Illustration: Sarah Grillo/Axios
Bernie Sanders still may eke out a win in Iowa, and is the consensus front-runner in New Hampshire. But most venture capitalists investing in America's health care industry — the primary target of Bernie's ire — have shoved their heads so deep in the sand that they've found water.
Why it matters: At some point, it could become a failure of fiduciary duty.
The big picture: Health care accounts for over 20% of all U.S. venture activity.
- A majority of that is in biotech/pharma, which last year saw 866 deals raise around $16.6 billion.
- Investors view many of those deals as binary: Either the drug doesn't work, resulting in a total write-off, or it does work and the financial sky's the limit. Strike out or grand slam.
- Sanders pledges to limit the upside, either by limiting drug prices under the current system or (if he gets Medicare-for-all) by establishing a single, centralized buyer.
Few health care VCs I speak with are working on a Plan B in the event of their risk/reward models being made obsolete, nor are they hearing such concerns at the portfolio company level. Three main reasons:
- They don't believe Sanders will win. One investor told me he's "not electable." When I asked if he felt Trump or Obama were "electable" early in the campaign, he took a very long pause. Another said that contingencies will begin if Sanders gets the nomination.
- Even if he does win, they don't believe Sanders will get Medicare-for-all. This is the "Senate firewall" theory, and will probably prove correct. But it ignores that a Sanders victory likely comes with electoral coattails down-ballot, and the typical rule that new presidents get at least some version of their flagship policy. In this case, that could be drug price caps, which already has bipartisan support.
- If Sanders wins and implements his full plan, then it's such a revolutionary shift that there's not much health care VCs can do to counter it. As a Boston biotech investor told me, it's kind of like worrying about the size of your fund if the dollar begins hyper-inflating. Why bother? At that point, the whole thing is chaos.
Health care VCs also argue that industry concerns about a President Sanders will first be reflected in public market valuations, with private market valuations to follow. And one mentioned that there could be fewer deals in areas like ultra-rare disease drugs, which come with ultra-high prices, because of fears that Sanders could call them out by name.
The bottom line: For now, health care venture's strategy is see no Bernie, hear no Bernie. We'll see how long that's viable.