Charles Kennedy, CEO and managing partner at Blue Ox Healthcare Partners, told PE Hub that Sera Prognostics’ partnership with Anthem is the poster child of his firm’s investment strategy – underscoring a new way in which products are coming to market as the industry continues moving towards value-based care.
Together, Anthem and the Blue Ox-backed business have started to enroll patients in a study involving the latter’s diagnostic test – which uses biomarker technology to identify pregnant women who are at higher risk of delivering pre-term.
A subset of Anthem plan participants are involved in the study, which will look at how the PreTRM® test – in combination with clinical interventions – will improve neonatal outcomes and thereby reduce overall healthcare costs.
“It’s clinically important and socially important,” said Kennedy, whose firm provides growth capital to commercial-stage healthcare companies. “The science here is not as strong as it needs to be.”
A pre-term birth can be devastating to mothers and babies, and is the main cause of illness and death in newborns. According to the 2020 March of Dimes Report Card, of the nearly 4 million babies born annually in the US, more than one in 10 are born prematurely.
Faster, more affordable
Kennedy, who is also a physician and former Aetna executive, says the Sera-Anthem partnership reflects a bigger trend: a fundamental departure from the way such products have traditionally been brought to market, which has been by running clinical trials within academic research settings.
In contrast, Sera and Anthem are accelerating the evaluation and rollout of the test, while bringing it to a real-world, community setting – such that its functionality is not limited to the academic setting. “That [the academic setting] often doesn’t transfer to routine care in the community,” Kennedy said.
That model is resonating, he adds, as more insurance companies like Anthem – a leader on this front through its HealthCore subsidiary – are getting involved in real world research. “That’s a real change in how things come to market,” Kennedy said.
Sera, through the use of molecular diagnostics, also aims to create more affordable care. Besides the added health risk, a premature birth typically costs at least 10 times as much as a normal birth, he said.
In that respect, the investment and partnership are also emblematic of Blue Ox’s thesis around value-based care or risk-based payment models: that is, reimbursement that rewards providers for quality clinical outcomes at lower costs, versus the traditional fee-for-service model, which encourages volume over value.
“You’re seeing the fruition of value-based incentives start to create real change,” Kennedy said. “When you create that risk-relationship with providers, they need innovation.”
He said that providers need access to a tool or technology (such as Sera’s test) that helps them do a better job while simultaneously lowering the cost of care. “That’s why you’re seeing Anthem – and you’ll see others – accelerate innovation into routine clinical care. This could actually enable them to make more money.”
Covid: a proof point
Kennedy is also enthused by the pace at which covid-19 vaccines have successfully come to market.
“It used molecular diagnostics; it used advances in IT as applied to biology; and it used those advancements to bring products to market faster, better and in a more affordable way,” he said, referring to the work done to develop and commercialize the vaccines in record time. “That model is the model for where the industry needs to go.”
The way in which the federal government paid for the vaccines was also notable, he said.
“Once they saw there was a path, they put forward a very large commercial order. I wouldn’t be surprised if, in the future, you see health plans mimicking that strategy to support products coming to market.”
Like Sera, Blue Ox sees opportunity to invest in pockets of medicine applying this strategy using molecular diagnostics – with a significant focus in oncology, a particularly expensive area of medicine.
“The one red flag, or yellow flag: how are we going to afford this innovation? That’s where I think a day of reckoning may come. If you’re bringing innovation that is meaningful and helps improve clinical outcomes, but does so in an unaffordable way, we will see real challenges.”
New York-headquartered Blue Ox, which led a $36 million funding round in Sera in November 2019, also currently holds investments in Epic Sciences and Advocate My Meds. The firm does not currently have a fund, and invests on a deal-by-deal basis.