Digitalis Launches $100M Health Fund, With Emphasis On Data

Xconomy New York — 

Information technology has wound itself so deeply into healthcare, this might be the year that the term “digital health”—used roughly to distinguish health-related hardware and software from drugs and medical devices—becomes quaint.

One example of the ever-blurrier lines between health and technology is a new venture fund, Digitalis Ventures. The firm has already made three under-the-radar investments but today is announcing a $100 million fund that will spread across 10 to 12 startups, all told, according to founder and managing partner Geoffrey Smith. Digitalis invests in both biological exploration—typically what we would think of as “biotech”—as well as health systems and information. The underpinning of it all, says Smith, is how vast quantities of data can be organized and analyzed to improve health.

Rapid technological changes have brought cheap, ubiquitous “cloud” computing; faster, cheaper genomic sequencing; and so-called “machine learning” that allows information systems to learn on the fly. But the amount of information necessary to solve a problem is still a slippery subject. “What convinces us something is true?” says Smith. “We think about it computationally.”

The firm has invested in two companies using technological muscle to delve into relatively unexplored biology. Second Genome, of South San Francisco, CA, is sequencing the vast populations of microbes—potentially trillions—in our guts; the goal is to develop drugs that block disease-causing interactions between those microbes and our intestinal cells. It has a product candidate in clinical trials.

The firm’s second biotech investment, Oakland, CA-based Girihlet, is mapping the vast and constantly shifting genetic variation of T cells, a crucial part of the immune system. “T cell repertoire is more diverse at a younger age than older age,” says Smith. If Girihlet’s insights eventually point to ways to preserve that diversity over time, “perhaps we can improve health as you age”—but the first step is building the infrastructure to pool immune genetic information from a wide variety of people.

“To be meaningful,” Smith says, “big data has to be frighteningly big. If you’re off by an order of magnitude, predictions begin to deteriorate quickly.”

But Digitalis has also invested in New York-based CareDox, which aims to gather millions of children’s medical records into an electronic health management system that public school systems, nurses, and families can all use. The privately held company also earns revenue by turning the de-identified data into health insights for insurers such as Medicaid, pharma companies, and “other parties interested in monitoring and improving the health of children,” Smith says. CareDox and other business built on big data are betting that the longer and deeper the data are collected, the more valuable they become. “A snapshot at any time doesn’t help,” says Smith.

He expects Digitalis’ portfolio to split between companies exploring biology and those based on information. That investment duality is unusual, but not unique. Canaan Partners, for example, raised one of venture’s largest funds in 2014 and has deployed it in tech, biotech, and the intersection of the two.

Tech venture firm Andreessen Horowitz in late 2015 launched a new $200 biotech fund, with heavy emphasis on computational power, helmed by Stanford University bioinformatics expert Vijay Pande. It has invested so far in food-related nanotechnology, blood tests for cancer, and patient care coordination.

Digital health investment firm Rock Health reported this week that total dollars invested in the sector was down eight percent in 2016, but the number of companies receiving venture was up eight percent. (Rock Health’s categories of digital health includes sequencing, data analytics, wearables and sensors, and more.)

Digitalis is launching just as U.S. healthcare is heading into a great unknown. The Affordable Care Act is almost certain to be gutted by a Republican Congress and incoming president. Federal funding for basic science—the fuel for a great deal of biomedical innovation—and public health programs could be slashed. And FDA oversight of drug and medical device development is already slated for changes, thanks to last year’s 21st Century Cures Act.

Smith says Digitalis, based in New York with outposts in Los Angeles and San Francisco, is investing at an early stage, where technologies take time to play out. “To be worried about what happens next year misses the point,” he says. But there are reasons for caution. Companies in the Digitalis portfolio that rely on international supply chains—those developing bio-sensors, for example—might end up affected by trade barriers that the incoming Trump administration has threatened. And changes at the FDA will have an impact on drug development companies like Second Genome.

Before Digitalis, Smith, 51, spent three years teaching at the Icahn School of Medicine at Mount Sinai in New York and running the school’s entrepreneurship center. He is also the cofounder of early-stage biotech venture firm Ascent Biomedical Ventures.

Image by Bill Brooks via Creative Commons license.