By Michael Greeley
Sept 15, 2003 | ENORMOUS SUMS of money are spent throughout pharma and the biotech industries in search of the next new miracle molecule. Another category of companies is emerging and attracting venture capital to better perfect the sales and distribution of those molecules. The success of evidence-based medicine is predicated on the ongoing development of new software tools to refine how the correct drugs ultimately reach the most appropriate patients.
A recent Rand Corporation study noted that only 55 percent of the time, across a broad spectrum of patients, did those patients receive the proper diagnosis and treatment. Various shortcomings were cited, including inadequate infrastructure throughout the healthcare system, lack of accountability for healthcare providers, and a general lack of awareness among doctors. Much of this, while shocking, is not new to venture investors. It is against this context that the promise of IT applied to the healthcare system looks so seductive.
Creating a bio-IT marketing services company poses two broad challenges. The first is assembling, integrating, and analyzing the patient data; the second is selling the value proposition to pharma and biotech clients. The issue of data acquisition is not trivial. Several creative approaches have been taken, from enrolling physician practices and hospitals to acquiring data from pharmacy benefit managers, payors, and other insurance intermediaries. The data are often of spotty quality and inconsistent in their definitions. Many times the most valuable data are unstructured, in the form of written (and increasingly digital) doctors' notes. Advances in transcription and electronic data capture (see "Resolving Bottlenecks III: Data Rapture?," May 2003 Bio·IT World, page 60), however, have increased the amount of data available to these new marketing services companies.
The integration, storage, and manipulation of the data are also not trivial. While numerous software solutions exist in the market and are generally available, proprietary tools still must be developed given the many unique characteristics of the data. Data-integration projects are typically labor intensive and highly customized. According to Edward Kerslake, the chief operating officer of MDdatacor, a company selling medical informatics tools to improve patient care, "the issues of data quality lead to a trade-off between the depth of the data searches and the number of data fields."
None of these concerns even begin to address the underlying hard and soft costs associated with the data-assembly process. The cost of the actual data at times will be a fraction of the true cost to assemble and integrate those data. Even worse, however, is the fact that for entrepreneurs these initial challenges detract from revenue-generating activities such as selling the marketing services themselves.
Articulating the Value Proposition
The second broad challenge in establishing a bio-IT marketing services company is to articulate the value proposition. Kerslake estimates that the cost to deploy a marketing program is 10 to 20 times the cost to develop that same program. Many large budgets are at work, and historically pharma and the biotech industries have had rudimentary tools to manage and assess the effectiveness of their marketing and distribution campaigns.
|Historically pharma and biotech have had rudimentary tools to manage marketing and distribution campaigns.
The articulation of the value proposition can be tricky, though. A better understanding of patient data will increase the market penetration of certain drugs, allow for more effective research and tracking of market acceptance, empower consumers with better information, and improve clinical effectiveness. Pharma's goal, the "super rep," armed with detailed and longitudinal patient data (HIPAA-compliant, of course), should help doctors to better treat their patients.
Providing these decision-support tools has been successful in many other data-intensive industries, but the pharma industry has been slow to adopt. Bob Oscar, CEO of RxEOB, a company providing marketing services utilizing health-plan patient data, highlights "the challenges of missionary selling to clients where standard reports did not historically exist."
There are also the ever-present concerns around patient privacy and ensuring that the data are not misused. The temptation to create "networkwide benchmarks for doctors," Kerslake says, is real and also may be inevitable.
So where are the venture capitalists in all of this? Most investors accept that significant information can be gleaned from large repositories of data using appropriate tools. Unfortunately, there are two troublesome contextual issues. Recent pharma consolidation has led to greater corporate paralysis and has caused some dislocation of marketing budgets. Moreover, many venture funds have started to focus more on drug-discovery investments at the expense of bio-IT platform companies. Both of these environmental factors are largely out of the entrepreneur's control.
But entrepreneurs can address some concerns. Today's investment climate rewards business models that are quick to generate revenue (within 12 to 18 months of inception). Given the nascent state of the bio-IT marketing services sector, entrepreneurs should focus on selling products that have shorter sales cycles and generate revenue quickly, and then migrate to higher value-added, more complex products. Also, many startups are launching multiple businesses within the same company. Assembling, aggregating, and analyzing the data, and then subsequently selling solutions using those data, are very different activities. Doing both in parallel, and weathering the inherently long lead times selling to pharma, may be too much for an early-stage company to bear.
Michael A. Greeley is the managing general partner of IDG Ventures, a global family of venture capital funds operating in North America, Europe, and Asia, with approximately $600 million under management. E-mail him at email@example.com.