Why Investors Need to Do More Rigorous Medical Diligence as a Core Part of any Healthtech Investment

Why Investors Need to Do More Rigorous Medical Diligence as a Core Part of any Healthtech Investment

by | Sep 5, 2019

Yesterday’s big news, reported by Chrissy Farr of CNBC, was ‘“Gut health start-up uBiome files for bankruptcy five months after FBI raid.”  In other words, yet another health tech company is making headlines for avoidable, costly—or dangerous—missteps. The troubles of uBiome, Theranos, Nurx and 23andMe have been high profile enough to make the press, but they are by no means unusual. In fact, similar missteps are happening all the time with smaller health tech companies, usually unbeknown to their investors. 

It’s time that we in the industry, who are creating the health products of the future, ask ourselves why these problems keep  happening and what we need to do to fix them. A heated debate erupted on Twitter in response to the latest uBiome headlines, questioning what role investors play in enabling missteps and whether they are doing an appropriate level of medical diligence when they fund health tech companies.

Investing in early-stage companies is always risky particularly in the unproven health tech sector. In every investment transaction, investors conduct a process of due diligence to confirm the accuracy of claims about the company’s finances, business model and teams. The due diligence process is intended to help identify the potential winners, elucidate key risks, and develop a risk mitigation plan with the management team. Common areas of review during the diligence process include finances, operations, legal, and, when appropriate, technical. Although the investors and entrepreneurs need to be aware of diligence issues, the actual assessment is typically done by professionals—accountants for financial diligence, lawyers for legal diligence, and so forth.This is because these individuals do a far better job of identifying potential pitfalls or risks.

Yet in health tech, the process happens in a different way. When it comes to the medical diligence required to evaluate a company, tech investors usually rely on their associates instead of on professionals with medical industry expertise. 

Medical Diligence Is Missing

We would hope that by simply presenting the above sentence to the investor world, the logical disconnect would speak for itself. In case that’s not convincing enough, the proof of the problem is in the numbers: Over $50 billion has been invested in health tech in the last ten years, but with very few successful exits. Clearly, most medical diligence that has been done to date has not been rigorous enough. For the most part, it has failed to separate those companies who are creating a clinically and commercially viable health product from those who are not. And it has failed to detect the ones making the egregious missteps we are seeing in the headlines.

Tech entrepreneurs are famous for solving problems with rapid iteration and learning. However, they can often take far too long—five years or more—to discover certain requirements for success in health tech: Specifically, that: 

  • There is a formula for achieving widespread market access in health care 

  • They need team members who are part of the healthcare industry 

  • Credible evidence presented in the right places is necessary before widespread adoption of a new health product can happen. 

Proper medical diligence that takes these principles into account can save entrepreneurs years in opportunity cost and save investors tens of millions of dollars per company.  

Investors Need to Lead

The investment community has the power to propel the health tech industry forward and accelerate the disruption of health care by identifying the most viable health products faster. In order to do this effectively, investors need to know that a company’s business practices and financing are sound. But they also need to know if a product or service is actually clinically useful, solves a real healthcare challenge, and whether the company has data or is conducting studies that support its claims and stated value propositions. The timeframe to investors’ return on investment is overtly tied to the answers to these questions. Rigorous medical diligence is ESSENTIAL to investor success and to the creative disruption of healthcare.

While the elements of medical diligence are well known to traditional healthcare investors, we believe it’s important for all investors to obtain an assessment of these criteria when considering an investment in a health tech company.  We have outlined these essential parameters in our blog The Formula for Widespread Adoption of Health Products that Every Investor and Health Tech Entrepreneur Needs to Know.

At MDisrupt, we believe that an obvious solution to the problems in health tech is to engage healthcare professionals and market access experts to assess the viability of health tech investments. As with legal, financial, and technical diligence, medical diligence, when conducted by experienced professionals, can save time and money, avoid embarrassing missteps, and set appropriate revenue timeline expectations. 

MDisrupt works with investors and health tech entrepreneurs to do an independent, transparent, and objective assessment of the clinical and commercial viability of health-related products and services. We can identify red flags early on as well as work with companies to bridge any gaps they may have. Our assessment includes: 

  • Clinical Viability

    • Intended use and product-market fit

    • Analytical and clinical validity

    • Clinical utility and health economic models

    • Prospective outcomes studies

  • Commercial Viability 

    • Coding, coverage, and reimbursement, if appropriate

    • Clinical dossier development

    • Key opinion leader strategy and eventual inclusion in professional society guidelines

    • Channel optimization and market access strategy

  • Regulatory Strategy

  • Privacy and Security

As an industry, we need to do better. We need to combine the best business philosophies of the tech industry with the best practices of the healthcare industry to help get the most impactful products to patients faster. This is MDisrupt’s mission.  

If you are an investor considering an investment in a health tech company, talk to us. We are happy to outline and explain the essential elements of medical diligence and why they are important to successful investments. Medical diligence can help keep you and your portfolio companies from making headlines for the wrong reasons.

jill hagenkord

Jill Hagenkord, MD

MDisrupt Guest Author

Jill is a board-certified pathologist with subspecialty boards in molecular genetic pathology and a fellowship in pathology/oncology informatics. She brings expertise in health product strategy, coding, coverage, reimbursement, medical and regulatory affairs, health policy, clinical laboratory medicine, population health, provider education and patient engagement.

Every health tech company wants widespread adoption for its health product. There is a community of healthcare experts who would love to help you. Talk to us—we can help.

The Formula for Widespread Adoption of Health Products that Every Investor and Health Tech Entrepreneur Needs to Know.

The Formula for Widespread Adoption of Health Products that Every Investor and Health Tech Entrepreneur Needs to Know.

by | Sep 5, 2019

Building a health product or service that will gain widespread adoption requires a long term plan and thoughtful orchestration between your Medical Affairs and Commercial teams. While we show you the formula below, each step of strategy and execution are intertwined over time as milestones are achieved. 

 This formula is well-known and well-established for traditional healthcare investors and entrepreneurs, but may be less familiar to those from the tech industry. Health tech entrepreneurs are often tempted to skip a step or delude themselves into believing that their product will be so impactful that the medical industrial complex will not require evidence of safety and utility. They are wrong. None of the steps we outline below can be skipped. Instead, entrepreneurial creativity and technology can and should be harnessed to achieve these milestones more quickly than ever before. Combining innovative experts from health and tech increases your chances of getting widespread adoption more quickly.

The necessary steps for widespread adoption of a health product.

Above: The necessary steps for widespread adoption of a health product.

Define Your Product’s Intended Use.

Your company will need a statement that clearly describes what the device/test/software is testing, the technology it relies on, why the testing is performed, acceptable sample types (if relevant), and who is or is not an appropriate test subject. This statement guides the performance specifications and development process. It also determines the risk level and complexity of the product, which impacts the regulatory requirements. It is the “North Star” that provides clarity to the product, marketing, medical/scientific affairs, legal, regulatory, and engineering teams.

 Meet Regulatory Requirements for Market Entry (this is about the device/test/software itself)

  • Analytical Validity: The device/test/software must accurately detect the analyte when this substance is present (analytical sensitivity) and not indicate that it is present when it is not (analytical specificity).
  • Clinical Validity: The test must accurately detect the disease or condition when it is known to be present (clinical sensitivity) and not indicate that it is present  it when it is not (clinical specificity).

Demonstrate Proof Points Necessary for Widespread Adoption (this is about the intervention)

 Interventions can be medicinal, surgical, or behavioral. Whatever category the intervention falls into, it  must be valid, beneficial, and impactful relative to cost and alternatives.

  • Clinical Utility: Based on the results of the device/test/software, there is an intervention that has been shown to be safe and effective in the test population.
  • Health Economic Model: There is a budget impact, cost effectiveness, or similar model to estimate the relative health and economic benefits of the intervention.
  • Prospective Outcomes Research: How safe and effective is the test and intervention in real people in real time? This can be established with a randomized clinical trial or real-world evidence collection. It is possible to negotiate Risk Sharing Agreements (eg, Coverage with Evidence Development) with forward-thinking payers to obtain conditional payment for this study.
  • Professional Society Guidelines: It is important to have a credible, external, academic medical champion(s) for your health product. Involve this person deeply in all steps described above so that they understand the product and the data to support its adoption into medical professional society guidelines. For liability reasons, most physicians adhere to society guidelines most of the time, so these guidelines are key to acceptance and adoption. A champion who is a research scientist, while he or she may be credible and highly accomplished, is not sufficient;  medical training and scientific training are drastically different and provide very different perspectives on the viability of a health product.
  • Select the Right Market Access and Commercial Strategy: If it is desirable to get a test covered by insurance, that requires a somewhat different path than self pay or institutional pay. However, all paths will require specific evidence presented in the right way to the right channel at the right time. Even for a self-pay strategy, consumers will bring the results of a health product to their healthcare provider. Failing to earn the trust of the healthcare community is a common oversight for health tech companies. It is important to close the loop on the customer experience as they interact with their care providers. 

    The medical community is THE most skeptical audience a marketer can encounter.  Those in this sector are trained to make data-based decisions. Knowing this, there is an art and a science to timely communication with this audience and showcasing data-driven messages using the appropriate media, channels and spokespeople. Healthcare marketers know how to effectively communicate with medical audiences through a sophisticated combination of engaging their internal medical affairs colleagues, KOLs (Key opinion leaders), and medical societies. They are also experts at generating appropriate marketing materials that can sway even the most cynical medical audiences, 

Every health tech company wants widespread adoption for its health product and, as you can see, there is a path to getting there. There is also a community of healthcare experts who would love to help. MDisrupt is the conduit.

jill hagenkord

Jill Hagenkord, MD

MDisrupt Guest Author

Jill is a board-certified pathologist with subspecialty boards in molecular genetic pathology and a fellowship in pathology/oncology informatics. She brings expertise in health product strategy, coding, coverage, reimbursement, medical and regulatory affairs, health policy, clinical laboratory medicine, population health, provider education and patient engagement.

Every health tech company wants widespread adoption for its health product. There is a community of healthcare experts who would love to help you. Talk to us—we can help.