How Can Digital Health Startups Work with Health Insurers and Big Pharma?
A similar version of this Health Alert appeared at Forbes.
A Health Alert published in October noted that risk capital is fleeing or stagnant in most of health care. The exception is digital health. StartUp Health, a New York investor in new healthcare ventures, reported that $5 billion was raised for new digital health businesses through the third quarter, versus $2.8 billion in all of 2013. 2014 Q3 alone saw $1.7 billion raised, versus $946 million in 2013 Q3.
A Health Alert published in October noted that risk capital is fleeing or stagnant in most of health care. The exception is digital health. StartUp Health, a New York investor in new healthcare ventures, reported that $5 billion was raised for new digital health businesses through the third quarter, versus $2.8 billion in all of 2013. 2014 Q3 alone saw $1.7 billion raised, versus $946 million in 2013 Q3.
Where is all this capital coming from? Since 2010, the three largest investors in digital health are Merck’s Global Health Innovation Fund, Blue Cross Blue Shield Venture Partners (founded by the Blue Cross Blue Shield Association) and Qualcomm Ventures.
It is remarkable to see the venture arms of a leading research-based drug company, the largest association of health insurers, and the company that invented mobile technology all dominate this space.
For a digital-health entrepreneur seeking investment, this poses an interesting choice. Assuming you do have a compelling story, what are the advantages and disadvantages of dealing with one or another of these types of investors, especially the first two? This was the topic of a panel discussion at this week’s mHealth Summit, which included Wendy Mayer, VP of Worldwide innovation at Pfizer; and Jess Jacobs, Director of Innovation at Aetna.
With respect to the research-based pharmaceutical industry’s approach to investing in digital technology, Merck and Pfizer are pretty much at opposite ends of the spectrum. Merck has its own venture-capital fund, which effectively treats the parent company as a limited partner. It invests with other venture capitalists, and looks at the value of deals notwithstanding the parent company’s business strategy.
Pfizer, according to Ms. Mayer, changed its approach a couple of years ago. The firm used to make equity investments, but no longer. Pfizer found that an investment does not necessarily result in good connections being made between the new company and Pfizer. Today, when Pfizer partners with a new tech company, it wants to collaborate in learning, not provide venture finance. It will take on pilot studies for proof of concept from promising new companies. However, Ms. Mayer only has six people on her team, which means that they cannot be the first screen for new companies. Instead, they rely on academic partners and accelerators to be the first screen to identify promising companies. But don’t look to Pfizer for an equity infusion.
Like Merck, Blue Cross Blue Shield Venture Partners is unique, but for a different reason. Individual insurers have never had significant venture portfolios, and need to stick with conservative investments. Individual insurers have to invest in digital health that makes sense for their business strategy. This has been a struggle. Aetna has had one home run, iTriage, which it acquired in 2011 and has been downloaded to over 12 million mobile devices.
On the other hand Aetna also made a big splash in 2012 with CarePass, a cloud-based aggregator of consumers’ health data, but shocked the digital-health community by announcing it will shut that down by the end of 2014.
So, for the entrepreneur who is looking to partner with a research-based pharmaceutical company or a brand-name health insurer, it looks like there’s no general rule governing how those firms approach such opportunities. Further, the entrepreneur has to make sure that she actually would benefit from such a partnership.
One problem for both pharma and insurers is that patients do not trust them, despite their huge efforts at engaging digital heath. “So the worst part about that is those groups are the ones providing the largest amount of health information and consumers don’t trust them at all,” Deloitte physician Harry Greenspun told MobiHealthNews.
Deliotte’s research shows that few patients would trust apps controlled by either pharma or health insurers. This poses a challenge for entrepreneurs looking to partner. Dr. Greenspun continues: “So one of the most interesting things we’re seeing in health is partnerships with pharma and payers and with other organizations to get that info, and get those apps in a method they can believe in, and trust.”
Without that trust, the potential of mobile medical apps will go unfulfilled. How entrepreneurs and established firms establish that trust may be the biggest challenge of consumer-driven digital health.
