Sofinnova goes digital

iCad, the developer of artificial intelligence-enabled mammography technology, made 28% of its workers redundant last month. Verily, which works in the area of AI-enabled precision medicine, laid off 15% of its workforce in January. And Pear Therapeutics has filed for bankruptcy, shortly after putting itself up for sale. All in all, this is an odd time to be making a push into digital health. 

But that is exactly what the venture fund Sofinnova is doing. The group has just started a new digital medicine strategy, under which it has already made three investments and intends to make 10 or so more. In its sights are companies seeking to improve healthcare system efficiencies, Simon Turner, a partner at Sofinnova who is leading the strategy, tells Evaluate Vantage.

The two approaches most often thought of as digital health – telehealth and prescription apps – fall outside of Sofinnova's purview.

“It’s very much focused on the clinical benefits, the impact on the healthcare system, our ability to reduce the delay that we see quite often in the healthcare system,” Turner says. “It’s fundamentally approaches like simulation, modelling techniques, AI, to improve outcomes.”

This is Sofinnova’s sixth investment strategy. The others encompass biotech and medtech, early-stage medtech, industrial biotech, Italian companies and crossover investments. 

Early, but revenue-generating

Under this strategy Sofinnova will invest in 12 to 15 companies, taking part in seed and series A rounds. Sofinnova intends to be involved not only with capital commitments, but also with helping with the targets’ strategy. It also hopes to work with its current and former portfolio companies and limited partners, which are often, Turner says, potential partners or clients for the newer businesses.

“We tend to be in the €2-8m range in terms of initial ticket sizes, and are then able to double down later on, in the subsequent rounds, up to let’s say, €20-25m per company,” Turner says. The strategy also has a seed component, so it can get in earlier and take smaller bets into riskier but potentially high-reward situations.

One advantage of prioritising digital medicine companies over more traditional medical technology is that many generate revenues very early, Turner says – indeed, the three that Sofinnova has invested into so far are all bringing in cash via wither partnerships or service contracts. 

The group intends to hold its investments for five to eight years, which might leave time for the IPO market to recover. But Turner emphasises that there are other exit routes for its portfolio.

“Private equity is really interested, because these are companies generating revenues already”, he says. Pharma, CROs and medtech are all traditionally buyers in the space, he adds – particularly of companies that can help with clinical trial recruitment, for example by identifying likely responders to an experimental treatment. 

But health insurance providers might be interested too, for example in digital approaches that can help sidestep inefficiencies in healthcare systems. Tech companies too could be buyers, he says, naming Google, Apple and Amazon as groups that are increasingly active in the healthcare space. 

The advantages and disadvantages of the digital medical space versus more traditional medtech are well known – on one hand offering faster and cheaper development, but on the other greater difficulty of proving a benefit, less clear regulation and, probably, lower prices for the end products. 

Sofinnova is fond of bucking trends, as its historical willingness to make early-stage investments shows. Maybe getting into digital medicine just as many other players are becoming disillusioned with it is the right move. Time, and exits, will tell.