At JPM2020, Diagnostics Business Models, Surgical Robotics in China

For this writer, medtech and clinical diagnostics are paramount. One of the most intriguing trends in recent years is the evolution of a certain breed of traditional molecular diagnostics company into a turbo-charged precision medicine-information powerhouse accompanied by a parallel jump in valuation. These rise from the embers of a cut-throat clinical diagnostics sector, in which strong IP is hard to come by and companies competing on price avoid disruptive innovation. Not too long ago, CEOs of in vitro diagnostics companies were wringing their hands and knocking on the doors of payors and government officials looking for ways to extract more value for their underappreciated assets.

In less than a generation, the tables are turned, although in general it’s not the old schoolers who are benefiting, despite their hard fights for recognition. Thanks to the acceptance of genomic information and artificial intelligence into diagnostic business models, multi-disciplinary companies like CareDx and Agendia (young), Thrive Earlier Detection (start-up), Exact Sciences (established), are attracting financing and traction in the market. Their advantages lie in the way they are combining big data and artificial intelligence with breakthroughs in faster, cheaper instrumentation and more traditional molecular diagnostics to provide a new type of service/ product, aptly referred to as “precision medicine” or “health intelligence.” The gains are not confined to just one or two companies, although the transformation started with the well-known story of Genomic Health (now owned by Exact Sciences), which bet on an expensive and time-consuming commitment to producing solid data for what was then a novel test panel approach.

The ongoing digital transformation of CareDx is one example. A traditional genomic diagnostics company that is now positioned as a precision medicine health intelligence company, CareDx got its start with a biomarker that monitors heart transplant patients and has gained real traction with AlloSure, its donor-derived cell free DNA test for identifying allograft injury in kidney transplant recipients. Its intentions are far grander under Chair and CEO Peter Maag, a long-time diagnostics exec who headed Novartis Diagnostics when that pharma company temporarily went into the biomarker business. With the aim of being a transplant care management company, it embarked on a series of tuck-in acquisitions that add to its offerings transplant center quality tracking, wait-list management, and smart algorithms that predict long-term patient outcomes based on probability of graft failure. It also has launched a series of real-world-data-based longitudinal studies on the outcomes of kidney transplant patients using several-thousand patient-registries it is building, such as OKRA (Outcomes of KidneyCare in Renal Allografts).

The eye-catching $110 million Series A financing of new cancer diagnostics company Thrive Earlier Detection, which launched in June 2019, hammers the point home. Thrive is using liquid biopsy technology to screen simultaneously for multiple cancers, and its founding team of scientists, business executives and investors reads like a list of Who’s Who in clinical diagnostics in the last 20 years.

“To give them credit, our investor syndicate all shares the vision that what we are trying to do is big and so you have to invest big,” CEO David Daly said in an interview at JPM. “The $110 million is a big number, of course, but we got with that $110 million a huge running start. We had a finished prototype and a fully funded prospective study nearly completed at the start of the company, without using that Series A funding.”

Its premise is based on technology developed by famous Johns Hopkins University professors Bert Vogelstein, MD, Kenneth Kinzler, PhD, and Nickolas Papadopoulos, PhD. On the operations side, the executive team’s credentials are also impeccable, with Daly, who joined the company in August, having had stints at some of the diagnostics industry’s most successful technology innovators, and a CFO, Isaac Ro, who spent 16 years at Goldman Sachs. It’s a tightly entwined world: Third Rock Ventures partner Christoph Lengauer, PhD, who was instrumental in putting the company together, spent 12 years in the Vogelstein Lab.

In medtech, participation in surgical robotics appears to be a valuation driver—it’s certainly driving an uptake in Wall Street’s interest in medical devices.  Robotics permeated a JPM discussion sponsored by Medtronic on the China opportunity. Government support for local innovation is responsible for a surge in robotics innovation at a pace that is “faster than you think,” said one Medtronic executive. The Chinese government, he told an early-morning audience, has “a great desire to cut short product registration timelines and close gaps and bring innovation into this market faster.”

And robotics was the subject of an interesting demo by an under-the-radar US-Israeli company, Microbot Medical, which has developed a disposable micro-robot, the Liberty, about the size of a water pitcher. An early morning demonstration by Microbot Medical’s executive team showed how far innovators are pushing the field: Microbot has finished preclinical trials of LIBERTY for catheterization laboratories, with both navigation and mechanical guidance capabilities. The CEO, Harel Gadot, an ex-Johnson & Johnson Ethicon marketing executive, says the robot, LIBERTY, is a “one and done” approach.

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