Startups attract funding to expand sales of tests, tools to detect and
manage brain injuries and illnesses
By Brian Gormley
Sept. 11, 2017 7:30 a.m. ET
Venture capitalists have money in the brain.
After years of research and development, many startups have introduced money-making products or services aimed at conditions of the brain, attracting more capital.
Brain startups with revenue closed 26 venture financing rounds in the first half of the year, on pace to pass the high reached in 2015 of 44 financing rounds for revenue-generating brain companies, according to Dow Jones VentureSource,
These private companies are gaining traction serving a range of conditions such as depression, anxiety and concussions.
The percentage of investments in those ringing up sales is rising. In 2008 the portion of brain investments in startups that were generating revenue was 13%. By 2012 that figure had risen to 40%. Last year, there were 38 financings in revenue-making startups in the brain category, or 42% of the total. In the first half it reached 50%.
Some bets on commercial-stage companies have netted investors a pile of cash recently. Late last year Myriad Genetics Inc. pledged $410 million in cash and milestones to buy Assurex Health, whose genetic test helps doctors prescribe medication for chronic pain and behavioral-health conditions. VC firms such as Claremont Creek Ventures and Sequoia Capital profited from the sale.
Investors hope for a similar success with rival Genomind Inc., which has steadily grown sales of its Genecept test since launching it in 2011. Genecept identifies genetic markers and aids decisions about the type of medication and the dose to use in patients with conditions like depression, anxiety and attention deficit hyperactivity disorder.
Genomind expects sales of $15 million to $20 million this year and projects revenue reaching as high as $30 million in 2018. The King of Prussia, Pa., company has raised more than $40 million in equity and debt from investors including Claritas Capital.
Council Capital, which backs revenue-generating health-care companies, has been seeing good deal-flow in the mental-health field, Managing General Partner Grant Jackson said.
More entrepreneurs have moved into the space amid growing recognition of the costs that these illnesses add to the medical system, he said. Serious mental illness costs America $193.2 billion in lost earnings each year, according to the National Alliance on Mental Illness.
Council’s portfolio includes Reach Health Inc., whose telemedicine platform can be configured to the needs of clients, which can use it for various specialties, including behavioral health. The Alpharetta, Ga., company’s customers include health-care providers such as Novant Health.
For startups and investors in mental health, “there are a lot of tailwinds,” Mr. Jackson said.
Meanwhile, concern about the toll that head injuries take on athletes, military members and others is steering some investors to tools to help detect and manage these conditions. Traumatic brain injuries contributed to the deaths of nearly 50,000 people in 2013, according to the Centers for Disease Control and Prevention.
DBL Partners and others last month joined a $16 million financing for BrainScope Co., which has introduced a medical device that helps clinicians evaluate head injuries. This includes assessing whether someone has a structural brain injury that would show up on a CT scan or a functional brain injury, such as a concussion.
Bethesda, Md.-based BrainScope sees opportunity across several markets, such as urgent-care centers, emergency departments, sports teams and the military. But it is beginning with a limited launch in an effort to learn from its early customers.
“Too many organizations try to go too fast, get ahead of the market, and miss out [on] what the market is saying,” Chief Executive Michael Singer said.