Sanara sets up $100m VC fund to transform healthcare

Assaf Barnea Credit: Alon Ron

The Israeli healthcare investment platform has already raised half of the sum with Philips Healthcare as lead investor.

"Covid shook us up. It tore the mask off the healthcare system, exposing it as even weaker and more fatigued than we'd thought. Come the next crisis, the health care system will not last, if it continues to operate using the existing incentive models," says Sanara Ventures CEO Assaf Barnea. Ra'anana-based Sanara Ventures is a healthcare investment platform backed by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) and Philips Healthcare, which includes a startup incubator supported by the Israel Innovation Authority.

Barnea tells Globes, that Sanara is currently setting up a $100 million venture capital fund (half of the amount has already been raised) to take advantage of the opportunities created by the shakeup caused by the Covid pandemic.

The keys to solving the healthcare system's deeply rooted problems lie, Barnea believes, in changing the incentive model across all parts of the system, including the technology companies operating in the sector, regarding paying for value. Only this sort of model, he says, will allow companies to finally break through the healthcare system's wall of conservatism.

"Underlying the concepts like access to medical services, proactive healthcare, disease management, or healthy aging is a change that will emerge out of the struggle between from the different forces, and there also lie opportunities. The winners won't necessarily be the leading players in yesterday's healthcare system. As investors, we need to be disciplined, not run amok, not get carried away, but take into account that the next ten years in healthcare will be dramatic. The leaders for the next decades are going to be determined now."

The data that doctors fear

Sanara Ventures was established as a technology incubator following the recent reform of the Israel Innovation Authority's incubator program, after which competitive procedures were held, and incubator franchisees selected that included professionals in the incubator's area of activity willing to make relatively large follow-on investments in incubator companies. Two of the most powerful healthcare companies active in Israel were selected for the Sanara incubator: Philips and Teva, who have allocated $60-70 million to invest in 25-30 companies. Meanwhile, 20 companies have been founded and are operating within the Sanara platform.

Sanara's second fund began raising capital four months ago, with Philips as lead investor. Teva has not yet committed to the investment, "For reasons of its own," says Barnea .

" One of the important things for us is to own the treatment continuum throughout, meaning from prediction, prevention, personalized care, through post-treatment or chronic illness support. You must own the entire treatment sequence or at least be a partner in the group that holds it, in order to achieve some stability in a value-based pricing model."

Is this at all possible for young companies that are dependent on larger companies, and that don't have pockets deep enough to absorb costs until they prove value, or conduct the necessary tests to prove it?

"It's definitely a challenge. The hospitals haven't opened their books to us freely so that we could see exactly how much we've saved for them. On the other hand, they themselves won't invest in integrating and testing a technology until they're convinced it has value."

Barnea gives IMEDIS as an example, an incubator company that has developed comprehensive quality management system for radiology departments, aggregates and analyses image data and helping radiologists locate cases where they may have missed findings or made a mistake. "Initially, the radiologists said, 'No thank you, I know how to do my job very well,'" says Barnea.

"The solution the company found was to offer the hospitals improvements to their insurance companies' payment collection processes. If a mistake was made and there was a discrepancy between the scan and what was submitted to the insurer, the hospital could not collect payment. So, IMEDIS developed the capability of reading the text submitted to the insurance company, compared with what was actually found in the image. They could then present it to hospital administrators as a tool for improving collection from insurance companies for treatments that had already been done. Suddenly, it was of great interest to them.

"You could then also talk to them about reducing malpractice lawsuits, for example, or - if a new finding was detected - making it possible to bring the patient in for another test or surgery. Eventually the hospital will also be able to identify the days or with which doctors the errors occur. They’ll say, 'This is the data doctors are afraid of.' Perhaps the hospital, or even the state, fear that when confronted with clear data, they’ll have to add standards and manpower. But there’s no alternative; the market is changing, and is no longer going to reward turning a blind eye."

Cooperation… even with the competition

Itamar Medical (not a Sanara company) is another example offered by Barnea. "Former CEO Gilad Glick paid attention to his market and thus managed to crack the value conundrum. He had a diagnostic product for heart disease and sleep disorders. But in the sleep sector, he was blocked by the associations for sleep medical professionals, and in cardiology, he realized very quickly that it would be hard for him to generate enough value. So, he found a way to market the sleep product to cardiologists, for the purpose of diagnosing sleep apnea, a sleep disorder common in heart patients. Among these doctors, he created a new market with value.

To make these sorts of quick changes, you must develop long-term, very deep relationships with market players, so that they tell you the truth about what’s happening at the hospitals, and the shortcomings of your product or your competitors, which are sometimes unrelated to the technological or therapeutic quality of the product".

To encourage the spirit of information sharing that Barnea believes is essential to the forecast revolution in medical technologies, Sanara has launched a series of events under the brand, Sanara Open. "We’re inviting strong companies from the digital healthcare sector, who also sometimes compete with one another, and ask them to create pre-competitive cooperation, meaning, raise the issues that, in the absence of a solution, will prevent any and all of these companies from progressing, but would be hard for any one company to solve on its own," he says. "The companies sit together and talk about business models, issues of financing."

Entering 'health gaming'

Sanara defines its areas of investment as digital health, data-driven medical equipment, and bioconvergence, a field that integrates biology with advanced engineering methods. "In fact, we no longer view ourselves as an incubator but as two investment companies. The first a fund to invest the first million, and the second, several million to bring the company to a proof of technological concept, or commercial feasibility in the case of digital healthcare companies. We intend to invest $100 million in 15 companies ".

The fund has also defined some sub-sectors it is interested in. One is "health games."

" In 2020, the US Food and Drug Administration (FDA) approved a game by a company called Akili Interactive, as a treatment for attention deficit disorder, and it is given as a prescription drug covered by insurance," says Barnea." Another company called Pear Therapeutics has received FDA approval to market a prescription app that provides cognitive-behavioral therapy for addiction. There are simulation games that are part of training doctors to prepare them for a variety of emergencies, games that are part of neurological disease diagnosis processes, or play a part in rehabilitation. It makes a lot of sense because your mobile phone is with you even when the doctor is not.

"Sanara is particularly interested in companies that can encourage patients to take their medication regularly and on time. Drug companies are really looking for that sort of thing."

How long does it take to bring this type of company to market? It seems that in the past we underestimated the time it takes.</i<

"At least 3-5 years from market entry until the company can hold its own through its revenue. Healthcare funds have gotten used to having one exit support the fund, and that can happen even before the product has a significant market share. But it happens less for these types of companies, and funds have to know how to guide companies to do well as they take their first steps in the market."

Another area is cybersecurity for hospitals, medical systems, and medical devices. "This is the very soft underbelly of the medical sector, because this information is enormously sensitive. A cyberattack doesn't happen in one day. Hackers find a loophole, enter, and snoop around to find vulnerabilities. During this time, they can be identified," says Barnea.

A third area is neuroscience, psychiatric and neurological diseases. Within this field, Sanara is particularly interested in precision medicine. "One of the challenges in adapting treatment for depression, for example, or attention deficit disorder, is the trial and error phase of the various medications and different doses. We believe that artificial intelligence can help," Barnea says.

Not looking abroad - yet

Out of the funds it has already raised, Sanara has made two investments: one in TailorMed, a company that helps US patients minimize deductibles, and in CVAID, for rapid diagnosis of stroke. According to Barnea, the fund also does not rule out investing in companies that require market education, such as Nanodrops, which has developed eye drops that can replace contact lenses or glasses, with applications for a third of the market. "We're talking about a new business model, because you have to go to the service provider once a month to get the drops. Currently, no such service model in the world of vision correction exists. If a product like this captures a significant share of the vision correction market, it could be a multibillion dollar company."

Some of the funds established in recent years in Israel have invested quite a bit abroad while you, it seems right now, are still focused on Israeli companies or companies with an Israeli affiliation.

"It was a great time to raise funds and some huge Israeli funds were created. Anyone that raises $600 million [the amount raised by the aMoon Fund - G.W.] has to invest abroad. Even if there are opportunities in Israel, most will not mature fast enough for a late-stage fund, and that characterizes most large funds. We’re raising $100 million; we were asked if we didn’t want to target $200 million. That’s harder to raise, of course, but we also think that $100 million is the right amount for the type of fund we want to establish at the moment."

Assaf Barnea

  • Personal: 54 years old, father of two, a former basketball player. Holds degrees in law, business administration, political science and psychology
  • Professional: CEO of the Sanara Investment Group, which owns the Sanara Ventures incubator. Is raising a new fund for the group, together with Philips, for investment in digital health, data-driven medical equipment, and bioconvergence.
  • One more thing: Serves as a consultant to the World Bank in the field of medical technologies, and is one of the founders of the TechEmerge Resilience Program, a World Bank venture to support technologies for developing countries.

 

Sanara's new fund - Portfolio companies

TailorMed

  • Founders: Israel (Srulik) Dvorsky and Adam Siton
  • Activity: Developing a digital tool that helps U.S. patients minimize their deductible payment for treatment and provides guidance as to which nonprofit organizations or drug companies can provide assistance.
  • Number of employees: 100, following the acquisition of competitor Vivor.
  • Stage of activity: Revenue

 

CVAID Medical

  • Founders: Oren Dror, Nadav Eichler, Danny Farin, Dr. Rotem Sivan-Hoffman, Dr. Shmuel Raz
  • Activity: The company has developed technology for rapid diagnosis of stroke and managing the hospital's patient admissions processes using a standard smartphone. The system detects, among other things, facial muscle asymmetry, and differences in movement between the sides of the body. "They filmed hundreds of hours of video of patients to develop the ability to identify a stroke, which is a unique database," says Barnea.
  • Stage of activity: Commencing market penetration.

Published by Globes, Israel business news - en.globes.co.il - on May 3, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Assaf Barnea Credit: Alon Ron
Assaf Barnea Credit: Alon Ron
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