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Providing value is key to healthcare data companies' success

Dan Emerson

As panelists at the 2013 StrataRx conference in Boston expounded last week on the potential of "big data" in healthcare, another, auspicious industry event was taking place not far away.

On Sept. 25, shares of Cambridge, Mass.-based Foundation Medicine's IPO shot up as much as 89 percent, reaching a high of $35 and raising $106 million. Foundation Medicine specializes in personalized medicine, sequencing cancer genes and developing test kits that help oncologists choose drugs targeted to the genetic profile of a patient's tumor cells.

When Foundation went public, "on the first day of trading, the company doubled its market cap," said panelist Michael Greeley, a general partner in Boston-based Flybridge Capital Partners, a VC firm focusing on seed and early-stage technology investing. "I haven't seen that happen since the dotcom days." Greeley was one of three panelists at StrataRx discussing "Deal Flow in Healthcare Data and IT."

However, unlike some of the dotcom boom-era startups that initially soared and then flamed out, Foundation "is a spectacular, real-revenue company," Greeley said. "They have a story that people, including pharmaceutical companies, have bought into."

Panelist Bijan Salehizadeh said he agrees that a number of data-driven companies targeting the healthcare sector are on the verge of big things. "We are at a moment where a lot of IT investors have piled into healthcare IT (venture) funds," said Salehizadeh, who is managing director and co-founder at NaviMed Capital, a Washington, D.C.-based venture capital firm specializing in later-stage investments in HCIT and health services. "Healthcare is a domain they want to have exposure to. In the past, that has been the signal of a 'top,' but now it's a trend that really should be taken seriously."

Panelist Anthony Gerardi said the key to sustainable success for healthcare data companies will be the ability to provide real value to three constituent groups: providers, payers and consumers. "You need that 'value intersection' to be successful," said Gerardi, who is vice president of business development at Ann Arbor, Mich.-based Truven Health Analytics. Truven develops and provides data-based information, tools and services to healthcare providers, payers and consumer organizations.

With the Affordable Care Act ushering in a new age of healthcare reform, "there will be a lot of uncertainty over the next 18 months," Gerardi said. But if healthcare data entrepreneurs "stay true to those value propositions of higher-quality care and lower cost, you will be able to build a successful, sustainable business model in the next five to 10 years."

While healthcare and biotech venture funds have had trouble lately raising money, the trend in health IT is moving in the opposite direction, Greeley said. He cited Sprint's recently announced partnership with Techstars to develop a mobile health startup accelerator, and Verizon partnering with the Blueprint Health accelerator. In the past, "we never would have seen those types of companies 'leaning forward' so aggressively. So, I'm optimistic, finally."

As some of the effects of healthcare reform become clearer in the coming months, "I believe we will see more larger investors looking at this space," Greeley said.

Where will the healthcare IT sector be in five years? Greeley said he thinks activity - including new company formation and investment - will increase fivefold to tenfold over today's levels.

[Photo by - octacon_85]

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