The power of partnership

Edited highlights from last month’s keynote healthcare Q&A at the Global Corporate Venturing Symposium 2012, featuring William Taranto, left, managing director and head of Merck’s Global Health Innovation Fund, a $250m fund to look at healthcare investment technology, and Tom Thornton, centre, general manager of innovation alliances at Cleveland Clinic, who has just joined from the Kansas Bio-Authority.

The power of partnership

Taranto: The reason Merck moved into venture is that our chief executive (CEO) has a vision of Merck being a broadbased healthcare company. If you look at the continuum of healthcare from prediagnosis to death, how does Merck participate where the pill or the vaccine is only one piece of the healthcare puzzle?

This connected healthcare framework is about asking: "How do you bring multiple companies together to impact healthcare?" We want to get to the top of the stack, which is really providing some kind of solution to the community, whether that is an outcome that is reimbursed, reduces cost, provides better efficiencies or provides better healthcare.

You cannot do it by yourself. Data is the currency we are going to use to transact in the future market – taking existing data sources for commodity data, things like claims and hospital data, and combine that with new types of data, such as monitoring, tele-imaging, molecular diagnostics. It presents an interesting longitudinal data set.

You then have to add data harmonisation and analytics layers before you begin to provide a solution. But the key to this is connecting companies, and what we do is connecting companies within our portfolio, with other companies’ portfolio companies, and with independent companies.

We do everything, not just venture – partnerships and joint ventures, such as working with the Cleveland Clinic, which thinks very much in that way.

The purpose of the Global Health Innovation Fund is to provide Merck with future optionality around mergers andacquisitions (M&As). I do not invest in traditional life science. I invest in health information technology as well as health service and solutions, and within that things like diagnostics devices and personalised medicine.

The fund itself is a $250m evergreen fund. We do mostly expansion capital, but we will do some earlier investing if it is appropriate. Our sweet spot is $5m to $15m range though we have done as small as $1.5m and as big as $30m. We have done about 14 investments to date, committed about $160m, not counting reserves. We expect that fund, with tranching and follow-ons to run through 2013, but to start new investments in 2013 we are going to add an additional $250m.

Thornton: The Cleveland Clinic is a healthcare system based in Cleveland, Ohio, with $7bn in annual revenue from business in Cleveland, Florida, Toronto and Las Vegas, and we are building one of the largest hospitals in the world in Abu Dhabi.

Our Innovations organisation has been around for about 12 years, so it has gone through an evolution probably similar to a lot of corporate venturing organisations in that we started out effectively as an organisation out-licensing intellectual property developed by our employees. That is still or our bread and butter, bringing in maybe $12m to $15m a year.

About five years ago we started forming and investing in form-ups based on Cleveland Clinic technology – 48 companies created, 35 currently active, the vast majority increasingly in healthcare IT.

We are a 65-person organisation with three functions – the commercialisation of intellectual property developed by our employees; commercialising capability, increasingly developing business and consulting models around the capability of the Cleveland Clinic physicians or administrators; and supporting the increasing emergence of merger and acquisition inside healthcare.

Cleveland Clinic Innovations is now developing partnerships with other healthcare systems to commercialise technologies developed by their employees, effectively providing the same service to their employees as we provide to ours. Our initial partners are MedStar Health, the largest healthcare system in the Baltimore and Washington region, and North Shore Long Island Jewish, the largest healthcare provider in the state of New York.

You are going to see more of these alliances, driven to a certain extent by real practical issues – declining reimbursement, ways to attract the best and the brightest and
stakeholders asking: "What has been done for my region?"

As we have got into it we have also seen ways health-care systems can collaborate beyond simple commercialisation as North Shore is strong in therapeutics while Med- Star is strong in mobile labs, for example.
We do have a relatively small fund creating about five start-ups a year out of the Cleveland Clinic. We have created two out of MedStar to date, and are working on a few out of North Shore. The notion of aggregating intellectual property is one element of this, but also aggregating capital among providers.

James Mawson: You are both using similar language – common healthcare framework and innovation alliances. What are the objectives you are trying to address for your parent organisations?

Taranto: Healthcare is complicated to understand in terms of reimbursement, clinical pathways and how healthcare moves through the system. For example, why would we need to work with the Cleveland Clinic? Well, any one of Merck’s investments and its core business needs a place to test and pilot and learn, and Cleveland Clinic is perfect.

Merck’s competencies are making pills and selling vaccines, but if we move into these health adjacency businesses we have to partner other experts.

Thornton: Our basis is excellence in clinical care. What we realised is that we have an exceptionally innovative culture. Our most innovative physician at the Cleveland Clinic is our current CEO, Dr Toby Cosgrove – an extremely well-regarded cardiac surgeon with 35 issued patents.

We now realise we cannot carry a start-up very far as we do not know how to manufacture or to market but we want to use these technologies. So alliances really are important
– relationships with venture investors, companies and entrepreneurs – and conscientiously and purposely developing that ecosystem is really important.

James Mawson: What is success for you?

Thornton: It is about the money, the notion of empowering employees to build a brand around innovation, and care that could be in other areas.

Taranto: The purpose of the fund is to provide Merck with an opportunity around M&A and build a company that provides a connected framework around better healthcare for the community. But even though I am a strategic investor, there is always a financial component.

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