Diagnostics Investors Speak to How They Are Looking at Opportunities

24 Sep

By Christine A. Wu, Research Analyst, LSN

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What defining elements make a diagnostic company stand out? What do diagnostic investors look for and why should the healthcare marketplace care about diagnostics? What should these companies do to get their foot in the door of these investors? These are the types of questions our Diagnostic Investors panel answered at our RESI Conference in Boston last week.

Moderated by Parker Cassidy, Executive in Residence, RA Capital, the audience got to hear from:

The panel revealed the key elements they seek when evaluating a diagnostic company and the reasons behind them. Together they discussed four main criteria—the impact in the healthcare delivery marketplace, the regulatory and reimbursement pathway, the “push” and “pull” from investors and clinicians, and the ability to prove positive patient impact with the tests results—before closing with advice for fundraising companies.

Diagnostic companies can get their product on the market faster, according to Steuart. The attractiveness of diagnostics is that they “capture a disease before it gets bad and expensive.” Cunningham further explains the general desire in healthcare to invest in huge pain points, yet the difficulty of finding diagnostic opportunities that directly address those pain points and really drive change. There is a big explosion in testing in oncology now, in which predicting difficult cancers early while they are still treatable is huge and will continue to grow in the diagnostics space. The argument of course will always be whether finding certain cancers earlier will improve chances of length of survival, Cunningham points out.

Diagnostic investors look at every obstacle to a successful product. Williams explains that regulatory and reimbursement bodies are not subsiding as much in the diagnostics space, and as an entrepreneur that needs to be expected. Because of the tough reimbursement landscape, investors want to know if the technology will take money out of the system or drive cost. “If the payer thinks it will open a bunch more people up to confirmatory procedures they are going to pay for, then that’s a mountain to climb over,” Cunningham explains.

Then there is the push and pull dynamic, the final hurdle that a company faces that is often overlooked but can actually be the most costly. Companies and their investors push their technologies through reimbursements and regulatory approvals. Yet the “pull” from the clinician that will be administering the test is a keystone to the strategy. “Just because you get the ‘push,’ doesn’t mean the clinicians will ‘pull,’” Williams describes. Williams has worked with a number of companies that have spent far more money on getting key opinion leaders (KOLs) to pull products than on the development of the technology. “If you can get the key opinion leaders and physicians on board, you are golden.”

Summer finishes that among it all, investing in the diagnostics space is all worth it. Companies just have to know how to prove the impact of its worth. Steuart provided the example of Genomic Health, a diagnostic company with an assay that paved its way via studies and endorsements with KOLs that by the time they went to CMS, they had a pharmaco-economic study to prove that they were worth millions of dollars.

To close, here are two pieces of advice from our panelists’ when fundraising:

Come prepared – You must completely understand and follow the money: who owns the patient, who is getting the benefit, and who is paying for the benefit. You cannot just come with better patient outcomes. Once you reach a certain threshold, you need to come prepared with friends, such as clinical advisors and KOLs. Practice your pitch with people who you will never invest in you, then once you’ve mastered it, pitch to those who will actually invest in you.

Most importantly, tell a story – Cunningham describes (followed by applause), “For any of us, you have a few minutes to capture our attention. You must inspire vision and tell the story to get people to see the vision and follow it. I want to go on that journey with you.”

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