Rob Kuhling has a message for med-tech investors: Don't wait for healthcare reform to take effect before investing in medical technology.

In a commentary released this week, Kuhling, general partner at Onset Ventures (Menlo Park, California), says he is afraid investors are taking a "wait and see" attitude towards startups in this industry as policy makers debate regulatory and reimbursement issues as part of healthcare reform.

Onset is a venture capital firm that invests in med-tech startups. Kuhling, who has worked at the firm since 1987, focuses on medical device companies, as well as communication and networking companies.

In his commentary, Kuhling says there is a danger that investors will take a "wait and see" attitude, as the healthcare ecosystem "works through what could be far-reaching legislative and policy changes in coverage, funding, reimbursements, and even clinical standards and procedures." This approach will result in an unnecessary hold up of critical medical progress, he said.

"I see it everyday. I see it as we try to get investors for our existing companies, particularly those that are entering into a set of clinical trials that are going to require a PMA approval from FDA and require a reimbursement," Kuhling told Medical Device Daily. "People are just scared to death about how much more difficult the reimbursement and regulatory [environments will be] . . . the sort of battle cry has been 'let's spend less.'"

Kuhling says investors are unwilling to take on what they consider a "PMA risk" anytime the waters get murky in the regulatory or reimbursement area.

But waiting for healthcare reform policies to take effect before investing in med-tech would be a mistake for several reasons, Kuhling said.

"First of all, it's a tragedy that there are a number of high-level companies that will not survive this uncertainty," he told MDD.

Second, he said, investors have dealt with uncertain times before, "we know how to factor those risks in and for many of those companies they won't be facing those risks," he said.

In his commentary, Kuhling also outlines several other reasons why he thinks that waiting is a mistake.

First, he says, is that the underlying fundamentals of medical technology investments will not change – regardless of what happens with reform. "Today's healthcare imperatives are very simple: provide the highest quality healthcare to as many people as you can at the lowest attainable cost," Kuhling writes. To reach this goal, he says, there are tremendous opportunities for advanced technologies to simplify treatment and thus lower both near-term and long-term costs of care.

Second, he believes that it is always a poor strategy to build business plans around the expectation of government subsidy or regulatory relief. Simply put, he writes, "If a company's business plan can't stand on its own merits without government support, it is most likely not a good investment."

In particular, Kuhling believes that startups should be careful about focusing on healthcare IT.

"There is a lot of discussion today about electronic health records for all," Kuhling says. "While this very important evolution clearly must happen, we think that the problem is simply far too big – and expensive – for traditional venture-capital-funded startups to tackle." Instead, the very large IT companies that have already been focused on this area and the very large customers within it are most appropriate to deal with the profound security, privacy, real-time data management, and integration with complex systems issues involved, Kuhling maintains.

When asked what factors Kuhling and his Onset partners consider before investing in a med-tech company, he said: "Make sure that what you're investing in is not only better care, but less expensive care. The days of better and more expensive are gone and have been for quite a while."

He added that "the healthcare system may be slow and bureaucratic, but it does want to reduce costs and it can be made to understand the concept of changing cost structures."

For example, Kuhling mentioned one of Onset's portfolio companies, which has a technology available in Europe for percutaneously-delivered aortic valves. The technology runs about €25,000, he said, however the European government was more than willing to reimburse for it because the alternative open valve replacement procedure runs about €50,000.

"And you need to also understand, 'is there a pretty clear path for the FDA? Is there a guidance document? Have others gone before you?' It just requires what we need to always to do our job well, understand the risks," Kuhling said. And, in the medical world, investors face two big risks that investors in other industries don't have, which is reimbursement and regulation. "We just need to be very smart about evaluating those risks," he said.

According to Kuhling and his Onset partners, the most interesting medical technology investments are those that use advanced technology to lower total costs for improved treatment of major acute conditions or chronic diseases such as diabetes, heart and lung diseases, or morbid obesity; and those that deal with the special needs of the growing aging population. To this end, the firm says it has been very active investing in these areas, with companies such as Apieron (Menlo Park, California), BAROnova (Goleta, California), Enteromedics (St. Paul, Minnesota), Relievant Medsystems (Redwood City, California), Sadra Medical (Campbell, California), Valeritas (Shrewsbury, Massachusetts), and others gracing their portfolio – all of which meet these criteria, according to Kuhling.

"We are less concerned about the potential increased involvement by government in healthcare," Kuhling said. "Since today the government is already the largest payer of healthcare expenses, medical technology companies have needed to be aware of complex regulatory and reimbursement issues for years; at the end of the day, changes will be incremental, not revolutionary. And although healthcare reform is a very complex problem and will undoubtedly take some time to be worked out, medical technology startup investments will continue to be attractive."

Kuhling told MDD that he was inspired to write his commentary because of the "paranoia" he is seeing all around him in the press – on TV, radio, and in business magazines – about "what will healthcare mean for me?" Secondly, he said, "I am seeing people pulling back from very good companies because of their own hysteria, sort of a venture capital hysteria."

Sadly, patients – as well as the healthcare system as a whole – will ultimately pay the price for this paranoia, he says.

"There are clearly more companies that are going to fail over the next several months because of not being able to get financing and the patients will be ultimately deprived of those technologies," Kuhling said. "It will affect the total cost to the healthcare system because some of these technologies have the ability to lower costs."

Amanda Pedersen, 229-471-4212,