Devices & Diagnostics

3 companies that reflect Safeguard Scientifics’ healthcare investments

Safeguard Scientifics’ (NYSE:SFE) third-quarter earnings call this week highlighted areas where the investment firm sees compelling opportunities, particularly in healthcare and life sciences companies. There was also a changing of the guard. Peter Boni, the CEO, announced his retirement next year and chief financial officer Stephen Zarrilli will take over his role next month. Boni […]

Safeguard Scientifics’ (NYSE:SFE) third-quarter earnings call this week highlighted areas where the investment firm sees compelling opportunities, particularly in healthcare and life sciences companies.

There was also a changing of the guard. Peter Boni, the CEO, announced his retirement next year and chief financial officer Stephen Zarrilli will take over his role next month. Boni said he would act as a senior adviser to the company through next year.

The Wayne, Pennsylvania investment firm noted that it’s scaling back its aggregate cash deployments in 2012 to $65 million to $85 million from $100 million to $150 million, although it still has term sheets outstanding that could be factored into

Jim Datin, the executive vice president, explained that it has seen valuations coming down in the healthcare sector “particularly those companies that need a high amount of capital for either commercial launches or getting products approved or through the U.S. Food and Drug Administration. More of the healthcare companies require syndication partners. It’s more common in healthcare to have more venture capitalist or other strategics putting capital to work.”

The company has focused on technology and life sciences for its 16 portfolio company investments, but more recently there has been a greater crossover between technology and healthcare.

Here are three companies that illustrate some of the compelling investment opportunities in the healthcare and life sciences spaces.

Genetics/bioinformatics: As the cost of doing genetic sequencing goes down, the applications for genetic testing have increased. GoodStart Genetics works with fertility specialists and uses next-generation molecular sequencing instead of the genotyping platform that is more common. Safeguard has invested $10 million in the company since 2010 and has a 29 percent primary ownership position. The advantage of using the next-generation platform is it can screen for mutations across a more ethnically diverse patient population. The company recently increased the disorders it screens for from 14 to 23 and doctors can order tests for one or all of them. It has grown to 60 staff and has a CLIA license. Since its launch in April, it has developed a nationwide presence with 50 clients. Currently, the company avoids sequencing entire genes to keep costs relatively low. In the future, the company plans to add other areas for genetic testing.

Diagnostics: Sleep diagnostics firm NovaSom has the only FDA-approved wireless device to detect obstructive sleep apnea, a condition that affects an estimated 40 million people. The condition can put some patients at greater risk for developing strokes, fatal heart attacks, and increased insulin resistance for those with diabetes. Physicians will order the home test for patients through a cloud-based “physician portal.” The device is sent directly to patients and representatives from the company will instruct patients how to use it.  The device is designed to evaluate blood oxygen levels, breathing effort, heart activity, air flow and snoring. Instead of competing with sleep centers, it has developed partnerships with them. The company has developed partnerships with sleep centers to provide the device in instances where the payer won’t reimburse for a sleep center.

Healthcare IT services:  AdvantEDGE Healthcare Solutions‘ services span medical billing, practice management and coding services for hospitals, physician practices and surgery centers. It sits in a market where there are 2,000 companies and has taken advantage of consolidation opportunities with six acquisitions since 2009. One of those deals involved a hospital’s billing system. Its clients are spread across medical specialties to diversify risk. CEO David Langsam, speaking at Safeguard’s recent investor day, said the company has focused on hospital-based specialists, a market it values at $4 billion, but is expanding more into the physician-practice market, valued at $8 billion. One of the company’s selling points is it absorbs the compliance burden providers and physician practices are facing and takes responsibility for technology investments. As providers implement the provisions of healthcare reform, the number of technology compliance requirements required of them is going up, providing some interesting opportunities for companies like AdvantEDGE to grow its business.

 

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