SAN FRANCISCO – Investors and entrepreneurs at the 12th Annual Cooley Healthtech Conference, undaunted by the trenchant challenges of integrating new technologies into a slow-changing U.S. health care system, said they're finding increasing purchase for businesses built on rich and growing datasets, ever-present connectivity and, in some cases, the irreplaceable magic of the human touch. With the pressures of macroeconomic uncertainties weighing less heavily on the sector than at last year's end, optimism abounded during two presentations assessing med tech's progress at the Wednesday event.
Despite a recent correction, trading valuations across the medical device sector remain elevated relative to the historic norms, rating "pretty healthy," said Rakesh Mehta, a managing director of J.P. Morgan's health care investment banking group. At the core of some of the biggest successes, Mehta said, are business models that "on the surface look like medical device companies but have used data as a way to create a business model that's difficult to replicate."
San Francisco-based Irhythm Technologies Inc., for instance, certainly relies on the heart rhythm data collected by its Zio XT patch to inform curated reports about an individual patient's heart health. But what really drives the company's capabilities forward is the improvement of its data analysis algorithms over time, he said. As the algorithms improve, the company's clients are better able to drive down costs by minimizing unnecessary interventions and, in an increasing number of cases, making better treatment decisions guided by their long-term data analyses.
Dexcom Inc., a San Diego-based maker of continuous glucose monitoring systems, offers another example of the approach. "Improving product performance and reliability have been key catalysts for Dexcom's valuation," Mehta said. But putting data from the monitors online where it's readily accessible by worried parents and other caregivers "reoriented the company" from a device business to one built around data an analysis, he said. In August 2018, the company took another step in that direction with the purchase of Typezero Technologies Inc., a developer of "advisory applications for smart insulin pens and smartphone-based artificial pancreas systems," what Mehta said is basically "an algorithm company."
Other startups are also carving new paths to market by de-emphasizing devices and putting the focus instead on "thinking about the full stack," said Liz Rockett, director of Kaiser Permanente Ventures, borrowing an in-vogue term from tech that refers to the top-to-bottom kit of methods enabling services to be delivered.
Sometimes market inroads are being carved from the ground up by companies such as South San Francisco-based Genome Medical Inc., a national "telegenomics" company and the doctor-to-your-doorstep venture Heal, which offers house calls from primary care physicians. Shortages of skilled genetics counselors and general practitioners, respectively, helped create room for patient-paid models that validated the value of their services while simultaneously avoiding the initial challenge of convincing incumbents to buy in.
Those initial experiences can also help make the argument about why a particular product or service improves efficiency, efficacy and cost savings, Cooley partner Sonya Erickson told BioWorld MedTech. With evidence of consumer demand in hand, "you can use that to go push on a payer to say, 'This is going to be a thing you need. Your customers want it; your providers want it; you need to get on board," she said.
Challenges persist. Employees often switch health care plans, making investment in new products and services with long-term returns a gamble for all but the biggest integrated health care systems. Innovative business models often run up against both federal and state-level regulatory barriers. And the market incumbents often best equipped to roll out innovative technologies and services at scale are hesitant to embrace the radical changes new models can bring. None of that, however, seems to be stemming the momentum of efforts to revolutionize care, something that will no doubt provide new fodder for discussions at next year's conference.