October 11, 2017

Innovation in Healthcare: The Innovation Engine Podcast with Irem Mertol and Anahita Nakhjiri of McKesson Ventures

On this episode of The Innovation Engine, we’ll be looking at why innovation and healthcare do indeed belong in the same sentence, which technology trends are driving innovation for the industry as a whole, and how startups in the healthcare space can (and should) position themselves for success when approaching venture capitalists for funding or partnerships.

We’re joined by Irem Mertol and Anahita Nakhjiri of McKesson Ventures, a Silicon Valley-based venture fund that helps innovators build and scale businesses that will lead to a stronger and more sustainable future for healthcare. Irem is a Director at McKesson Ventures, where she invests in early to growth-stage companies across health care technology and services. Anahita is a Strategy & Portfolio Development Associate who is focused on identifying and commercializing opportunities between McKesson Ventures portfolio companies and the larger McKesson ecosystem.

EPISODE HIGHLIGHTS

More about McKesson & McKesson Venture’s role in the healthcare industry:

  • You may not know the name McKesson, but they’re a hugely influential company in the healthcare space; they’re also #5 on the Fortune 500 list and generate about $200 billion in annual revenue. McKesson has a network of 15,000 pharmacies across the United States, Canada, and Europe, and they touch ⅓ of all U.S. prescriptions. They offer a variety of products and solutions for pharma manufacturers, retail pharmacies, and providers.
  • McKesson Ventures invests in companies that catalyze and/or benefit from the key changes taking place in the healthcare ecosystem (outlined below). They’ve made over 18 investments in the past three years across everything from telemedicine to pharma analytics to solutions focused on improving the patient experience all throughout healthcare. They’re differentiated from many other venture funds because they bring not only strong domain expertise within healthcare by leveraging McKesson’s unique market vantage point to help their companies navigate the healthcare landscape and accelerate their growth, but they also have a dedicated portfolio development team focused on identifying the commercial synergies both within McKesson and across the McKesson ecosystem.

Four main drivers of innovation in the healthcare industry:

  • The Health Information Technology for Economic and Clinical Health Act, or the HITECH Act. It was enacted in 2009 to promote the adoption of meaningful use in health information technology. Investment has driven a nationwide network of electronic health records and, ultimately, the digitization of the industry data backbone, which opens the door for analytics and workflow optimization solutions to be layered on top.
  • The ACA, or the Patient Protection Affordable Care Act, was signed into law by President Obama in 2010. This started the steady march from a fee for service to a fee for value-based payment systems. Now, providers in health systems are being told they will get paid to keep people healthy, rather than making diagnoses and delivering treatment.
  • Consumers have more skin in the game, financially. With the rise of high deductible health plans and consequent out-of-pocket costs, including prescription drugs, consumers are expected to be more accountable and engaged in decision making.
  • The seemingly infinite lists of inefficiencies and unmet needs in the U.S. healthcare system that can be tackled by entrepreneurs, with many positioning technology and analytics as an answer. It seems inevitable that future changes in healthcare will be determined by big data.

What do startups need to know if they want to innovate in the healthcare space?

  • Although innovation is alive and well in healthcare, it’s critical to point out that that activity has not translated into commercial success for a large majority of the entrepreneurs and venture companies in the space. While a lot of these health care innovation trends are definitely pervasive and sustainable, most of these companies are facing way more roadblocks than anticipated – they need partners or investors like McKesson who understand the industry if they want to facilitate healthcare innovation.
  • By partnering with a bigger company, startups gain a significant amount of credibility for their product and business model with investors and other potential customers. Large companies like McKesson can really help meaningfully accelerate commercialization and go-to-market for a company through distribution channel partnerships, sales teams, or even large contract sizes, and they’ve found time and time again that the hardest piece to crack in healthcare is the commercialization phase because sales cycles tend to be so long.
  • One big challenge is that smaller companies often need to start communicating with larger companies like McKesson very early on, and they need a good understanding of what they want to ask for. Because the sales cycles tend to be longer than you’d expect, it can take a while to get all of the key decision makers on board with a new solution. So in speaking to large companies, startups need to be very clear on their value proposition to these potential customers.
  • Ideally, startups need to offer a significant monetary impact for the customer who is using the solution, and an incredible improvement (like 10x or 50x the existing process) when it comes to the efficiency or the user experience of using the product.

Resources:

About The Innovation Engine

Since 2014, 3Pillar has published The Innovation Engine, a podcast that sees a wide range of innovation experts come on to discuss topics that include technology, leadership, and company culture. You can download and subscribe to The Innovation Engine on Apple Podcasts. You can also tune in via the podcast’s home on Spotify to listen online, via Android or iOS, or on any device supporting a mobile browser.