Venture%20Capital

1
Venture Capitals Perspective on Healthcare
Information Technology
Eugene D. Hill, III SV Life Sciences Advisers,
LLC
Health Information Technology Symposium
Massachusetts Institute of Technology July 19,
2006
2
Information Technology

• High margins
• High growth rate
• Compelling value proposition reduced cost
• improved outcomes
• Rapid Technology change
• High capital market value

3
The Substance

• Key Issues
• The Market
• The Management
• The Method
• The Money
• The Metrics

4
Market

• Macro
• Size (gt500M p.a.)
• Growth Rate (gt10 p.a.)
• Concentration (lt30)
• Barriers to Enter
• Drivers
• Aging Demographics
• Scientific Innovation
• Consumerism
• Cost Escalation

• Micro
• Economics (Pricing, Operating Margins)
• Customers
• Segmentation

5
Health Care I/T

• Market
• Size Healthcare 1.7T (15.0 GDP) 7 CAGR
• Healthcare IT 20B 12 CAGR
• Characteristics Fragmented
• Health Plans (500)
• Hospitals (5,000)
• Nursing Homes (20,000)
• MDs (650,000)
• RNs (2,200,000) est.
• Labor intensive
• Low Margin (except Rx)
• Highly regulated
• Data intensive/Information poor
• Technologically backward

6
Innovation Adoption Life Cycle
100
Late Adopters
Early Majority
Market Penetration
Early Adoption
Chasm
0
Time
7
Adoption

• Drivers
• Economic
• Regulatory
• Psychological
• Demand

• Enablers
• Financial
• Regulatory
• Technological
• Standards

8
Health Care I/T

• Barriers to Adoption
• Structural
• Fragmentation
• Decision process
• Economic
• Cost benefit ROI -- Increased revenue
• Reduced time
• Reduced cost
• Macro reimbursement
• Micro margins
• Operational
• Work flow integration
• Technological
• Legacy system integration
• Standards Articulation
• Compliance
• Regulatory
• HIPPA

9
Venture Capital Deal Flow
Business Plans Received
Projects Evaluated
Projects Funded
10
Key Focus Areas

• Major Risk Factors
• Technological
• Market
• Regulatory
• Operational
• Obvious Show Stoppers
• Better, Faster, Cheaper, or Brave New World

11
Methodology

• Business Model
• Value Proposition
• What?
• How big?
• To whom?
• Distribution Strategy
• Competitive Differentiation
• Growth Strategy
• Technology

12
Competitive Analysis

• Market Share
• Mind Share
• Momentum
• Differentiation
• Buyer Motivation - Painkiller or Vitamin?
• Sales Cycle
• Pricing

13
Marketing
Customer

• Product
• Price
• Promotion (advertising)
• Place (distribution)
• Packaging

• Business (Enterprise)
• Consumer (Retail)

14
Business Model

• Product
• application software
• data

• Service
• subscription application
• clearing house

Pricing

• Traditional
• software license fee
• Annual maintenance
• Issues
• gross margins
• working capital

• Emerging
• subscription/ASP
• transaction based

15
Pricing

• Traditional
• Software License Fee
• Annual Maintenance
• Emerging
• Subscription
• Transaction Based

16
Valley of Death
ASP Pricing Model
17
Management Orientation

• Missionary
• Mercenary

Management Attributes

• STAGE
• Start-up
• Early
• Expansion
• Late

• KEY ATTRIBUTES
• Passion, Vision
• Persistence, Tenacity
• Process, Systems
• Profits

• FOCUS
• Development
• Entry/Pilot
• Adoption
• Penetration

18
Health Care I/T
Clinical
Administrative
Financial
Data Capture Transaction Processing Data Base Decision Support
F O C U S
F U N C T I O N
19
Disruptive Technology

• Technology Paradigm Shift
• Moores Law (Speed/Cost Inverse Relationship)
• Metcalfes Law (Network Effective)

20
Healthcare/IT Evolution
2000s
1990s
1980s
1970s
1960s
Financial (Billing/Acctg) Financial
(Billing/Acctg/ Claims)
Administrative (Scheduling) Human Resources
Clinical (Lab, Rx, Radiology)
Clinical (EMR, PACS, Protocols)
Clinical
Provider Payor
Appli- cation
Financial (Billing/ Accounting)
Administrative (Human Resources)
MBR/ ERP
SFA Clinical (Data Base)
Clinical (EDC, Registry) Sales (E-Detailing)
Manufacturer/Distributor
Government Insurance Cos. Facilities (Hospitals)
MCOs Clinical Labs Imaging Ctrs
Consumers
MDs
Customers
EDS CSC McDonald Douglas IBM
RIMS HST HBO SMS MediTech
McKesson Eclypsis MedMgrEnvoy WebMD
GE Siemens
ERISCO IDX Cerner Medic Comtec
EzCap Trizetto Amicas Epic
Vendors
Medicare/ Medicaid
PPS (DRG)
RBRVS HIPPA
HRA/HSA
HMO
Legislation/ Region
21
Technology Evolution - Network
2000s
1990s
1980s
1970s
1960s
Proprietary (SNA) Non-proprietary-packet (TCPIP)
Academic Government
Commercial
Archi- tecture
Speed
KB
MB
GB
Connect- ivity
Wired Copper
Fiber
Wireless-Analog
Digital
Switches
Analog
Optical
Digital
Voice Data
Graphic-Static
Dynamic
Content
22
Technology Evolution - Hardware
2000s
1990s
1980s
1970s
1960s
Platform
Mainframe
PC
Laptop PDA
Mini
Workstation Server
Disc Mag Tape
Floppy, 5 ¼ 3 ½
CD RAID SAN
Media Capacity I/O
Storage
KB
MB
GB SCSI
TB Fiber Channel
USB
Processor
4 bit
8 bit
16 bit MHz
32 bit GHz CMOS
Architecture Speed Type
IC
Micro RAM
23
Technology Evolution - Software
2000s
1990s
1980s
1970s
1960s
Language
Proprietary
Open Source
Ownership
Machine (Binary)
Compiled 1st 2nd 3rd (Basic)
Object-Oriented (C, VB)
Code
Assembler
Platform
Machine Specific
Intra-operative (Java)
Data Base
Non-Relational Proprietary (ISAM/VSAM)
Relational Non-Proprietary ASCII
Ownership Structure
Archi- tecture
Mainframe
Mini
Client Server 2 Tier 3 Tier
Web nTier
Con- tent
Text
Graphics Voice
Input
Graphic Floppy CD
Character Punch Card Mag Tape
24
Technology Cost
Software

Hardware
Time
25
Healthcare Data