August
2006 issue
The e-Health Sector: Older And Wiser? After
Years In Flux, Resurgence Of E-Health Sector Seems Imminent
In the past six years, e-Health companies have come and gone, investors have
lived and learned and this market is pulling its head out of the sand.
...
CNS Company In the Money
The largest venture capital deal announced during July was by a company that
already has a product on the market in Canada and other countries.
...
Public Equity Market
In July, just one initial public offering was priced by a health care
company, but it was a rather unusual one.
...
Mergers and Acquisitions
Of course the HCA buyout eclipsed the other deals in terms of size and media
coverage, but activity in the health care M&A market seems to be in a bit of
a seasonal slowdown otherwise.
...
Venture Capital Market
In spite of low numbers, which we attribute to annual vacations, the venture
capital market saw some interesting deals near the end of the month.
...
Private Equity Market
Private equity investors were not out in full force in the health care
markets during July, in spite of stories that there is too much capital in
the market.
...
Notes & Briefs
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News Read the past
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Companies Mentioned in this issue:
August 2006
20/10 Perfect Vision p8
5AM Ventures p7
A
A.G. Edwards p3
Aberdare Ventures p7
Acacia Venture Partners p4
Adams Respiratory p5
Addison Davis p3
Advanced Medical Optics p8
Advanced Technology Ventures p8
Advent Ventures p8
Advisory Committee on Immunization Practices p12
AEW p5
Affiliate Computer p5
Affinity Capital p8
Affymax p3
Alder Biopharmaceuticals p8
Alfacell Corporation p10
Allion Healthcare p5
Alloy Ventures p7
Ambrx p7
American Association of Physician Specialists p12
American Board of Disaster Medicine p12
American Cancer Society p12
Amgen p11
AMN Healthcare Services p4
Anulex Technologies p8
Apex Bioventures p3
Apposite p7
Aravis Ventures p7
Arch Venture Partners p8
Arena p3
Argonaut Private Equity p8
Armed Forces Radiobiology Research Institute p4
Asthmatx p3
Atlas Ventures p9
B
BA Venture Partners p9
BARRX Medical p7
Bay City Capital p7
BDC Capital p8
Bear, Stearns p3
Beckman Coulter p5
BioAsia Investments p9
Blue Shield of California p12
Brookdale Senior p3
C
Cadence p3
Cambridge Laboratories p1
Canada Microsurgical p5
Cardiovascular Systems p7
Cargill Ventures p8
Carlyle Group p8
CAS Medical p3
Catalyst p3
Centers for Disease Control and Prevention p12
Cerner Corporation p2
Charter Life Sciences p7
ChemBridge Corporation p4
Cherry Oaks p5
CHG Healthcare p3
China Healthcare p3
Chiron p11
CIDC Inc. p10
Citigroup p3
Cleveland BioLabs p3, p4
Cleveland Clinic Foundation p4
Clinical Data, Inc. p3
CMDF p8
CMEA Ventures p7
CNF Ventures p9
Collinsville Care Center p5
CompHealth p4
Concert Pharmaceuticals p8
Concuity p6
Confluent Surgical p5
Conor Medsystems p3
Cornell Capital Partners p10
Corus Pharma p5
Cross Country Staffing p5
CRT Capital p3
D
Dacogen p5
DARPA p4
Dava Pharmaceuticals p5
Dawson James p3
deCODE genetics p3
Delphi Ventures p7
Destination Healthcare Staffing p4
Deutsche Bank p3
DINMAR p5
Domain Associates p8
Dow Employees’ Pension Plan p7
E
Easton Capital p7
eHealth Solutions p6
Elusys Therapeutics p8
Emcure p7
Emergent Respiratory Products p8
Emergis p5
Emphasys Medical p8
EnteroMedics p7
Essex Woodlands p8
F
Facet Technologies p5
Ferris, Baker Watts p3
First Albany p3
Foundation Medical Staffing p4
Frazier Healthcare Ventures p4, p7
G
Genelabs p3
Genencor p11
Generex Biotech p3
Gentium p3
Gilead Sciences p5
Global Care Quest p6
Glynn Ventures p7
GNC Corporation p3
Goldman, Sachs p3
GV Instruments p5
H
H.I.G. Ventures p8
HBM Partners p7
HealthUnity p6
Hercules Technology Growth Capital p7
Home Diagnostics p3
Hurel Corporation p12
I
Idera p3
ImpactRx p6
InnerWireless p6
Innoven Partenaires p8
Integra LifeSciences p5
IntelliDOT Corporation p6
International Biotechnology Trust p7
InterWest Partners p7
J
Jaba Farmaceutica p5
Janney Montgomery Scott p10
Jefferies & Co. p3
JER Partners p5
Johnson & Johnson p5
Johnson & Johnson Pharmaceutical Research and Deve p12
K
Kareo p6
Kingsbridge Capital p10
Kosan Biosciences p10
L
LB I p11
LB I Group Inc. p10
Lehman Brothers p3, p10
LHC Group p3
Lux Biosciences p7
M
Macri Technologies/NTD p5
Marshall Edwards p10
Massachusetts Biologic Laboratories p11
Maverick Capital p7
Mayo Foundation for Medical and Education Researc p7
MB Venture Partners p8
Medical Education Technologies p12
Medical Staffing Network Holdings p4
MedImmune Ventures p8
Medsite p5
Medsphere Systems p6
Medtronic p8
Merck Capital Ventures p6
Merck Co. p12
Merrill Lynch p3
Metabolix p3
Metropolitan Research p5
Micrus p3
Montagu Newhall Associates p7
Morgan Stanley p3
MPM Capital p7
N
NASA p4
Nassau Capital p4
National Cancer Institute p4
National Healthcare Services p8
National Institutes of Health p4
National Vaccine Information Center p12
New Beacon Hospice p5
New Enterprise Associates p4
Novartis Pharmaceuticals p12
Novo A/S p7
Novo Nordisk p8
Novogen Limited p10
O
Ocera Therapeutics p8
Oculus p3
Onset Ventures p7
Optobionics Corporation p8
Oscient Pharma p5
Osiris Therapeutics p3
Osteobiologics p5
Owens & Minor p5
P
Pacific Asset Ventures p7
PainCare Holdings p3
Partners Healthcare p8
Pathwork Diagnostics p8
Patient Infosystems p3
PatientKeeper p6
Pequot Ventures p9
PerkinElmer p5
Petersen Health Care p5
Pfizer Strategic Investments Group p6
Piper Jaffray p3
Polaris Venture p8
Polaris Venture Partners p8
POSCO BioVentures p8, p9
Prestwick Pharmaceuticals p1
Primax Recoveries p5
Primedex Health p5
Pro-Pharmaceuticals p3
ProMed Management p10
Prospect Venture Partners p7, p8
Protalex p11
Protalex, Inc. p10
Protiva Biotherapeutics p8
Q
Quaker BioVentures p8
QuatRx p3
QuatRx Pharmaceuticals p4
R
Radianse p8
Radiologix p5
Recordati p5
Regency Healthcare p5
Respironics p9
RN Network p4
Roche Venture Fund p7
Roth Capital p3
Roth Capital Partners p4
S
Salix Ventures p7
Schering Corporation p12
Schering-Plough Research Institute p12
Select Capital Ventures p7
Sevin Rosen Funds p8
Shepherd Ventures p8, p9
Smith & Nephew plc p5
Sofinnova Ventures p8, p9
St. Jude Pharmacy p5
Stada p5
Statsure Diagnostic p3
Stifel Nicolaus p3
Sunrise Securities p3
Sunrise Senior Living p5
SupplyScape Corporation p6
Sutter Hill Ventures p7
SV Life Sciences p7
Synovics p3
Synta Pharmaceuticals p7
T
Tandem Health Care p5
Tarrant Dialysis Centers p7
Tavistock Life Sciences p7
Teva Pharmaceutical p8
The American Board of Physician Specialties p12
The Blackstone Group p4
TheraVitae p8
Thermo Electron p5
Thoma Cressey Equity Partners p7
Thomas Weisel Partners p10
Three Arch Partners p8
Tiara Medical Systems p5
TransPharma Medical p8
Transport Pharmaceuticals p8
Trellis Health Ventures p8
Trubion p3
TVM Capital p8
Tyco International p5
U
U.S. Renal Care p7
UBS p3
Union Carbide Employees’ Pension Plan p7
V
Versant Ventures p7
Viasys Healthcare p5
Viragen p3
VirtualScopics p3
Vivo Ventures p9
vSpring Capital p10
W
Warburg Pincus p9
Water Street Capital p5
Weatherby Locums p4
WebMD Corporation p5
Welsh, Carson, Anderson, Stowe p4
Working Opportunity Fund p8
X
Xencor p8
Z
Zen Investments p8
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The e-Health Sector: Older And Wiser? After
Years In Flux, Resurgence Of E-Health Sector Seems Imminent
Email Editor
At one point, about five
years ago, it seemed the consumer-driven health care revolution would be
spearheaded by consumer portals and information providers on the
Internet—e-Health, we called it—which resulted in a great deal of
investing, but with high cash burn rates, around the turn of the century.
Since then, investors, bankers, programmers, solutions providers, doctors
and other health care professionals have, in lieu of a revolution, at
least come full circle, remembering that “if you build it, they will come”
may work only in movies. Besides, on a national level at least, the
question of how to reduce spending while extending coverage and improving
quality of care by providing more funding to health care IT initiatives
may be a debate that business people would rather see tackled by
politicians. In recent conversations, we learned that this editor is not
the only one who suspects the e-Health market is picking itself up and,
given the right conditions, could rise again like a phoenix from the
ashes.
Today when we say e-Health,
we are referring to a sector that encompasses all the companies providing
health care IT solutions that are Web-based or include an Internet-based
component, serving insurers, consumers, doctors, pharmaceutical companies,
contract research organizations, radiologists and just about every other
type of health care professional on both the clinical and administrative
sides of the business. One of our sources this month, an individual in the
industry who will remain confidential, says the most popular types of
e-Health companies in the market right now come in two kinds: those that
can provide greater efficiency in clinical areas, including hospital
administration, and those that can expedite the billing and claims
process.
According to our anonymous source, “We’ve always had a sense that the
health care industry could benefit from better utilization of technology.
But this has been a high hurdle for small physician practices and
hospitals, which are notoriously stretched for cash.” So in the private
sector, especially since the e-Health sector began to crash and burn in
the year 2000, not everyone is convinced that spending more on health care
IT will lead to better care, but that attitude is also changing. Lessons
learned by all and the culling of the wheat from the chaff among e-Health
companies, as well as legislative changes in the works, have produced a
new and improved market for 2006, albeit smaller, a little less sexy but a
lot more powerful.
Although it is difficult to quantify the precise dollar impact of e-Health
and related technology solutions on the health care industry, or for that
matter on individual health care companies, we learned that some e-Health
companies don’t really have to project a return on investment (ROI) to get
a contract with a facility or physician group. If there are obvious
benefits to an IT solution, meaning it is sure to improve physician
workflow, doctors and facilities are not too concerned about ROI because
they know quality of care will be enhanced. For example, remote monitoring
and other technologies that allow groups to leverage scarce professional
resources are the kinds of enhancements that, ideally, enable physicians
and staff to provide better care faster. This is a good thing, we think,
because it leads us to believe doctors are still more concerned with how
to provide better care to patients than how to generate higher revenues.
On the other hand, companies that provide outsourced claims and billing
services, including such industry giants as Cerner Corporation
(NASDAQ: CERN), can generally quantify the anticipated savings that can be
realized by a health care company that implements its administrative or
other software. This is probably the primary way such companies stay alive
because hospital, facility and practice administrators are in the business
of running a tight ship, so if they are outsourcing tasks from in-house,
the bottom line had better be lifted.
Traditionally, market adoption of information technology solutions has
been slow among health care practices and facilities. One reason already
cited is that in many cases it is difficult to quantify the impact a
particular solution will have on the bottom line. Another reason is that
physicians are not compelled to use a technology that provides no tangible
enhancement to the delivery of care, in terms of efficiency or quality.
But, both younger and older doctors have been becoming more tech-savvy
even as tenacious solutions providers have come to better understand their
clients and the industry they serve. Our confidential source couldn’t
really put a comprehensive dollar figure on the e-Health sector, but tells
us that health care IT still represents a huge market, with the most
successful companies engaged in solutions for technology-enabled health
care, including remote monitoring. Another person we talked to this month
just might have had the perfect answer to the question of how to
facilitate market adoption of e-Health technology with ease, efficiency,
adaptability and growth potential all in place. In a phrase, the answer is
“baby steps” and one company using that strategy is eHealth Solutions,
Inc., a privately held company based in New York City. In a recent
conversation with Steve Pacicco, the CEO of eHealth Solutions, we learned
that they are getting their customers into the habit of using an
Electronic Medical Record (EMR) a little bit at a time, with the added
force of a “change management team” that specializes in implementing
eHealth Solutions’ products and services. eHealth Solutions, and probably
a few other companies, are in part banking on some government initiatives
to fuel business. Mr. Pacicco is keeping an eye on the potential major
impact that the pending Health Information Technology Legislation, H.R.
4157, could have on the medical community, so if it is passed, we may
discuss these effects in a future issue.
Our anonymous source pointed out that some interesting implications come
to mind when considering the pay-for-performance programs Medicare has
introduced lately. Some view this initiative as a push towards a broader
effort in the industry to become more efficient, primarily through the
utilization of technology. Looking forward, if Medicare and doctors
participating in the pay-for-performance program experience enhancements
in the quality and efficiency in the delivery of care, such programs could
become more prevalent in the private sector, thus requiring more e-Health
and IT solution providers.
Getting back to eHealth Solutions, Mr. Pacicco and the company are
optimistic about the e-prescribing aspect of the market, and he agrees we
should see a period of growth in the e-Health sector during the next two
to five years. Mr. Pacicco rather piquantly noted that venture capital
investors looking at the e-Health space are “both interested and
skeptical,” but he senses some renewed interest in the sector. He surmises
that major players in Pharmaceuticals, Managed Care and even Laboratories
will be getting more involved as strategic investors in health care IT,
because the passage of new legislation and the adoption of new technology
by doctors and hospitals will affect large health care companies. In May
2006 we saw Pfizer Strategic Investments Group invest $8 million in
SupplyScape Corporation, which provides radio frequency
identificaton (RFID) and other supply chain security solutions to the
pharmaceutical industry, and in 2003 we saw Merck Capital Ventures
invest $3 million in ImpactRx, Inc., a company that measures the
impact of pharmaceutical promotion on prescribing behavior.
Mr. Pacicco also feels there
is quite a bit of space to be filled by companies with a functional
product that meets real needs in the health care industry, indicating that
he also senses opportunities for e-Health companies to secure funding in
today’s market. One of the more recent trends in e-Health venture capital
investing is towards companies that provide solutions in the areas of
health care billing, claims, reimbursement and collections. Among others,
in 2006 IntelliDOT Corporation raised $13 million and Concuity,
Inc. and Kareo each raised $2.5 million. Also popular in the
e-Health realm this year are companies that are working to integrate
various health care information and clinical data networks for more
universal access, including Global Care Quest and HealthUnity,
both of which raised small rounds in the past few months. In 2005, at
least two other companies engaged in the development of EHR and EMR
solutions announced venture capital funding, including InnerWireless,
which raised $11 million, and Medsphere Systems, which raised $7.5
million.
eHealth Solutions, which
hopes to achieve profitability by 2007, currently serves two markets. For
about $50 per month per doctor, the company provides physicians at about
400 practices with the SigmaPoint Physician Practice Solution, a
seven-year-old solution that enables immediate e-prescribing and extensive
fingertip access to patient-specific formularies, medication history,
drug/drug and drug/allergy interaction validation, generic options and
patient compliance materials, transmitted through PDAs. Separately,
eHealth Solutions’ Long-Term Care Solution is in use at one 520-bed
nursing home.
eHealth Solutions is just one example of a health care IT company trying
to make it in today’s market. Another is PatientKeeper, which
announced in June it had raised $8 million in venture funding to meet
growing customer demand for its software solutions that enable physicians
to access patient records, write prescriptions and document interactions.
Another indication that e-Health may be making a comeback is that in the
M&A market for the second quarter of 2006, this sector posted more than
double the number of deals announced in each of the four previous
quarters, and the most activity since the fourth quarter of 2000. Venture
capital investing is also on the rise, with about $112 million raised by
15 companies during the first six months of 2006. Compared with prior
years, in 2003 just $89 million in venture funding was raised by 20
companies; in 2004, $215 million by 26 companies, and in 2005, $165
million by 21 companies. The median deal size has also increased since
2003, when it was $3.4 million for the year, to about nearly $8 million
for the year 2005 and for the first six months of 2006.
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