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Colorado’s fledgling digital health industry luring new cash

Colorado’s more than 100 digital-health companies ranked sixth nationwide for attracting venture capital in 2014, and projections indicate the trend will continue as investors become more familiar with what these companies can do.

Venture funding for digital health-care companies is expected to double in the United States over the next three years, luring investors with the promise of helping cure rising health-care costs while providing a nifty return on investment.

Rock Health, a San Francisco-based startup incubator that tracks how technology is used in health care, ranked Colorado No. 6 for digital-health companies raising funds.
New research by Accenture, a San Francisco-based management-consulting, technology and outsourcing services company, predicts that funding for this segment will grow from $3.5 billion in 2014 to $6.5 billion by the end of 2017.

Digital-health company’s software or hardware products use information and communication technologies to help address the health problems and challenges faced by patients with the hope of reducing health-care costs.

It could be a sensor to accurately measure how much medication is delivered by a drip bag such as the one being developed by Boulder-based Fluonic Inc., or web and smart-device solutions to reduce health-care costs through improved prescription use being developed by Boulder-based RxAssurance Corp. One of its programs, for example, reminds people when it is time to take medication, helps keep follow-up appointments and reach goals established by health-care providers.

Digital health-care products have been evolving for more than a decade, but it is considered a relatively new class that has few sales for investors to use for valuations, and where there are many companies vying for leadership with unproven yet promising innovation.

Digital health-care companies are divided into three major areas:

  • Wearables, such as gadgets that can be worn outside or implanted into the body such as cardio and hydration monitors or glucose meters for diabetics.
  • Transparency for consumers, such as websites that create databases that allow for comparison shopping for health-care insurance plans and procedures.
  • Companies that provide technology to help doctors and other health-care providers serve patients better, from sharing electric health records to equipment such as Fluonic’s drip sensor.

“Digital-health care is the hottest growth area at all levels of investment in the United States,” said Peter Adams Peter Adams, executive director of the Rockies Venture Club.

Rock Health’s report, Adams said, showed that through all types of investing — crowdfunding, mergers and acquisitions, and traditional venture capital — digital-health companies nationwide are exceeding averages for return on investment. The report concluded that digital-health companies raised $4.1 billion in 2014, but did not include dollar amounts or percentages for individual states.

Jake Rishavy, director of innovation and entrepreneurship at Denver South Economic Development Partnership, said that so far most of the venture capital for this segment is coming from angel investors, and that larger institutional investors are just now beginning to take notice.

Rishavy is also a co-founder of the Prime Health Collaborative in Denver, which tries to bridge the gap between technology, health-care providers and investors.

“It’s the opportunity to create efficiencies in one of the most inefficient industries,” Rishavy said of health care. “I’m looking at a continued upward trajectory in funding for the next five to 15 years for digital health.”

Jim Kasic, chief executive of Fluonic, said he’s seeing an interest from angel and institutional investors.

“They are interested,” he said, “but because it’s new, they are tiptoeing around, trying to wrap their minds around how it can be monetized.”

David Gold, with early-stage venture capital firm Access Venture Partners in Westminster, said the digital health-care industry’s momentum is increasing, mainly because the health-care industry is behind most industries in its use of digital technology.

“With the increases in health-care costs, there are opportunities for companies that can use technology to lower those costs,” Gold said. “We (Access Ventures) are actively looking for digital companies to invest in.”

Bob Goodman, chief executive of RxAssurance, only recently has entertained the idea of seeking venture capital.

“We bootstrapped this company and raised money through super angels,” he said.

RxAssurance began working in January with a large hospital in the state on a paid pilot program that will test software that helps doctors to better monitor and assess patient outcomes regarding prescription use. Goodman declined to name the hospital.

“It’s all about trying to lower health costs and improve patient outcomes,” Goodman said.

After making pitches at conferences recently, he sees “significant opportunities” to access venture capital.

Rishavy said this segment of health-care companies is attractive because much of what they do is software driven. “With a lower cost to get a product to market,” he said, “that makes it more appealing to the investment community.”

According to a report by Silicon Valley Bank, about $3 billion was invested in digital-health startups nationwide in 2014.

Accenture said this segment has been growing at an annual rate of 31 percent since 2008. Accenture projects digital-health startup funding will grow to $4.3 billion this year, and it is expected to reach $6.5 billion by the end of 2017.

Dipak Patel, managing director of Accenture’s patient-access initiatives, said the momentum will be sustained if digital health-care startups can create a seamless patient experience that results in medical cost savings and improved outcomes.

“Health-care leaders will need to embrace digital capabilities, not only to stay relevant to consumers but to influence behavioral change, improve access to care channels and reduce per-patient costs,” Patel said. “Organizations need to weave digital capabilities into the core of their business models so technology becomes embedded in everything they do.”

Doug Storum can be reached at 303-630-1959, 970-416-7369 or dstorum@bizwestmedia.com.