In the Jiu-Jitsu Match of Biotech Risk, a Reminder of Other Paths

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academic ideas, Wende Hutton of Canaan Partners is thinking about the other end of the pipeline: digital technology that helps drug or device companies improve the chances that their products will be prescribed by doctors and reimbursed by insurance companies.

Canaan is not primarily a digital health investor. It only has four companies in its current portfolio, but when I spoke to Hutton toward the end of the first full day of J.P. Morgan last week, she said digital health was “the theme du jour….in four-for-four meetings” that day. She had just met with the president of the American Medical Association and three pharma companies that all have digital health initiatives.

In an interview last fall marking the close of Canaan’s new fund, Hutton and tech partner Dan Ciporin outlined the firm’s desire to dive deeper into digital health.

Hutton filled in some color last week with themes that are top of mind in the industry.

One is the opportunity to help physicians sort signal from noise when treating a patient. Hutton wants to see a system that gives physicians an integrated look at a patient’s medical record, lab results, genes of interest, potential drug-drug interaction red flags, and more, “in a fashion that drives clinical practice in a way that’s not more alerts and burden and emails to open. I don’t see any system that has sorted that out. This convergence needs to be less work for the physician.”

Another opportunity for investment is in what she calls “Switzerland” data companies that help rival device or drug makers pool data. Sharing is ultimately in those companies’ best interests, she said, because their own smaller sets of drug and patient data won’t adequately prove their products’ worth. That’s crucial because health plans and their middlemen like Express Scripts are on the hunt for ways to spend less on drugs. Express Scripts has launched a price war in hepatitis C treatments, and whose CEO said last week that certain cancer immunotherapy treatments and a new class of cholesterol reducers would be next.

To avoid their drugs being discounted—or excluded entirely from big swaths of patients—companies will have to use bigger data sets and “be part of a bigger ecosystem,” said Hutton.

One of Canaan’s investments is a company developing a smoking-cessation device that delivers nicotine through the skin when algorithms predict cravings are about to hit. It also connects wirelessly to “coaches,” a touchstone of many digital health apps that use personal connections to guide behavior.

I asked Hutton if apps that deliver drugs—or through behavior modification aim to prevent the need for drugs—need to submit to clinical testing to show they actually work. “It’s going to happen first in areas where the background clinical literature is already in existence, where you’re providing the toolsets to put the patient at the center for better compliance, then provide the physician with data, downloads, and reports when the patient walks in,” she said. “We’re not talking about running clinical trials.”

A therapeutic intervention that doesn’t require the cost of clinical trials? That’s the risk-avoidance jackpot.

Canaan invests in drugs, too—anything from new platform technologies to drugs sitting idle at pharma companies that could use a new home. But many of what it calls early stage investments are relatively more conservative. These include new companies spun out from more established platforms, as Canaan has done in North Carolina with nanoparticle design firm Liquidia Technologies and two of its satellite companies; or products that have been around the block a few times—such as the wound healing product Dermagraft or the Pfizer programs Canaan helped pull off the shelf to create Durata Therapeutics (antibiotics) and Labrys Biologics (a migraine drug). Durata (NASDAQ: DRTX) went public in 2012; Labrys was acquired in 2014 by Teva Pharmaceutical Industries (NYSE: TEVA).

“We do look for opportunities where we can take forward clinical assets with a lot of data or intellectual property in back of [them],” Hutton told me last fall. “When a lot of risk is reduced, it’s a core part of what appeals to us.”

No biotech VC has a portfolio full of nothing but bigfoots, of course. But in these boom times, the sound of those bigfoots can drown out everything else. It’s good to remember other, less risky roads traveled.

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