Intern at GreyBird

Tom Miller

When GreyBird Ventures was established only five years ago, we wanted to exclusively invest in medical diagnostics. Specifically, we intended to invest in precision diagnostics in which the sensitivity and specificity of our portfolio technologies would be high enough that treatment uncertainty would be minimized. At the time of our founding, investing in diagnostics of any kind (in-vitro, in-vivo, imaging, IT, etc.) was at a nadir as we quickly learned from the 238 fundraising rejections that we received. It seemed to us that almost all investment funds were exclusively chasing new pharmaceuticals and therapeutic medical devices. While laboratory diagnostics influence 85% of healthcare decisions, they only account for 3% of healthcare spending and this was fully reflected in the investing environment.

This was until COVID-19 abruptly shifted public attention and, concurrently, the focus of medical investing. Recently, diagnostic testing has dominated the front page of every newspaper. New testing technologies and the performance of diagnostic tests that may allow us to safely reopen our societies have become the topic of dinner conversations, political discourse, and of course, investment opportunities.

We wish that it did not take a global catastrophe to underscore our original thesis, that cost-effective medicine requires innovation in diagnostics. However, now that we appear to have brilliantly forecasted our present, we must articulate why we decided to invest entirely in precision diagnostics five years ago, as the fundamentals have not changed.

The cost of healthcare continues to rise in the United States even though statistically our national health outcomes are worse than the vast majority of industrialized nations. The US healthcare system has proven extremely difficult to fix, with policies and practices largely driven by the conflicting incentives of patients, payors, regulators, providers, publicly funded researchers, and privately funded industries. These problems have been written about extensively. What has, however, received little attention are the dramatic improvements in outcomes coupled with reduced costs offered by just getting a highly specific diagnosis correct in the first place. There is nothing more wasteful to both health and money, than treating someone for a disease they don’t have, or with a treatment that will not work for their biology, or to detect an illness well after the point when the cost to treat, and the likelihood of cure, is well past.

"The goal of diagnostics should ultimately be to limit the overuse of therapeutics by requiring more strict diagnostic criteria before prescribing treatment"

Various trends in scientific progress have led to the dramatic increase in the amount of care provided to patients. While this has improved outcomes for many patients with previously fatal illnesses, it has simultaneously driven up the cost of care.

One root cause may be found by simply tracking the growing list of diseases. As our understanding of the biology of disease improves, what was once a single disease (e.g. leukemia or lymphoma) has become 80 separate conditions each requiring a different management, treatment, and probable outcome. The International Classification of Disease demonstrates this trend clearly with ICD 10 containing five times the number of diagnostic codes as ICD 9.

This trend has been paralleled by an influx of new therapeutics. While drug companies are more likely to focus on medications for diseases with large markets of potential patients, progress in medical science has led to a greater need of treatments for more narrowly defined conditions with limited markets. To maintain revenues and to justify the investment expense, costs per treatment skyrocket. To avoid this unsustainable trend, diagnostics must become equally specific and such diagnostic testing must be mandated prior to treatment.

This trend creates an increasingly critical requirement on diagnostic technologies that we look for in our investments. In the past, the fear of failing to detect something that could be fatal took precedence over treating someone who would’ve been better off left untreated. Research has shown, however, that the risk of treating something that is unlikely to produce harm is often much greater than the potential risks of the disease itself. Diagnostic technology that is high in sensitivity but low in specificity has largely exacerbated this issue, driving up the number of over-diagnosed individuals. While it is impossible to quantify the scale of such an issue, estimates suggest that around 35% of treatments are wasted, unnecessary, or even dangerous to patients. This is a massive financial burden to our healthcare system, as well as to our health.

This brings us to the heart of our investment thesis. We can no longer justify overspending on useless or harmful treatments. Advancements in diagnostics will not only allow us to differentiate disease and correctly prescribe therapeutic treatments but also better determine whether or not a patient will be a responder to a typical drug. The goal of diagnostics should ultimately be to limit the overuse of therapeutics by requiring more strict diagnostic criteria before prescribing treatment.

As to the handling of pandemics…

While writing this article, the Governor of Ohio announced that the visit of President Trump had to be cancelled as he had tested positive for the coronavirus. Hours later, following a more specific PCR test, the Governor was told he was negative. The sensitivity and specificity of testing is clearly critical to managing a pandemic. It is easy to imagine the disastrous consequences that a false negative result (infecting others) or a false positive result (belief in subsequent immunity) can have.

It is why GreyBird has, prior to the COVID-19 pandemic, invested in one company that is commercializing a fast and inexpensive, but highly sensitive and specific testing technology for SARS-CoV-2 (GNA Biosolutions) as well as a second company with a platform virus capture technology that has shown to improve the limit of detection for the coronavirus testing by up to a factor of ten (Ceres Nanosciences).

As the COVID-19 pandemic brought to light, the availability of precise diagnostic testing is one of the basic inadequacies of American healthcare and is chronically under-reimbursed. Ironically, it offers perhaps the most critical tool to repair our failing healthcare system. The time to invest in precision diagnostic technologies as a means to reduce costs, prevent harm, and save not only lives but our economy, has clearly arrived.