Validation key in digital health, but how do you get started? |

Today begins a series on how to validate digital health ventures.  Is there a set of metrics to judge the worth of investing or developing a digital health application, mobile or computer-based?

Last night at a Partners HealthCare Pivot Labs event, industry players discussed the ins and outs of how to validate a digital health product, regardless of funding.

Once a promising futuristic industry, digital health is merging into mainstream medicine. Now in the limelight, conversations around how these digital tools should be validated are starting to take place.

But for startups, getting validation often means securing money and partners, creating potential barriers for young startups. Last night at Partners HealthCare Pivot Labs digital health event, industry experts dished on the why, when and how of validation.

Why get validation?
It’s no secret the app market is now flooded with digital health products. Many of those apps remain unregulated and unvalidated. However, validation is one way for developers to set their products apart.

“A fun fact is that every day at least 200 apps get added to the app store. Just in the mental health space, there are 1,500 apps,” Dr. Ramya Palacholla, a research scientist at Partners HealthCare Pivot Labs, said at the event. “We are so passionate about validating solutions because when there are so many different apps —1,500 different apps that claim to do the same thing — then what separates me from the others?"

But validation isn’t just about setting a product apart on an app store — startups seeking to work with big names in the medical world will need to show data, according to panelists.

“For the program that I run, validation is so critically important because we connect later stage and middle stage startups — entrepreneurs that have solutions ready to go — we connect them with organizations like Mass General, Brigham and Women’s, and they want to see the data, right? They want to know this actually works and it is really solving a real problem,” Nina Kandilian, director of operations of Vertical Programs at MassChallenge, said.

When it comes to validating technology money matters, according to panelists, stakeholders need validation that the product can produce a return on investment.

“You could do all these amazing things and to solve all these problems but at the end of the day if there is no financial incentive tied to it there is only so long you can work on it,” Kandilian said.

Different validation for different stakeholders
Validation doesn’t always mean a standard clinical trial. It could mean a lot of different things depending on the users and the purpose.

“I think we should define what validation is. So there is clinical validation, but there is validating what is a useful tool and even earlier than that validating if it is needed,” Dr. Mark Zhang, medical director of the digital innovation hub at Brigham and Women’s Hospital, said during the panel. “We see ideas and concepts at all stages.”

Validation expectations also differ significantly depending on the end-user.

“Value looks different to different stakeholders. As a clinician, the value I look for is better workflow efficiency, decreased workload and just improving patient outcomes,” Palacholla said. “As a patient, I may look for increased convenience or just a pleasant experience. So I think it is really important to determine what value you are looking for and the type of stakeholder also determines the type of value you are looking for.” 

Validation on a budget
Validation can be expensive — posing a potential hurdle for unfunded startups. But there are options for these companies, according to panelists. 

“So early-stage entrepreneurs, what the VCs really want is the data,” Kandilian said. “They want to know that it works, and it is really hard to do that when you have no money. So I have found a lot of startups in our program that are earlier stage have mastered the art of finding grants.”

Seeking venture dollars might not be the best course of action for every young startup, Kandilian said. 

“There are so many other alternatives to regular VCs," she said. "Do you really want to give up all of your company at the beginning? A lot of the angel VCs you want to find are people with money that can also help you with your business."

Partnerships are another avenue for startups to validate their tools. However, panelists stressed the importance of pitching to the right clinicians. 

“It’s a lot easier to make a connection if there is a target," Zhang said. "It’s a lot harder if you have a solution and you want to connect with [for example] neurology …  that can be harder. We may have a contact, but we may not. So if you’ve already done the leg work that is always helpful.”

Another resource for emerging companies is new professional guidelines, which Palacholla said could help shape the future. 

The CMO of SalesForce, a large customer relations management platform had this to say,

“I think we are heading in a positive direction there are a lot of frameworks and guidelines that are being put out by different organizations, whether it is the NIH or AMA or even the World Health Organization, that two days ago released some guidelines,” Palacholla said. “So all of these guidelines are moving from infancies, from where we just cited products and great products for different users, to actually forming a body of evidence and standardizing and coming up with all of these different guidelines.”

Last decade’s cutting-edge tech is moving into the boring, but productive, part of the hype cycle

Most of you are probably familiar with the Gartner hype cycle, a useful conceptual framework that describes how new technologies move from a “peak of inflated expectations,” to a “trough of disillusionment,” to the “slope of enlightenment” and, finally, the “plateau of productivity.” Several times speaking with stakeholders at JP Morgan, it was striking how many technologies seem to be in the last two of those stages.


Virtual reality and augmented reality is a strong example — the wow factor of VR is finally starting to fade. Neither of the two startups we spoke with at the show who use this technology described themselves as VR startups. Instead, they casually mentioned the way their solution deployed VR the same way they might drop in a reference to the cloud or a mobile app. The technology itself is no longer eliciting excitement — or trepidation — about a product. And there are signs of blockchain, until recently the ultimate tech hype punchline, moving in this same direction.

Other technologies, like AI or digital therapeutics, have hype cycles that seem destined to be longer and are still offering some unrealistic promises and hype-driven pitches. In fact, it’s hard to imagine a better example of the trough of disillusionment where, as Gartner says, “interest wanes as experiments and implementations fail to deliver,” than the recent spat of public digital therapeutic partnership failures. Or, for that matter, some very public AI algorithm foibles.

More digital health-specific investor firms and funds will emerge

We predict the investor pool will mature and continue to specialize. Due to the relative newness of the digital health industry, investors have come from a variety of backgrounds including tech, biopharma, and general health. However, industry insiders have continued to stress the importance of understanding the health ecosystem.

“It is vital in digital health to have people not just on the venture side, but also on the boards and management of digital health companies, that come from different genders, economic backgrounds, ages and different perspectives,” Luba Greenwood, lecturer at Harvard and former Verily business development manager, told MobiHealthNews in April. “The best return on your investment is going to be in companies that are going to do that by working with payers, provider groups, pharmaceutical companies, and diagnostic companies. Because you have such different types of companies, you need different perspectives as an investor. You need to understand how the consumer world works.”

As the industry ages so will the experience level of investors. We also predict to see an increasing number of digital health-focused firms, like 7Wire Ventures, Rock Health and StartUp Health, and targeted investment funds such as Flare Capital’s sophomore health tech fund.

Asian digital health markets will continue to rise. Our eyes are on the Asia/Pacific market for 2020. Last year Beijing topped the list of the most digital health funding in a non-US city, coming in with $855.4 million, according to Startup Health’s 2019 funding report. While this is number is about $100 million less than last year, it pulled ahead as the clear leader as the international funding hub over London (which it was tied with last year), and we expect this trend to continue. Mumbai, Bangalore, Shanghai, Singapore, Guangzhou, and Delhi also made the top ten list.

“In 2018, the total amount of venture capital that was invested in the Asia Pacific amounted to about $6.8 billion. To put in context, in the US it is $8.2 billion and $2 billion for Europe,” Julien de Salaberry, CEO & founder of Galen Growth Asia said at the SFF x SWITCH conference in Singapore in November. “So clearly Asia Pacific is the number two in the world with some four-and-a-half to five thousand startups in the region that are growing from strength to strength and raising more money, getting more FDA regulatory-type approvals,."

We expect Asia's funding growth and digital health maturity is already becoming evident. For example,  China’s Tencent Trusted Doctor platform raised $250 million in a fundraising round in April. Additionally, the Indonesia-based health-tech platform Halodoc raised $65M in Series B funding and Chinese medical AI startup Synyi raised $36.3M in Series C funding in early July.

China, by far the economic powerhouse in the region, is expected to continue to lead the funding. This is particularly true following the kickoff of Healthy China 2030, the nation’s first long-term strategic health plan since 1949. This means there is now a government mandate that makes healthcare policy a priority. However, India and the Middle East will also likely continue to crop up on the radar.

China will become a major player in health care apps if the fear of cyber attacks and/or spying can be overcome. The United States has banned Huwaii from selling its smartphone chips in the U.S.

 2020 will be a banner year for digital health commercialization and distribution

As more digital health products hit the prime time, we see a splintering in the path each is taking to market — especially within the realm of digital therapeutics. Among many of the other major takeaways following last fall’s digital-pharma breakups is an understanding that these products are unlikely to follow the traditional drug development and distribution model.

“The traditional medicine models, I don’t think that’s where we should be as digital therapeutics,” he said during a late September event. “I don’t think we’re ever going to demonstrate value to patients in the way digital therapeutics really can … unless we make big bets, unless we say traditional medicine not only may not be the answer, is very likely not the answer, and we need to invest and stumble a little bit, experiment [with] putting out creative models.”

Also fueling change is the FDA’s PreCert Program, an experimental regulatory pathway that could substantially lower the burden for digital health companies hoping to more rapidly release their products. The program’s one-year pilot came to an end with the calendar year and the agency is promising the publication of a report card similar to what it put out around the half-year mark.

Should the FDA like what it sees and moves to fully implement the new pathway, participating companies will (for better or for worse) have free rein to launch and relaunch their digital health products much more easily than ever. This would stand as a major benefit for software-based products in particular, which could begin pushing out updates of their algorithms or other underlying systems at a rate that traditional biologics could never hope to match.

But these points aren’t to say that tried-and-true distribution models are unable to accommodate large-scale digital health commercialization, and the payer side of the industry, in particular, has made some major crossroads here. One clear development has been pharmacy benefit managers like Express Scripts and CVS Health's work on digital health formularies and similar resources to help their clients select vetted digital health products from third-party vendors.

These major market players are making a major effort to corral digital health products into an offering that’s more palatable for their longstanding businesses. And it should go without saying that those companies taking part in the PBMs’ opening salvo are viewing the traditional-yet-novel pathway for reimbursement and distribution as an important part of their long-term strategy.

“We [at Propeller Health] believe this is a really good step in the process of making digital health and digital therapeutics more traditional in terms of reimbursement and distribution,” Chris Hogg, CCO of Propeller Health, told MobiHealthNews after announcing his company as part of the Express Scripts formulary’s inaugural cohort. “For us, we view this as a mechanism to provide access and reimbursement for many more patients, for a product that we have clinically validated.”

The takeaway here is that 2020, in particular, is poised for convergence of contrasting go-to-market strategies. The success of one won’t necessarily disqualify another but expect the digital health players of tomorrow to follow the most successful examples on display throughout the next 11 months.

In a final precautionary note, Mercom reports digital funding dip in 2019.

Digital health funding is on the decline, according to yet another funding report, this time from Mercom Capital Group. According to the company’s latest report, in 2019 digital health funding came in at $8.9 billion with 615 deals — a drop from the $9.5 billion and 698 deals recorded in 2018.

“After three consecutive years of growth, venture deals, and dollars for digital health companies declined in 2019," Raj Prabhu, CEO of Mercom Capital Group, said in a statement. "After a long dry spell, there were four US IPOs, but their performance so far has been underwhelming. M&A activity also declined in 2019. The big winners were telemedicine companies, with a 55% percent increase in funding YoY while digital health products that were powered by AI, brought in over $2 billion."

However, the report's executive summary notes that the average funding deal size in 2019 was up to $14.4 million, whereas in 2018 it was $13.6 million. Consumer-centric companies brought in the most cash with $5.3 million in 2019, followed by practice-centric companies, which brought in $3.6 billion.

WHY IT MATTERS 

Mercom isn’t the only investor report pointing to lower funding numbers in 2019. Last week Rock Health released its annual tally, which recorded $7.4 billion in digital health deals in 2019. This was also down from 2018 when they recorded $8.2 billion in deals. MobiHealthNews' own year-end accounting held to this trend as well.

While each report varies in calculations, due to the scoop and definition of digital health, both are reporting a dip in numbers this year.

THE LARGER TREND

2019 may have slid back in terms of funding totals, but over the last decade digital health funding deals are trending up. When Mercom first started the reports in 2010, it recorded $211 million in funding. While some years like 2015, dropped slightly from the previous year, overall they are increasing.