Key Takeaways & Predictions from Health Evolution Summit 2019

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Mayfield, an early-stage investor in HealthIT and genomics hosted a special dinner at this year’s Health Evolution Summit around predictions and insights for the future of healthcare.  We co-hosted with our friends from Oliver Wyman and Fenwick West. We believe we’re at a particularly interesting point in healthcare innovation with the development of technologies such as CRISPR and the application of AI to healthcare problems.  We are witnessing some of the most amazing advancements in technology and genomics that will dramatically impact the overall healthcare industry.  We’ve been at this a long time, with 500 more investments over 50 years of investing.  Some of our investments include 3Com, Amgen, Concur, Genentech, Intuitive Surgical, Lyft, Poshmark, SolarCity, plus some more recent HealthIT investments include Mission Bio, Qventus, Nebula Genomics,  Zipongo, Mammoth Biosciences, HealthTap, and many others.

During the dinner the guests, CXOs from major providers, payers and entrepreneurs debated the most important healthcare industry predictions for 2019, based on Oliver Wyman’s yearly report. Here are the top picks:

  1. Big tech will make a big play. After years of rumbling, and partnership announcements that seem more like public relations than product, this will be the year a household name like Apple, Google, or Amazon lays its claim in healthcare. This year, we’ll see an innovative, breakthrough product come onto the market, shaking up the status quo.
  2. Cost takeout will be the “no regrets” move. Conventional wisdom says a recession is no more than a few years away. Organizations that survive the next downturn will be robust enough to lose a point or two of margin in the down years and still pursue their strategies. Smart healthcare players are already cutting costs in the face of reimbursement pressure, and we’ll see more of this in 2019.
  3. The pharmacy benefit manager shakeout will begin in earnest. Consumers are more exposed to pharmaceutical prices than other healthcare costs, employers are concerned with skyrocketing specialty drug costs, Cigna is buying Express Scripts, and CMS has its eye on drug rebates. In this environment, how will pharmacy benefit managers demonstrate their value? We’ll either see their role redefined as they reintegrate with health insurers and develop new value propositions, or the beginning of the end of the middle man.
  4. The “new front door” will mean more than convenient primary care. With Optum now the largest US physician employer, CVS now a health insurer, and Humana a major home health investor, we’ll see the “new front door” care offerings from retail clinics to telemedicine to home care scale in earnest. But these won’t just be about consumer convenience. Instead, payers will use them up to build attachment to consumers, help them manage their care, and direct them as needed to low-cost providers. Network design starts being replaced by referral management – with payers playing a new game, and providers no longer counting on patient volume simply because they’re “in network.”

The Biggest Threat to America is the Biggest Opportunity for Entrepreneurs

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The United States healthcare system is often regarded as a hopeless, bloated mess. Indeed, the increase in healthcare costs has eaten up all worker pay increases since 1970.

But perhaps because I work closely with so many passionate healthcare entrepreneurs, I have a different, more optimistic, perspective. Like others, I see shortcomings in the system and agree that dysfunctional healthcare is one of the biggest threats to America. But not only do I think the system is ripe for reform, I think doing so represents one of the economy’s biggest entrepreneurial opportunities—one that, for a variety of structural reasons, startups are uniquely positioned to achieve.

 

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Spending More, Getting Less

Today, the U.S. spends twice as much on doctors and hospitals as any other developed country, but without getting better results. Often, in fact, our outcomes are worse, as we’re seeing with declining life expectancy in some demographics.

Much of the blame is focused on the political battles of vested interest groups: Doctors fighting with insurers who are battling hospitals who are parrying with Medicare—on and on.

But where others see discord, I’ve begun to see alignment. Most people who pick healthcare as a career started with the mission of helping people lead healthier, happier lives. They and their employers all want to get better results by spending less. There’s consensus in the entire healthcare ecosystem on the need for efficiency.

  •  Most hospitals are non-profits that operate on low margins and want to be able to cure patients faster and at the lowest possible cost.
  •  Drug companies want to bring out new cures faster without spending billions for each new one.
  •  Insurers want their customers to be healthy, if only to keep them out of hospitals and stop them from running up giant bills.
  •  Government pays a big portion of the healthcare bills in the U.S. and wants that money to cover more people.
  •  Consumers want to stay healthy with less exercise or lose weight with less effort.

Efficiency is the Entrepreneurial Opportunity

Change will come thanks to an emerging class of precision technologies that can help reverse the long-term trend of declining healthcare efficiency. Some of these tools are familiar to Silicon Valley, such as mobility, cloud computing and AI. But healthcare also has its own star tech players, notably the breakthroughs in single cell sequencing, bioengineering, cell and gene-editing and computational and synthetic biology.

All these developments make it possible to develop precision solutions tailored to the specific needs of individuals at all points of the care continuum. Some examples would be personalized wellness and prevention, precision care in health systems, precision genomics platforms, protein and cell engineering, CRISPR diagnostics and genomics-based precision medicine.

By harnessing these emerging precision technologies, entrepreneurs can build companies that will greatly improve health outcomes while simultaneously making the delivery of health services more efficient. Patient satisfaction will rise, and everyone in the ecosystem, including patients, providers and insurers, will derive more value for their investment.

Innovation Incentive

Questions about rising healthcare costs usually reflect concerns that consumers aren’t getting enough value for their money. But the long-term trends are clear: As people get richer and live longer, they will choose to spend more on their health and well-being if it’s clear their lives are getting better in exchange.

Most incumbents in this ecosystem are too large and are unable to reinvent their products and services with non-linear improvements and breakthroughs. This in turn creates opportunities for healthcare entrepreneurs, opportunities which come in two main themes:

  •  New precision solutions through the use of transformational technology platforms in user-centric solutions: Precision care has been in the news lately largely because of the mind-boggling scope of some of the genomics-based lab discoveries making it possible. The gene-editing system known as CRISPR is being closely watched on account of its amazing potential with a variety of diseases, starting with major scourges such as cancer. It’s possible to imagine a chemotherapy regimen formulated for the specific genetic sequence of an individual patient. While recent studies have suggested that some cells might reject CRISPR modifications, researchers remain confident that these sorts of short-term technical challenges can be overcome.

CRISPR is proving to be useful not only for therapeutics, but also for diagnostics. Scientists are working on CRISPR-derived home therapy kits that will one day be sold in drug stores, and much like home pregnancy tests, allow for patients to screen for an enormous range of diseases. In addition to making healthcare more efficient, the easy availability of powerful and accurate diagnostic tools will also make it more democratic, empowering people to take personal responsibility for a bigger share of their healthcare decisions.

  • Increase the efficiency of the healthcare system through the focus on the consumer: As of 2017, out-of-pocket spending by consumers has become the single largest payment category in the U.S. healthcare system. This is driving increasing demands from consumers for healthcare to give them the experience and value they’re seeing in other parts of the economy. Most users of healthcare products and services are not technologists and engineers, and ease of use makes the adoption of a new solution faster even among healthcare professionals.

Users already spend billions on wellness and vanity. Since, a significant portion of our total healthcare expenditures involve a small number of chronic conditions, notably obesity, getting people to eat healthier and look and feel better not only saves lives, it also saves money. Healthcare startups that can get consumers to pay for their products obtain a competitive advantage (think 23andme, Ancestry, OneMedical, Weight Watchers, Fitbit, Headspace etc.). Many digital health companies failed because they didn’t really deliver a compelling proposition that engaged the consumer, then pivoted into selling to enterprises without re-thinking their offering. Products sold in the healthcare ecosystem that don’t engage users will fail.

How to Start

Entrepreneurs entering the healthcare market from other fields—social media, say, or enterprise IT—are sometimes overwhelmed by the challenges involved in creating a successful company, such as the formidable regulatory hurdles, or the fact that the people using your product are usually not the same as the ones paying for it. The critical factors that drive entrepreneurial success with precision solutions are:

  • Focusing on the user persona (consumer, researcher, lab technician, nurse, doctor etc.) and then delighting them on a sustained basis, allowing them to achieve their goals with less effort and resources.
  • Not only understanding how and why their intended customers will pay for the solution, but also demonstrating revenue velocity early in the company life cycle.
  • Having IP or network effect barriers that make it harder for look-alike competition.
  • Starting a movement on the new way to do things by taking the leadership role in building a platform that attracts lighthouse customers, best employees and key ecosystem partners.

There will be failures in the healthcare-startup ecosystem, probably more than in many other areas of entrepreneurship. But companies that focus on increasing efficiency and engaging patients have the potential for achieving what most entrepreneurs only dream about: Creating a successful company while changing people’s lives for the better.

Originally published on LinkedIn.

Building Synthetic Biology Companies at Scale

This article was originally posted in anticipation of SynBioBeta 2018, where Ursheet participated in a panel on scaling synthetic biology companies.

Scaling is difficult for any startup — that’s no secret. Scale too fast, and you’re in over your head. Scale too slowly, and you miss out on opportunity and waste investors’ time and money — as well as your own. The internet abounds with how-to-scale articles from Forbes, Entrepreneur, and other industry watchdogs — and scaling is a topic that continues to thrive.

This year at SynBioBeta 2018, attendees will have a chance to learn from expert entrepreneurs and investors some tried-and-true scaling advice. Mayfield and Wilson Sonsini Goodrich & Rosati are sponsoring a Tuesday lunch and learn session “Building Synthetic Biology Companies at Scale.” Mayfield’s Ursheet Parikh will be joined by IndieBio founder and SOSV general partner Arvind Gupta, GeneWEAVE co-founder Diego Rey, and life sciences many-time entrepreneur Maneesh Jain for an informative discussion moderated by Raj Judge, corporate partner at Wilson Sonsini Goodrich & Rosati.

“I’m excited by our distinguished guests because they represent a cross-section of the synthetic biology industry, everything from early, early stage startups to scaled companies, and how to invest and grow all of them will be represented on the panel,” says Judge.

Leading up to this event, now only weeks away, I talked to all four panelists about their unique views on scaling — what are the biggest scale challenges facing synthetic biology companies today, how they’ve successfully scaled, and the advice they’d give fledgling entrepreneurs. I’ve summarized some of our conversations, and I hope they get you as excited about the lunch and learn session as I am.

Hurdles to scaling

According to Mayfield’s Ursheet Parikh, entrepreneurs in the life sciences must solve four categories of problems to successfully scale: build the product after proving the science, delight the user, be a really good enterprise entrepreneur (think starting a grassroots movement), and get the investors. The challenge is significant, but for those who can successfully do it, it presents a critical advantage, too. “I think if companies can go do that, then they get to actually own their own destiny because they don’t have to sell early to other larger organizations,” says Parikh.

Raj Judge adds that talent is critical to a company’s success in scaling. He says that recruiting the right people with the right talent to build the foundation of the company on is one of the biggest challenges facing companies as they scale.

One of the biggest hurdles to scaling synthetic biology companies lies at the interface between the biological and digital realms: the biological sample. Maneesh Jain points out that, unlike the tech industry, the synthetic biology sector contends with the significant variability introduced into the system just because the samples are biological in nature. This variability must be overcome through robust methods to access the biological sample, innovative ways to perform synthetic biology assays and creative ways of analyzing the results — all of which have historically been time-consuming and costly.

Arvind Gupta uses the industrial fermentation sector as a prime example of this. “You have to change things every time you change a fermentation size,” he says. “Conditions within a 1uL bioreactor are easy to control and understand across a liter. Scale to 20 kiloliters and you now have 20,000 different microenvironments, in essence.” It’s incredibly difficult to understand what happens at scale based on a 1uL test — you can’t predict lag times, or how to get things to perfuse throughout the medium, for example.

The investor role in scaling

Investors play a critical role in scaling; without finances, a startup cannot scale. Venture capital-funded startups receive funds because they have a plan to scale — and their investors tightly hold them to this plan. But, if you’re lucky, you’ll land investors that are involved in much more than signing checks.

IndieBio is an example of a startup accelerator that helps thousands of companies scale successfully through their access to an extensive mentor network. Arvind Gupta says that he’s seen companies in the IndieBio program move from idea to product in only 70 days, and attributes such rapid movement to IndieBio’s built-in mentor network. Diego Rey echos Gupta’s sentiments. “One of the most valuable things for young founders is that they have access to a community of mentors,” he says.

Investors typically carefully scrutinize a startup’s potential to scale when they are deciding whether to invest or not. To most investors, the founding team is critical. Gupta says that it takes a special founder to show the IndieBio team something they haven’t seen before. They look for real dedication to the long haul, deep expertise in a certain problem, and fresh new approaches to solving the problem. He says it’s usually easy to tell, just by watching outward actions, if the founding team understands the inner model — a key indicator of success. In short, he looks for entrepreneurs that approach their business venture with an attitude of “I will take the time to unpack something that maybe others wouldn’t take the time to do.”

Ursheet Parikh agrees. “If a company has to scale up, it really comes down to the founders,” he says. “When I’m looking at investing, the big question is, who are the people we’re backing? If somebody is going to be a technical founder, and also wants to be the CEO, it’s hard to do that, [you] have to choose … if you want to be the CEO, then you have to commit yourself to being the best CEO.” Top-flight CEOs can attract other top-flight team members. Jain thinks founders who are mission-oriented but at the same time selfless and fearless are those who are especially likely to succeed — and those he would be enthusiastic to fund.

Judge emphasizes that thriving company-investor partnerships are crucial for success — something that both startups and investors should keep in mind. “The most successful investors and companies will be the ones that have a partnership between the groups. That means not only are the early stage incubators going to have to help mentor and partner with the company, but also the investors have to do the same. It’s important for investors to view the company strategically and as an extension of their own efforts to grow their portfolio rather than just a financial investment,” he says. He adds that synthetic biology companies really demand a cohesive team of people to help them grow in the way that they have to grow.

Words of wisdom for companies figuring out how to scale

With their collective decades of expertise, all four panelists have a lot of advice for young startups looking to scale. Diego Rey says that the most important lesson he learned when starting GeneWEAVE was the value of having a good handle on the market. “You need to put in the time to really understand the problem your products are solving and the value you’re delivering to customers,” he says, “because you should not scale until you achieve product-market fit. Otherwise you’ll be running in the wrong direction.”

But finding the right market doesn’t always mean finding the biggest market. Arvind Gupta says that one trick of the trade is finding different markets with different products for higher profit margins, even if the market size is smaller. For example, if you need to make 100 tons of gelatin a year to hit your market size and cost, that might mean that you need to raise $75 million before you can sell anything — a tough pill for any investor to swallow, says Gupta.

And once you raise that money, you need to use it right. Parikh says that the number one mistake he sees companies in synthetic biology make is using all of their seed money to prove out their product, leaving nothing to prove out the business model. This is critical because you have to build a business to scale. “Your product cannot be devoid from your go-to market,” says Parikh.

But building a successful business model doesn’t mean building your own supply chain. Maneesh Jain says that he often sees companies try — and fail — to build their own supply chains — an unscalable goal. Instead, he sees power in applying facilities, ideas, and scaling examples from other industries. A successful case in point is the Ion Torrent benchtop sequencer. “We realized that one of the most scalable industries has been semiconductor chips with over a trillion dollars of investment in the last four decades. What if you could use that instead of building manufacturing methods from scratch? That really allows an entrepreneur to piggyback on large investments in another industry … then what happens is you’re able to achieve scale and price point that’s interesting.” Indeed, using this model, the cost of Ion Torrent machines and experiments dropped by a factor of ten from previous generations, allowing more and more people to do DNA sequencing.

Judge agrees that companies that can leverage low-cost, existing infrastructure will be those that can grow more rapidly and efficiently. He sees exponentially decreased costs in laboratories and compute power as the driving factor allowing smaller and smaller companies to emerge and explore markets and technologies that they otherwise wouldn’t be able to do without a lot of early stage financing. He advises that “if there are areas that are available to you that accelerate your development cycle and that you can license or run on top of, that should be considered.”

Scaling synthetic biology

Several companies are operating on the model Jain and Judge expound upon, leading to an explosion of synthetic biology companies in the space. This is one of the most exciting things to Diego Rey as he thinks about the future of synthetic biology. “We’re enabling scaling by taking advantage of existing infrastructure, and that is allowing so many more people that previously weren’t in the field to innovate.” That, he says, amplifies the innovation even more because not only are more people innovating but innovation is now coming from many new points of view.

Arvind Gupta is particularly excited about the human healthcare applications of synthetic biology. “I cannot say how excited I am about the future of genetically modified humans as a catch-all for being able to treat cancer and autoimmune disease,” he says, adding that GMO synthetic biology is “going to change humanity tremendously.” But due to safety considerations and other regulations, Jain sees research tools and diagnostics scaling much faster than anything that ultimately involves putting something into the human body. “I think that doing gene editing in cells for research purposes is something that’s going to scale very fast because this sort of technology is already writing on the baseline,” he says. Ultimately, he says, those that don’t try to build their own supply chains but leverage existing infrastructure will be those that scale quickest.

It is difficult to say which sector may scale successfully first. But, what we do know, says Judge, “is that synbio funding has increased consistently and substantially year on year. This means that there will be more and more companies with the ability to pursue more and more of these technologies. What that yields is an ecosystem that can rely on a larger infrastructure, talent pool, and exit pool that will grow as the years go on.” He adds that the sectors likely to benefit the most from such a broader spectrum of companies are the software players and tools and automation groups — the industry suppliers.

What to think about before the panel

While the panelists and I discussed many more exciting topics, I left many details out in order to maximize what you can learn from the lunch and learn session at SynBioBeta 2018. Our panelists had some interesting food-for-thought ideas that conference attendees can chew on in the weeks leading up to the session.

Rey wants individuals coming out of academia and entering industry to see industry as more than defaulting to a position in an established company. He wants people to start thinking about starting their own companies. With low-cost infrastructure booming, it’s never been easier to start a synthetic biology company, he says.

Gupta has a message for founder in the industrial fermentation space. “If I were a startup that had already perfected strain optimization, I would be asking myself ‘how do I know that I still have a company in the long run, and how do I investigate that for myself in the long run?”
Judge also wants people to prepare for discussion on IPO, a topic he says that is always of interest at sessions like these. “The one interesting thing that’s happening in the industry that’s unusual is how some of these companies are going to IPO much more rapidly. Growth barriers are not as great as they have been in other industries,” he says.

Mayfield

 

But perhaps Parikh sums up the landscape best: “We’re at an exciting point in the field of engineering biology because, as the cost of digitizing biological information approaches zero, the engineering biology innovation loop is hitting critical mass. This data along with advances in bio development platforms such as gene editing and gene synthesis makes it possible to easily engineer biology. This enables fast development of new breakthrough applications and solutions in therapeutics, diagnostics, food, materials and environmental engineering which feeds more demand for innovation in this accelerating loop. In the coming decade, we are going to see engineering biology change the world.”

Originally published on Synbiobeta.

CRISPR and the Precision Medicine Revolution

Mission Bio Announcement

 

Mammoth is poised to disrupt medical diagnostics

Precision medicine is one of today’s most significant healthcare trends, promising to replace our inefficient, one-size-fits-all approach to curing diseases with treatments personalized for each individual patient.

Over the last two years, precision medicine—and more broadly, the intersection of genomics and big data—has been an important investing theme for us at Mayfield. Qventus, for example, provides real-time operational guidance for complex and often-chaotic hospital environments like ICUs and emergency rooms. Another Mayfield company, Mission Bio, allows clinicians to map the DNA of a single cell with unprecedented speed and at a fraction of the previous cost.

This week, we’re proud to announce our latest—and one of our most exciting—precision medicine investments: Mammoth Biosciences.

Mammoth’s underlying technology is CRISPR, the gene-editing tool widely considered the most dramatic development in life sciences in many years. CRISPR allows clinicians to replace any particular DNA segment with a new one of their choosing; it’s often, and accurately, described as a kind of “search and replace” tool for genetic material.

Most of the buzz around CRISPR has been in the context of therapeutics; researchers envision it being put to use against a whole host of diseases. Mammoth, though, plans to take CRISPR into a different frontier: diagnostics.

Specifically, Mammoth uses AI-powered robotic screening to find DNA and RNA biomarkers for different disease conditions, and then programs its CRISPR-based detection platform to diagnose the disease. This approach works for a wide range of disorders, including STDs, Alzheimer’s, malaria, pneumonia, sepsis and many cancers. For some of these conditions, Mammoth will deliver simple, low costs tests that can be used in the home. For others, Mammoth will provide CRISPR-powered DNA/RNA detection platforms to third-party diagnostics companies.

Mammoth-powered consumer tests will be paper strips that develop specific color patterns when exposed to the patient’s blood, saliva or urine. People will snap a photo of the test, upload the results via an app, and get the result in about an hour. Test kits will be available at local pharmacies and retail stores, as well as online, making them far more convenient for patients than having to visit a lab and then wait several days for results. Given the low cost of paper strips and the extreme accuracy of its tests, Mammoth has the potential to disrupt the $45 billion a year diagnostics industry.

Mammoth was founded by a stellar team of scientist-entrepreneurs, including some of the original pioneers of CRISPR-based diagnostics. Cofounders include Trevor Martin and Ashley Tehranchi‚ both Genetics and Bioinformatics PhDs from Stanford, Janice Chen and Lucas Harrington, CRISPR PhDs from UC Berkeley, and CRISPR inventor Jennifer Doudna. Mayfield is delighted to be partnering with this extraordinary team, one that exemplifies the innovation, self-awareness, hustle, humility and sense of mission that we think are hallmarks of all successful founders.

Mammoth’s core technology has been thoroughly reviewed in leading journals such as Science and Nature. The company is the exclusive licensee of its CRISPR technology from the University of California, Berkeley.

Another reason we’re so excited about Mammoth is that the company’s breakthrough technology isn’t a single specific product, but rather, a platform that will allow it to produce and market scores of different product lines aimed at virtually the entire gamut of human pathologies. And having an inexpensive-to-produce yet highly-effective suite of tests built on proprietary intellectual property gives Mammoth a significant business-model advantage.

Diagnostics is the first step towards the digitization of an individual’s health. By greatly reducing the complexity and cost of diagnostics, Mammoth makes early diagnostics and precision medicine a reality for everyone.

CRISPR is a new technology, and more work will be needed before it achieves its full promise. But we believe it’s impossible to exaggerate its potential and the positive impact that Mammoth can make on people’s health and well-being.

Congratulations to the Mammoth team. We’re proud to begin this journey with you.

Healthcare Takes Center Stage At Mayfield Reception

Every startup has bookends to its story: a business plan to start things off and an exit that concludes its first chapter.

I had the privilege last week of describing how these two events might go for healthcare startups. The audience was three dozen intensely curious healthcare entrepreneurs, and the setting a digital health reception, held Wednesday evening at Alexander’s Steakhouse in San Francisco that we sponsored along with Fenwick & West.

My co-host was Peter H.W. van der Goes Jr., co-head of mergers & acquisitions for the healthcare group within Goldman Sachs’s investment banking division, and a veteran of the healthcare IPO and M&A scene.

We each talked about what we know best: me, company formation, and Peter, the kinds of liquidity events that companies, once underway, might be working towards. Considering the tremendous excitement involving healthcare startups right now, there was a lot to cover.

My remarks centered on one of my core beliefs: That while our dysfunctional healthcare system is one of the most serious social and economic challenges facing our country, it’s also one of the biggest opportunities for entrepreneurs.

Commentators always note how we’re spending more and more of our GNP on healthcare. While true, that’s not the real problem. The worrisome part is that we aren’t getting value for our money. Most people would gladly spend more on doctors and hospitals if doing so would result in longer, healthier lives. The problem in America is that our health outcomes are in many cases worse than they are in countries that spend a fraction of what we do.

The key, I explained, involves building more efficient healthcare systems. While all of the incumbent players—in theory—want things to be more efficient, most of them don’t have the incentive to undertake the kinds of innovation that would make that occur.

This opens the door, of course, for entrepreneurs. And at an especially opportune time, too: Digitization is coming to major aspects of healthcare like therapeutics and diagnostics, bringing with it the disruption that is digitization’s constant handmaiden.

That was the good news. The bad news, I was forced to tell the group, was that most healthcare startups will fail. There are any number of rocks that they can crash upon. One of the most frequently encountered involves problems with payment models, since the people using healthcare products (patients) aren’t typically the same as the ones who are writing checks for them (insurance companies, healthcare systems, etc.)

Of course, there are abundant examples of healthcare startups that I’m confident will succeed, starting with some of Mayfield’s portfolio companies. All of them have the key strategic goal of bringing precision to the system.

Zipongo works in precision health by creating a mobile app that empowers patients to make better decisions about what to eat—a hugely important healthcare issue on account of America’s widely-acknowledged obesity epidemic. Qventus uses AI and big-data techniques to guide operations in hospitals, helping coordinate the activities of hospital healthcare providers. Early studies show the system can reduce unnecessary lab tests by 40%, and increase patient satisfaction tenfold.

HealthTap is the world’s first global health network, allowing consumers to use their computer or mobile phone to make an “office visit” to any of a network of more than 100,000 physicians. So patients can get personalized attention for their pressing medical issues 24/7; HealthTap doctors can also use the system to schedule tests and to make prescriptions that can be picked up at a neighborhood pharmacy.

And then there are Mammoth Biosciences and Mission Bio, each turning cutting-edge laboratory breakthroughs into clinically useful tools. Mammoth is working with the widely heralded CRISPR gene editing technique to create a new class of diagnostic products: Simple, at home kits that can detect a huge swath of diseases, including extremely serious ones such as cancer. And Mission Bio is leveraging the dramatic cost reductions in genetic sequencing to help clinicians develop ever-more precise treatments tailored to a particular patient’s specific genome.

Peter examined many of the same issues, but from the perspective of exits. As he framed the question, the healthcare industry is looking for two things: Products and services that can be proven to be clinically effective, but which simultaneously take costs out of the system.

The IPO picture, he conceded, is currently stuck in a low gear. Digital-health companies are judged by Wall Street to have lower growth rates and gross margins than, for example, SaaS companies, and as a consequence, fewer of them make it all the way to an IPO. (Though he said that was slowly changing.)

But he described a much healthier M&A market, for reasons having to do with the changing composition of the insurance marketplace. The number of Americans with high-deductible healthcare policies has tripled in the last five years, meaning that consumers are becoming much more price-sensitive about the medical care they receive. With patients taking healthcare decisions into their own hands, rather than simply taking whatever their insurance companies provide for them, healthcare companies are finding for the first time that they need to have direct relationships with consumers. Many of the sector’s big M&A deals of the last year or two, said Peter, can be explained by this need to vertically integrate in order to get closer to consumers.

Peter’s run of keen insights continued into the question-and-answer period that followed the presentations. He was asked: Are healthcare incumbents more worried about regulatory uncertainty or anxiety about what their competitors might be planning?

The latter, he said, and by a wide margin. Five years ago, boardroom discussions might have involved Obamacare and its chances of passing. Now, he said, healthcare CEOs spend most of their time trying to second-guess what players like Jeff Bezos might do, so they can be ready with strategic responses.

Peter was also asked why companies like Apple and Google didn’t seem to be making particularly aggressive moves in healthcare. His response: When consumer companies look at healthcare, they see a gauntlet of privacy-related regulatory hurdles and all manner of potential new liabilities. His theory is that these companies are taking it slow, and letting the market come to them, rather than go charging off into it themselves.

With that, the session ended, in time for dessert and more networking.

Ursheet Parikh Provides Insight on Nutanix-Netsil Acquisition

Nutanix acquires Netsil

 

As I discussed earlier, Netsil pioneered a new class of Application Observability that is proving to be a pain killer for the lean-forward enterprises who are adopting containers and microservices. Nutanix, a lean-forward tech provider itself, recognized Netsil’s strategic value and today announced that they are acquiring the company. I am excited to see the nimble team at Netsil join forces with a world-class modern technology company and am personally delighted that someone I respect, Nutanix CEO Dheeraj Pandey, will mentor them going forward. As Nutanix delivers on its promise to lead the adoption of multi-cloud software, Netsil’s solution will become a force multiplier that delivers real-time observability to 1000s of enterprises worldwide.

As Sunil Potti, Chief Product and Development Officer of Nutanix says, “Netsil’s groundbreaking technology offers an original approach to simple yet comprehensive application discovery and operations management across multiple cloud environments and will be a powerful addition to Nutanix. Netsil, which can be consumed as a cloud-based service, and also combined with Nutanix Enterprise Cloud OS software, gives both DevOps and IT teams the power to quickly deploy and operate applications with confidence, in any cloud, at any scale, while ensuring reliability, performance and security.”

I still remember the day 3 years ago when we met Harjot Gill, Netsil co-founder & CEO, and his team from the University of Pennsylvania as they embarked on their entrepreneurial journey. As a people-first investor, we pride ourselves on getting to know bold entrepreneurs who have the grit to pursue their dreams. We backed Netsil in fall 2015. The Netsil team was exceptionally capital efficient while delivering on a very innovative product that can power monitoring and operations for cloud applications. It has been an honor to be their partner on this journey. Please join me in congratulating Harjot and the entire Netsil team.

Watch the video:

Mission Bio Delivers on the Promise of Precision Medicine

Over our 48-year history, Mayfield has partnered with entrepreneurs from over 500 companies, including iconic ones who leveraged inflection points to build big healthcare and medical companies. Some examples include Amgen, Genentech, Millennium Pharmaceuticals, Heartstream, and Intuitive Surgical, which re-defined pharma, gene sequencing, and medtech devices to save millions of lives.

While US healthcare costs are 2x that of other developed nations in terms of GDP, it has not translated into better outcomes. We see a big opportunity for emerging companies to develop transformational technology platforms that enable precision care. We think these platforms will be critical to promoting health and wellness with solutions that are highly customized to each individual and deliver the best possible care without wasted resources.

New developments such as the 1000x reduction in gene sequencing costs, advances in gene synthesis and editing like CrispR, stem cell applications, application of computational chemistry, computational biology and machine learning to healthcare , and the consumer expectations of delightful user experiences are serving as drivers of innovation. This is inspiring a generation of entrepreneurs with a big vision, the ability to build movements, and with the cross-functional skills to leverage medical advancements and technology innovation to build bold companies.

Today, I am excited to announce that we have partnered with Charlie Silver, Adam Abate and the team at Mission Bio, which is delivering a breakthrough single-cell DNA analysis solution that will become indispensable to discover, develop, produce and deliver cures for hard-to-treat diseases like many forms of cancer. The Mission Bio Tapestri solution leverages proprietary droplet microfluidics to provide unprecedented single-cell DNA analysis and throughput, enabling detection of genomic variability within and across cell populations. This has the promise of a 1000x precision improvement over conventional sequencing without Mission Bio for detecting mutations in every cell of a biopsy sample. The solution is initially sold to pharma and biotech companies, translational genomics cancer centers, clinical research organizations and academic medical centers. With their unique approach combining precision engineering with cutting-edge biochemistry, we see the opportunity to greatly impact the economics and success of the development and clinical use of precision therapies.

Besides saving lives, a successful company in this area has an unbounded market opportunity with today’s $10B sample prep and sequencing market estimated to grow to $20B in the next 5-7 years, and the cancer/tumor profiling market expected to grow from $25B in 2016 to over $60B in 2021.

Mayfield has always embraced a people-first philosophy and the team at Mission Bio personifies this belief. Adam’s lab at UCSF (with Adam Sciambi and Dennis Eastburn), has done cutting-edge work in bioengineering, and Charlie has proven experience in bringing precision engineering products to market. Together, they have already built a world-class team from the world of genomics, cloud software and biology in a high-performance, high-energy environment in South San Francisco.

We are honored to partner with Charlie, Adam and the Mission Bio team and welcome them to the Mayfield family.

ShiftLeft Gets Down to the Core of Today’s Security Problems

Application Observability with Kubernetes

As all industries are increasing getting reinvented with technology, an increasing number of companies are writing software to drive revenue growth. The cloud platform providers such as Amazon, Microsoft and Google provide a large number of application and data services via API and do so an increasingly new set of vendors like Paypal, Twilio, Stripe, Shopify and Google Maps. This makes it very easy for developers to quickly build and deploy application components. Products like Kubernetes and Docker make it easy to deploy these components. Products like Mulesoft and Google Apigee make it easy to extend existing on-prem enterprise applications with APIs. As applications are deployed on mobile devices and all traditional devices becoming connected devices, the number of application components is growing exponentially. In serverless architectures like Amazon Lambda every function call is an application component and they are ephemeral and instantiated only on use.

While application components glued together with APIs makes it easy and fast for developers to build new application functionality, it fundamentally changes what is needed to operate these applications for consistent performance. The applications increasingly start looking like a dynamic network of application components where the interactions between these components play a much bigger role in the customer experience. The traditional approach to end-point based application monitoring with instrumentation and agents from companies like New Relic, AppDynamics, Datadog, Dynatrace, Amazon XRay etc. is necessary but no longer sufficient. This traditional approach may work longer if an organization can get most of its developers to consistently use instrumentation for all code that can impact performance and limit the use of cloud and external vendors API services. In the long term, Ops needs the ability to deeply understand the interactions between application components many of whom may be third-party services and look for early signals in the content of the APIs to smoothly run their applications. This creates the need for a new class of product such as Netsil for Application Observability.

The operations teams from companies like Twitter, Google and Yahoo where members of the Netsil team come from have been building tools in house for application observability. Starting with grants from the National Science Foundation, Netsil has been able to develop fundamental technology for very efficient in-memory processing of network bitstream against a grammar specification of APIs to reconstruct full content of every API transaction and package it for easy deployment within an enterprise perimeter or as SaaS. The result is that they can deliver complete application observability independent of the application stack, application component location, developer consistency and use of third party services. It is like Google Maps for distributed cloud apps. Kubernetes production deployments have emerged as the most common deployment use case for Netsil. Most Kubernetes cluster run multiple applications and Netsil allows the operators to identify issues on all their applications before they become critical and so they can sleep well at night.

Ursheet Parikh Hosts Discussion on Digital Health Trends

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How Entrepreneurs Find Blue Skies in the Cloudy Future of Healthcare

The future of healthcare is both sunny and cloudy.

It’s sunny because there has been no time like the present. We’re at a unique juncture where a confluence of cutting-edge technology, medical science, consumer interest, institutional vision, and available venture capital are simultaneously in sufficient quantity to push human health forward.

It’s cloudy because, at least in the United States, the government is both the regulatory body and the largest payer of healthcare fees — and the government’s plan for the future remains not only uncertain but chaotic. The government pays upward f 40% of annual healthcare expenditures.
The question we’re focused on at Mayfield is what this all means for entrepreneurs. We recently hosted another of our occasional healthcare summits, gathering leaders from startups, major medical institutions, and peer investment firms, among others, in San Francisco to discuss the current state of healthcare.

For our most recent event we had guest Murray Ross, a longtime healthcare professional in government and, more recently, Vice President, Kaiser Foundation Health Plan Inc., and Director of Kaiser Permanente Institute for Health Policy. He helped us navigate this highly ambiguous territory we’ve currently found ourselves in.

Kaiser’s Ross opened the evening by noting that Health insurance is the start, not the end, of the discussion. “For all the effort during the current and previous presidential administrations,” he said, “all that the government has been focused on is healthcare coverage. We haven’t really begun to address the fundamental problems.” Ross delineated these as follows: (1) Affordability, (2) Fiscal sustainability, (3) Access to care, and (4) Quality of care. “By extending the conversation about health insurance we’re delaying the conversation about healthcare,” he said. “While most public discourse on healthcare is about insurance and coverage, when we talk about health policy, entrepreneurs see more than just Medicaid and Medicare. It includes NIH, FDA, trade laws, life and safety, regulation for provider practices.”

Thus began our evening. What follows are some key takeaways from the discussion at our event in support of why now is the best time to be a healthcare entrepreneur — plus some unique hurdles that entrepreneurs will need to consider.

Now #1: There are multiple potential markets here

There’s a lot we can be doing in the consumer space around prevention, wellness, wellbeing, and choice of insurance. The money is, in the cynical short run, all about sick people in hospitals. The long run is about keeping people out of those hospitals. New companies are going to reinvent the system because incumbents have limited incentives. I think “precision everything” is going to be a big part of the solution: precision wellness, precision care delivery, precision diagnostics, and precision medicine will all enable highly personalized service delivery with the lowest waste. Machine learning is going to be ubiquitous in its application for this personalized service delivery — from diet to exercise to wellness to chronic care. There are a lot of health contions that won’t be solved medically. Things like obesity and diabetes, for example, are solved by improving the health of communities, not just through treatment. A lot of progress will occur outside the four walls of the clinic. For entrepreneurs, you look at what’s spent on diet, gym, mental health, etc. and you’ll see there are a lot of products that will come out and yield dollars from the healthcare budget.

Now #2: Regulation often is the mother of invention

Take congestive heart failure as an example. It was the low hanging fruit of healthcare, involving continuous readmission. Medicare changed the rules, and suddenly hospitals found a way to reduce readmission. This is a model of how changes in regulation — changes that emphasize the correct metrics and incentives — can spur innovation. Payment process changes can often be catalysts for innovations that can drive adoption of startup solutions.

Now #3: Sustained user engagement can provide a competitive advantage for startups

There are several stakeholders that entrepreneurs need to satisfy and they all care about sustained user engagement. First, there are self-insured employers carrying risk who are looking for solutions they can engage their employees and families in. Second, there are individual consumers who are getting used to things happening faster and better. We need services that can deliver value to that expectation. All incumbents across the healthcare spectrum are interested in engaging with startups on areas of user engagement.

Now #4: Ever-expanding healthcare issues and scenarios

Unintended consequences play a huge role in healthcare. Solving diseases just opens the opportunity for new diseases to prosper. Take a look at heart disease: as we continue to reduce it, the result is people living longer, which means a rise in Alzheimer’s. The same can be said of testing. The more tests we do on individual patients, the more we reveal additional problems we weren’t even looking for, which means more healthcare needs to be provided. Hurdle #1: Healthcare differs from all other industries We don’t just say this to make ourselves feel special. We have multiple producers selling the product (surgeons, anesthesiologists, rehab, primary care), all with different incentives. It’s hard to identify the product at the point of sale. We don’t know when the product will end, and even when it starts is a little unclear. There’s a lot of art versus science, with differing opinions among equally educated and accomplished practitioners. There’s also an enormous amount of monopoly power — geographically, in the intellectual property of pharmaceuticals, and so on. Healthcare is, in addition, the only industry where supply can drive demand as we see with availability of new tests, procedures and medications.

Hurdle #1: Healthcare differs from all other industries

We don’t just say this to make ourselves feel special. We have multiple producers selling the product (surgeons, anesthesiologists, rehab, primary care), all with different incentives. It’s hard to identify the product at the point of sale. We don’t know when the product will end, and even when it starts is a little unclear. There’s a lot of art versus science, with differing opinions among equally educated and accomplished practitioners. There’s also an enormous amount of monopoly power — geographically, in the intellectual property of pharmaceuticals, and so on. Healthcare is, in addition, the only industry where supply can drive demand as we see with availability of new tests, procedures and medications.

Hurdle #2: Shared data is a steep uphill battle

It’s going to be more difficult than many people supposed to get institutions to really open up their data and share it. The technical problems of data sharing aren’t the hard part. Once there’s a business reason, it gets done. Provider culture plays an overwhelming role in this. Not only are providers resistant to sharing their own data, they are resistant to using data they didn’t play a role in collecting. It’s not in many people’s interest to share their data because doing so could potentially open up the organizations to criticism of their medical practices and potential lawsuits. Institutions don’t talk about clinical trials a lot because they don’t know how their members will respond to such information. De-identified data is great for research, but for it to be actionable from a business standpoint you need to know where it’s from. Every incentive is against the sharing of data. You could build the best sharing cloud service, but on a sociological level businesses in healthcare are culturally dead set against it — and that is a problem you can’t code your way out of. However, if a company can get enough data to be at scale, they would be at a big advantage.

Hurdle #3: The end users of health technology are not themselves technologists

We’ve learned, for example, that a nurse might say he doesn’t like graphs. This is a caregiver who is not an analyst. As a result, an entrepreneur recognized the benefit of not having a technical UI for these caregivers and found success with just messaging and conversation bots as the user interface.

Hurdle #4: Healthcare expenditure is growing, which has created opportunity — but also exposure.

The thing to keep in mind is that America isn’t different; it’s just ahead: A lot is said about the high cost of healthcare — its price, and its percentage of the GDP — in the United States versus other countries, but it’s clear that in many cases, such as Germany, those countries are simply a decade or so behind the U.S. A lot of wage stagnation in the U.S. is the result of the rise in healthcare costs. They’re earning more, but the difference is all going to healthcare.

Hurdle #5: Efficiency models and bundles are up against the odds.

Value-based care and bundled care are stymied by the dilemma of many producers. Even when the hospitals want bundles, lots of other providers don’t, and this has been the issue since at least the late 1980s. It’s hard to administer the economics. The pushback from the industry — that is, from people excluded from the bundle — is big. That said, it is one of the few ACA ideas that appears in all the Republican plans. Hurdle #6: Startups must become lobbyists if they’re true to their mission: One of the evening’s participants, Jason Langheier (founder and CEO of Zipongo, a Mayfield portfolio company), quoted David Gergen on this topic: As social entrepreneurs, if you don’t work with, or within government, you can never truly scale your impact.  Startups have a big role in using demonstration projects to get not just our government but other governments as well to see the benefits. What’s the real problem of obesity? As long as the food industry is better at getting your attention than the health industry, then you’re going to lose the health battle. You have to deliver on consumer engagement and convenience. Get it in their budget zone and have people’s back for real, in order to help keep nudging them to the right decisions.

In conclusion, there are huge opportunities for healthcare entrepreneurs right now. The incumbents, who have been part of the system that has created the massive problems, are not going to solve them. And remember: If there are no cuts to coverage due to regulatory changes, then entrepreneurs will have these business opportunities anyway. If there are cuts, then any product that decreases cost while driving better user experience is going to be all the more valuable.