Richard Evans tells the Brunswick Review about the process of prediction that made him a top healthcare analyst
Duh. That was the response from a normally articulate senior editor at a respected publication.
He’d asked me to recommend a healthcare expert who could clarify a complex policy issue, and I’d asked if he’d already spoken to Richard Evans, co-founder of the investment research firm SSR Health.
Translation: “Of course I’ve spoken to Richard Evans. What kind of journalist would I be if I hadn’t?”
Given Dr. Evans’ influence on the policy debate and media coverage surrounding the US healthcare industry, it was a reasonable response. For 20 years, Dr. Evans has consistently produced high-quality, insight-filled research and bet-the-house predictions on one of the most dynamic, byzantine and fiercely debated industrial sectors.
A graduate of Yale University School of Management, he also holds a degree in veterinary medicine and worked as Vice President for pharmaceutical and diagnostics giant Roche before becoming an analyst for Sanford C. Bernstein, where he was ranked No. 1 by both Bloomberg and Institutional Investor for his US pharmaceuticals coverage. His book, Health and Capital, was published in 2009, the same year he co-founded SSR.
What sets Dr. Evans apart from his peers is how often he has accurately foretold outcomes that few considered probable or even possible: the failure of the Affordable Care Act to reach its insurance enrollment targets; the downfall of Valeant Pharmaceuticals; the over-reliance of pharmaceutical companies on price increases; the precise way that Amazon would enter the drug supply chain. These are but a few of the high-stakes calls Dr. Evans got right and almost everyone else got wrong.
He is used to occupying lonely terrain, holding unconventional and unpopular opinions, to the benefit of his clients. He spoke to Brunswick about the rigor behind his predictions and the important role of humility.
People refer to you as a research analyst, but your track record for accurate prediction implies a wider purview. How would you describe what you do?
On my first day at Bernstein, my boss Marc Mayer said to me, “Where there is controversy, there you must be.” I’ve followed that rule ever since. We try to predict the outcome of controversies that are relevant to our clients, typically money managers, investors or leaders of pharmaceutical companies, wholesalers, pharmacy benefit managers or hospitals. The controversies we seek can take various forms – political, economic or pricing-related, just to name a few. We’re not trying to create controversies. In healthcare, the controversies tend to be easy to find. [Laughs]
How do you define controversy?
You could soften it by saying “uncertainty” – an uncertainty about which people care a lot and on which people hold competing views. Disagreement makes a market. It creates a buyer and a seller, a bull and a bear. That creates capital market interest and a receptive audience for our research.
At the risk of revealing trade secrets, what is your process for predicting the outcome of a controversy?
Our process begins with a simple question: “Why guess?” It seems a little silly, because predicting by its very nature is a guess, but it doesn’t have to be a random or unstructured guess.
So, the first thing we do is establish an analytical framework, and the first step in that is what we call context. We ask whether this or something like this has happened before. That requires an intensive process of researching data sources over the last couple of decades, to find a pattern. Every time this has happened, what was the outcome? That context gives you a default probability and allows you to evaluate your current prediction.
Aren’t your competitors doing the same thing?
In the corporate world and on Wall Street, you just don’t have the luxury of time. At SSR, we’re able to choose a controversy, clear the decks and think about nothing but that controversy for a week or two or four.
Of course, there’s anxiety that goes with that, because if you don’t produce something at the end, you don’t get paid.