Call it serendipity. When the management team behind Foundation Medical Partners decided to shift their investment strategy away from medical devices and therapeutics in favor of health IT, the name change to Flare Capital Partners coincided with an exit. IBM Watson snapped up its portfolio company Explorys in a big announcement at HIMSS this month. Explorys, a Cleveland Clinic spinout, is a predictive analytics company that amassed a huge amount of data to develop cognitive insights for clinical decision support.
“The timing was nice” but entirely coincidental, according to Flare Capital General Partner Michael Greeley who spoke to MedCity News in a phone interview Wednesday night.
Greeley said there were a few reasons behind the name change. First of all, it wanted to get rid of the firm’s association with medical device and therapeutics investments from its older funds. It also wanted a brand new name to reflect the new investment priorities for its $200 million fund. The firm believes it’s the largest fund to date dedicated to health IT companies that span multiple business models such as reinventing payment management, healthcare delivery, on-demand services and supporting the shift from fee-for-service to outcomes-based care. It also was tired of being confused with other companies that had “foundation” and “medical” in their names.
Investors in the new fund include healthcare systems, payers, and large labs as well as traditional LPs and offshore investors.
In an indication of how lines between segments of the healthcare industry are blurring, Greeley remarked that medical device companies are interested in investing in these healthcare companies because they want a long relationship with patients. “They want to be in the data business and the service business.”
So far, the fund has made four out of a planned 25 investments. In addition to a Rock Health seed fund, it has backed Iora Health (Greeley sits on its board), Predilytics and Valence Health. Other companies that exemplify the fund’s interests include Pager and Cureatr — interesting digital health businesses that reflect how professionals are interested in communicating.
The multistage fund will target the Seed stage to Series B. Greeley said the problem with the current funding landscape is the industry is really bar-belled. “It’s hard for seed funds because they get diluted quickly” and larger funds are looking for unicorns.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Greeley observes that what’s happening in healthcare now is not so different from what’s happened in other industries such as advertising and finance. But the downside is that there are so many entrepreneurs starting companies with similar solutions, like scheduling and tools to improve adherence.
“The rising number of undifferentiated solutions is becoming quite acute now. About 300 companies have raised $4 billion. That is a ridiculous number of companies and it’s unsustainable.” Greeley adds dryly, “The curse of a free market system is anyone can be an entrepreneur.” He expects there to be rapid consolidation over the next few years.
The transformation in healthcare, particularly in the realm of digital health, has proven attractive to professionals in other industries and for Greeley, that’s an exciting trend. “We are seeing lateral movement all the time into healthcare.”
Although it’s not interested in investing in management teams lacking healthcare experience, the interesting companies tend to be staffed by people outside of healthcare. The innovation happening in the hospitality and travel industries, demonstrated by Uber and Airbnb is changing the way traditional services are delivered and the expectations that people have for them. On the other hand they are risky because they’re disrupting regulated areas which has caused no small amount of consternation for cab drivers and hoteliers.
To support its new fund its made a couple of immediate hires with plans to add two to three more staff. Kristen Laguerre joined as partner and CFO from Atlas Venture where she served in the same posts. It also hired a senior associate — Dr. Dan Gebremedhin — from Harvard Pilgrim Health Plan where he was Associate Medical Director and concentrated on population health and medical informatics solutions.
