By Karen Deyo, Investor Research Analyst, LSN

The last Redefining Early Stage Investments (RESI) conference on Sept. 6^th in Boston launched the inaugural First Coast Innovator’s Gathering featuring the earliest stage companies and technologies from incubators, accelerators, universities, hospitals and research organizations. These companies, when seeking seed funding, often look for more than just the funds that investors can provide – they may also rely on the investors’ expertise and experience to help them grow. The Seed Funds panel featured five investors from funds focused on seed-stage investing, willing to take the larger risk to support companies at an earlier stage.

In their discussion, the panelists brought to light the differences that exist between various seed funds. Some provide funds, guidance and contacts with experts, but otherwise use a light hand. Others work closely with the founders, often scientists with no entrepreneurial background, guiding the business and the founders until they have the knowledge needed to direct the company. Also discussed was the complex issue of valuation at such an early stage and how many seed investors use convertible notes as a way to postpone the firm valuation until more milestones are reached and a bigger round is raised.

One thing the panelists agreed on – investing early is part of their mission, even though the risk is bigger. As Sunil Shah from o2h Ventures said, by focusing on building great companies, a great exit will follow. Below are some highlights from the panel, featuring discussions prompted by the questions listed.

The panel was moderated by Sunil Shah, CEO of o2h Ventures and featured:

• Atul Varadhachary, Managing Partner at Fannin Innovation Studio
• Chris Hanson, Partner at Grant Park Ventures
• Mackenzie Lowry, Entrepreneur In Residence at Rock Health
• Mike Wiley, Vice President at Foundation Venture Capital Group

What support do investors provide portfolio companies, apart from funds?

What do investors look for in these companies and how do they get a ROI? 

How do investors approach valuation? 

Given the additional risk, why invest so early?

What information do investors want when companies approach them?

What level of involvement do investors have after investing?

This panel will be featured again in our upcoming RESI conference on November 5^th in NYC.

Please be sure to join us if you are interested in hearing more!

By Lucy Parkinson, VP of Investor Research, LSN

With RESI returning to NYC on November 5th, investors are flocking to sign up to participate. RESI’s unique high-touch partnering and breadth across the four key life science verticals of biotech, medtech, diagnostics, and digital health have attracted an audience of active investors from all over the globe.  The ratio of startups to investors at RESI events runs close to 1:1; there’s no better opportunity to find the right investor for your life science technology. See below for a selection of the registered investors.  We hope you can make it to RESI NYC to meet them.

Confirmed Investors and Strategic Partners

As of September 20, 2018

By Claire Jeong, Senior Research Analyst, LSN

An increasing number of health systems are seeking to form strategic partnerships with early-stage companies that could serve as a meaningful solution for the various complexities within the healthcare system. These strategic partnerships would be tremendously valuable for a start-up entrepreneur, as the value-add that health system organizations can provide are not limited to direct equity investment. Through working with large health/hospital systems, companies gain access to various channels, abundant resources, and relationships with key clinicians or medical professionals that they otherwise may not be able to manage on their own.

So how can companies seek to access these channels, and what exactly does each organization have to offer? At RESI Boston on September 6th, we had the tremendous pleasure of inviting 5 panelists from health systems – all with a unique approach to working with early-stage innovations – to speak about their work and perspectives in fostering novel innovations that can impact the course of healthcare.

For those who missed this session, we have prepared a shortened video of the panel that highlights the main discussion points. If you are someone seeking to leverage relationships with health systems, I hope you find these insights helpful!

Our panelists included:

• Brent Stackhouse, Vice President, Mount Sinai Ventures, Inc. (Moderator)
• Richard Gordon, Director, Inova Strategic Investments
• Anne Wellington, Managing Director, Cedars-Sinai Accelerator
• Eric Feinstein, Investment Director, Northwell Ventures
• Sarah Lindenauer, Product & Portfolio Manager, Boston Children’s Hospital IDHA

A brief profile for each organization:

Mount Sinai Ventures – Mount Sinai Health System is a hospital system in New York. Their venture arm, Mount Sinai Ventures, started in 2008 with the goal of investing in care delivery (urgent care, ambulatory services). About 4 years ago, their interests diversified into medical devices and digital health. The group invests $500K in average, as little as $50K and as much as $1.5M, with about 20 investments in the portfolio. Mount Sinai Ventures is constantly trying to find ways to partner with other individuals within the health system and build or create value for portfolio companies.

Inova Personalized Health Accelerator (Inova Strategic Investments) – Inova is a hospital system in the Northern VA area, and IPHA is their accelerator arm. Inova has historically made several strategic investments, generally to drive innovation into the hospital system. They have a $150M balance sheet commitment which they are aiming to allocate over a 24-month period. The firm invests in multiple ways – they are a fund of funds and have a LP position in several like-minded funds. With regards to their seed portfolio, the average investment size is around $500K-1M. IPHA has a fixed price, fixed equity structure ($75K for 10% equity stake, with potential for $250K investment in follow-on).

The Cedars-Sinai Accelerator – Cedars-Sinai Accelerator is the accelerator program of Cedars-Sinai Medical Center, through which they invest $120K in participating companies. This has been in partnership with Techstars in the past but they will soon be operating independently. In partnership with MemorialCare, Cedars-Sinai is also involved with seeking investments through Summation Health Ventures that focus on Series A/B investments in the $5-10M range.

Northwell Ventures – Northwell Ventures is a venture equity practice at Northwell Health. Northwell is the largest health system in NY state, with 23 hospitals in the network. They are about to close on their 16^th investment. Their investment areas of interest ranges from medical devices through digital health and other services. They also participate in corporate carveouts, where they put seed capital into non-core assets within the system and partner with external capital in efforts for revenue cycle management.

Boston Children’s Hospital IDHA – Based in Boston, MA, Boston Children’s Hospital’s Innovation & Digital Health Accelerator (IDHA) is Boston Children’s Hospital’s accelerator arm and is supported by a 50-person team. Of this team, about 25 people are technologists, software developers, etc. and is very deep on team/resources. While there is no investment arm, IDHA provides very high-touch, customized support, and software development resources that provides strategic value beyond capital.

By Lucy Parkinson, VP of Investor Research, LSN

On November 5th, RESI is coming back to New York, and will bring an agenda full of investor discussions and content on key investor constituencies and life science technology verticals.

RESI NYC includes new panels on AI in Healthcare and Funding NYC’s Earliest Stage Companies, plus the return of the expert sessions on Investing in Oncology Innovation and Asia Cross-Border Investors.  RESI will also present panels on our core technology verticals of Early Stage Therapeutics, Medical Devices, Diagnostics, and Digital Health, and on key investor types such as Angels and Family Offices, Seed Funds, Corporate Venture Capital and Big Pharma.  You can view the entire agenda below.  If you’d like to here from experienced investors on these key topics and book face-to-face meetings with investors all day, you can register now.

By Karen Deyo, Investor Research Analyst, LSN

The FDA is working hard to modernize the agency to adapt to the rise of digital health. In his speech on April 26^th, FDA Head Scott Gottlieb noted that a clear FDA regulatory strategy for digital health is critical not only for maintaining patient safety, but to provide companies and investors a clear understanding of what, if any, regulatory requirements companies will need to meet before and after market entry. Additionally, the FDA is looking to modernize their own processes by adapting digital tools to help streamline pre-market review of therapeutic safety and for improved compliance with post-market study requirements.

When considering a digital health company for potential investment, investors will ask whether or not the tool will require any sort of FDA oversight. The FDA has determined that any digital health tool that does not have the ability to significantly impact patient safety does not require any regulation. This would include tools such as general wellness apps, tools to streamline doctor-patient communication or track patient care and records, as well as tools to ease patient access to medical records. Investors focused on technologies that don’t require regulatory approval will focus on companies developing these tools when looking for digital health portfolio companies.

Challenges for Digital Therapeutic Tools

The real challenge for the FDA will come in determining the regulatory requirements for digital health tools as part of medical devices, diagnostics and therapeutics. Digital health therapeutic tools, such as tools to monitor patient compliance with medication regimens or monitoring of side effects, would be reviewed in conjunction with drug development programs. Likewise, digital health tools that serve as a component of a medical device will be evaluated as part of the device, unless the FDA determines that the software component can have no effect on patient safety. However, given the difference in time and effort required to develop or alter these software components, the FDA is still determining how to ensure that the review process protects patient safety without delaying access to these tools for long evaluation periods. Since these tools are theoretically being developed side-by-side with a drug or device, they would already be part of the regulatory process and would simply be an added component to current reviews.

New Digital Health Pre-Certification Program Offers Faster Path to Market

Of highest importance to companies and investors is the Digital Health Software Pre-Certification Program that is currently being developed. Initially, this program will only apply to tools that qualify as software as a medical device (SaMD), which is defined as any digital health tool that is not part of a device with unique hardware. This includes software tools for diagnosing, determining treatment plans, imaging, monitoring etc. and any tool using AI or machine learning for these purposes. This is the class of digital health tools that can pose a higher risk for investors due to the uncertainty with regards to regulations and what evaluation will be required before they can be implemented in the clinic, despite their increasing traction among investors. Because of the drastically shorter development time required for these tools when compared with traditional medical devices, as well as the ease in releasing new iterations, the FDA is developing a new regulatory approach: pre-certifying the company as opposed to the digital health tool.

The premise to the FDA’s new approach is that by establishing the excellence of the company releasing the digital health tool, there is an assumption that any software platform the company releases to the market will meet FDA standards. Applying and receiving precertification will allow companies to release new digital health tools to market with little or no pre-market review. Instead, the FDA will rely on post-market studies to assess if any changes need to be made. The FDA has laid out five areas it will evaluate when assessing companies for precertification: the ability to demonstrate a commitment to product quality, patient safety, clinical responsibility (defined as conducting clinical evaluation of the software product), cybersecurity responsibility and maintaining a proactive culture. While this new program is still under development, investors can now evaluate companies by assessing how they plan to meet these guidelines. Once this program is in place, this method of evaluation can serve to mitigate risk when investing in companies before their product reaches the market. Once pre-certification is available, investors can use this as a differentiator when evaluating companies with software tools already on the market.

There are still a lot of unanswered questions with regards to the exact evaluation criteria, both for pre-certification, the delineation between technologies requiring no review, what information companies must provide during the expedited review process, and what data the FDA will require from post-market evaluation. The FDA is currently soliciting feedback from those involved in the industry to help the program take shape with a list of questions related to all aspects of the Pre-Certification Program. Companies and investors in digital health should watch for more updates from the FDA as these programs and regulations take shape.