New startup aims to help investors avoid debacles through medical diligence

If they hope to grab a piece of the health-spending pie, investors and entrepreneurs may need to do more homework.

That’s the message of two executives who this summer launched a new Silicon Valley firm, MDisrupt, designed to assess the medical claims made by health tech startups and guide them as they seek to commercialize products.

Co-founders Ruby Gadelrab and Dr. Jill Hagenkord are pitching their new company as a way to avoid the mistakes that burned investors in once-highflying startups like Theranos and uBiome, which filed for bankruptcy earlier this week.

“We’re at a point now where if investors want to make these big bets on this big, huge market, they need a system to better filter and sort” potential investments, said Gadelrab, CEO of MDisrupt, based in San Jose, California.

Gadelrab and Hagenkord describe their service as first-of-its-kind medical diligence, similar to the legal, technical and financial diligence that investors already undertake. The diligence is undertaken by a network of independent consultants, called MDisruptors, who offer advice on the scientific, medical, regulatory and commercial challenges facing new healthcare products.

“This will basically help the good ones get to market faster and it will weed out the ones that are not so great,” said Gadelrab a former vice president at DNA company 23andMe who has experience on the commercial side of healthcare.

The service is most needed by investors who are new to healthcare and may not grasp the potentially longer startup path for medical and health tech products, said Hagenkord, MDisrupt’s chief medical officer. They may be enamored of Silicon Valley’s ethos of “move fast and break things,” but not be prepared for the more sobering mantra of healthcare: “first, do no harm.”

“The investors who have been focused on investing in healthcare and pharma and traditional devices, they know all this,” said Hagenkord, former chief medical officer of startup Color Genomics and of 23andMe. “I think it’s really the tech investors who are just now trying to take their step into the healthcare space.”

That focus made sense to Alyssa Jaffee, vice president at 7Wire Ventures in Chicago. Its portfolio includes Livongo Health, which uses technology to help people manage chronic health conditions.

“We see a lot of folks who come into health care, both entrepreneurs and investors because it is so enticing and it is so ripe for disruption,” Jaffee said. “But many are unaware of the nuances that are required in order to be successful.”

Experienced investors navigate the nuances using their own networks of clinical experts and on existing services like those offered by consulting firms Gerson Lerhman Group and LEK Consulting, said Michael Greeley, co-founder and general partner of Boston-based Flare Capital Partners. Flare’s portfolio includes Bright Health, a next-generation health insurer.

Gerson Lehrman and LEK both can help startups assess the potential market for their products, Greeley said.

There may be a role for a company like MDisrupt, Greeley said. But, he added: “There’s a little bit of a startup hurdle. They’ve got to build a brand.”

MDisrupt has gotten some nibbles from law firms interested in wrapping medical diligence into their existing services, Gadelrab and Hagenkord said. But their first clients have been startups though they declined to identify any by name. MDisrupt is helping walk them through the formula for testing, proving and ultimately commercializing their products, a series of steps that includes winning over skeptical clinicians and insurers.

“No matter how good your product is, you can’t miss a step,” said Gadelrab.

And, she added, the firm is banking on delivering messages that are transparent, objective and, if necessary, blunt.

“We’re very, very clear about that,” Gadelrab said. “I don’t think we have any issues in telling people you have to do it this way or that way.”

Photo: erhui1979, Getty Images