6 top VCs give their best 2019 predictions for healthcare, from a biotech correction to a 'shadow cash economy' stepping into the light

Venrock partner Cami Samuels predicts a biotech correction and a slump for Moderna

Venrock partner Cami Samuels is ready to get back to the basics in biotech.

"I’m enthused by the correction," Samuels told Business Insider. Over the past five years, the Nasdaq biotech index is up 25%, though recently stocks have taken a tumble, putting them into correction territory, a term which refers to a 10% or greater decline from a stock's most recent peak.

In 2019, she said she's anticipating a return to the basic biotech business model. That is, instead of a broad platform with six or more potential drugs in the works, a more straightforward focus on one or two lead programs that a company knows super well.

The correction, in turn will drive that because there will be less available capital pouring into early stage companies, forcing them to have a more zoomed-in approach.

"I remain an optimist on the fundamentals of biotech, but the industry has gotten so enthusiastic as to be undisciplined," Samuels said.

On the policy side, Samuels said she expects to see the biopharma industry make a concession on drug pricing to appease the Trump administration. That said, she doesn't expect it to have broad implications.

Another prediction: "Moderna will exit at a $3 billion valuation next year."

Moderna debuted on the public market on December 7 after raising more than $600 million in the biggest initial public offering in biotech history. While the IPO valued Moderna at $7.5 billion, it's currently trading well below its IPO price with a market value of $5 billion.

By the end of 2019, Samuels expects that to drop even further to a market value of $3 billion.

"It’s hard for me, looking at their pipeline to figure out why they’re valued 5x, 6x other companies with the same pipeline," Samuels said.

Lastly, she sees exhaustion with financing cancer-drug makers sinking in, with interest picking up for other diseases that have been left at the wayside.

Two of the scientific areas she's most interested in at the moment: mitochondrial RNA-based medicines and anti-aging biology, particularly an area she refers to as "inflamm-aging."

Wende Hutton, general partner at Canaan Ventures, anticipates a more skittish IPO market.

"We’re coming out of a very ebullient year," Hutton told Business Insider. As part of the massive year biotech companies had entering the public market, Canaan's portfolio had two entries.

Hutton said she expects to see a lot of new startups form, and a lot of early-stage fundraising rounds, given the money that venture funds have raised over the last 18 months. But as the IPO markets start to look more skittish and uncertain, that might signal a slowdown in public debuts for 2019.

Like Samuels, Hutton said she's anticipating a shift in focus from platform-based companies with a number of drugs in the works to companies focused on one or two drugs, in large part because those are easier buys for pharmaceutical companies looking to build up their development pipelines.

"If there’s any retrenchment of capital, that’s a great place to put your money," Hutton said.

Hutton said she's still seeing a lot of money flowing into cancer-drug makers, particularly those developing drugs that act on the body's immune system. Hers and Canaan's interest, she said, will also be in finding new candidates for neurology and rare diseases.

Ambar Bhattacharyya at Maverick Ventures sees a 'shadow cash economy' stepping into the light.

The way Bhattacharyya sees it, the economy of consumers willing to pay cash — rather than use their insurance — for healthcare is about to emerge.

"A shadow cash economy is coming out of the shadows," Bhattacharyya told Business Insider.

Companies like GoodRx, 23andMe, and Warby Parker have already paved the way. Now with the explosion of direct-to-consumer health companies like men's health company Hims, in which Bhattacharyya is an investor, the new relationship with healthcare and a willingness to pay cash for services that might otherwise be covered by insurance will cement itself.

Bhattacharyya said he also expects to see interest in cybersecurity pick up in 2019, potentially in the form of services like LifeLock's work in identity theft show up for medical records, to protect from health insurance fraud.

Maverick, an early investor in One Medical, anticipates seeing more brick-and-mortar doctor's offices for specialties pop up, possibly around diabetes or mental health. Already, he's seen companies like Two Chairs for mental health spring up in northern California, as well as fertility clinic Kindbody in New York.

On the employment side, Bhattacharyya is looking forward to seeing people pursuing careers in technology start to consider healthcare in a more serious way, particularly as tech giants like Facebook face reputational challenges.

Two areas Bhattacharyya is less interested in seeing new companies: new approaches to pharmacy benefits management (the companies in charge of negotiating drug prices), and tech services for diabetes (an area that's already got a fair amount of competition).

Peter Boyce at General Catalyst hopes 2019 will be the year of sleep.

Boyce, like many, is tired of hearing about the exhausting sleep-deprived schedules of business leaders.

"I don’t think we fully understand how important sleep is," Boyce said. While he's not sure 2019 will be the year it fully unfolds, he's already seeing people celebrate sleep — posting about it the way they might a workout or new gadget.

That conversation and acceptance of sleep could in turn lead to new companies who instead of focusing on the time when their customers are awake, turn their attention to the 6-8 hours a day they're asleep.

Boyce, who also oversees Rough Draft Ventures, a fund that invests in university entrepreneurs, anticipates seeing more companies spring up that are looking to tackle mental health. Through Rough Draft, Boyce has funded companies like Marigold Health and Spring Health.

Going into 2019, he's keeping an eye out for technology that might be able to predict when you might be feeling off, like the next iteration of Apple's Screen Time, one that picks up when your behaviors start to change. On the flipside, he's also interested in lower-tech ideas like Marigold that are more built around support groups.

As an investor in Ro, General Catalyst has seen how direct-to-consumer approaches to medicine can build markets in stigmatized areas like erectile dysfunction treatment. Boyce said he anticipates seeing more startups in those areas, particularly when it comes to sexual wellness.

Boyce also wants to see in 2019 the emergence of retail brands for wellness practices like acupuncture.

"It's exciting to think about a new brand that can debunk the myth of needles are scary and are going to hurt and be expensive," Boyce said.

Third Rock Ventures VC Reid Huber wants to see patients' genetics influence drug development.

Huber just joined Third Rock in November after a 17-year stint at cancer-drug maker Incyte. What he's looking forward to investing in next year has a lot to do with that experience of finding cancer drugs based on genetic information.

"There is going to be an even stronger focus on patient genetics in driving some of the innovation that’s going to come over the coming years," Huber told Business Insider.

By having a clearer definition and more data on the patients you're treating, ideally it should make drug development a more straightforward and potentially speedier process.

Amid all the chatter of new ways to tackle disease, Huber said he's interested in seeing what comes out of the "old-school" way to deliver drugs via small molecules — based on chemistry rather than living things.

Antoine Papiernik of Sofinnova Partners, is looking forward to more investment in European biotechs.

Papiernik, the managing partner of Paris-based Sofinnova Partners, is optimistic about what the US crackdown on foreign investments will mean for the European biotech companies he tends to back. For now, there's a lot of uncertainty, particularly for Chinese investors looking to invest in US-based biotech companies.

While others might be losing interest in immunotherapy, Papiernik said he's still optimistic. What's missing, from his perspective is an advancement beyond some of the initial checkpoint inhibitors success. He's also interested in seeing how RNA-based therapies fare, though he's less enthused by the cost and complications associated with manufacturing gene therapies.