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    Scott Kirsner | Innovation Economy

    Massachusetts must do a better job hyping its digital health care smarts

    Vertex Pharmaceuticals CEO Jeffrey Leiden helped finance the Massachusetts Innovation Catalyst Fund.
    Globe Staff/File 2017
    Vertex Pharmaceuticals CEO Jeffrey Leiden helped finance the Massachusetts Innovation Catalyst Fund.

    Almost three years ago, a group of Massachusetts’ most powerful business leaders joined with Governor Charlie Baker to stick a flag in the ground: The state would become the nation’s epicenter for digital health care. When it came to the software that linked consumers with doctors, hospitals, and insurers, we’d be so dominant that even the denizens of Silicon Valley would have to admit it. A 38-member state advisory council on digital health care was formed, as were a new $26 million venture capital fund and a pair of incubators for fledgling startups.

    As we approach the initiative’s three-year birthday in January, how are we doing?

    So far, there’s not a lot of boot-quaking out west. Of the four digital health care companies that have managed to raise more than $100 million in venture capital funding in the first half of 2018, all were based in Silicon Valley, according to Rock Health, a San Francisco investment firm.

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    One of the last successful initial public offerings in the sector was a New Jersey company, Tabula Rasa HealthCare. And one of Massachusetts’ highest-profile digital health care companies, Watertown-based athenahealth, was sold to a pair of private equity firms earlier this month; it had previously been a publicly traded company. Athenahealth will be combined with another digital health care company, Virence Health, and run by a Dallas-based CEO.

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    There’s also digital health care activity percolating in places like New York City, Chicago, Nashville, Denver, and Madison, Wis.

    So national dominance has not yet been attained. “We’re still way behind what I see going on in California,” admits Jeffrey Leerink, CEO of the Boston-based investment bank Leerink Partners. “We’re playing catch-up ball.”

    Leerink’s firm manages the Massachusetts Innovation Catalyst Fund, that $26 million vehicle created in 2016 to support digital health care startups in the state. (The money came from individuals like Vertex Pharmaceuticals CEO Jeffrey Leiden and companies such as the Kraft Group, owner of the New England Patriots.) That fund has made only a couple investments so far, Leerink says, in startups like Kyruus, which helps patients find doctors and schedule appointments; and PatientPing, which helps medical providers and insurers understand when and where their patients are getting treatment. “It has been slow going finding good companies at good values” in Massachusetts, Leerink says, though other Leerink-managed digital health care funds have been investing in other spots around the country.

    The Massachusetts Digital Health Council, created by Baker in November 2016, has a stellar lineup, including Atul Gawande, the wonder doc who not only writes for The New Yorker and sees patients at Brigham & Women’s Hospital, but also runs the new independent health care startup — formed by Amazon, JPMorgan, and Berkshire Hathaway — that is trying to reinvent employee health coverage.

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    The council meets once a quarter, has spawned subcommittees, and focuses on “figuring out what are the missing resources, and how do we continue to strengthen the local ecosystem,” according to Michael Greeley, a Boston venture capitalist who sits on it. But not much has emerged during the council’s two-year lifespan. Greeley says there are some projects in the works “that the public will see more visibly in the first part of 2019.”

    The most concrete thing to come out of the digital health care push so far has been two incubator spaces, in Boston and Springfield, that have together received a few million dollars in state funding. The Boston one, operated by the nonprofit MassChallenge, has so far hosted 63 startups that have collectively raised more than $145 million in funding and created 700 jobs. A handful of startups have moved to Massachusetts to participate in it, says managing director Nick Dougherty. It was originally known as Pulse@MassChallenge, but in September changed its name to MassChallenge HealthTech.

    There are a growing number of bigger health care players with a presence in Boston, notes venture capitalist Liam Donohue, name-checking Optum, CVS, Humana, IBM Watson Health, and Amazon, which earlier this year acquired the Somerville-based pharmacy startup PillPack And there are plenty of investors putting money into digital health care startups — like Donohue’s firm, Boston-based 406 Ventures, or Flare Capital Partners, also in Boston.

    Greeley, a cofounder of Flare, says that one of the headwinds facing the digital health care business as a whole is that there are “liquidity issues” — not enough companies going public or getting acquired. Such transactions provide big returns to entrepreneurs and to investors like him, and enable the companies to keep growing.

    Initial public offerings also create new pillar companies — the industry leaders that employ lots of people, attract media attention, influence the direction of the industry, and train future entrepreneurs. Massachusetts would benefit from more of those. Athenahealth, founded in 1997, was one, helping to digitize the way doctors billed insurance companies and maintained patient records. As activist investors clamored for the company to cut costs, and then pushed out CEO and cofounder Jonathan Bush, a lot of athenahealth employees left to join startups, Donohue says. He sees that as a plus. But athenahealth’s new private equity ownership, says Leerink, “creates a little more uncertainty for the region than we’d really like.” Private equity firms are better known for reducing expenses and head count than for investing in future product development and growth.

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    Building pillar companies is a slow process; it doesn’t take place over three years. And most of the right components are in place for Massachusetts to build on an already strong foundation in digital health care.

    ‘We’re still way behind what I see going on in California.’

    — Jeffrey Leerink, chief executive at Boston-based investment bank Leerink Partners 

    What’s missing? Marketing. As usual, we expect people outside the region to be aware of what’s going on here, because we know what’s going on and we talk to each other about it. But effective marketing is about communicating to people who aren’t yet aware. The Massachusetts Digital Health Council includes plenty of CEOs, chief operating officers, chief information officers, and chief medical officers. But not one chief marketing officer.

    Building buzz may seem superficial. But it’s a big part of attracting the talent, money, and events that help an ecosystem achieve dominance.

    Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.