It’s not as simple as “Do I have a code?”
A “early stage vs. late stage” panel at today’s MedTech Investing conference in Minneapolis talked about what questions they ask when determining whether payers will reimburse new products and services.
Investors have to consider multiple definitions of “value,” out-of-pocket possibilities, and the possibility of shifting the reimbursement work to an acquirer.
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Kirk Nielsen of Versant Ventures said that when Versant invests, they consider the possibility that with early stage companies, it may be an acquirer who fights the reimbursement fight.
“We need to be prepared to take it all the way, but we often hope that for early stage projects, someone else will do it,” he said.
Another option is the patient paying out-of-pocket for a new product. Nielsen said that Versant invested in LenSx laser for cataract surgery with the assumption that people will pay extra for the product, just as people have paid more for better options with Lasik surgery.
Josh Baltzell of Split Rock Partners said that the value proposition for portfolio company Entellus Medical was moving the site of care from surgery center to a doctor’s office. Entellus provides minimally invasive treatment for sinusitis.
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“Removing overhead was key to our thesis,” he said.
Noah Lewis of GE Ventures said GE favors diagnostics investments because the conversation has shifted away from a single-point solution as the value proposition for a new product.
“It’s muddy waters out there and we are trying to solve multivariate equations,” he said.
Baltzell agreed that it is more difficult to categorize cleanly different companies and that a services component is a natural evolution of the industry. He said Split Rock is excited to look at opportunities that solve problems for more than one constituency.
By comparison, Guido Neels of Essex Woodlands said his company has avoided investing in diagnostics firms because of concerns about reimbursement.
“If you look at the trend, diagnostics companies don’t have the multiples at exits,” he said. “It’s highly dependent on reimbursement, which goes down fast as volume goes up.”
