Super Fight II

Super Fight II

Back in March 1971 two undefeated heavyweights meet at Madison Square Garden to once and for all settle who was the heavyweight champion of the world, they called it The Fight. In this first of three epic battle Smokin Joe Frazier was the winner over Muhammad Ali by unanimous decision. Three years later these two boxing icons meet again also at Madison Square Garden this time with Ali prevailing also by unanimous decision.

Given the way things are going with COVID we get the feeling we are now heading into Super Fight II as states reinstate restrictions lifted after the first Super Fight. They do so as promising news comes from the race to develop a vaccine. As it stands today, and this obviously will change, there are several promising vaccines headed for the FDA and some believe by early spring they could be widely available. Be that as it may the numbers are scary as we head into the Thanksgiving holiday traditionally one where families get together for turkey and football.

It should surprise no one as COVID continues to dominate the news that shares of Teladoc which had been falling after the merger with Livongo closed have been rising again. Nor is it shocking that digital health continues to see gobs of money flowing into more deals. Med Tech shares have been selling off as investors seem to wonder whether they can continue to deal with this second round of closings. Simply put investors are concentrating on the here and now rather than on what happens after COVID is gone.

Now some of this short-term focus is understandable as no one really knows what a post-COVID world will look like. Just exactly what the new normal will look like. Will after COVID is gone will people go back and physically see their doctor or will virtual doctor visits become the new normal? Will patients who have become used to filling their prescriptions online and having them delivered to their home continue this practice?

From the onset we have and continue to believe that some of the changes we’ve become used to because of COVID will continue after COVID is gone. That just as we adapted to a new normal after 9/11 we will do the same after COVID is gone.

One thing that will not change COVID or no COVID is competition. While everyone is looking short term we are looking beyond COVID and what we see is an increasingly competitive digital health market. A market which we see being dominated not by all these startups who continue to rake in capital thanks to investors insatiable appetite for digital health deals but by some old school companies who have moved methodically into the digital health space.

COVID may have temporarily changed the dynamics of the game but it has not changed the rules of the game. And in this game the company/platform with the most patients wins. Yes we know that everyone is still fascinated with whiz bang way cool, but whiz bang way cool does not win the game no matter how cool it is. When this is all said and done there will be lots of start-up failures not because they had a bad idea rather because they could not attract enough patients to support their platform.

Digital Health is no different than any other sector of healthcare as it takes real talent to run a commercially viable digital health company/platform and real talent is in short supply.

The question for investors comes down to which time horizon they are looking at. Are they betting on the short term or playing the long game? Our view is that playing the long game with a company like Teladoc is a very dangerous game. That while Teladoc will do just fine while COVID dominates they will have some serious issues once COVID is gone. The rise in Teladoc shares the crazy valuation they placed on Livongo was driven NOT by sound business fundamentals it was driven by COVID.

When COVID is gone Teladoc will face some serious competition from well capitalized competitors who have access to the most important asset, patients. Competitors who will play hardball. The question isn’t if this will happen but when will it happen and how Teladoc adopts to the challenge. Teladoc management has had it easy during COVID the wind is at their back, but the wind will soon be in their face and the calm waters they are sailing in today are about to get treacherous.

Looking at Med Tech we see a far different story as these companies have learned how to adapt to COVID with many of the changes put in place due to COVID carrying over after COVID with long lasting positive impacts. These companies are not playing the short game, they understand that the game is four quarters long and that winners aren’t determined by who’s ahead at halftime.

Folks we know it’s not easy these days that we all want COVID gone. There is nothing we all want more than to get back to whatever the new normal will be. This day is coming even though it seems like some dark days are still ahead of us. Yet as Momma Kliff used to say; :”As bad as it looks today these dark clouds this storm will subside, and the sun will shine again. Nothing good or bad lasts forever so keep your head about you and stay focused on the goal.”