Q&A with Silicon Valley investor, Casper de Clercq, Norwest Venture Partners / Jan 18, 2019

The State of Digital Health VC Funding

The JP Morgan 37th annual Healthcare Conference just concluded in San Francisco last week. With over 20,000 investors and biotech executives gathering in San Francisco, JP Morgan’s conference is the largest biotech investor event in the world. In between the meetings, panel sessions and massive traffic, Kal Patel, MD, President, BrightInsight, a Flex Company sat down with Casper de Clercq, General Partner at Norwest Venture Partners, to discuss digital health.

Kal Patel, MD: Legendary biotech investors who poured billions into genomics and immuno-oncology are now making big bets in digital health. What do you think is driving the focus and investment in digital health?

Casper de Clercq: As the cost and complexity of drug development increases, companies continue to seek out more efficient product development and paths to market. Digital therapy “augmentation” will soon be just as readily adopted as novel forms of drug delivery, alternative formulations and combination therapies that have been deployed to drive market share in mature markets.  We are now in an era when inexpensive sensors (either ambient or integrated) and ubiquitous mobile communication can enable digital enhancements, particularly for chronic disease therapy. For example, individuals with insulin dependent diabetes can simplify life by connecting blood glucose meters, pens and a mobile phone to provide simple dosing guidance.   For Parkinson’s patients with tremor, accelerometers can be used for appropriate dose titration.  Multiple studies have demonstrated improved adherence and better outcomes with a variety of digital interventions.  With appropriate clinical trials, we should expect novel claims, better reimbursement and shifts in market share from adding digital interventions. Pharma is just now catching on to the potential for differentiation with digital approaches.

Kal Patel, MD: What do you think will be the most disruptive trends for biopharma and medtech in the next five or ten years?

Casper De Clercq: Some of the obvious digital trends are to capture, automate and electronically facilitate human interactions in sales, marketing and clinical trials. We are also seeing many initiatives in the collection of digital “real-world” evidence to demonstrate improved outcomes, facilitate Phase 4 trials and optimize treatment pathways.

What I think will ultimately prove most important is that biopharma and medtech companies will build a direct digital relationship with their patient customers. Due to smartphones, we have seen channel disruption in every industry including retail, media, travel, banking and transportation. The same will happen in the biopharmaceutical and medical device industries. The ever-expanding set of integrated biometric sensors and the phone itself provide a mass of data to personalize health and healthcare.  As intermediaries collapse, the winners will have built loyalty directly with their end users via digital and mobile.

Kal Patel, MD: What are the differences you have seen between the digital health companies that were being founded 5 – 10 years ago, versus new ones being founded today?

Casper De Clercq: Thinking back to 2010, there was a lot of exuberance about “disrupting” processes and institutions in healthcare. People expected a deluge of patient data from widely deployed electronic medical records. They also anticipated that cloud technologies with open API’s would allow for easy data interchange in healthcare. As we know, the inertia of multiple stakeholders in healthcare was such that these early attempts at digital transformation floundered.

We are now seeing much more sophisticated solutions come to market as technologists pair up with experienced healthcare entrepreneurs. Rather than a plethora of small companies launching an equal number of pilots, we are seeing well-funded companies with well-defined solutions. In digital medtech and biopharma, we now see many more companies that are running clinical studies to support FDA clearance and pharmacoeconomic studies to justify reimbursement. Healthcare is data driven and the most successful startups we meet recognize the need to provide compelling clinical evidence.

Kal Patel, MD: From my perspective, I see that the digital health industry is finally evolving from purposefully staying outside of regulated healthcare (e.g. wearables, fitness, etc.) into the realm of regulated healthcare. Any observations from your perspective?

Casper de Clercq: We have heard about the consumerization of healthcare. The first movers in digital health were consumers who began tracking their health with relatively low fidelity wearables. Now, consumer expectations for on-demand services, data capture and personalization have diffused into healthcare over the last decade. In parallel, mobile phone data and connected sensors have become a digital proxy for our behavior, activity and health.

In response, the FDA promulgated innovation with its risk-based approach to regulating digital solutions from very little for wellness to more stringent for higher risk data.  Hospitals and insurance companies, similarly, need to accommodate consumer demands for access to clinical information; just like banks have had to provide access to and display sensitive financial data.

Stringent privacy constraints and data integrity vigilance require regulatory oversight but, even within that context, clinical information will inexorably be freed and shared.  The most sophisticated solutions will synthesize regulated and unregulated data — we need systems appropriate to the challenge.

Kal Patel, MD: One criticism we hear of digital health innovation inside and outside of biopharma and medtech is the inability to really scale the solutions. Do you have examples of companies who have effectively scaled? What are some lessons in scalability that you can share to enable digital health solutions to make a bigger impact on business and patient outcomes?

Casper de Clercq: Digital health is still in its infancy and we see the tension between traditional phase locked product development and the power of rapid iteration in the real world.   The best companies have found ways to address regulatory and reimbursement locks while continuing to innovate and validate at a rapid pace. Some elements need to remain static such as the device, formulation and data store, but companies can wrap services around these.

Rather than selling products, many digital innovators are providing “technology enabled services”. iRhythm is an example of a company that has served millions of patients. It sought regulatory clearance for a medical device that can be manufactured at scale, then ran multiple clinical studies for reimbursement with a fixed protocol. It has been able to innovate rapidly because it employs cardiac technicians who provide a diagnostic service solution. The data and device are locked in a HIPAA compliant and regulated state, but every month small service improvements can be validated and implemented. Similarly, Omada Health has a stable digital platform from which it can drive growth through remotely connected digital weight scales, a well architected data store and software platform, as well as a protocol for weight loss based on multiple studies and the CDC validated Diabetes Prevention Program. The power of iteration, however, is preserved by working with coaches and educators who are constantly refining their communication to optimize for weight loss.

At the end of the day, the ability to iterate digital health solutions rapidly in a regulatory, security and privacy-compliant manner is critical to scale.