NewSpring Partner Kapila Ratnam, Ph.D. on Healthcare Investing Post-Pandemic

NewSpring partner, Kapila Ratnam discusses the opportunities and challenges facing healthcare investors.

By Abriana Gonzalez

All aspects of the healthcare sector from investment to patient care to practitioner oversight and support underwent a change during the Covid-19 pandemic. To understand how at least one investor has dealt with these fluctuations, With Intelligence spoke to Kapila Ratnam Ph.D., a general partner with NewSpring Capital.

Kapila will speak at the upcoming Women’s Private Capital Summit November 30-December 1 in New York City on 2024 healthcare investment developments, post-pandemic adjustments in healthcare and investing and criteria for identifying investment opportunities in an evolving landscape.

In her role at NewSpring, she focuses on providing growth capital to companies within the realms of technology-enabled healthcare services, niche clinical providers, and specialty pharmaceuticals. During her 20-year tenure at NewSpring, Kapila has been involved in structuring transactions, leading due diligence processes, fundraising, executing and closing transactions, and partnering with management teams to drive growth of equity value.

Prior to joining NewSpring, Ratnam held roles in drug discovery and development and worked as a consultant, advising early-stage companies. She currently serves on the board of such companies as Patheous Health, InHome Therapy, and vybe urgent care.

This interview has been edited and condensed for clarity purposes.

Highlight, if you would, the key trends and opportunities in the sector, particularly at the intersection of technology-enabled healthcare services and pharmaceuticals?

My entire professional journey has revolved around healthcare, spanning over 30 years. Our nation is unmistakably heading towards an aging demographic, often referred to as the silver tsunami. As individuals cross the age of 65, their utilization of the healthcare system increases exponentially compared to younger demographics. While there's a growing awareness of health and wellness, the critical question is whether we're extending not just lifespan but also ensuring a healthier quality of life.

With an aging population placing strain on fixed healthcare resources, scarcity becomes a pressing issue. The challenge now is to maximize the efficiency of the healthcare ecosystem. We're exploring ways to augment clinicians' capacities, optimize resource utilization, and empower non-clinician caregivers, including family members. The key lies in a paradigm shift in how we leverage both human capital and technology. This strategic approach will be pivotal in effectively managing the evolving healthcare landscape.?

How did the pandemic impact healthcare investing and the sector as a whole?

The pandemic certainly brought the healthcare ecosystem and the weaknesses within the system into the forefront of headline news. But for those of us who have been in health care for all our professional careers, it's just been interesting to see how healthcare has suddenly started to grab headlines. However, the opportunities to invest wisely in the healthcare ecosystem have existed for an incredibly long time and will continue to exist in the future. There were some investment trends that accelerated before and during the pandemic, but the pandemic really shone a spotlight on how we can improve the industry.

What adjustments or opportunities do you foresee in the post-pandemic landscape and what factors will drive growth and innovation in the coming years?

A few major questions healthcare investors and practitioners will need to address are how to use technology differently; how to provide virtual care and how to manage patients who cannot be seen or touched. Innovations addressing those questions had already begun prior to Covid, but the pandemic really gave the innovation a huge push and roused the insurers, care providers and policymakers. The pandemic also highlighted that everyone in the industry needs to start thinking about healthcare delivery, communication, and managing patients differently.

One area we can target for improvement is our cost basis for health care. In the US, it is almost twice as much as that of Western Europe and Canada where healthcare expenditures roughly account for 8% to 10% of GDP. Whereas the U.S. is approaching 20% of GDP; so, we need to figure out a way to control these costs, without diminishing the clinical outcomes of the entire population. That is what will drive innovation. The same factors that drove growth and innovation prior to the pandemic are the ones that drive growth now.

What specific criteria do you look for in potential investment opportunities?

As a growth equity firm, we seek companies with proven products, services, and referenceable customers. Our focus lies on companies significantly impacting the cost curve of healthcare delivery, seamlessly transitioning patients from higher to lower-cost care settings without compromising clinical quality. Specifically, we target companies with over $10 million in sales revenue, with at least part—if not all—of the suite C suite in place, and a senior leadership well-versed in the health care sector.

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What motivated you to transition from the pharmaceutical industry to private equity?

I'm not sure that it was a deliberate move. As I was looking for my next move, I knew I wanted to stay within the small, fast-growing company environment.? I was advised to network within private equity because everybody said that private equity investors were the ones funding the types of companies, I was interested in. That's what led me to NewSpring, and we took a chance on one another. I still remember having a conversation with one of my partners saying, “Why did you hire me?” and he said, “Well, you were clearly a calculated risk taker, and we decided to give you a chance.”

So, we gave each other a chance and that was almost 20 years ago.?

As technology and AI become more integrated into healthcare services how do you navigate the challenges and seize opportunities in ensuring innovation and patient-centered care?

The Department of Health and Human Services is very much a reactive health care agency. It is not a proactive system. Healthcare laws are typically enacted as a reaction to a negative event. And when people's lives are negatively impacted, that's when the system reacts to put regulation into place to prevent something from happening again.

When healthcare tools and technology, like AI usage, are evaluated, we find that clinicians are very careful about adopting cutting edge technology. One of the reasons why they're careful about adopting it is they want clear proof that it is not going to harm anyone's life. AI is currently being used either as a front-end tool, with things like chat bots for communicating with patients, or to manage the administrative aspects of healthcare.? But we currently don’t know at what point the technology will be intelligent enough to stand on its own, if ever.

Additionally, you cannot have an artificial intelligence system manage the entirety of health care, because it impacts human lives. If even one person's life is lost, it means setting the entire system back by decades. I see the use of AI lend itself more to making healthcare delivery more efficient.? But not as a replacement for human decision making.

So, while healthcare is a great investment space, investors must proceed with extreme caution so there is no negative impact to human life.?

Given the amount of time you’ve spent in private equity, how do you see the industry evolving further in terms of DEI?

I think change will occur in fits and starts. I was the first woman and woman of color hired by NewSpring and the reason I was hired was because of my prior experience. That’s what got me in the door. But navigating a career to progressively increasing responsibilities and eventually making partner - that was not a straight line. And I don’t know any woman who, when recounting her journey, would say it’s a straight line either.

I’ve learned that everyone has unconscious biases –men and women alike. For example, if you put two people of equal experience in front of me and one is a woman and the other is a man, I'll probably hire the woman because she’s someone who thinks like me, looks like me, someone who I can connect with philosophically.

I've seen that unconscious bias with all my male partners. If they’re confronted with it, they will deny it because they don't see it and don’t realize they’re biased. As a result, female investors have to navigate around those feelings very carefully because they don't want to antagonize their peers by saying, “you are biased whether you like it or not.”

Women must use positive reinforcement for men to start thinking differently. My male partners, who have daughters entering the workforce, have suddenly wised up after hearing what their children are saying about their professional careers.? That influences them in how they approach their own hiring decisions and day to day interactions with women colleagues.

How have you navigated and experienced the landscape as a woman in a traditionally male dominated industry?

Women in the workforce operate and network differently from men because our way of bonding is different. I'm not going to play golf to network and connect with other women. I wish it was feasible for me to drag my male coworkers to the spa and show them what it’s like to network through drinks and pedicures.

Since women are a massive part of the workforce and network differently from men, we have to break the mold of the old boys’ network of golf and whiskey and cigars. I know it can be hard to break dramatically and see immediate change, for now we can only chip away at it. I do hope that the next generation of women can break the mold and I hope that I can do my part by wedging that door open wider for them so that it’s easier down the line.