50decreased costs and increased value
02:52because they're more people that are
02:53aligned but it's still pretty early I
02:55think of to them as two different
02:58classes of things there's on one side
03:00you know we have Walmart Humana and scbs
03:04on the other side we have you know
03:05Amazon JP Morgan and Berkshire Hathaway
03:08I think those are two fundamentally
03:09different things so on the one hand you
03:11have this consortium very large
03:13employers but health care is a local
03:16business and those employers while
03:18they're huge they are so geographically
03:21dispersed that I'm sure they can drive
03:23good deals in local markets but you
03:24can't put all of the employees and
03:26berkshire hathaway you can't put them
03:29all into you know one local hospital and
03:32get all the best prices so I think that
03:35the effect of that consortium is going
03:38to be you know a little less than
03:40something on the other side where you
03:42see Walmart and CVS very local they're
03:46able to drive there's a Walmart or CVS
03:48and a lot of small towns and they're
03:49gonna be able to drive more value
03:51because they own the patients and those
03:53touch points and and having that
03:56locality I think is gonna make a big
03:58difference compared to a dispersed
04:00self-insured employers what happens to
04:02your that divide you just laid out when
04:04Amazon buys a Pharmacy Benefit manager
04:07or it becomes a you know I think becomes
04:10a Pharmacy Benefit manager I think PBM
04:11is right now are you know so
04:13consolidated and any I think everybody
04:16you know as Amazon as Bezos says you
04:19know my Marg you're their margin is my
04:22you know the margins and the PBM
04:24business so opaque and you know I think
04:27that in the news you know people are
04:29crying about it at all times you know I
04:31think Amazon and basis they're you know
04:33might see that as an opportunity in
04:35themselves and yeah I wouldn't imagine
04:36they go by it I imagine they go do it
04:39yeah and it's an interesting question
04:40right because I think that you know that
04:42that is one area that's ripe for
04:43disruption right and so on the one side
04:46of things you're seeing is mass
04:47consolidation happening you know
04:49vertically in terms of vertical
04:50integration with the large players all
04:52sort of teaming up across the various
04:54segments of the value chain but on the
04:57other you see that there's so much
04:58change that you won't would imagine that
04:59there's you know ripe opportunity for
05:01disruption so if you're an entrepreneur
05:03in this space and the entire value chain
05:06the landscape of the value chain is
05:08quite literally shifting below you given
05:11all the news what do you do I got an
05:14idea for if you're not remember what me
05:16interesting area would be a digital
05:19I mean distribution is really hard to
05:21get this out there and get reimbursed
05:22and you know right now all these digital
05:25therapy companies have to basically
05:26build this themselves as if you were
05:28like bear having to build a PBM yourself
05:31or something like that and so that's an
05:33opportunity where at least I think it
05:34started could come in and I don't have
05:37to fight against ginormous incumbents
05:39yeah that's a graphic it's a great idea
05:42another one that to me is potentially an
05:45interesting one is all of the things
05:46Jeffrey you were talking about whether
05:48you're on the employer side or whether
05:49you're on the consolidating side of the
05:52value chain both sides are gonna have to
05:54seek increase efficiencies if they're
05:56gonna actually eke out margin and
05:58therefore be able to reduce costs in the
06:00system at least internal cost in the
06:02system so if if I were an entrepreneur
06:04in this space and I'm looking across the
06:06value chain I would say what what
06:08opportunities exist and open up when you
06:10get full vertical integration for to the
06:12advocate for the application of new
06:13technologies that may not have existed
06:15before because of sort of the
06:16transactional frictions of dealing with
06:18with multiple players I don't know what
06:19that looks like but that's I think one
06:21area where you can spend your time yes
06:22certainly skating where the puck is
06:23going to go rather than where it is and
06:25healthcare is changing so quickly that
06:26yeah so any predictions I mean there's
06:29Amazon buy one of these do you think
06:31they build I think Amazon you know is
06:34clearly doing they're using this as a
06:36partnership at which they can learn a
06:37bunch of things they're hiring a bunch
06:39of people you know we see other players
06:41Appl getting into the space I'm hiring a
06:43bunch of people as well they're learning
06:45they're hiring but you know I don't
06:47think that they go and you know choir I
06:49don't think they acquire something
06:50because I don't see a marquee property
06:52like Whole Foods in the space that they
06:55go acquire those those places are
06:56already too either big or acquire
06:59something else you know could you see
07:01Amazon acquiring CVS and Aetna now you
07:04know I find it hard to believe but Bezos
07:06always surprises yeah I've had to make a
07:09prediction just as you said a digital
07:10PBM I think you know if we look at you
07:13know what gave rise to specialty
07:14pharmacy was the increased complexity of
07:17injectables and biologics yeah we're
07:19moving to a time with you know we're
07:21shifting from those kinds of medicines
07:23to cell therapies and gene therapies and
07:25I think it's gonna represent it's going
07:27to present an entire new sort of set of
07:29complexity from a logistic standpoint
07:30from a drug handling standpoint so I
07:33would I would expect that we'll see sort
07:35of in the equivalent of a digital PBM
07:37logistics chain emerge for gene
07:40therapies and cell therapies and other
07:41advanced types of medicines I think for
07:43cell therapies you know the time just
07:44might be sooner because the cost is so
07:46great right now you know digital
07:48therapeutics I think could be akin to
07:50where there are various genomic PBS and
07:53they were just not enough genomic tests
07:54so you know those companies were maybe
07:56just too early cell therapies are
07:58expensive now people are spending money
08:00now so if that business is built and the
08:03supply chain is so difficult you know
08:05maybe that is a very different business
08:06than specialty Pharma is you know
08:08currently yeah well certainly
08:10interesting times would be fun to see
08:12what happens with all this
