It’s a Good Time to Invest in Healthcare Diagnostics. Here’s Why.

There is currently a lot of debate around the efficacy and value of the American healthcare system, but we believe a large portion of its problems are due to the fact that it is better equipped to treat acute conditions rather than chronic conditions. In addition, we often don’t have good drugs or other incentives within the system to actually treat chronic conditions. Take health insurance, for example. Given that nearly half of Americans receive insurance through their employers and that workers tend to change jobs around every 4 years, insurance companies have little financial incentives to invest in long-term health care. 

However, medical diagnostics offers one of the few fields in healthcare where financial incentive from insurance companies and treatment of chronic conditions overlap. The United States is still a leader in medical R&D, leading the world in natural-science research according to Nature. A number of companies are consistently innovating in the healthcare diagnostics space, making it the next big field to invest in.

In this blog post, we will explain different fields of healthcare diagnostics, innovation in diagnostic technology to watch, why we choose to invest, and how we systematically invest in the space.

An Overview of Healthcare Diagnostics

The field of healthcare diagnostics is estimated to be worth over $18B by 2027, and includes a massive number of technology types and testing such as ultrasounds, MRIs, CTs, and lab testing. There are multiple ways to group different diagnostic devices, but the most efficient way is to group by application. There are 5 applications that are of particular interest.

Cardiology diagnostics and the leading silent killer. Heart health is a key factor in morbidity and mortality. Many workplace wellness programs provided by insurers center around encouraging a healthy lifestyle (including nutrition and exercise recommendations) largely in part to prevent heart disease. The most well known “silent killer,” heart disease is currently the leading cause of death in the United States, causing around 1 in 4 deaths. The most popular diagnostic exams to evaluate heart health are electrocardiograms (ECGs), stress tests, MRIs, CTs, and in vitro diagnostics. 

Oncology diagnostics and aging’s effect. Cancer affects people more as they age; the median age of a cancer diagnosis is 66 years old. In the US alone, over 1.5M people receive a cancer diagnosis per year. In oncology, some might say that when you break down the field, there are so many different types of cancer, the verticals are actually quite small. However, when it comes to diagnostics, a single type of device can be used to diagnose a multitude of cancers. Even if a company decides to specialize in one type of oncology field, like breast cancer, the field is typically large enough to do so. Key diagnostic devices for oncology are a combination of imaging (such as ultrasounds, CTs, MRIs, and PET scans) and in vitro diagnostics. 

Endocrinology diagnostics and the prevalence of diabetes. Diseases of the endocrinological system are one of the most common types of chronic illnesses in the US, and  around 1.5M people are diagnosed with diabetes every year. The prevalence of diabetes also increases with age. Diagnosing endocrine disease commonly involves multiple types of exams, including genetic testing, hormone testing, and imaging studies. 

Hematology diagnostics and the importance of blood count. Blood tests are commonly used to evaluate overall health, and can detect chronic conditions like sickle-cell anemia and certain types of cancers. In the US, people are diagnosed with a blood malignancy every 3 minutes. Common tests involve rounds of lab exams, including complete blood count (CBC), white blood cells (WBC), red blood cells (RBC), and hemoglobin testing.

Molecular diagnostics beyond COVID testing. Molecular diagnostics consist of techniques used to analyse biological markers in the genome and proteome. Due to the pandemic, molecular diagnostics testing has gained a significant amount of attention, but it can also be used to diagnose chronic infectious diseases like HIV, and to predict other chronic diseases. Prevalent types of molecular diagnostics tests include PCR testing and next-generation sequencing.

How We Evaluate Healthcare Diagnostic Companies Using Systematic Investment Strategy

There are multiple components of health-tech startups that we consider when choosing to invest. As the key to method-driven investing is to ensure the process is repeatable, scalable, and can be measured and improved over time, there are certain questions we always ask ourselves and potential portfolio companies.

We believe that it’s important to determine the serviceable addressable market (SAM) instead of traditionally focusing on the total market size of a focus area. Our goal here is to ensure that we are accurately predicting exactly who benefits from the device and why they would be inclined to purchase or adopt the device. The first round of questions also assesses if the device has appropriate placement in the market. We ensure the device actually satisfies a need in the industry, and not just in a way that complements another existing device. We also want to determine if it will improve patient workflow. If the device has a clear value and function that isn’t simply a duplicate of another device, it’s likely there’s an actual path to success. 

The next question involves timing: what stage is the business in? For example, if a diagnostics company is at a stage where FDA approval is in the immediate future, chances are they already have an incredibly high valuation. In certain cases they have even already IPOed. We choose to invest at a much earlier stage. Even though we invest in companies well before FDA approval, we ensure there is still a path to regulatory approval even if it’s 5 years down the line. 

Upcoming Innovation to Watch

There are a number of companies that exemplify our criteria– they fit well into the healthcare diagnostics market, they satisfy a unique need not already addressed, and they have clear pathways to regulatory approval. The fact that the technology is interesting serves as an added bonus. We strongly believe that they are start-ups to watch over the next few years. 

  • Exo Imaging: A handheld ultrasound platform that provides doctors with the ability to review ultrasounds from laptops, tablets, and cell phones. Not only does the device improve image quality, Exo’s platform also includes software powered by AI to improve diagnostic capability. 
  • Imvaria: Develops digital biomarkers, allowing for more data for critical and rare diseases which increases chance of clinical trial success and drug commercialization.
  • C. Light Technologies: Their technology tracks saccades (short eye movements) to help diagnose various neurodegenerative diseases, and aims to commercialize the first ever non-invasive eye-tracking device that can successfully track progression of neurodegenerative diseases such as MS and Parkinson’s.

If you’re working in healthcare diagnostics, and align with our thoughts in the space, we’d welcome the opportunity to speak with you and hear more about what you’re developing. Get in touch with us here.

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