Healthcare Venture Capital

Archive for March, 2010|Monthly archive page

Healthcare Reform – Where are the VC Investment Opportunities?

In healthcare on March 19, 2010 at 9:15 pm

Next week is my 37th birthday.  The gray hairs are coming in fast and furious.

Birthdays always remind me to call my internist for an annual check-up.  This year, I was told that the next available appointment would be almost 3 months away.
I go to a regular medical practice in the Bay Area and have refused to go the concierge medicine route to date.

This absurd delay at the practice that sees me coupled with the fact that 32 million more people could  be in the “system” over the next several years creates opportunities.

There are 3 themes that I am focused on right now:

1.    CRM for Physician Practices – Why is it that every other category of small business in the country has figured out CRM other than physician practices? I’m talking about electronic scheduling, reminders for visits, etc.  Really basic convenience oriented items that make a huge difference to patients/consumers.  Old school “practice management systems” don’t really seem to cut it.   If restaurants can do it, then doctors offices must be able to do it in 2010.

2.    Practice Profitability Tools – continuing the theme from above: the small to mid-sized medical practice is a small business – yet most practices have no idea what it costs them to deliver a unit of service.  I am on the lookout for tools and services that will help docs and other providers measure the profitability of each customer.  I understand that profit and medicine don’t mix well for some but many small practices are at the breaking point now and with declining Medicare and Medicaid reimbursement, they may be in deep deep trouble.

3.    Expert Systems Focused on Chronic Disease Management – Study after study keeps showing that simpler is better when it comes to medical treatments for chronic dieases and that we are a nation of over-utilizers.  3 cent /pill lasix is better for hypertension tan the new fancy $5/pill branded drug.  There are dozens of examples like this from recent studies in cardiology, diabetes, hypertension.

People have spoken about bedside decision support and evidence based medicine for ages. I believe that the next 5-10 years will finally usher the era of guidelines driven medicine at the grassroots level.  Otherwise, the combination of reform and no cost-cutting or payment changes  will mean that the healthcare system really will be bankrupt.

The government (AHRQ and USPSTF) has given a boost to this idea and now industry needs to step in with easy to deploy systems that fit into workflow.  Again, the road is littered with many broken decision support vendors using traditional enterprise models.  I think it’s the next generation companies that will succeed in this space.

In all of these cases, I’m particularly focused on companies with products in the market and revenue traction and especially on those with efficient sales models.    Email me (bijan at hcp dot com) if you are an entrepreneur in the space. 

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Friendly Advice To First Time CEOs

In healthcare on March 9, 2010 at 1:39 am

I was thinking about first time CEOs today.

Like many other VCs, I’ve seen CEOs and boards learn some lessons the hard way.

This post focuses on the two most valuable pieces of advice that I can give to first time CEOs.

1. Share Bad News Early

In my experience, the number one blind spot that first time CEOs have is not wanting to share bad news early enough with the board.

I’d wager that every single venture backed company has had some bad news somewhere along the way.

The best CEOs tend to share the bad news (product delays, missed numbers, etc) early and to ask for help and advice from board members.

Oftentimes, first time CEOs tend to wait a while before they share bad news – thinking that they can “fix it” themselves or fearing that they will lose face with the board due to the bad news.

It’s not out of maliciousness or wanting to hide information that most CEOs wait. Rather, they are afraid to seem as if they have failed in any facet of the job.

The reality is that the CEO job is hard enough itself.  It can be a lonely job with intense pressures.  But being upfront with bad news early tends to save lots of heartache down the line.

Most VC investors would rather know as early as possible that a product has a high chance of being delayed in shipping by several months rather than waiting till the 11th hour to find out that it is definitely delayed.

The advance notice gives a company room to pivot if needed.  In venture backed start-ups, “degrees of freedom” and the ability to pivot are critical.

Last minute notice of bad news can leave a company trapped with fewer strategic or financing choices.

2. ABP: “Always Be Planning

The other trap that most first time CEOs fall into is the lack of scenario planning.

Again, I’ve noticed that the best and most experienced CEOs are always planning contingencies around every major product release, milestone, etc. They are always running “what ifs” in their head.

The “what if” exercise is incredibly valuable and tells me that a CEO is thinking extremely strategically and not afraid to admit that things sometimes do take longer.

I try to speak to each of the CEOs in my portfolio at least weekly and in some cases much more frequently as the situation demands.

I’ve found that the best CEOs I work with tend to actually call me most often for advice or to just to some bounce ideas and scenarios.

In consumer internet companies, first time CEOs are the norm – perhaps even encouraged and preferred.  In that sector, being in touch with the product is key.

Internet CEOs in their 20s and 30s are more likely to be in the demographic of potential product users.

In healthcare, it is a different ballgame.  Given the challenges of perennial fund raising driven by lack of capital efficiency, FDA risk, reimbursement risk etc, it is far more rare to have first time CEOs scale over the long-haul in healthcare companies.

Reed Prior recently had a nice post where he touched on the CEO requirement differences between healthcare and other industries.

Luckily as Fred Wilson said a few years past, “You Are Only A First Time CEO Once

Sell the sizzle, not the steak

In healthcare on March 2, 2010 at 9:26 pm

One of the themes we have here in our healthcare group at Highland is: sizzle sells.

What do I mean by sizzle?

I am speaking of companies operating in markets that capture the imagination of the popular press. Companies that break through the noise and scream out “take me public” or “buy me”

Sizzle stories face all of the obstacles that other companies do in becoming successful but we have found that the sizzle stories are the ones where a supersized return is more likely.

In healthcare, our sizzle stories arent nearly as sexy as FourSquare, Twitter, Zynga, Facebook, Quattro, AdMob but they are still great companies and markets.

Sizzle stories are probably 1% of all venture-backed companies – maybe even less.  They only come along once every few years in each sub-sector.

Three recent examples that come to mind:

1) Conor MedSystems – Drug eluting stents. Picture it – 2001, J&J releases data showing 0% restenosis on their stent.  Yet Jeff Shanley and Frank Litvack have this amazingly interesting stent technology at Conor that allows far less drug to be used on the stent than the normal drug eluting stents in trials.

Drug stents are approved, Market doubles overnight from $3B to $6B.  Everyone wants to be in stents.  Can’t pick up the NY Times or WSJ without seeing a story on drug eluting stents. The only credible start-up in the space is Conor. IPO in 2004, Conor sold in 2007 to J&J for $1.4B.

Highland was lucky to be the largest venture investor at Conor and we give all of the credit to Jeff and Frank for persevering when many told them to give up along the way.

2) Sirtris – resveratrol. The anti-aging, anti-diabetes miracle.  Christoph Westphal and his team did an amazing job captivating the popular press with the power of resveratrol.

NY Times and 60 Minutes stories may not have been all that was needed to take the company public and sell it for $720M to GSK, it sure didn’t hurt that Sirtris was in every magazine and newspaper in America for 2 years running. Kudos to Christoph and his team.

3) Generation Health – pharmacogenomic testing. What happens when you take a big idea like pharmacogenomics and genetic testing benefits management and put some incredibly brilliant and experienced people in the management team including Highland’s very own Graham Gardner (CMO)?  What you get is lots of strategic interest in a company that was only founded in November 2008.

There are of course also some cases where there is no steak behind the sizzle: Sequenom and their pre-natal Down’s syndrome fiasco comes to mind.

Timing is everything in start-ups. So is luck.

The best CEOs and teams know how to couple timing, lucky breaks, and macro-event momentum to raise money before it is needed, to capitalize on press coverage and to create press coverage, and to captivate the strategic buyers.  All of which leads to big exits.

For early stage investing in high risk healthcare ideas, I think sizzle is everything.  It must also be coupled with CEOs whose strength is telling the story to anyone who will listen and who can fundraise relentlessly.

Are there other recent examples of sizzle stories in healthcare?