The Life Science business sector has grown significantly with innovation in basic technologies that enable researchers, medical professionals, and now the public to better understand the drivers of health and disease. The traditional Business to Business, B2B, model has focused on the first two groups, by providing high tech research tools and therapeutics. These verticals are fraught with difficulties for entrepreneurs who wish to bring new tools and technologies to the market. The difficulties include a resistance in the research community to take on new methods that have not reached consensus and the long development cycle required to make a market debut for all healthcare technologies due to the scrutiny of government regulators. In addition, the traditional verticals fail to meet the growing needs of personalized medicine, which is built on new research and new technologies yet to be established in traditional brick and mortar institutions. There is an opportunity emerging which allows startups to bring their disruptive innovations to the market, side-stepping regulations and targeting a broader and yet fully unrealized market. Indeed, by directly serving the consumer, the patient, a new vertical that serves the ever growing need of personalized medicine can be optimized and scaled by disruptive technologies.
This is the Business to Consumer, B2C, market in personalized health. From diagnosis, to heredity, to the quantified self, hundreds of startups are providing value to the most important stakeholders, the public, by providing services which promote self-knowledge to an ever more educated consumer market. Following the footsteps of companies such as Quest Diagnostics, 23andMe, and FitBit, I briefly compare the traditional and emerging verticals, the various strategies for early revenue from consumers to fund Small and Medium Enterprises, SMEs, through the early years, and the advantages of this emerging model brings to move into the traditional life science vertical.
Current Business Model: Obstacles that Block Market Launch.
To bring a therapeutic or diagnostic to the market, a company expects to invest €100 million to cover research, regulations and a highly skilled workforce for 10 years. Proof of principal, clinical validation, scale up and regulations are some of the technical barriers that stifel investment in the life sciences and are the primary source of capital costs. While the payoffs for the development of a therapeutic could be very attractive to investors, the slow path to market, the high risk in development, and the risk that the tech may not make it to market have kept funders away from the health vertical. Generally speaking, Venture Capital funds are also limited by their own lifecycles, which are typically 5 to 7 years for measured returns on the investment. This does not match the current timescale for development of a lifescience product unless the product is another hospital management system. This requires early stage SMEs to default to the slow pace of government funding and academic partnerships to reach developmental milestones.
Alternatively, they also seek strategic investment from established players in the market. Competition, market access and small customer base have limited development of new discoveries and block innovative technologies from reaching the public even if the funding is available. Once technical and regulatory milestones are achieved, a company’s only option is to sell their technology to established players who have developed relationships with franchised hospitals and national health services. This is only possible if a proven market exists for a particular technology. While the final consumer is the patient, in the B2B model, sales are funneled through the direct customers, hospitals and doctors. Adoption of new technologies is not just a factor of providing better care for the patient. Healthcare providers are slow to adopt new technologies, as their incomes are based on what insurance will and will not cover. Serving the health B2B market is limited by insurance schemes, which only reimburse specific diagnostics and therapeutics as required by local governing bodies. Winning value propositions point to saving money rather than saving more lives or revolutionizing the way in which we cure or diagnose a disease. As an entrepreneur whose passion is to improve health with his products, this can be a harsh reality.
History of direct to consumer health services and the hope for the future:
Since brick and mortar healthcare profits are bound tightly to insurers’ payouts, companies have begun to target consumers in the newly emerging business-to-consumer, B2C, healthcare market. For the last 30 years, large pharma companies, such as Pfizer, target the final consumer, the patient, with their marketing efforts and encourage patients to inquire about a new drug at their next clinic visit. The first gamble on direct-to-consumer health was the at-home pregnancy test in 1976, which provided privacy to medicine unknown before that time. Regulators assumed women needed the supervision of healthcare professionals to understand and manage the results, but the outcome was only positive. Hence, the first direct-to-consumer healthcare product was quickly followed by the second: an at-home glucose monitoring device in 1981, which added needed convenience and health benefits to those suffering from diabetes.
Redefining regulations in 2003 under CLIA, the Clinical Laboratory Improvement Amendment, allowed for clinical service providers to expand their customer base from private and public healthcare providers to direct-to-consumer health. With public access to the internet, the B2C market was able to target the consumer easily. In 2008 the European Union enacted similar regulations under the heading of ISO 15189 primarily to harmonize medical laboratory standards across European countries. Unlike the previous ISO 9001 and ISO 17025 which maintained a fixed scope, these new guidelines allow for companies to set up analysis services that are accepted within the whole EU market. Like CLIA, the guidelines have paved a route to market for other direct-to-consumer health ventures. Through internet access, the consumer is able to discover the cause of their ailments, companies can directly market to these consumers and it enables a seamless pipeline for delivering test results. Improvements in sample storage agents which stabilize tissue or other biologics for extended periods at room temperature enabled self-collection by the consumer at-home, rather than having to visit one of the medical labs. For example, Quest Diagnostics and LabCorp started off as for-hire clinical labs for private practices and hospitals whose need was to outsource the capital cost of routine diagnostics and assays. Now both of these companies target the patient themselves, providing the whole battery of tests without the need of a prescription, insurance, or additional cost to fund brick and mortar healthcare.
Since 2015, direct to consumer health companies have emerged that partner with clinical service labs. For example, Let’s Get Checked, from Ireland, initially provided extra privacy in testing for sexually transmitted infections. Consumers can order the tests online without a prescription. Samples can be collected easily by the customer and are then shipped by mail to an ISO 15189 lab for analysis. This was a simple start and now they have expanded to fertility, liver and kidney health and others. Beyond privacy for the end user, the convenience of sampling at home has led to a growing market of at-home diagnostic services which support the chronically ill and healthy consumers who are interested in optimizing their health by regular monitoring of metabolites, lipids, and nutrients in their fluids. Even though hospitals readily provide these analyses at no cost in the EU, consumers are willing to pay a premium for privacy and convenience.
B2C Personalized Medicine: An opportunity for patients and business.
We are at a tipping point, where new companies, directly targeting the consumer, are poised to support democratization of our access to health. In the past, a novel technology would take 25 years to transition from academia to the market. At the speed in which medical research advances, there are opportunities created daily for products from which customers and their doctors could benefit.
The idea of personalized medicine became a concept when the first human genome was sequenced in 2003. It was the technological advancements to achieve the first sequence that allowed for the reduction of cost from $2.7 billion per human genome to just $1,000 today.
Only 4 years after the announcement of the first sequenced human genome, 23andMe from the United States, offered the first direct to consumer genomic screening by offering ancestry data and a list of biomarker genes for cancer and other established diseases related to the genome. In their reports to the consumer, 23andMe allows individuals to peer into health risks hidden in their genome. After establishing an income stream and reliable genome testing protocol with consumer collected samples, an important validation step, 23andMe was reprimanded by regulators for concerns about the false hope or worries given by the impact of the risk assessment on a lay audience. The company had an established customer base and had assembled a large database of genomic information paid for by the consumer. This enabled them to improve in-house algorithms and created an additional source of revenue from pharmaceutical companies and insurance companies during. In the B2B business model, sales come after a lengthy regulatory process. During the 5 year approval process, 23andMe discontinued the risk assessment to consumers, but still sold the test which returned the raw data of the genomic sequencing which consumers could then take to a genetic counselor or their doctor for expert analysis. In the end they were able to prove to the regulators the validity of their product for testing for 10 inherited disease phenotypes carried in the genome and were cleared to add further diseases in the future without review. By being cash flow positive, 23andMe was able to continue product offerings and establish a regulated diagnostic which is now used in the clinic and at home.
Whole genome profiling of patients has yet to become standard practise in the clinic; however, there are a growing number of companies that are providing services to customers that allow them to be informed when making important decisions about their health. From what drugs to take, what exercise program to start, and what tests they should ask their doctors about in the clinic, companies are empowering consumers to take charge of their health based on their own personal genetic profile. Products that utilize cutting edge technology have this advantage, as they may be services outside the purview of regulations and provide an early revenue model which is attractive to investors. 23andMe was ahead of regulators, by offering a new service technology before regulators had formulated a stance on the use of this new technology.
Advantages of a B2C Market Play:
Entrepreneurs who wish to improve health can find several advantages in targeting the consumer market: larger possible markets, pre-regulation revenue, and validation of product market fit before costly regulations. Since the target audience is the consumer, it is possible to capitalize on the hope a new technology brings, rather than how much it increases the profits of the hospital. With the right marketing, even the most abstract technologies can be sold to the public. The genomic revolution is just the beginning of personalized medicine. Who would have guessed 10 years ago that people would pay $399 to learn about the healthy bacteria in their colons? Yet, Ubiome has targeted the consumer in their pre-regulatory market play, told a convincing narrative, and has succeeded in characterizing thousands of gut microbiomes. Their success can be best measured by the numerous companies which provide competing services. Tests which start off as informative such as Ubiome’s, rather than diagnostic, circumvent the stipulations of regulation and provide real value to both patients and to the medical professionals that serve them at the speed at which research and technology are developed. Unlike the products that offer genome sequencing, microbiome sequencing products have a longer lifecycle, as the gut microbiome changes with the customer’s behaviour, while their genomic information is static. Customers can be incentivised to test and use microbiome services on a subscription basis. Indeed services which monitor methylation of the genome as a marker for longevity are also becoming lucrative opportunities for innovators interested in starting a company. For the company, you are able to establish product pipelines and a well developed customer base that trusts the company's services and products. By establishing a cash-flow positive model outside regulations, companies can increase their runway to develop more high revenue services that fit within the traditional life science verticals.
As we will soon see, personalized medicine is more than providing the raw data to consumers, it also creates a need for a supportive ecosystem of special algorithms for interpretation, counseling and coaching based on the individual’s personal health profile.
The key to pre-regulatory success.
23andMe took an opportunity before regulators had caught up to the newly developed technology, it simply could not be classified under the prevailing regulatory framework. Unfortunately, that specific time has passed, as regulators understand the importance and impact of genomic data as a diagnostic tool. Microbiome products are still unclassified as well as methylation markers on genomic profiles, but this a window in the opportunity of a pre-regulation product. Therefore there are several obvious options available to capitalize on the personalized medicine vertical. The first, is to follow in the footsteps of 23andMe and use their regulatory approval to expedite your startups regulatory journey. Being the first in the market is is the hardest, but if the technology is established, there is a 6 month rather than a 5 year regulatory path to approval with a 510(k) in the United States. Next, your startup can provide a service yet to be regulated, such as markers for longevity, advice for the best diet plan, or fertility based on a consumer’s genomic or blood test. Secondly, establishing multiple streams of revenue can be capitalized, as was done by 23andMe and notably FitBit. FitBit started off as a way to self-monitor daily activity so consumers could be more aware of how active they have actually been. The product sold wildly, especially as New Year’s resolutions came to making good on fitness goals in the upcoming year. FitBit did not just deliver this information to the consumer, but established a database which is of great interest to insurers, but also markers of sports apparel and gym memberships. Hence, early revenue can be achieved through B2B sales of data derived from the diversity of the consumer’s microbiome to how many consumers are interested in new fitness routines. One of the last hurdles for the B2C personalized medicine vertical is data privacy. If your model sells customer data, how will you communicate this to your consumer without damaging sales? If doing business in Europe, new GDPR regulations put greater cost on collecting consumer data and returning this data to them in a secure way. Understanding regulations of doing business with consumers is a unique hurdle in B2C health, but clear guidelines exist.
Internet sales have overtaken the brick and mortar B2C market in fashion and other verticals. Now it is on the course to overtake brick and mortar medicine by providing an avenue for self education by the consumer. By establishing a cash-flow positive model outside regulations, a company can be comfortably positioned to develop more high revenue services that fit within the traditional medical model and convince risk-adverse VC’s to invest. A product that accurately provides meaningful data is still a requirement when serving the lay consumer as much as well informed B2B customers. The dream of the entrepreneur serving this market should be to serve the consumer with data to which they would normally not have access. Directly targeting the consumer entrepreneurs have unfettered access to revenues and are poised to support democratization of our access to health.