Insurance and Healthcare Providers Invest in Early Stage Companies

12 Jun

By Michael Quigley, Research Manager, LSN

mike-2The formation of direct-investment arms financed by insurance companies, hospitals, and healthcare providers is a growing trend in the life sciences industry. The research team at LSN has identified at least 15 that are actively seeking opportunities at this time. And after reviewing the 10 most recent investment mandates for these organizations and speaking with them, it is clear that they all have a singular focus: reducing the cost of care. This makes sense. By investing in life science companies, these organizations can lower the costs of care and increase profitability, while establishing an equity position in a growing company. It’s a win-win approach.

Interestingly, these organizations also have very similar ideas about the types of technologies that they want to fund in order to lower the cost of care. Fifteen have stated interests in health IT, 12 in medical devices or diagnostics, and 5 in therapeutics. It would appear that the financial requirements for therapeutic assets are too large and investment timelines are too long for some of these types of investors. However, the requirements for the health IT and device sectors are more manageable—and are red hot. Furthermore, the subsectors of patient monitoring, diagnostic devices, wearable and mobile medical devices, surgical tools, hospital hardware, and elder and chronic care all come up time and time again when speaking with these investors.

These investors also are uniquely positioned to assume the role of strategic partner for early stage companies for several reasons. First, many are able to aid in the organization of clinical-trial participants, since they are healthcare providers. Second, many are able to perform a deeper level of due diligence, since they have staff who would be the end users of many of these medical products and tools. Third, these investors tend have insight into the reimbursement process and environment, which has been known to be the bane of many early stage or newly commercialized medical devices. Finally, these investors ultimately realize their ROI when your product reaches commercialization and begins to reduce the cost of care; they are not looking to reach (or force) a value inflection point so that they can sell out to other institutional investors.

Given all these factors, these direct-investment arms are excellent prospects for companies that fit the investment mandates.

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