Life Sciences Trends for 2011: Companion Diagnostics, Reimbursement and Consumerization

Posted by | January 19, 2011

Last week, Safeguard Scientifics’ Life Sciences team attended J.P. Morgan’s 29th Annual Healthcare Conference and OneMedForumSF 2011 (video) in San Francisco. Our main takeaway is that the healthcare industry is still alive. From an investment perspective, however, there are a number of venture firms having difficulty raising new funds or are running late with current funds. This contraction of capital will likely continue in 2011. There are also a lot of great companies out there looking for investors, so companies that have capital available will likely have plenty of opportunity to fund potentially great companies in 2011.

Reimbursement
Reimbursement will be a major issue over the next few years. The majority of healthcare reform won’t take place until 2013, so the 2012 elections will have a significant impact on next steps. That means there is still a lot of uncertainty surrounding whether or not insurers will pay for new technologies. This will likely impact the valuation of companies developing a variety of new medical technologies and devices until there is more regulatory certainty.

Consumerization of Healthcare
I think we’ll also see a change in our cost of healthcare.  For instance, higher deductibles mean we will all have to be better healthcare consumers. I wouldn’t be surprised if consumers begin to “shop around” for services such as MRIs or x-rays, locating the most affordable option, making the industry more competitive, and ultimately driving the price of healthcare down.

Moving forward, it will be even more critical for healthcare companies to go directly to the consumer. Now, consumers get critical health information from the Internet and bring it to their primary care giver as a reference. In fact, my own doctor shared with me that many of his patients are doing their own online research before scheduling an appointment. But how can patients ensure that the information they’re getting online is accurate? That’s where patient advocacy sites and awareness campaigns can really make a difference. We heard a lot of buzz around how social media serves as a link, connecting healthcare companies directly to consumers, making it a critical focus in 2011. However, a successful social media strategy will have to successfully navigate FDA regulations. One option is to create a patient advocacy site and awareness campaigns that draw attention to a specific issue, rather than a company or product itself.

Safeguard’s Strategy for Life Sciences in 2011
Safeguard was early to put capital in the diagnostics marketplace. Today, we see that area continuing to expand, as long as there is a secure reimbursement pathway. Specifically, we’re going to pay close attention to companion diagnostics. Before using a costly therapeutic, insurers and doctors want to ensure that the treatment will prove effective for each particular patient. That’s where companion diagnostics will come into play. By doing a companion diagnostics test first, doctors can assess if treatments will work for the patient, rather than spending money on a treatment that has no value for the patient. In fact, in the panel I moderated at OneMedForum, the topic of companion diagnostics dominated the conversation. The industry really believes that this is going to be essential to the future of healthcare.

We’ll still look for opportunities in medical devices; meanwhile, in specialty pharmaceuticals, we’re going to cautiously evaluate where we put capital. It will be a more difficult regulatory pathway, leading clinical trials will become more expensive, and approval times could be longer. And lastly, we believe there will be significant opportunity in healthcare service companies, specifically, those that are focused on reducing healthcare costs. In addition, there is less risk associated with healthcare services.

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