Entrepreneurs
Maureen Farrell, 08.27.08, 7:00 PM ET

Advances in health care run the gamut from mind-boggling medicines to simple Web solutions that, if adopted, could slice huge slabs of fat from a bloated system.

Whatever form innovation takes in the coming years, much of it will spring from start-ups, not pharma and tech giants. “Little companies can work on something that’s not proven and that has a higher risk,” says Brenda Gavin, founding partner of Quaker BioVentures in Philadelphia and former director of GlaxoSmithKlein’s venture fund. If they can find enough funding, entrepreneurs “basically can go for the gold.”

But it’s not just the risk of failure that hampers big companies’ search for game-changing breakthroughs. It’s the constant demand to generate revenue in the here and now to cover all the overhead and hit aggressive growth targets.

In Pictures: Seven Technologies That Could Change Health Care

“Small companies are much more nimble, so they can react quickly,” says Jack Lasersohn, a partner in the Vertical Group, a Summit, N.J., venture capital fund that specializes in medical technology and biotechnology. “You take an idea, and a few months later you can have a company.”

Another structural issue: Health care is an extremely splintered industry. Many new areas of research–such as personalized medicine and digital document retrieval–don’t fit neatly into established divisions within big companies, ultimately thwarting capital investment.

“Too many investors have failed to understand what health care is as an industry,” says Ralph Sabin, a managing director at Pacific Venture Group in San Diego. “[It] isn’t like financial services or manufacturing. It’s an area dominated by nurses, physicians, hospitals and insurance companies and all kinds of different constituencies.”

All of that spells huge opportunities for tech-savvy start-ups–and new hope for sick patients in need of better, less expensive care.

Philadelphia-based Hx Technologies wants to unlock the power of computer networks (a very ’90s concept) and suck costs out of the system by making it easier to transport diagnostic images like CT scans. Amazingly, shuttling these images to doctors for second and third opinions is still done the old-fashioned way–by hand. That can lead to duplicative and potentially dangerous testing. (Hence President George Bush’s mandate that a majority of Americans have electronic health records by 2014.)

Launched in 2000, Hx Technologies estimates that it can eliminate extra tests–and save the U.S. medical system $5 billion to $6 billion a year–by storing medical images so they can be accessed in encrypted form over the Internet. Hx collects setup fees and monthly rent from insurance companies to use the system; doctors and hospitals use it for fee. Tommy Thompson, former secretary of the U.S. Department of Health and Human Services, sits on the board.

The challenge: For this technology to truly take off, Hx will have to blanket the entire hospital system–and that may take a bit more than the $5 million it’s managed to raise thus far from investors including the National Institutes of Health, RK Ventures and Next Stage Capital.

Nurses don’t need to schlep bandages and food–robots can do it better and cheaper, figures Aethon, a Pittsburgh-based developer of mobile robots that use radio frequency identification technology to track and fetch medical supplies. Founded in 2002, the company has raised about $22 million from the likes of Draper Triangle Ventures and Pacific Venture Group.

Aethon’s robots, which it leases for between $1,500 and $2,000 a month, now zip throughout the hallways and supply closets of 100 hospitals in the U.S. Among them: “Tug,” a self-navigating, battery-powered bot the size of a small suitcase that attaches directly to hospital carts and can carry up to 800 pounds. Tug can pick up, sort and deliver medical supplies and meals and run blood samples to labs; he can even ride elevators and open doors.

If you think that stuff is straight out of Star Trek, how about “growing” new organs from the very patients that need them? Launched in 2004, Tengion, based in East Norriton, Pa., aims to do just that.

The process: A doctor takes a tissue sample from a diseased organ and sends it to Tengion’s facility. There, the cells responsible for growth of new tissue are reproduced in a biodegradable “scaffold” made in the shape of the diseased portion of the organ. Several weeks later, surgeons implant the new organ/scaffold structure, leaving the patient’s body to absorb the new organ and excrete the scaffold. Unlike those who receive organ transplants, Tengion’s patients, in theory, won’t need to be on a lifetime regimen of anti-rejection medicine.

So far, the company has invented a way of making a “neo-bladder” based on a patient’s own tissue, and has filed for 70 patents covering the entire process. It plans to eventually move into manufacturing other organs and tissues, including kidneys, blood vessels, hearts, livers and nerves.

Tengion has already raised $150 million in total financing from the likes of Bain Capital, Johnson & Johnson Development Corporation (the consumer giant’s VC arm), Oak Investment Partners and Quaker BioVentures. Not that success is right around the corner–the FDA won’t approve the process until early next decade, says Gary Sender, Tengion’s chief financial officer.

Then there’s the whole push toward truly personalized medicine, which could fundamentally alter the way diseases are diagnosed and treated. Until now, doctors have relied on the law of averages: Clinical drug trials yield data on how many people are helped by a particular treatment; if the success rate is high enough, that treatment gets the nod.

But as the human genome is better understood, it’s becoming apparent that diseases like cancer can be treated in specific ways, based on a patient’s individual genetic code. “Nothing should cause us to expect that one person’s cancer or arthritis or heart disease is like other patients,” says Brook Byers, partner at the Menlo Park, Calif. venture giant Kleiner Perkins Caulfield & Byers. “Standardized treatments will shift to personalized and tailored ones with better outcomes and lower costs.” Personalized medicine has been Kleiner Perkins’ primary area of investment for its life sciences division.

Take its bet on fellow Menlo Park resident Pacific Biosciences. The company is working on a machine that doesn’t just identify DNA strands, but can understand, based on a few drops of blood, how the strands are manufactured, so that they can be sequenced (copied) faster–dramatically speeding up the race for a host of powerful cures. Sequencing a person’s entire DNA now takes about about three years; Pacific Biosciences thinks it can cut the time to three hours.

“If you could sequence people’s DNA thousands of times faster, you could make disease research a software problem,” says chief executive Hugh Martin.

Perfecting that process may take a while. Pacific doesn’t expect its $300,000 to $500,000 machines to hit the market before 2013–but white-shoe investors, including Kleiner Perkins, MDV-Mohr Davidow Venture, and, more recently, Intel, have ponied up $178 million to make it happen.

In Pictures: Seven Technologies That Could Change Health Care

By Mike Leavitt
Monday, December 22, 2008; A21
Washington Post

Congress is considering adding money for health information technology to January’s stimulus package. Doing so could spur a critical mass of the nation’s doctors to finally enter the information age, but unless the funds are tied to standards for the interoperability of health IT systems, the expenditure could do more harm than good.

Before lawmakers act, they need to think: If stimulus money supports a proliferation of systems that can’t exchange information, we will only be replacing paper-based silos of medical information with more expensive, computer-based silos that are barely more useful. Critical information will remain trapped in proprietary systems, unable to get to where it’s needed.

Health IT systems produce value when they are interoperable. When they’re not, doctors who invest in electronic health records cannot share information with each other or add lab results to your file or send electronic prescriptions to your pharmacist. They would have to use handwritten prescriptions and paper files in addition to their electronic files.

That’s not the way 21st-century health care should work. Today, specialists on a patient’s team need to use interoperable systems that share medical records, prescription histories, lab results, imaging and clinical notes. System standards are needed to protect privacy and ensure that content — such as patients’ diagnoses, allergies, medications, lab tests and medical directives — is standard for every patient, every time.

We’re already on the road to a system that is universally accessible and secure. Health information experts, with coordination by the Department of Health and Human Services, have been working on foundational health IT standards and have made substantial progress. Congress has approved our request for higher reimbursement rates for Medicare doctors who e-prescribe. The Institute of Medicine has estimated that more than 1.5 million Americans are injured annually by drug errors. E-prescriptions can greatly reduce that number.

We’ve also established an independent, voluntary, private-sector certifying body, the Certification Commission for Healthcare Information Technology (CCHIT). This body provides “gold standard” certification that electronic health records meet existing interoperability standards. Any stimulus money for electronic health records should go only to those with CCHIT certification.

Likewise, “infrastructure” investments should go only toward supporting exchanges of electronic health information that are compliant with nationally recognized standards. Indeed, supporting health information exchange would be an infrastructure investment that would accelerate public-private cooperation in standards harmonization and certification.

It is important that standards be vendor-neutral. Government should not be in the business of picking winners and losers.

Despite the urgent need to move beyond paper records, simply offering up funds in the stimulus package will not get the results we want. Instead, it may set our efforts back. Systems will be isolated; data indecipherable; health-care quality unimproved.

If we’re going to build a 21st-century health infrastructure, we need to do it strategically, continuing the careful work on harmonized standards that will create one nationwide, interoperable system. That’s the only way to make an investment in health IT produce value for providers and patients and improve the quality of health care overall.

The writer is U.S. secretary of health and human services.