Diagnostic Investors Share their Insights

8 Feb

By Christine A. Wu, Senior Research Analyst, LSN

chrsitine

We see a lot of innovative point-of-care diagnostics out there, but what do these opportunities truly mean to diagnostic investors? How do diagnostic companies climb the reimbursement hurdle and how will the actionable information provided by these new diagnostics change healthcare delivery? Diagnostic investors discussed these questions at LSN’s Redefining Early Stage Investments Conference in San Francisco on January 9th.

Moderated by Akhil Saklecha, Partner of Artiman Ventures, we heard from:

  • Jenny Rooke, Venture Partner, F-Prime Capital
  • Alessio Beverina, Founder & Managing Partner, Panakès Partners
  • Eric Hargarten, Investment Associate, Sandbox Industries
  • Wouter Meuleman, Director of Investments, Illumina Ventures

Last week, we summarized what we heard from the Big Pharma panel. Now what about the diagnostics side? Below are the main takeaway points.

Consider how the diagnostic would effectively disrupt the current healthcare delivery system to solve the problem. Investors are looking at the rest of the diagnostic system, how solutions are currently being delivered, and how your solution solves the workflow of delivery. Areas these investors noted as “uncapped and wide open” are concussions and head injuries, genomics, proteomics, and oncology.

“Point-of-Care” diagnostics is too crowded an area, especially when the company does not know at what point or for what care. There are many barriers to entry for point-of-care diagnostics to demonstrate usefulness in the healthcare system. How does the point-of-care diagnostic affect a clinical decision? Other oversaturated diagnostic areas are liquid biopsies, such as blood-based oncology tests, and NGS software tools.

Focus on payor-relations by continually publishing clinical evidence, especially if aiming for reimbursement. One of the large concerns for diagnostics is reimbursement. If the company can solve a significant problem for patients, but cannot demonstrate a business case for the key players in the healthcare system, adoption will be a huge issue. Particularly in the U.S. where the expectation is for third-party insurance companies to pay, it becomes imperative for diagnostic companies to perform trials and demonstrate clinical utility in practice. Investors suggest having a person on the team dedicated to publishing studies aimed at winning over payors. How many studies should you complete before getting reimbursement, you ask? “One more than you have,” quotes Eric Hargarten from Sandbox Industries.

Think more broadly than classic venture money—VCs are not your only source of capital, especially for diagnostics. Apply for non-dilutive grant money—SBIRs are a great way to progress early-stage development. Other equity, dilutive funding sources that are not exactly the classic healthcare investors also exist. These can be tech investors that are interested in the data-side of diagnostics, as well as corporate and strategic partners. Companies should also seek foundations and family offices that are perhaps more mission-driven around the problem at hand. Incubators are also a source to gain early proof-of-concept.

Final Advice for Entrepreneurs:

  1. Have a high level of clarity. This demonstrates proprietary insight of the clinical problem and will get the investors’ attention to drive further conversation. Be sure the issue you are trying to solve is explained as clear as possible.
  2. Consider the strategic alignment with the investor. Also consider the market size, particularly for payor or provider-backed venture funds.
  3. Be prepared for technical conversations. Investors are excited by great science and great technology that solves problems others are not able to solve (think diagnosing Alzheimer’s disease before any symptoms appear!). Have your technical material on hand and be prepared to go deep. That said, be sure to also know your business model and plans for regulatory reimbursement.
  4. Carefully pick your advisors, board of directors, and KOLs. Be sure they understand what you are doing and truly champion your company.
  5. Think about what your company will look like in five years, and know what it takes to get there.

 

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