23andMe, a healthcare fund idea, and the NHS

What do you mean, of course I know what I’m going to write about next. Noooo this isn’t a post to stall while I shill a couple of Out-Of-Pocket developments, what’re you talking about haha.

A few things I’ve been musing about

• A healthcare fund idea I’ve been ideating on
• What should 23andme do?
• A new report about the NHS
• Some healthcare observations being in London myself

A healthcare fund idea

It’s pretty clear that the current model of venture financing is not working for 95% of digital health companies, even though many of those companies are actually pretty decent businesses. The costs scale linearly with revenue, and growing too quickly creates operational challenges that actually become more expensive to fix. We’ve talked about this phenomenon many times in the past. 

But digital health companies still need money to get started, staff up to win/execute contracts, and have cash while hospitals get 23 signatures to pay their invoices (after which a check gets mailed to the wrong address). Using loans or debt with regular required payments present their own issues since the payments are fixed while your cash flow can be irregular, assuming you can even get underwritten for one at that stage. So is there potentially something in between that can work? 

A fund idea that I think could be interesting.

1. One round of equity financing at the early stage to help create the product/care model and test it out. IMO the cost of getting to revenue is decreasing over time - small teams can do more with less.
2. Royalty-based financing once a company is actually making revenue and needs to scale up. This is basically taking a % of revenue as new revenue comes in, capped at a certain multiple of the initial amount given. So if you invest $1M, you could do 10% of future revenue until 2x is paid back. The multiple gets higher the longer it takes to pay it back, which creates some incentives to pay it back earlier.
3. Not spending management fees on unoriginal things (optional).

This model only works if you feel very good that this revenue is actually going to arrive and grow. I’ve invested in a couple bars and restaurants that have structured their financing as royalty-based.

Some generalist funds specialize in doing royalty-based financing like Cypress Growth Capital, and you have firms like General Catalyst offer new financing products that do something like this. But I wonder if you can go even earlier-stage and more domain specific. The risk is you know less about the quality of the revenue, but the equity financing might compensate you enough for the risk? 

The belief is that this would enable companies to grow at a more sustainable pace and target smaller exits while also still being a good outcome for investors/founders/employees at companies. Companies would take less dilution, so theoretically that initial equity financing retains more of its value as the company grows.

I’m not a “finance guy” - I was too busy making jokes at their expense. So I’d be curious what you’d tweak about this model to make it work or if there are holes in it that I’m not seeing. Maybe one of you readers can run with this idea and make me an “advisor” that does nothing, gets extremely little, but puts it as a Linkedin job.

Btw four years ago I filmed a sketch about a digital health company in this position running out of money. I play a depressed founder with horrifyingly bad taste in bed linens (this is pre-wife). I just had it edited, and it’s sad how still relevant it is today.

Course time! Education stipend haven 

Q4 is my favorite time of year when it gets brisk, apples are in season, and a bunch of people with learning budgets are looking for courses to help them level up.

If you’re in healthcare, let me open your mind’s horizons. We have lots of courses now enrolling

• Claims Data 101 - A practical introduction to the most widely used dataset in healthcare and things to watch out for if you’re using it in analyses. Starts 11/11.
• How To Contract with Payors - This course teaches you the essentials of contracting with payors, including strategy, presentations, negotiations, and deal closure. Starts 12/2.
• Healthcare Product 201 - Understand the healthcare product development lifecycle, business models, and product principles in a fun and practical way. Starts 1/6.
• US Healthcare Crash Course - The fastest way to learn US healthcare. All the big players, major laws, case studies, and how the money flows. Starts 1/28
• EHR Data 101 - Learn practical strategies to extract useful insights and knowledge from messy and fragmented EHR data. Starts 1/28.

You can see all the courses and more details here. If you’re interested in group discounts for 3+ people, bundles, recorded versions of the course, etc. get in touch with us here. We now work with a lot of companies you’ve heard of but we forgot to ask for a public testimonial in our last contract.

23andMe’s future

Morgan Cheatham posed an interesting question - If you were 23andMe, what would you do? The company has not been doing too hot in public markets, but is it a done deal? You can submit your responses above, he’s doing a collection of responses.

My response was that they should either merge with or start a biobank. Biobanks struggle with engagement, while 23andMe has shockingly high engagement from its customer base. A lot of people that opt-in to 23andMe are research curious - 84% have opted-in to research and they fill out a ton of surveys (for some reason). Many of their customers have conditions that could use more natural history studies, or have no conditions at all and can represent a healthy baseline as it progresses into a disease if they develop one. 

There’s already a lot of biobanks out there, so I’m not sure what the best way to stand out would be. One wedge that comes to mind is to focus specifically on a biobank for unique genotypes and allow researchers to run decentralized, genotype specific research studies. For example, it seems like we found the cause of severe morning sickness (hyperemesis) thanks to 23andMe when the NIH wouldn’t fund it. 

“Dr. Fejzo said she asked the National Institutes of Health to fund a genetic study of hyperemesis, but was rejected. Undeterred, she convinced 23andMe, a popular genetic testing company, to include questions about hyperemesis in surveys of tens of thousands of customers. In 2018, she published a paper showing that customers with hyperemesis tended to carry a variant in a gene for GDF15.” - New York Times

As an aside: There are very valid criticisms and concerns about 23andMe and what consumer privacy looks like. This article highlights the issues well (e.g. 23andMe data is not covered under HIPAA). Personally I’ve never done 23andMe because the downside risk of this data being used to underwrite my life insurance policy is not worth the upside risk of finding out I’m 98% Indian.

However, I don’t think 23andMe also gets enough credit for essentially creating the modern direct-to-consumer genetic testing space. After getting the FDA letter to shut down, they worked with the agency to eventually get approvals for their different carrier tests. It’s interesting to read some of the approval letters from the FDA, which focus on things like whether consumers really could comprehend their test results.

“The company submitted data on user comprehension studies, using representative [Genetic Health Risk] test reports, that showed instructions and reports were generally easy to follow and understood by a consumer. The test report provides information describing what the results might mean, how to interpret results and where additional information about the results may be found.”

A lot of tests that provide information to patients directly are really following in 23andMe’s footsteps. Personally I hope they figure things out, because I think patient-initiated home diagnostics are an important part of a consumer healthcare system. With the bloodbath of other high flying in this space (e.g. Cue Health), it’s making me sad that this segment might not be viable.

Headhunting stuff

Three jobs that we’re working closely with companies to find them the right candidates:

• Series A company doing interesting things on the care navigation/patient advocate side. They’re looking to hire a Chief Medical Officer. 
• Early stage company building something that helps families organize, collaborate, and share health/wealth data. They’re hiring a Design Lead.
• A stealth company that’s building something in the integrative medicine x behavioral health space is looking for a Co-founder to shape their commercial/payer strategy.

If either of these sound interesting to you, fill out the information in “find your next role” here and we’ll reach out if it’s a good fit.

If you’re a company that’s hiring, come work with us. We offer headhunting that’s totally contingency based.  We find people in the Out-Of-Pocket universe that are a good fit for you.

NHS

In the UK, they just put out an independent report about the state of the National Health Service (NHS). TL:DR - it’s old and underfunded, like your mom. But reading the whole report is worthwhile IMO.

The parts about wait times in particular are pretty brutal - and COVID seemed to make this much worse. 

"According to the Royal College of Emergency Medicine, these long waits are likely to be causing an additional 14,000 more deaths a year – more than double all British armed forces’ combat deaths since the health service was founded in 1948.”

There’s also just some generally interesting charts. For example their NHS 111 which helps triage patients has increased in usage a ton, but the answer/abandonment rate of incoming calls has grown significantly. 

I could see this report being the catalyst for the government to figure out where it wants to deploy tech to address productivity issues in the NIH. Maybe some companies in the US can find a more welcoming response across the pond, or maybe local startups in the UK can find an NHS that’s more eager to work with them.

I think every system has their own sets of tradeoffs. I am by no means a believer that the US is the best system (massive lol), but it is interesting to read reports like this to see what tradeoffs look like. It’s worth noting that in many parts of the US wait times are bad too, but for procedures the median wait time is <25 days and for most visits it’s <1 month (depending on where you are in the country). In the UK the target time is within 4.5 months, and even then about a third of people are above that time frame.

It’s also a reminder that there are many different metrics that you can use to evaluate a healthcare system. This can be healthcare metrics like access and quality, but it can also be metrics on how healthcare relates to the broader economy. For example, a lot of a country's productivity is dependent on their workforces being healthy. 

“Being in work is good for wellbeing. Having more people in work grows the economy and creates more tax receipts to fund public services. There is therefore a virtuous circle if the NHS can help more people back into work. More than half of the current waiting lists for inpatient treatment are working age adults.”

I think a lot of developed nations are grappling with how to balance an aging nation that needs increasingly more services and coverage, with the fact that in some way it comes at the expense of the younger, working age generation that’s needed to contribute to the economy. 

I respect that the UK did this report, and everyone I talk to in the UK loves the concept of the NHS and believes in it strongly. That’s way more than I can say about how people feel about the US healthcare system.

Btw, we compare the different country healthcare systems in the Healthcare 101 course, which is now enrolling for the class starting 1/28.

Dinner?

We’re planning out what next year looks like in terms of events, sponsored dinners, etc.

Once a quarter we typically do a dinner with a partner where we invite 20-25 people in the Out-Of-Pocket community around a specific topic. The partner pays us to organize/invite people and covers the cost of food.

We’re thinking about the dinner we want to do in Q1 2025, and we think it would be interesting to do a dinner around the state of healthcare data/interoperability. If you’re a company that targets data scientists/machine learning people in healthcare and you’ve finally realized small group events are a much better marketing ROI, fill out this form and we can chat about it.

If anyone else reading is interested in ways Out-Of-Pocket works with sponsors, you can fill out the form too. You don’t need to feel left out.

London sightings

Speaking of the NHS, I’m actually in London right now. The weather here makes it look like the Harkonnen planet and the best food here is Indian in some reverse colonialism jiu jitsu. Pub food is actually very tasty idk why it gets so much hate, but I still don’t understand what this country did with all the spices the East India Trading Company conquered the world for. Because it wasn’t for cooking.

Anyway here are a few interesting healthcare tidbits I saw on the ground here that you all might find interesting.

First is that there seems to be a big push to have pharmacists treat more issues. This seems new as of this year in their Pharmacy First initiative. It seems like pharmacists now have broadly more prescription authority in the UK, including prescribing antibiotics for simple issues. As more countries experience labor shortages, pharmacists seem like the first in line to be able to do more clinical stuff. Maybe the US will observe and follow suit.

While listening to something, I got an ad for MacMillan cancer support, which seems to be a non-profit that provides cancer navigation and support. The interesting part though was that they talked about how 30-40% of their operation is funded by donations that come from wills. They even offer a free will writing service if you want a basic will, and you can add this organization as one you leave money to. Pretty interesting, maybe more healthcare non-profits should try this? Do they make wills for digital health companies?

Near our hotel was this booth that had a defibrillator in it. I think there’s a class of time-sensitive healthcare items that should be kept in booths around the city - epipen, defibrillator, narcan, an ice cold one, etc. There are some Naloxone vending machines popping up in the US, but what if we had booths like this every few blocks. Or the city paid certain businesses to hold these items so they covered a given area?

Also if you thought longevity medicine and full body MRIs are a US specific thing, I’m here to tell you that it’s also here as well. The protocols are a little different here though, you basically just macrodose Vitamin D tablets and put on a VR headset to show Brexit never happening.

Thanks for reading my jetlagged-fueled thoughts!

Thinkboi out,

Nikhil aka. “Thinklad, not my best”

Twitter: ​@nikillinit​

IG: ​@outofpockethealth​

Other posts: ​outofpocket.health/posts​

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