Jacque Sokolov has had a front row seat to investing in healthcare over the past three decades.
Sokolov is chairman and CEO of SSB, a holding company that serves as his family office and contains four business units: SSB Solutions, SSB Investment Funds, SSB Financial Services, and SSB Governmental Services.
“Our journey in investing in healthcare has been an evolutionary one that has focused on major inflection points in transformative technology over the past 30 years,” Sokolov says.
He has seen dramatic clinical advances that are in some cases slowed down by hurdles in getting them to market.
“We have wonderful clinical advances still going on,” Sokolov says. “But the time to get those clinical advances out to the marketplace continues to be protracted, because the legal and regulatory requirements, the business payment challenges, and the provider adoption methodologies are now much more arduous than they were 10 or 20 years ago.”
A history of healthcare innovation
Sokolov got his start in healthcare investing following a five-year stint as CEO of the health plan for Southern California Edison, which was at the time the second largest self-funded/self-administered corporate healthcare system in the U.S., controlling all aspects of financing and delivery of healthcare to the company’s 60,000+ employees, retirees, and dependents.
“I had a focus that was critical going forward: the validation of the quality, access, and cost equation of all healthcare delivery,” Sokolov says. “Over a five-year period, Edison was one of the most successful corporate healthcare systems. We saved in excess of $100 million, or about 15% below what we otherwise would have spent on healthcare. And we launched some of the very creative benefit structures that would be widely adopted by other companies.”
When he left Edison, Sokolov used the formula he had refined there to create Advanced Health Plans, Inc., the first major business for SSB. He sold that business to Coastal Healthcare in 1994 at the start of the PPM (physician practice management company) boom, becoming chairman of the board and a large shareholder.
The equity appreciation from that business and additional holdings allowed him to found SSB Investments about three years later.
“I moved on to our next chapter, which was the development of innovative solutions for healthcare systems and healthcare plans,” Sokolov says. “The single biggest early initiative that we had during that time was the turnaround of Humana starting in 2000. We created the first internet-enabled health plan with advanced online consumer-centric functionality. In addition to internet functionality, we tied a ‘new’ type of benefit structure called the ‘high-deductible health plan’ to optimize market adoption. These innovations perfectly positioned Humana to optimize market entry into Medicare Advantage and Medicare Part D in 2003.”
Humana’s market capitalization/equity value grew from about a half a billion dollars to over $10 billion over the next decade.
The next major project was helping Hospira, the Abbott Laboratories Hospital Supply Division spinoff, determine a path forward when it became clear that its primary business, IV solutions, alone were not going to be transformative.
“We invested $50 million in something we couldn’t even name at the time,” Sokolov says. “We knew biologics were going to be important, but because they are large molecules, we couldn’t call them biogenerics or bioidenticals. We called them biosimilars.”
Over the next 10 years, while the FDA decided when and how to approve biosimilars, Hospira sold them in 90 countries worldwide.
“We became the largest biosimilar manufacturer in the world without selling one biosimilar in the U.S. In a highly unusual strategy, the revenue from IV solutions and profit from biosimilars marketed in 90 countries kept the company alive and growing. Ten years after that decision to go into biosimilars, we sold Hospira to Pfizer for $17 billion,” Sokolov says.
SSB Investments was also one of the founding investors in Summit Health Management, which sold to Walgreens after almost a decade for approximately $9 billion.
“Over the years, we’ve invested in health plans, we’ve invested in corporate health systems, we’ve invested in hospital-sponsored health systems, we’ve invested in physician practice management, we’ve invested in pharmacologic innovations such as biosimilars,” Sokolov says.
Today, SSB is focused on three emerging areas in healthcare: mRNA technology, DNA, and AI.
The challenge of timing
It’s easy to tell the story of one successful investment after another. But investing in cutting-edge technologies is risky, and not every investment pans out.
“The huge successes are the ones you always hear about. And those are, quite frankly, the ones that people want to hear about, because they want to know how they potentially could mimic those,” Sokolov says. “Very few people have the opportunity to be founding investors in companies that grow to be $1 billion or $10 billion companies, and I’ve had more than one experience doing that.”
But Sokolov has also made unsuccessful investments.
“We invested $50 million in seven different cellular regeneration companies. All were wonderful companies, all were out of blue-chip environments, with wonderful entrepreneurs,” Sokolov says. “We lost every penny. All seven companies went bankrupt. It was just too early — the science was not there yet.”
These investments can also include long periods where the outcome is uncertain. Sokolov includes current investments in mRNA technology in this category.
“mRNA is still, in my view, one of the most transformative technologies that we have not effectuated yet,” Sokolov says. “We invested in mRNA technology, and that includes diagnostics, therapeutics, and vaccines, two years before COVID. We have a company that owns 38 patents in the mRNA space and the first canine preventive cancer vaccine.”
The technology enabled the production of the COVID-19 vaccine, and it holds promise for diagnostics and treatments for diseases including cancer, heart disease and neuro degenerative disease.
“mRNA is one of the areas that we remain invested in, but quite frankly have not had a liquidity event that is commensurate with the technology that I think will be developed,” Sokolov says.
An opportunity for family offices
Sokolov says healthcare investing can be a good fit for family offices. One reason is family offices generally have longer investment time horizons.
“Virtually every company that I’ve invested in as an early investor that has grown to be larger than $1 billion dollars has taken at least eight to 12 years to get there,” Sokolov says. “That’s a lot longer than a typical VC, and even most private equity firms, will be comfortable with.”
However, identifying winning investments is never easy, and emerging healthcare technology is particularly complex.
“Family offices tend to invest in what they understand, and very few family offices are built on healthcare,” Sokolov says. “Our family office, our holding company, is only healthcare. That’s why we feel so comfortable in this space.”
Family offices without a strong healthcare background can work with another family office or advisors who do know the industry.
“You can have the most wonderful technology, but you can’t get it to market until the market basically signs off on it,” Sokolov says. “If you’ve made all your money in real estate, or in agriculture, healthcare is the wild, wild west. There are a zillion ways to fail and very few ways to do extremely well. Having said that, healthcare is a $5 trillion industry and almost 20% of the GDP. If you truly want a balanced portfolio, you’ve got to have some healthcare investments.”