Healthcare Venture Capitalist: What We Won’t Invest in Any More

Posted in Medical Venture Capital by Arundhati Parmar on January 7, 2014

Mohit Kaushal, partner at Aberdare Ventures and a speaker at the inaugural MD&M Executive Summit at Anaheim, California in February, discusses how the world of healthcare has transformed.

Mohit Kaushal, partner, Aberdare Ventures

When it comes to venture capitalists, Mohit Kaushal, partner at Aberdare Ventures, has an esoteric background.

He holds an MBA from Stanford and an M.D. from the Imperial College of Science, Technology and Medicine in London. He has worked in the Obama administration as a member of the Health IT task force and created the first, dedicated healthcare team as the director of Connected Health with the Federal Communications Commission. He was also the first chief strategy officer and executive vice president of business development at West Health, an entity that aims to lower healthcare costs through a mix of investment, policy and medical research. He has worked at the World Health Organization and at Merrill Lynch's Healthcare Investment Banking Group. What's more, trained in emergency medicine, Kaushal has also practiced as a doctor.

Armed with these disparate experiences, Kaushal articulates a clear vision of what has changed in healthcare.

“The core assumption previously in healthcare was you always get premium pricing no matter what the cost effectiveness of the products were,” he says in a recent interview with MD+DI. “ Even if there were marginal improvements on it, you could price it however you want it. And that's the core assumption that has changed.”

And how will that affect what Aberdare values as an investment opportunity? It’s a bit more complex given there is no winning formula to winning venture capital investment. It depends on the market and the company, the product and the need. But Kaushal is clear on what sort of deal Aberdare won’t involve itself in.

“Products with marginal improvements over whatever is out there in the marketplace already and then expect it to price it to X - those are the deals we won’t do,” he says emphatically.

Indeed most venture capitalists these days will tell you as much. 

Partners at Aberdare look at broad trends in the marketplace and then scour the universe of companies that fall under that umbrella and choose one that has not only great technology, but a solid management team. If investing in medical devices, partners will probe the startup’s regulatory strategy, reimbursement strategy and clinical and cost effectiveness data, Kaushal says.

For Kaushal, two recent investments - both initiated outside Aberdare - speaks to the criteria that he looks for when considering an investment opportunity. One is Humedica that was acquired by Optum, a business of health insurer UnitedHealth and the second is RxAnte, a still active investment.

For the former investment, Kaushal understood that the “meaningful use” provision that incentivizes the use of electronic medical records would lead to the creation of reams of data.

“Meaningful use is bringing a lot of data into the system, but the question was what would be the interesting business models applied to the data?” Kaushal said.

The answer lay with Boston-based health IT firm Humedica. It had spent a lot of time gathering clinical data housed in siloed, non-interoperable EMRs, cleaned it up and ran next-generation analytics on it to provide unparalleled insight needed to identify new patient segments and transform care, Kaushal says. Something that payers and providers would be keenly interested in, since this was mainly clinical data and not just insight gleaned from claims data that doesn't have as high an accuracy, he explains. 

Here was a real business model around Big Data. That led Kaushal to invest in the company when he was at West Health. Humedica later got acquired by Optum, UnitedHealth's health services business.

Another firm that is now part of Aberdare’s portfolio - although Kaushal invested in it while at West Health - is RxAnte. Whereas Humedica fell under the umbrella of Big Data, RxAnte deals with the intractable and expensive problem of patient nonadherence to medication.  

“For me, the biggest clinical target to keep people out of hospitals is make them take their drugs, and noncompliance of medication is a huge problem, which drives a lot of waste, cost and poor outcomes,” he says.

RxAnte, based in McLean, Virginia, aims to solve that problem.

“These guys RxAnte have a mix of policy, technology and business skills,” Kaushal explained. “They knew that new business models were emerging and there was real revenue to be created if you get people to take their drugs. They knew who would take the drugs, who wouldn't, what are the interventions you need to match to get that person to take the drug.”

Their clinical database has become very valuable such that payers and managed care organizations are becoming paying customers.

"They are doing the right thing at the right time as the healthcare delivery system gets reconfigured," Kaushal says.

Meanwhile Kaushal will be on the look out for game changing innovation.

"True innovation is something that we are always interested in and will always be rewarded," he says.

Kaushal will be a speaker on a panel about venture capital at UBM Canon's inaugural MD&M Executive Summit, Feb.10-11, Anaheim Marriott. 

-- By Arundhati Parmar, Senior Editor, MD+DI


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