TPG seeks “innovation and efficiency” in healthcare targets

“Even as the market has gotten more competitive, we as a firm have never been more active,” TPG’s Jeff Rhodes told PE Hub.

“Innovation and efficiency are the key factors propelling our $3.6 trillion US healthcare system,” Jeff Rhodes, co-managing partner at TPG Capital, told PE Hub. “Capital formation is happening around true innovation in healthcare products that benefits patients and takes costs out of the system. We are also seeing very significant innovation on the healthcare services side around how care is provided, where it’s provided and how it’s paid for. True innovation is rewarded, and that is always where we have invested as a firm, and it’s where we continue to invest.”

PE Hub spoke to Rhodes as part of our ongoing series profiling private equity firms investing in healthcare. With the firm since 2005, Rhodes is based in San Francisco and co-leads the healthcare group and the firm’s investment activities in the healthcare services, pharmaceutical and medical device sectors.

“Even as the market has gotten more competitive, we as a firm have never been more active,” Rhodes said. “In a world awash with dry powder, we need to have even more discipline and rigor in our healthcare playbook. We continue to focus on deeply thematic multi-year sourcing, developing differential insights, partnering with leading management teams to help transform companies, investing organically in the business, and finding M&A opportunities that are focused on capability building.”

Investment strategy

“In the healthcare sector, we are highly driven by specific themes and thematic investing. We will spend years in certain sub-sectors getting to know all the players, all the business owners, executives and companies,” Rhodes said. “We have a deep understanding of the arc of history and the performance of those sectors and companies over an extended period of time. We do that work over many years, so that when the opportunity comes to express those themes through an investment opportunity, we have a deep understanding of the business and are ready to move quickly.”

The strategy is proactive.

“Instead of waiting to hear what is for sale, we aim to figure out what we want to buy based on the themes we are focused on. We try to put ourselves in the right neighborhood, find the right asset and then serve as a great partner to the management team to help them create value.”

Playing catch-up on tech

“The level of technology adoption and penetration in healthcare is far below other highly regulated industries, and this creates opportunities for greater efficiency, especially in cutting-edge technology around data and analytics that can help make better choices more quickly,” Rhodes said. “As healthcare has become a larger percent of gross domestic product, the industry knows it can’t just continue to operate in the same way it’s been running. Demand for greater efficiency is leading to more adoption of technology and it’s creating meaningful change.”

The covid era has accelerated trends that began before the pandemic.

“Patients have become more like consumers, and they expect the same type of consumer experience they get in other industries,” Rhodes said.

Mega deals

When asked if TPG is concerned about the current federal government’s scrutiny of mega deals, Rhodes said there has been no impact so far, emphasizing the diversity of deals the firm does.

Jeff Rhodes, TPG Capital

“TPG’s investment strategy combines a rigid and flexible approach,” he said. “We are rigid about our healthcare playbook and the themes we invest behind, but we are flexible about the way we express that theme, in terms of company size, maturity and deal type. We invest in both mega deals for long established companies and minority positions in young, highly innovative companies.”

Macro environment

When asked about how TPG is handling the recent challenges in the macroeconomy, Rhodes said: “There is no question that supply-chain challenges have presented meaningful issues to be dealt with, both for finished products and the inputs to manufacture products for patients. It’s also clear that the ‘great resignation’ and some of the changes in the labor markets are having an impact on every business in healthcare. The way we think about those challenges is that we need to be investing in sectors that will thrive in this environment and are adding innovation and efficiency to the system in a demonstrative way.”

Corporate partners

“Private equity used to be seen as a marginal source of capital for corporations and now through years of hard work, we are seen as a partner of choice for large corporations that are seeking to work with a capital provider to achieve their strategic goals,” he said. “We have had meaningful partnerships of this nature with companies like Humana, where together we acquired Kindred Healthcare, and with Pfizer on Allogene. These partnerships generate very interesting investment opportunities and allow us to be involved in building really special companies.”

Firm facts

TPG Capital, a division of TPG, has invested more than $67 billion since 1993. Healthcare remains among the firm’s most active sectors, with roughly $25 billion in total equity deployed since 2003. The TPG Capital Healthcare platform has 30 investment professionals across San Francisco, New York and London and 14 current portfolio companies across healthcare services, medical device and pharmaceutical products, and technology.

Recent investments

TPG invested in Confluent Medical in February 2022 under its med tech/medical devices vertical. The firm Invested in BGB Communications in 2021 under its pharma and biotech services (medical communications and marketing) vertical. Other investments include: Monogram Health in 2021 under its healthcare services vertical; Ellodi Pharmaceuticals in 2020 as a newly established entity to continue the development of select clinical assets spun-out in TPG’s sale of Adare Pharmaceuticals (leading pharma CDMO); WellSky in 2020, as a recapitalization of the business with Leonard Green & Partners (TPG originally invested in WellSky in 2017 under its healthcare IT vertical): LifeStance Health in 2020 under its healthcare provider vertical (LifeStance went public in 2021). (See the sidebar, below, for more details.)

Recent exits

TPG exited Kindred Healthcare and Kindred at Home last year; exited LifeStance Health and Convey Health Solutions last year via IPO; exited AskBio and Adare Pharmaceutical in 2020.

TPG’s healthcare portfolio highlights

(Dates refer to initial investments.)

Allogene Pharmaceutical: A clinical stage biotechnology company that develops allogeneic chimeric antigen receptor T cell therapies for cancer. (2018)

BGB Communications: A medical communications agency based in New York City that passionately fuses both creative execution and scientific insight. (2021)

BVI: A global ophthalmic medical device manufacturer. (2016)

Confluent Medical: A single-source provider of services for medical device contract manufacturing. (2022)

Convey Health Solutions: A provider of technology-enabled and advisory software for health plans. (2019)

Ellodi Pharmaceuticals: A gastroenterology-focused specialty pharmaceutical company developing therapies for the treatment of Eosinophilic Esophagitis. (2020)

Exactech: A developer and producer of orthopedic implant devices and surgical instrumentation for extremities and large joints. (2017)

LifeStance Health: A family of behavioral health brands offer online psychiatry and therapy services across the US. (2020)

Monogram Health: A value-based provider of in-home nephrology, primary care and benefit management services for individuals with chronic kidney and end-stage renal disease. (2021)

WellSky: A software provider for a range of care, including home health, hospice and blood management. (2020)