The sooner, the better

In my opinion, the sooner a project can move away from academia, the better. Today, TTOs (Technology Transfer Offices) at hospitals and research centers don't have this principle in mind. They are more focused on controlling and exploiting themselves the intellectual property or whatever innovation arises in the institution. They don't look at the outside world (VCs, angel investors, incubators...). This is clearly wrong.

Early transfer should be the buzz word nowadays, and TTO's should focus more on how to extract value from initiatives rather than how to control them.

Why do we have start-ups?

Amazing question. I heard it yesterday, and at first I thought it was nonsense, but...

Think about it... If we have large healthcare companies that know where healthcare is going, that have the financial muscle they need to create things, that have the manpower and the positioning they need to launch new products and services... then why we do have start-ups?

Well, we do have healthcare start-ups because large companies have vested interests, they have things to protect, and therefore they don't really have the pressure to innovate. Entrepreneurs find opportunities in disruption, and disruption is precisely what incumbents don't want to hear about!

Amount vs. velocity

I had the pleasure yesterday to meet Jerry Engel, an investor and business school professor from San Francisco. He gave an informal speech to some investors here in Barcelona.

Two things that really surprised me...

First one, everybody complains about the lack of money for early stage initiatives... well, he reckoned more money is always better than less money, but he said as well that at the end of the day, money's velocity is even more important than the amount of it to foster innovation and entrepreneurship. The administration should really take note of this.

Second, when asked about the "anticyclical" nature of venture capital (we know crisis will hit hard at some point), he saw VCs more off-cycle than anti-cycle, and he admitted the new postcrisis environment will call for a change in the rules of the game. He recommended specialization in interesting sectors (healthcare being one of his favourite picks), and investing with high global standards while keeping a local focus, as the keys for future success.

Amazing comments.

A new generation of healthcare services is on its way

The full-service, general hospital is evolving to a new conception. The growing clinical complexity, the need of performance transparency to evaluate quality, the rising costs and the increasing competition are questioning the old paradigm that any hospital could excel across a broad spectrum of clinical service lines.

Most private hospitals have nowadays shrinking profit margins, and they are focusing on analyzing cost-accounting data to determine the profitability of patients and the different procedures they offer. This analysis is uncovering very profitable margins in certain activities, while pointing at other activities that are a clear loss to the center.

This is why new healthcare services, including specialty hospitals and outpatient centers with low-cost structures, limited complexity, and focused, high-quality service are emerging. Competitors like these are raising the performance bar for general acute-care hospitals.

Well, the old paradigm says “all volume is good volume”… and this is clearly nonsense from an economical point of view. When a hospital understands where its true profitability and expertise lies, it can be focused to generate value while cross-selling other hospital services to current patients.

Of course, there will always be procedures that are necessary while being not profitable, so, some procedures should continue operating at some level to help hospitals meet basic community needs and cover fixed costs. But my point is, in the private space we will see more and more specialization to achieve better efficiency. A new generation of healthcare services is on its way.

Philantropy and VC

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Philantropy plays an increasingly important role in promoting innovation in healthcare. Every year larger quantities of money are invested in philantropic projects around healthcare, usually in projets needing large amounts of cash.

These philantropic contributions generate as a byproduct numerous innovations and smaller projects, that finally end up generating spin-offs and new start-ups. Venture capital invests in some of them and they eventually become large companies operating in the healthcare space.

So, the value chain is clear, but there's still one extra step that could "close" the circle... can philantropy become an investor in VC funds?

I've always said that social entrepreneurship should not generate causes, but real businesses, because that's precisely the way to help society, by generating value and growing while having a "doing good" mindset deeply engrained into the start-up values.

We will see more going on in this space.

94%

Just a very quick thought today...

94% of life sciences companies (biotech, diagnostics, medical devices) start in hospitals or academia... So, no "garages" in healthcare entrepreneurship.

When will hospital managers realise the immense potential they have inside their institutions?

From IP to IPO

Now and then, you find someone that completely changes how you think about an issue... well, that happened a few days ago, in a lecture given by Ophir Shahaf (CEO Hadasit Bio-Holdings ). Ophir manages a portfolio of innovative ideas arising in a big medical center in Israel.

To make it short, they built a company to invest in those healthcare ideas from within their hospital and in doing so, they essentially took their portfolio public (the IPO was succesful...).

So... more IPOs coming in the next years trying to raise funds for innovative hospitals?

Amazing.

Die fast!

I just had a meeting with Luis Ruiz (CEO, Advancell, a biotech company), and he shared with me a very interesting concept... Luis is an expert at adding value to early-stage biotech projects, and while discussing several opportunities ahead, he mentioned he wanted to be involved in projects where

(a) if the project is going to fail, he knows it will fail fast (die fast), meaning he wants always to concentrate all the problems ahead in the initial phase

(b) if execution cost is small (both in time and in money), exploring should be really a no brainer

(c) all biotech projects have a critical path, with several identified "killing" points. Usually solving those key points is cheap, and if you are able to do so, the risk of the project is considerably reduced.

I found these thoughts really worth sharing.

Evaluating a medical device opportunity

When evaluating an opportunity in the medical devices sector, it is always iteresting to focus on how the product fits with the fundamental economic drivers of the health care system. Investors usually assume anything you are telling them about the product is fine (subject obviously to a later thorough due dilligence), but they want to see the medical device from the business side of health care and work their way back to its science and technology.

The important questions here are:

(1) Does the product improve clinical quality—or at least deliver equivalent outcomes in a less costly and better way?

(2) Does the product more than offset its cost through reduced overall health care expense to the system, such as reducing costly side effects or replacing or eliminating other expensive procedures?

(3) Does the product offer clinical and/or financial advantages for patients, payers, and providers alike? (see my previous post on healthcare value chain)

If an investor can answer yes to these questions, they will want to learn more. But if they cannot understand how the technology will improve quality, reduce costs, and align the incentives of key players in the health care system, you are probably "dead".

Healthcare services value chain

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adapted from Porter)

This is a useful diagram to show how value is generated in a healthcare service... This concept was created by Michael Porter, and I find it extremely useful to evaluate healthcare opportunities in the services sector.

Coachability, strange concept...

Excellent presentation from David Rose on pitching a VC... all the issues that matter in a 15 minutes lecture, I think it is worth watching.

The ten things a VC will be looking at when deciding whether to invest in you or not:

Integrity + Passion + Experience + Knowledge + Skill + Leadership + Commitment + Vision + Realism + Coachability = selling youself

In my experience, the most difficult thing to understand for entrepreneurs is the last one, coachability, meaning a VC wants to invest in people that excels in "listening", in using somebody else's experience...

Watch it here.

Why us???

Real life, one week ago, the last question at a venture capital presentation... the entrepreneurs wrapping up, everything went well, but then one partner asks "yes... but why us?"... Fire at will.

This is one of the most important questions to prepare if you are looking forward to receiving venture capital money. Investors want to add value, "smart money"...

If you are willing to raise money, you should know about other companies invested by the VC... are they aligned with your goals as well? Can you find hidden synergies to explore?

You should always have a clear picture of what else this particular investor could add to the initiative besides money.

Cost structure

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Most healthcare professionals are not aware of the nature of the different types of costs involved in launching a healthcare start-up. This is something of great importance, let's see why. This is the first of a couple of posts that I'm willing to write about this important matter. Let's start by understanding the different types of costs, using a "hospital" as an example to make it more understandable...


Let's imagine a hospital that has many departments (neurosurgery, cardiology, radiology, legal, human resources...), and each department provides many services (coronary bypass, pacemaker implant, heart transplant). Let´s have a look at the structure of costs in one of these departments (see two by two matrix):


(1) Variable Direct costs: All costs that can be specifically traced to the service given, and change in strict proportionality with the volume. An example could be materials used in a neurosurgical procedure (sutures, gowns, antibiotics...).


(2) Variable Indirect costs: Costs that cannot be traced to a single activity but are variable in nature, that is, they do vary with volume. For example, electricity: I know that if I give more services I will spend more, but I cannot measure it (if I were able to measure it, it would be a variable direct cost). Another example: the need of maintaining a health records department for the whole hospital is obvious, and every department uses it. The medical records personnel salary would also be a variable indirect cost.


(3) Fixed Direct Costs: All costs that can be specifically traced to the service given, but do not vary at all with volume. An example could be the neurosurgical navigator (a computer) in the operating room.


(4) Fixed Indirect costs: Costs that cannot be traced directly to a single activity, and do not vary with volume, such as the salary of medical director of the hospital.

More on this in my next post.

Refining healthcare business models

Nice discussion yesterday with an entrepreneur trying to help him to improve the "contribution" of every client to his healthcare start-up. I am not at liberty of discussing the details of the business, but let's say it is a retail healthcare initiative where we try to sell a product for 100€ and then we charge a 25€ monthly fee to every user. To produce the product has a cost for us of 25€.

The question here (and in every healthcare initiative) is "where is the money"?

• In the sale of the product?
• In the recurrent revenues month after month?
  
• In services that we may sell in the future to this customers?

Business model #1: Sell at 100€ and charge 25€ monthly fee. Well, it certainly would work, but the price 100€ would obvioulsy detract some customers into buying, so we would have let's say a demand of 1000 customers. According to this, total value the first year would be:

(100-25)€*1.000 customers + 25€*12months*1.000 customers = 375.000€

Business model #2: What if we gave away products for free, focusing on generating revenues from monthly fees? We would sell at 0€ (with a loss of 25€) and then we would charge again 25€ per month. Giving away something for free usually generates more demand, let's say for the sake of the argument that with this new "free" strategy we sell 5.000 products instead of 1.000. Total value the first year would be:

(-25€)*5.000 customers + 25€*12months*5.000 cusotmers = 1.375.000€

So, yes, giving away the product for free is more interesting than charging 100€ for it. The question here is are we sure that we will get a demand of 5.000 if we give the product for free? If the answer is yes, then the decission is a no-brainer... give it for free!

Besides that, achieving a larger customer base is usually strategically more interesting because you may sell in the future more services to a larger community of customers, increasing therefore even more the revenues.

The point of this post is that business models depend at the end of the day on a bottomline, on a number... The more value we can get from any customer while having him/her happy, the better, so you need to fine-tune very carefully your business model in order to accomplish that.

Price wars coming to healthcare?

Any economic crisis forces competitors to fight harder for a reduced demand, and healthcare is no exception. Competition on price is one of the options available to try to attract new customers and retain old ones.

For instance, it seems like 23andme has started a price war in retail genomics. They have just slashed the price on their personal DNA test from $999 to $399 (some would say it is quite a "significant" price drop, don't you think?).

According to 23andMe, this price drop has nothing to do with our present economic situation, and they claim that next-generation DNA analysis chips have made the process of scanning a person's genes significantly cheaper. By cutting the price of its service, the company hopes to increase demand and hasten the day when a full genetic screening becomes routine medical practice... or so they say. Well, you can read between the lines if you look deep enough, I guess.

For those interested in retail genomics, here's my personal list of the companies competing in this space (probably there are some more outside my "radar" ...):

• 23andMe
• Acu-Gen Biolab, Inc
• Consumer Genetics
• Cygene Direct
• DAT Direct
• deCODEme
• Dermagenetics
• DirectLabs
• DNA Direct
• Genelex
• Graceful Earth
• Health Tests Direct
• HealthCheckUSA
• Holistic Heal
• LabSafe
• MedLabUSA
• MyMedLab
• Mygenome.com
• Navigenics
• Personalized Lab Services
• Private MD Labs
• Quixtar
• ResultsDirect
• Salugen
• Sciona
• Suracell

How much is your idea worth?

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Today I am sharing a case that I wrote for an MBA lecture on healthcare venture capital investing. It is a one pager, and it shows four interesting companies while "forcing" the investor to choose one and only one. It tries to bring the elements you need to think about when valuing opportunities in the healthcare sector (team, market size, path to market, product, competitive advantage, intellectual protection...). It belongs to a 20 microcase series (I call them "microcases" because they are all one pagers, easy to read...).

I decided to share this particular one because it usually generates fantastic discussions in class, and now it has become my favourite case for teaching entrepreneurship (!!!). As in real life, there is no right answer to the question about which company would you pick as your preferred investment, your rationale in picking one or the other is what matters.

As you know, an idea is worth nothing... if you execute your idea, it can be worth a lot, but its value therefore depends on its execution.

Hope you like the case, enjoy!

(Note: I uploaded the pdf file to scribd for those of you interested, here's the link)

Technology inflation???

I meet entrepreneurs with new healthcare ideas every day, and I’m happy to say that both the quality and the quantity of the ideas has improved very consistently in the last couple of years.

However, in the last months I can’t help having the impression that maybe we are under some sort of technology “bubble”, with lots of new medical devices that just improve “a little bit” what the previous one was doing… Improvement is fine, but we have the risk of adding more and more “qualities” to a product that the market does not need. Cost benefit analysis is always important in a cost constrained healthcare.

In other words, disruptive innovation is always… well, disruptive… brings new things to the marketplace that are needed, and therefore is always welcome. But incremental innovation may be entering sometimes a spiral of inflation, meaning we develop and invest in more and more things that really don’t add critical value to healthcare (while contributing to skyrocketing costs…).

Just a thought.

Trends, trends, trends...

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We have been anticipating year 2009 as the biggest year in biotech and medical devices investments, both in the US and in Europe. Here's the last data from pwcmoneytree.


Number one investment in last quarter... biotech
Number three investment in last quarter... medical devices.


If we combine both areas (into life sciences), we would literally "fly" outside the slide...

As we said, the trend is here to stay for a while, now is the time for life sciences...

To have skin in the game...

Back to work. How important is it to invest your own money into your start-up?

Well, there are no fixed rules about this issue, but most of the VC firms will ask entrepreneurs to invest some money into their project. Why? To show commitment, to demonstrate they believe in what they are doing...

There is a saying for this: "to have skin in the game". Having skin in the game, that is, having something to lose if things go down the drain is important, because it aligns very clearly the entrepreneur's goals with the investor's goals.

To have skin in the game is not necessarily related to money... if the investor perceives that this start-up is your plan B, for instance, you are dead, you won't have the money.

Or else if they perceive you have a plan B and you may leave the boat before success and you are not risking anything with the project, they won't see either the alignment they need to see in order to invest.

So, it is important to have this in mind... Just a quick reminder for all entrepreneurs!

Healthcare investments set an all time record for VC investing in 2007!

Venture capital firms are investing heavily in the healthcare sector. Life sciences (biotechnology and medical device industries) and healthcare services are a trendy investment nowadays… and we have been anticipating the trend for quite a while now, I’m so happy to say so!

Last year was by far the biggest year in health-care venture history, according to the MoneyTree Report. The medical devices and health-care services and information technology sectors have generated an intense deal flow in the past six months here, at the Barcelona Medical Association. From one idea per week last year, we’ve moved to more than one idea per day.

An aging population that refuses to give up its active lifestyle, coupled with evolving medical technologies, are fueling those health-care deals.

Here in Europe, at last, we are seeing new capital being raised by dedicated health-care funds, or even diversified funds with a strong health-care focus. About time!

Moving from academic research to entrepreneurship

There is always some tension between academic research, applied research and entrepreneurship. While academic research is primarily driven by curiosity, applied research and entrepreneurship need to solve a real world problem. Scientists working in healthcare (and I guess this could apply to any field) have an extraordinary desire to test things, curiosity is what at the end of the day makes them go to the lab on a Sunday afternoon just to see if an experiment has proved them right or wrong (where else would someone go to work on a Sunday afternoon?). This is obviously great, and it is a fantastic driver of science, but to help people, ideas need to move to the real world and get to the marketplace, and therefore they need to be able to solve problems.

Basic research pursues an increase in knowledge. More and more knowledge is again the driver of scientists. But this knowledge needs to be protected in order to get to the marketplace, and (whether we like it or not) this is done through IP protection, through patents (see my previous post patents are so XXth century).

And finally, scientists are eager to publish things, to show their accomplishments, to get respected in their academic world. The system rewards or punishes them depending on the impact and number of publications in prestigious journals. Again, this is not good or bad, it just reflects how science is structured, but scientists working in healthcare should be aware that publishing is not the ultimate goal, but commercializing whatever they are working on to help patients and society.

By solving this tension between the two worlds, we will innovate faster and better.

From idea to opportunity

A lot of good ideas are, well, good ideas, but not opportunities. I went yesterday to an international event about technology transfer hosted by ACC10-COPCA-CIDEM, excellent event by the way, and someone from the Massachusetts Institute of Technology (M.I.T) really described the process of identifying opportunities in a very appealing manner. He recommended entrepreneurs to ask themselves four questions:

(1) Who needs this and why?

(2) What attributes are important? (meaning, how should the product or service that I am willing to bring to the marketplace be to become really useful?)

(3) What are the economics?

(4) What will investors need to see in order to get interested?

These four questions can probably be answered in one hour if the entrepreneur really knows what he/she wants to do, and the answers are crucial to define the magnitude of the opportunity.

Keiretsu

The japanese word Keiretsu defines a set of companies with interlocking business relationships and shareholdings. It is a type of business group.

Keiretsu Forum is the world’s largest angel investor network with 750 accredited investor members throughout sixteen chapters on three continents. Since Keiretsu Forum’s founding in 2000, its members have invested over $180m in 200 companies in technology, consumer products, healthcare/life sciences, real estate and other segments with high growth potential. Forum members collaborate in the due diligence, but make individual investment decisions, with rounds in the range of $250k-$2m.

Its Barcelona chapter just opened some months ago. I’ve been following it since then, because it represents a very interesting alternative for raising money for very early stage start-ups looking for a small quantity of money. I’ve participated in all their meetings so far, and I must say I am deeply impressed by their professionality. Interesting companies, interesting opportunities.

Well, two months ago, while advising a very promising team of entrepreneurs willing to bring a new medical device to the marketplace, I suggested them we should present their company to Keiretsu. And we did.

Everything went OK, and after the general presentation, and some “face to face” meetings with investors, last week I received confirmation from the entrepreneurs they finally raised €500.000 with a very competitive pre-money valuation and a very interesting deal structure.

So, yes, the Barcelona Keiretsu forum is here to stay! Congratulations Keiretsu Barcelona for your second “completed” investment, and congratulations Health Solutions for a well managed fund-raising opportunity.

Healthcare 2.0: hype or reality?

Tomorrow I’m giving a lecture on Healthcare 2.0, trends that will drive the future of our healthcare system. While preparing my slides, it came to my mind that the Internet will end up by rationalizing, and making transparent all of those forces that have contributed to the current health care market failure.

Health 2.0 will be a game changer, wikis, mash-ups, videos, bloggers, and assemblers of user-generated data – all designed to connect health care consumers, providers, and players in a seamless web of data and ideas.

Health 2.0 will provide simple applications allowing the use of information at the site of care by end-users, that is patients and doctors and everybody else connected to health care. A winning combination of evidence-based information, sophisticated algorithms, centralized data repositories, and user-generated data will hold health 2.0 together

Websites such as Sermo or patients like me are gaining speed at attracting physicians and patients. Other European initiatives, such as esanum are coming to the marketplace as well.

Drivers of competition among healthcare services

To be attractive to a venture capital investor, a healthcare service company should fulfil a compelling need with a novel service model (i.e. meeting an existing market need in a new way). It needs to have convincing strategies for customer adoption and sustainable business models that offer significant value to physicians, hospitals, patients, suppliers, or payers.

We have been seeing quite a lot of healthcare services in the last months, and after long discussions with all entrepreneurs, it came to my mind that the three issues that usually draw all the attention are demand, operative margin and the capital intensiveness of the investment at hand.

The more “proved” demand is, the better. Some healthcare services are willing to bring a new service to the marketplace, and sometimes demand is highly controversial, particularly in Europe, where citizens are used to have healthcare for free (obviously, this is not true, we don’t have our healthcare for free, we pay taxes for it, but somewhat we give a large amount of our money each year to those who manage our healthcare, to governments, to insurance companies, hospitals, etc. without holding them accountable for efficiency or quality). Any pilot test to prove demand right is highly appreciated by investors.

Operating margin is a very important issue as well. It is important to see if the business model wants to make a lot of money from a few users, or a few money from a lot of users. As demand is uncertain, a high operating margin model is usually pursued.

Finally, the capital intensiveness of the project is critical, especially if the money needs to be allocated to marketing or brand generation. In case of failure, this "marketing" money has no salvage value, it cannot be recovered easily (it is not invested in something tangible, that could be sold by “pieces”) so it usually scares investors away.

Value for physicians (I)

Physicians and investors have a very different view on value. Physicians tend to focus only on the product (they love to talk about it, to share it with others), and therefore they are concerned about product-related milestones, such as prototyping, patent request or administration approval (FDA/European approval).

(see next post as well)

... and value for investors (II)

(see previous post as well)

Investors on the other hand, think in a more complex way. They are not really interested on the product, they are more interested in all the milestones needed to take it to the marketplace, and capture value. They focus on team building, distribution, manufacturing, market introduction and potential exit milestones. Both parties speak different languages.

The best projects flourish when both sides learn from each other and speak a common language.

Knowledge is slower than innovation

Imaging technologies are nowadays so good at peering inside our bodies they may have surpassed our capacity to interpret the results. Many findings are today what we doctors call “incidentalomas”, that is, false positives; for instance, images that look like cancer but after surgery turn out to be benign. We see “smaller things”, and smaller, and smaller, but we are unable to correlate them so quickly to what is normal and what is not. This should be a concern for healthcare professionals.

The same happens with biotech and diagnostics. The new detection techniques such as proteomics have made great progress in associating particular biomarkers to certain diseases, but we still don’t know how often those same markers turn up in non-diseases outcomes. Knowledge moves forward significantly slower than technology.

A different venture capital model?

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Venture capitalists fund insights—that is, they let the magical process that generates new ideas take its course, and then they jump in. I’ve always wondered if a different kind of model could “fly”, a model where a venture capital company makes insights rather than funds them, hiring smart people, coming up with ideas, patenting them and then licensing them to interested companies. Science fiction?

Well, not anymore… Something like that just happened in the US, and I find the idea so compelling. Natahn Myhrvold, a former Microsoft executive, just did that, founding a company named Intellectual Ventures, raising more than $100m. Take a look at the picture to understand the process… He may prove that the kind of insight that leads to invention can be engineered!

Being too picky when reading a business plan?

Some personal points of view today. I am usually accused of being too picky when analysing business plans (BP). Some entrepreneurs feel really passionate when someone from the outside has a critical opinion on their assumptions (I felt that in the past, as an entrepreneur myself, and I really understand it). But if you are an entrepreneur, you should get used to that, because critical opinions are something very useful.

I am very fortunate to see ideas in all stages. I “fish” very early stage ideas (sometimes even still in the entrepreneur’s mind, without a BP) and I’m involved with venture capital investments (where a BP has been analysed to death, literally dozens of times). This is a long continuum that forces me to have very different ways of “reading” business plans.

I will always (believe me, always) find things I don’t like in a business plan, no matter how good it is. And other investors will find things they don’t like in the very same business plan. And we will not agree 100% on those things we don’t like. And this does not mean the BP is wrong, it just means a BP is a highly subjective document.

When I see a BP, I somewhat decide which "mindset" I will use to analyse it:

I may decide to “read it”, and that means just understanding the problem and the solution it brings to the marketplace, the business model behind it, and checking for very rough inconsistencies in it. When using this mindset I’m not really interested in numbers, but I want to see the numbers already there, structured, ready to be tested and changed in a dynamic spreadsheet. This is the mindset I use when seeing a BP for the very first time, or when facing ideas or very early stage initiatives.

Then some other times I may decide to use a “glasses” mindset. Once I feel OK with the general assumptions and the business model, now would be the time to check for minor inconsistencies, look at the numbers more carefully, double-check important assumptions with external sources, and really be “picky” about everything I don’t understand.

And finally, if the project deserves it, and things are moving forward, I use a “microscope” mindset, where everything is analyzed and double checked to death, always having in mind that the BP is just a road-map, I never saw a BP matching the real evolution of a company. This would be more like a due diligence analysis, and as I say, it is performed very few times, only when start-ups are really being considered for an investment.

So far, so good, I guess pretty much everyone would agree. But what I understood after seeing all kinds of projects is that using a wrong mindset can kill an idea. Every stage needs a different level of detail to read the BP. Just "reading" a BP when considering an investment would obviously be a fatal mistake. But more importantly, using the “glasses” or the “microscope” mindset on a very early stage idea could destroy innovation, because entrepreneurs need time to really mature their ideas, you just can’t impose them your views on the subject, you can’t judge them on their first visit. If they feel everything was wrong, they may not come again. They need to remain creative and to find their way.

Anyway, no matter the “mode” used to read a BP, you will always get critic opinions when showing it to an investor, so you better get used to that!

Proof of concept

I was asked yesterday what is a proof of concept, so we are going to get a bit "techie" today. A proof of concept study is a trial to demonstrate clinical efficacy with a small number of strictly selected patients. It basically shows early evidence of the potential clinical efficacy of a new drug. It is an important concept for all biotech initiatives.

The objectives of the Proof of Concept Study are (a) to validate the relevance of novel therapeutic targets and in vivo preclinical models, (b) define potential biological markets for clinical efficacy, and (c) provide an assessment of the commercial potential of “new chemical entities” (NCE).

Proof of concept may be demonstrated sometimes through experiments performed at the cellular level and on animals, resulting in data that can reasonably be extrapolated to realistic predictions of significance and human trial results. Investors feel safer if proof of concept has been established, meaning the biotech start-up has demonstrated, at least in preliminary experiments that the idea will work.

When undergoing a proof of concept study, it is essential to have well defined criteria for decision-making according to its results. Among the things you would be looking at in a proof of concept study you may find:

• Safety
• Tolerability Bioavailability/Pharmacokinetics (PK)
• Biopharmaceutics
• Pharmacodynamics (PD)
• Duration of action
• Relationship between dose and PD
• Efficacy
• Patient acceptability
• Commercial viability in the indication at potential time of launch

Some personal stats: Entrepreneurship growing among healthcare professionals

Some quick thoughts today about entrepreneurship in healthcare. Every year thousands of healthcare startups are created around the world. Unfortunately, only a small percentage of healthcare professionals participate in the process. Why?

Two years ago we started a program in the Barcelona Medical Association (COMB) to support entrepreneurship among healthcare professionals (biotech, medical devices, services). I saw one entrepreneurial idea every two weeks.

Today, after two years, I’m seeing one idea per day… Physicians are getting used to entrepreneurship, they are finally learning the language of innovation. Healthcare professionals are tired of innovating and seeing their ideas exploited by others. They want to capture the value they generate (and I am so happy about it).

But there is so much potential to capture. For the industry to achieve its full potential we need to attract even more physicians and healthcare workers to the task. As I said in another post, we need more culture, more analysis, and more investments. But the trend is so clear to me. You can take my word for it… Entrepreneurship among healthcare professionals is here to stay!

Some thoughts on personalized medicine

Personalized medicine could be seen from an economic point of view as delivering “mass customization” to people in a healthcare context at an affordable cost. Personalized medicine has attracted a lot of hype and is often perceived as a far-future initiative that is not yet ready for useful value delivery to real-world patients.

Personalized medicine uses an evidence based approach, maximizing efficacy and the best therapeutic outcome, while minimizing adverse events. So far, so good, who could say no to that?, but this utopic vision will need to overcome several barriers to become a reality. There are at least 4 problems to address:

#1 Personalized medicine is more expensive. Who will pay for the incremental cost? Why should payers pay for this without compelling and clear evidence of superior therapeutic outcomes in patients that can be delivered cost effectively? Our current healthcare systems pay for volume rather than for value, we cannot measure quality of delivered healthcare, and this is going to slow down personalized medicine adoption if we don’t solve the problem.

#2 The blockbuster model does not work here. The economics of delivering a large number of molecules targeted at smaller patient populations will demand a radical transformation from the current model predicated on the discovery, development and commercialization of a very small number of molecules targeted at large patient segments. How can we define viable business models of “targeted therapeutics” to very small populations of patients while assuring profitability? This will be clearly the age of biotech (small size, high speed, more adaptability), and pharma companies will suffer.

#3 Drug approval is so XXth century… It is so slow (7-10 years to market), it is so expensive, and more importantly it is so flawed when analysing drugs for very, very small populations of patients… Fundamental rethinking of the regulatory regime to assure safety and efficacy will be needed to be agile. Additional periods of exclusivity may be imperative for targeted therapeutics to be rendered viable.

#4 Protection of the patient’s privacy and non-discrimination laws need to be in place for personalized medicine to become a reality. Whether we like it or not, this is something that worries patients, and we need to be prepared to offer solutions to it.

Identifying lies in financial projections

One of the most dangerous mistakes an entrepreneur can make is to seek confirmation of his actions rather than seeking the truth. They want to do something, so they talk about it with people who work for them. They talk to their families and friends. But they're only looking for confirmation; they're not looking for the truth. They're looking for somebody to tell them they're right. But the truth always comes out, especially in financial projections.

Entrepreneurs usually “lie” to themselves (without knowing it) when preparing the financial projections. This is not “technically” their fault, they are just too excited about the opportunity and they usually end up by setting wrong assumptions when building their numbers. Sometimes is excessive demand, sales, time to market, market share, speed of growth… you name it. Some get mad at me when I point out their inconsistencies (it happened to me again yesterday, and it will happen many more times in the future, I am used to it now).

Financial projections usually tell a great deal both about the start-up and the entrepreneur. One gets very fluent at identifying “lies” in financial projections by seeing a lot of them. Healthcare entrepreneurs should be aware of what an income statement says, and what it hides.

Investors are looking forward to investing in start-ups that offer a very large opportunity (which could become 1st, 2nd or 3rd in the market, could generate long term competitiveness and, let’s say, a 10x return on investment). Every entrepreneur knows that when looking at the numbers, investors will be trying to anticipate how much total financing will the company need, how probable is liquidity and how long to get there, when does profitability occur, and milestones and fundraising events.

But there is much more information hidden in the financials besides that. For example, does the business model “scale” well? Do revenues increase at greater rate than expenses? Are sales projections realistic? Is the total amount of financing needed realistic? Have the costs of growth been factored in?

When analyzing 5-year projections, I usually look only at the first three years to learn about the start-up. Anything longer than that is just science fiction, the entrepreneur just does not know. But years 4 and 5 offer very useful information as well, not necessarily about the start-up but about the entrepreneur himself… Is he ambitious? Is he consistent? How aggressive is he? What is his vision of the company for the future?

Strategy 101 for healthcare start-ups

Healthcare professionals are not used to strategical thinking. Strategy is about choosing a future for your idea and about defining how to get there. Strategy is about choice, which affects outcomes. Healthcare start-ups can survive for short periods of time in conditions of relative stability and little competition. But, guess what, in the real world there is no such thing as stability or little competition. So, you need to have a strategy.

Strategy is more a science than an art. It is difficult to encapsulate in just one post how to design a strategy, but from a conceptual point of view, strategic thinking should follow these steps:

#1 Understand the drivers that influence your future profits. Any variable that will affect your profit and loss and therefore can create or destroy value for your start-up needs to be deeply understood. Your future profits depend on what? The objective of this first step is to learn why can we have better or worse results.

#2 Understand your environment, both the general environment (economic, social, technological…) and the healthcare one (healthcare value chain). Who is your competitor, who is your provider, who is your client? Are there trends that could change the marketplace in the near future?

#3 Understand your scope, where are you competing, from a geographic (where do you want to sell?), product (which products?) and segment (to which clients?) point of view.

#4 Understand the resources you use, and your capabilities. Can you develop a future capability that could give you a competitive advantage over your competitors?

#5 Where are you then? At this point, by combining what you learnt from the previous steps you can build a Strengths, Weaknesses, Opportunities and Threats (SWOT) matrix. Strengths and weaknesses are internal characteristics of your start-up (#3 and #4), and opportunities and threats are external issues from your environment (#2).

#6 Formulate your strategy. After detecting the opportunities and threats around, and knowing about your capabilities today, you can define how you should compete in the future. Is what you do today sustainable? What do you want to be when you grow up?

At the end of the day, a strategy chooses a position for your company, that is, a scope and a set of activities able to benefit from your capabilities and able to protect you from the “forces” that will try to limit your profits. Obviously, when choosing this positioning, you are forced as well to decide what new resources or capabilities you will need in order to compete in the future. And this is strategy.

Strategic thinking has no end. Once you define a strategy, you need to anticipate again future changes and go back to #1 to dynamically rethink your strategy again and again.

What is value in healthcare?

Value can be defined from an economic perspective as outcome divided by cost. Value in healthcare services is often defined as clinical excellence, and that means that receiving the best medical treatment at the lower cost would be the best value scenario. Right?

Wrong. There’s a lot more in value than its economic perspective. Some healthcare initiatives are failing to see this and are betting on the excellence dimension as the only dimension that really matters. I am not saying that excellence is not important, I am just saying that in a world of “excellence inflation” (everybody is excellent), there are many other dimensions of value that really make a difference when the patient chooses to stay at a hospital or pay for a service.


Here’s my list:

(1) Personalization: Patients want their healthcare their way. They want healthcare to be aligned with their preferences and personal needs.

(2) Transparency: Patients increasingly want to know more about their diseases, they want to have intelligent conversations on how a course of treatment will impact them. Building trust through transparency is becoming essential.

(3) Simplicity: The old “kiss” rule (keep it simple, stupid) applies more than ever. Patients are stressed, worried, they really value simple processes of admission and discharge, information request and many other minor things that at the end of the day can make their lives so much easier.

(4) Human interface: A lot of doctors are not good at bedside manner, the human relationship with patients. And excellence is no longer enough. Patients need a human interface to communicate with. A caring staff can make again a difference.

(5) Time: Anything that saves time is greatly appreciated. Waiting lists, queues at emergency department, weeks to know the diagnose… All these matter too when citizens are making their healthcare choices.

If you are building a healthcare start-up willing to provide healthcare services, try to compete in all the dimensions, and not just the “excellence” one.

Some politically incorrect thoughts about healthcare

The more I work with hospitals, the more I believe hospitals are uniquely positioned to benefit financially from discoveries in the medical field. This is not only true for cutting edge research but as well for any operational or management related initiative. Hospitals may be an outstanding partner for start-ups willing to enter the marketplace.

But the more I work with hospitals, the more I see they don’t get it. They don’t see the potential and they do nothing to capture it. Why?

(1) Most healthcare managers still see innovation as a task. Most physicians still ask questions such as “I am already seeing patients, doing research, teaching… and you you want me to innovate as well?”. Well, innovation is not a task, it is not something that has to be done, it is a state of mind. Innovation is a permanent questioning of how we can do things better. You can innovate while you see patients, while you do research, or while you teach. But you need to see things differently, you need to be constantly looking for needs.

(2) The idea that hospitals should be promoting and funding healthcare start-ups that are designed to have a profit is still politically incorrect. For most CEOs, nurturing healthcare innovations should be directly tied to a nonprofit's mission… Well, I am afraid this may be politically correct, but from an “efficiency” point of view, it may be totally nonsense. Improving healthcare should not be a cause, but a “business”. If it is just a cause, many start-ups won’t flourish, and important innovations that were meant to save thousands of lives or make patients lives better won’t never reach the market.

So, if you are a hospital CEO, a medical director, a healthcare manager, I beg you to see the innovations around you as potential venture capital (VC) investments… Try to see reality with a different mindset. VCs aren’t dreamy idealists. They are indeed ruthless realists. They’re pragmatists, looking for returns on investment, and a piece of the future action. Successful VCs try to define the risks they have to take and to minimize them as much as possible. They’re not risk-focused but opportunity-focused. They are looking for unfilled niches. And when they find one, they invest in it, and they profit from it.

Nurture and invest in the innovation that flourishes at your hospital trying not only to do good, but to capture value as well. Innovation is a for-profit business if you want to do it well. Sophisticated hospital executives are increasingly realizing the potential benefits of such an investing philosophy.

"Free" business models in healthcare

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Yesterday I was invited to give a lecture at the “Instituto de Empresa” in Madrid, Spain. The topic was innovation as a driver of healthcare in the XXIst century. I shared the floor with two amazing healthcare professionals from the New England Journal of Medicine. I want to thank both medical economics and instituto de empresa for having me.

One of the most interesting things we discussed was “free” business models in healthcare. I am sharing with you one of my slides on the topic. Is it possible to give away something for free in healthcare and still make a decent profit out of it?

Well, in my opinion it certainly is. Free or “low-cost” will come to healthcare in the coming years. Free is what citizens want — and free, increasingly, is what they are going to get. But free does not mean no profits. The start-up that is giving away the good for free can make a living by “capturing” the client and charging him/her for different things.

As you will see on my slide, in healthcare there are at least six different strategies to capture value when giving away something for free. If you want to go deeper into the subject you may find very interesting to read Wired magazine's article about “Free”.

The science is the business

Science plays an important role in the XXIst century. In other sectors of the economy, the science behind any product is increasingly important. In biotech and medical devices, science is even more important, in fact, here science is the business. This might scare some venture capital firms that are generalists (non specialized in life sciences). Educating the non-specialized venture investors is therefore essential to gain more “visibility”.

If you present a project to a generalist venture capital firm, you should have in mind why biotech is a great market to invest in:

Pricing power and high margins
The administration has tried for a long time to reduce prices on older drugs (generics). They have been successful indeed in cutting prices on the old drugs, but never on the innovative drugs (their cost-effectiveness is usually very well documented). The classical supply-demand law does not apply in this sector. This means a new drug can potentially achieve margins of more than 90%, and even drugs targeting reduced communities of patients (rare diseases) can create a multimillion business.

Monopolistic market
Barriers to entry are enormous. Know-how and investments create indeed big barriers to entry, and the 20 year protection from patents and the Orphan Drug legislation usually give new drug developers a monopolistic market to exploit.

Market target clearly defined
Biotech companies selling drugs have access to markets that are clearly defined by physicians and by patient registers in hospitals. The demand structure is therefore highly predictable, which is rare in other sectors where markets need to be created.

Revenue stability
Unlike other markets, drug sales are stable on not subject to sudden loss of consumer appetite.

Managing risk in healthcare start-ups

Venture capital investors focus on risk and how they can decrease it. They want to make sure the entrepreneur knows about the risks ahead, and how is he planning to cope with them should he need to. Some entrepreneurs are not willing to talk about those risks, as they think maybe the investor will factor them and therefore the start-up will receive a lower valuation… Right?

Wrong. Well, if the investor does not hear about the risks, he will quantify them himself pretty ruthlessly, usually with a bigger impact on the valuation. The message you want to send to the investor is that risks are under control, and you are ready to face them. It is therefore useful to include in the presentation:

• What are the risks?
• When are the deciding events going to occur?
• What are the chances of those events occurring?
• What is the upside versus the downside of the event?
• How can you prevent them?
• How much does it cost to prevent them?

Risk in healthcare has five dimensions:

Operational risk
Can the people in the company deliver? Do they have the skills and the energy to execute the business plan? Is there a clear path to market?

Technological risk
What if the technology does not show itself as feasible? What if our product does not work as expected, or a competitor introduces a better product on the market, with superior technology?

Intellectual property risk
Healthcare relies heavily on intellectual property. The nature and size of the investments required for many start-ups, specially those related to life sciences or medical devices, needs some sort of market protection. The risk of not receiving a patent is therefore an important issue.

Regulatory risk
What if the different administrations don’t approve the market launch of our products?

Financing risk
What if at some point in the progression of the start-up the entrepreneurs cannot find more capital needed to grow, and the present investors don’t want to throw more money at it? Will the company need several rounds of financing? Is it possible to stretch the lifetime of the current capital by taking the burn-rate down?
(*burn-rate is the speed at which the start-up consumes its money, If the shareholder capital is exhausted, the company will either have to find additional funding or close down)

Reward success and tolerate failure

Innovation has become synonymous with survival in the current healthcare environment. Hospitals, however, tend to be conservative, hierarchical, conforming and risk-averse. And they don’t reward innovative physicians.

To innovate, there’s always a risk. For physicians or healthcare professionals to assume the necessary risks of innovation, they must have some confidence that their hospital will reward success and tolerate failure. I don’t see that very often in our healthcare ecosystem. A climate of trust is so much better than a climate of punishment. The carrot is so much better than the stick.

Innovation, for hospitals, means economic survival. Market pressure from the administration, patients and the rest of the healthcare value chain induces hospitals to (a) try to be perceived as better than their competitors and (b) to reduce health-care costs through efficiencies. Today’s best hospitals are the ones that have been very active at innovation, and this trend will continue in the future, as innovation will be the most important differentiator among hospitals. Excellence will no longer be enough.

So, yes, innovation provides competitive advantage, and failure to innovate will be very dangerous in the XXIst century. What’s the first step? What’s the single most important thing to foster innovation at a hospital? Develop a climate of trust.

Milestones

I had a very nice discussion today in a board of a company that is looking forward to raising venture capital. We were talking about milestones, specific goals and tasks that the start-up was willing to accomplish in order to succeed.

The milestones slide is usually one of the most difficult slides to define when preparing a VC presentation. Venture capital investments are usually "staged." A certain amount of money is invested right away and additional money is invested later, as certain milestones are reached. From the company's perspective, it's important that these milestones are clearly defined and reasonably obtainable.

Investors love to see different things in the milestones slide. For me (I love simplicity, maybe different investors would think different ways of structuring this slide), a milestones slide should try simply to structure the future of the company into two or three stages, and define for each stage three things:

• What is the company going to do (where is the company going to spend money)
• How much will it cost (and therefore, when does the company need the money and how much is it for every stage)
• What would be the end result of it (goals accomplished, providing a good framework to evaluate the progression of the start-up)

It is as simple as that, but it takes a lot of perspective, clarity of goals and commitment from the start-up, as it establishes compromises that will be probably linked to the investment.

10 thoughts that could kill your idea

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I’ve seen hundreds of healthcare ideas in the last years. I keep a database with all of them. I’ve been going though it this weekend, and while doing so this decalogue came to my mind. These are mistakes healthcare entrepreneurs make very often. Hope it helps!

#1 If my idea is great, I will find money very quickly
False, your idea is worth nothing… if you execute it, it may be worth a lot, but its value comes from its execution. Without an outstanding team to execute it you won’t get very far, even if your idea is a phenomenal breakthrough.

#2 Scientific founders should continue as CEOs forever
False, healthcare entrepreneurs with a scientific background should be aware at some point in the future it is in their best interest to bring experienced management to the company.

#3 Dilution is a bad thing
False, it is indeed better to have 20% of a company that has €10m profits than 95% of a company that is still losing money. Growth needs capital. Success comes in hand with great investors and shareholders. You need to be prepared to dilute in order to grow.

#4 My success in the market is totally based upon the quality of my product/service
False, false, false… there are many other issues around. Is there a market in the first place?

#5 Everybody will love me when coming to the marketplace
False, some incumbents will try to crush you totally, you better be prepared. There is no such thing as a “neutral” arrival to the marketplace. You need to know who will be your friend, who will be your enemy. Study the healthcare value chain very thoroughly.

#6 I will be all things to all people
False, a big niche, does not mean a greater chance of dominance. Quite on the contrary, a small niche is usually synonymous of success.

#7 It is not the right time to launch my start-up
False, there is never a perfect timing to launch. You don’t need the perfect product or service to start… Every idea has a window of opportunity, waiting for too long could kill your idea.

#8 It is important not to tell my idea to anyone, they could copy it
False, there is much more to gain—feedback, connections, opened doors—by freely discussing your idea than there is to lose. If simply discussing your idea makes it indefensible, you don’t have much of an idea in the first place. No matter what you think, don't be paranoid, trust me on that one.

#9 I will negotiate an “I win, you lose” deal with VCs
Wrong. Negotiation with VCs is always a cooperative negotiation, never a competitive one. You will have them around for a long time, you better have a great relationship with them and allow them to help you.

#10 if I build it, they will come
False. Never bring to the marketplace a solution in search of a problem. The best start-ups I know are always built by entrepreneurs that identified first the problem and then offered a solution to it

+1 (extra one) I prefer to aim low, I am afraid to fail
That's the worst one... Wrong, wrong, wrong. You can always learn from your failure and finally succeed if you persist. We tend to stigmatize mistakes. Most potential healthcare entrepreneurs are too frightened of being wrong. And if they are not prepared to be wrong, they will never come up with anything original. I like people that aim high and miss, they usually learn and succeed. Aim high!

Point-of-care testing

A friend just sent me the last European Healthcare Investment report, and it clearly highlights an exciting scenario for innovation in medical devices and services. According to this report, the pharma industry is in deep trouble, and faces tough years ahead.

We all know that big and old pharma companies are facing a tough future, with weak pipelines, patent challenges from generics companies and a hostile regulatory environment. They will be forced to adapt to and accommodate generics companies and cutting edge biological treatment developers. Biotech start-ups are on the rise, and they are the ones innovating.

What interested me the most in reading the report is how it predicts the proliferation of point-of-care testing. I couldn’t agree more with it. I am not at liberty of discussing the start-ups that we are monitoring, but I can tell you point-of-care testing is gaining momentum. Fast and convenient diagnostics outside hospital premises will definitely be one of the important trends for the next years.

The development of miniaturisation means that point-of-care testing for virtually any measure or condition is now available. The whole healthcare is being reorganised to put patients first. And what could be more aligned with this than lab results “on-the-fly”, even as "do-it-yourself kits" to allow patients to monitor their health?

In the future, more care will be delivered in the primary care environment, and this will need point-of-care testing. These new technologies will have a great impact on the application of efficient diagnostics and, more importantly, on patient outcomes.

Healthcare business models 101

Defining your business model is one of the most important decisions of any healthcare start-up. To define a business model means knowing “by heart” (1) who has the money in their pocket, and (2) how are you going to get it in your pocket. The first question defines your customer and the pain that he feels. The second question tries to make sure you can obtain revenues that are higher than your costs. It is as simple as that.

A business model should be defined in ten words or less. If you can’t describe it in ten words or less, you don’t have a business model (i.e. if you have designed a new endoscope, a business model could be as simple as we want to give away the endoscope and charge for the consumables). In healthcare, money usually is in the pockets of the administration, hospital CEOs, healthcare professionals, or the patients. The more precisely you can define your customer, the better. Starting with a clear and small niche (segment) is usually perfect. You can always make it larger in the future, encompassing other segments as you grow. I never saw a healthcare start-up willing to sell everything to everyone become successful.

Innovation is important for any healthcare start-up, but I would not recommend to mess around trying to invent an innovative business model. Smart people have already invented every business model that makes sense. This is not to say that it is impossible to come up with a new and successful business model that no one has ever tried, but in my opinion this is very unlikely (and dangerous). Try to keep the way you are going to get your client’s money into your pocket in an already successful and understood way.

I love the way Guy Kawasaki defines what a business model is, you can find more on this in his book "The art of the start".

The war for talent

We live in an era of physician shortage, and talent will be more and more important in the next decades. Excellence will no longer be enough. Hospitals will differentiate themselves from its competitors through innovation.

Hospitals need to attract smart and innovative physicians. Creative physicians come in many different forms. Some are looking for radical big ideas, some others are improvers. Some are great at teamwork, others are “prima donnas” needing space and individualism.

But all of them have in common a strong desire for workplaces that let them be creative. Hospitals seeing this trend, eager to value healthcare professionals ideas, able to challenge them and ready to be proactive to make these ideas happen will no doubt have an edge in attracting, managing and motivating creative talent. This flow of innovation will provide competitive advantage to those hospitals.

Chief innovation officer will be the key position for the hospital of the future.

The story of your idea

Innovation and entrepreneurship in healthcare demands great effort. No pain, no gain. It is often a very chaotic process, although we can identify some steps in it. Knowing the “general” story of one idea, from its conception to its arrival to the marketplace can help wanna-be entrepreneurs “see” the path ahead and better planify what to do.

Step 1: Having the idea. Where does the idea come from? Learn to identify when and why you are angry. Behind an angry physician or patient lies an opportunity waiting to be discovered. Find needs and provide solutions.

Step 2: Is it just a good idea, or is it an opportunity? An opportunity means you will capture value from it. Is it economically viable? Can you secure strong intellectual protection? Has it got a big market size? Can you find a great team to execute it?, Is there a clear path to market? Can you build a profitable business model around it?

Step 3: Write a business plan. The purpose of a business plan is to tell a story, the story of your idea. The plan must establish there is an opportunity worth exploiting and must describe the details of how this will be accomplished. Some entrepreneurs see the business plan primarily as a tool to raise capital. Well, it indeed is necessary to raise capital, but its primary purpose is to help entrepreneurs gain a deeper understanding of the opportunity they are envisioning. It helps entrepreneurs to shape their original vision into a better opportunity by raising and answering questions.

Step 4: Protect your idea. Intellectual property is a very important asset in healthcare, especially in life sciences or medical devices. Protecting your idea will generate barriers of entry and can represent a source of revenue to your start-up.

Step 5: Prototyping. At some point you will need to test your product or service with a “mock-up” or a rough prototype, it will help you attracting capital, clients or employees.

Step 6: Choosing a future. Once you have a patent, you can choose to sell it or license it. You may want to find an ally in the sector to help you bringing the product to the marketplace or, maybe, you will create your own start-up.

Step 7. Build your team. Remember no investor will invest money in your idea, but in the execution of your idea. An idea is worth nothing, its value comes from its execution, and therefore the team that is going to push it forward is essential.

Step 8. Raise capital. Your idea may be able to raise government capital in from of grants (if that’s the case you probably have raised capital before step 4, no need to wait that long). At some point you may want to raise private capital from business angels or venture capital.

Step 9. Go! As a friend of mine once told me, once you get here you have already 90% of the job done… now you just need to do the other 90%... entrepreneurship is a never ending task.

Obviously, depending on the nature of the innovation you are bringing to the market, you will need to prove it “useful” and “safe”. Healthcare is a heavily regulated market. More on clinical trials in a future post.

A stroke of genius

Every now and then I hear a lecture that really makes a difference, that changes my perceptions on things. It happens as well with books (I have a special shelf at my place with the books that “changed my life”, just seven books so far, still looks empty, maybe I will comment more on those books in another post…).

Well, it happened again. This is a must see. Those who know me well, know about my passion for neurosurgery and the brain (half of my life so far) and my passion for innovation, entrepreneurship and financing of healthcare start-ups (the other half). Jill Bolte is a neuroscientist. She had an opportunity few brain scientists would wish for: one morning, she realized she was having a massive stroke. As it happened, as she felt her brain functions slip away one by one, speech, movement, understanding, she studied and remembered every moment. Her recall of what happened is priceless. As I said, this is a not to be missed presentation.

I will quote here several moments of her speech, although I came to realize it is not what she says, it is the energy she invests in it and how persuasive she is what makes this a very innovative lecture.

Here it goes:

“And in that moment my right arm went totally paralyzed by my side. And I realized, Oh my gosh! I'm having a stroke! I'm having a stroke! And the next thing my brain says to me is, Wow! This is so cool. This is so cool. How many brain scientists have the opportunity to study their own brain from the inside out?"

How amazing is that? She was having a stroke, and her “scientist inside” was looking forward to analyze it.

“But it was beautiful there. Imagine what it would be like to be totally disconnected from your brain chatter that connects you to the external world. So here I am in this space and any stress related to my job, it was gone. And I felt lighter in my body. And imagine all of the relationships in the external world and the many stressors related to any of those, they were gone. I felt a sense of peacefulness. And imagine what it would feel like to lose 37 years of emotional baggage! I felt euphoria. Euphoria was beautiful -- and then my left hemisphere comes online and it says "Hey! you've got to pay attention, we've got to get help," and I'm thinking, "I got to get help, I gotta focus.”

Best recall of a disconnection between left and right hemispheres that I have ever heard.

“Eventually the whole number gets dialed, and I'm listening to the phone, and my colleague picks up the phone and he says to me, "Whoo woo wooo woo woo." [laughter] And I think to myself, "Oh my gosh, he sounds like a golden retriever!" And so I say to him, clear in my mind I say to him. "This is Jill! I need help!" And what comes out of my voice is, "Whoo woo wooo woo woo." I'm thinking, "Oh my gosh, I sound like a golden retriever." So I couldn't know, I didn't know that I couldn't speak or understand language until I tried.”

Amazing story, watch the whole of it here. It is a combination between “how the brain works” + “stapple yourself to a patient to innovate better”. Being a patient can help you understand the needs of healthcare as well. A very innovative speech indeed.

Medical devices rule!

(Source: the economist)

I’ve just received the last quarter results of venture capital healthcare investments, and I really love what I see (venture deal reports). Medical device companies received the most funding out of the four sectors (medical devices, services, biotech and pharma), edging out biotechnology. Minimally invasive procedures and implantable diagnostic sensors were particularly attractive to venture medical-device investors during the last year.

Medical devices are becoming more and more interesting for investors, as they deliver real value, real soon (time to market is significantly closer than in biotech investments). But this is not only about today. The long term trends look promising as well, as the confluence of genomics, nanotechnology and high-speed computing will make possible more elaborate devices. In an ageing population, the demand for medical technology will grow relentlessly.

Now we just have to solve the underlying problem. The emergence, adoption and widespread diffusion of new medical technologies accounts for a great deal of healthcare increasing costs. Who is going to pay for this in the future?

The economics of creativity

Our economies produce goods, but it seems clear to everybody that countries will excel economically on the long run if they have the ability to produce ideas, not just physical goods. We are not used of thinking about ideas as economic goods, but they are surely the most significant ones that we produce.

An idea is not like other goods, let’s say machines, oil, etc. which deplete or wear out with use. An idea can be used over and over again and in fact grows in value the more it is used. And an idea can be built upon. It can be combined with other ideas to create new forms, and this is especially true in science and healthcare. Today we clearly value creativity as a source of economic value.

Some countries have already understood that the ultimate intellectual property, the one that will replace land, labor and capital as the most valuable economic resource, is the human creative faculty. Again, western economies are missing the point. While we fight cheaper labor and goods production overseas, some emerging economies invest in creativity. I learned yesterday about several china initiatives in the biotech and the medical devices sector. And I was deeply impressed. In a world where creativity matters, we better invest in biotech or we will end producing their t-shirts ourselves.