Venture capitalists seeking to profit from
innovations in health care are turning to startups that make smartphone and
tablet applications for doctors and hospitals.
Two
years ago, patients would be surprised to see their doctors pulling out an Apple Inc.
(AAPL) iPhone to check their blood sugar, or cardiogram results. Now
they’re finding such practices commonplace as investment in the kinds of
companies that make health information apps rose 78 percent in 2011 to $766
million. Qualcomm
Inc. (QCOM) has started a $100 million fund, Insight Venture Partners
is putting $40 million into a startup and Oprah Winfrey is dipping in as well,
with her company investing in a website that helps doctors and patients
interact.
“We’re
at a sea change,” said David Jahns, managing partner of Galen Partners LP, a Stamford, Connecticut-based
private equity firm that invested in a company called Sharecare.
Demand
for apps that let doctors and nurses see test results quickly and monitor vital
signs remotely, combined with a push from government and insurers to collect
better data to contain rising medical costs, is propelling investor interest in
an array of health information
technology, Jahns said.
“We
really have to improve our costs,” he said. “The best thing that our country
can do is invest in technology that gets better outcomes with fewer procedures.”
Timothy
Kreth, a cardiologist at TriStar Summit Medical Center in Hermitage, Tennessee, uses an
application from AirStrip Technologies that lets him view
emergency room patients’ electrocardiograms on his iPhone.
More
Convenient
“It’s
more convenient for the patient,” Kreth said in a telephone interview. “I can
look at it and determine some of the subtle nuances the emergency room doctor
maybe could not. It gives us the opportunity to make diagnoses quicker.”
Kreth
and the five other cardiologists have used the AirStrip technology for about
six weeks at his hospital, which is part of HCA Holdings
Inc. (HCA) Previously, emergency room doctors faxed cardiologists the
EKGs, Kreth said.
AirStrip,
based in San Antonio, Texas, was the first investment
from the $100 million Qualcomm Life Fund that formed in December.
Qualcomm Life doesn’t disclose how much it invests, though typically puts down
$2 million to $5 million, Jack Young, who manages the fund, said by telephone.
Taking
Off
Richard
Wells, a managing director at Insight Venture, defines the burgeoning market as
software as a service -- scheduling technology for doctors, patient-monitoring
data for hospitals and online wellness tools for corporate health plans.
“In a
way it’s like outsourcing,” Wells said in a phone interview. “You don’t need IT
guys, it’s all done for you.”
Qualcomm
had invested in health previously through its $500 million Qualcomm Ventures
that funds a broader range of tech startups. Now the San Diego-based wireless
communications- equipment company markets a cloud-computing platform that can
connect medical devices and applications over the Internet, a specialty Young
said will be mutually beneficial when Airstrip moves into home care for
patients discharged from the hospital.
“We’ll
continue to see this caliber of investing,” he said. “The ecosystem is slowly
but surely taking off.”
Money
Flow
Investment
in health information technology has doubled since 2006, and rose 78 percent in
2011 from 2010, according to the National Venture Capital Association. Funding totaled
$184 million in 27 deals in the first quarter of this year, according to Mercom
Capital Group, an Austin, Texas-based consultant to health-care companies.
Industry
venture investments of $2 million or more per deal are up about 30 percent this
year, with most startups getting an average of $11.8 million, said Halle Tecco,
chief executive officer of Rock Health, a seed accelerator for health
technology startups.
As
information technology reaps the benefits, investment in traditional medical-devices
makers, though still magnitudes larger than medical app investments, has
stalled to $2.8 billion in 2011, from $2.9 billion in 2006. Devices, unlike
most information technology, are subject to a regulatory review where companies
must show that a product is reasonably safe and effective before sales can
begin.
The
timing of the Food and Drug Administration reviews has become too unpredictable
for some early investors, Thomas Gunderson, senior analyst at Minneapolis-based
Piper Jaffray & Co., said in a telephone interview.
Economic
Stimulus
“If
they’re supposed to make investments and they think it’s going to take six
years to get the returns on their investments, that’s one thing,” he said. “If
it’s seven, eight or 12 years, that’s unpredictable and they’re backing away.”
The FDA
is considering stricter standards for medical apps that directly diagnose or
treat conditions. The agency released draft guidelines in July that said some
mobile apps pose a potential risk and may have to meet medical-device quality
standards before being sold for use with smartphones and tablets.
For
now, insurers are still embracing the proliferation of new technology that
helps hospitals and doctors keep better records or operate their practices in a
less costly way.
The shift
is being aided by government efforts to arm doctors with more data and
coordinate care to reduce health costs, said Jahns.
The
U.S. economic stimulus package in 2009 set incentives for health-care providers
to adopt electronic records, and President Barack Obama’s 2010
health-care system overhaul pushed providers further to cut costs and improve
services.
“Anyone
who can save money goes to the front of the line” for investment, Gunderson
said.
Oprah’s
Backing
Galen
Partners led a $14 million investment in WebMD founder Jeff Arnold’s newest
project, Atlanta-based Sharecare. The company began in 2010 in partnership with
Dr. Mehmet Oz ofOprah Winfrey fame
-- Winfrey’s Harpo Studios is also a backer.
Sharecare
has built searchable drug, supplement and wellness databases and provides
online tools for doctors to connect with potential patients. On the consumer
side, the company’s website provides thousands of answers to health questions
by experts from hospitals, care provider associations and companies such as Pfizer Inc.
(PFE), the world’s largest drugmaker, and pharmacy chain Walgreen Co.
(WAG)
The
website’s landing page includes a bar where users can enter any health question
they conjure with some clickable prompts such as “Can I burn extra calories
eating celery?”
“For
us, we want to get to scale and become the front door to online health,” Arnold
said in a telephone interview. “Basically, to health care the way Facebook is
to the way people make lifestyle choices.”
Digital
Frontier
UnitedHealth
Group Inc. (UNH), the largest U.S. health insurer by membership, had its
employees use Sharecare for a 12-week “Move It & Lose It Challenge,” Tyler
Mason, a spokesman for the Minnetonka, Minnesota-based company, said in an
e-mail.
Arnold
wants to open Sharecare up to other entrepreneurs to give patients access to
electronic medical records, allow people to schedule doctor appointments and
provide a home for data from apps that are operating like traditional devices,
such as blood sugar management systems.
Wells
of Insight Venture said desire for digitization to control health costs will
continue to spark venture capital interest. Insight in March invested $40
million in Kinnser Software, which gives home-health providers access to
patient records and the ability to enter data digitally on the site or using an
app on a tablet.
“This
keeps going for a while,” Wells said.
To
contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net
To
contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net
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