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Ep21: Edward Kliphuis, Amadeus Capital Partners


0:03 Eugene Borukhovich 

Welcome to Digital Therapeutics Edition of Digital Health Today. I’m your host Eugene Borukhovich.¬†

In the last episode, I got one venture capitalist’s view on the DTx market, Will Gibbs, who is a principal at Octopus Ventures. Their DTx portfolio consists of Big Health and Quit Genius, which took the direct-to-consumer and employer route to market.¬†

In this episode, we stay in Europe and have yet another venture capitalist view. But in this case, the portfolio companies taking a full regulatory and prescription route to market. It was great to connect with Edward Kliphuis, partner at Amadeus Capital and venture advisor at M Ventures. But before we dive in, I feel like I’ve known Ed for decades and had to look up where and when we met, and I do think it was one of the first Frontiers health conferences. The fact that it feels like I’ve known Ed for many years speaks to his character, with a welcoming Dutch personality and an open book to brilliant thoughts.¬†

And now we jump to my conversation with Edward. 

I’m here with Edward Kliphuis, partner at Amadeus and venture advisor at M Ventures. Welcome to this podcast Ed, and was looking forward to having you here. But before we dive into the venture capital dealings, we’d love to get the audience to get to know you first. So maybe a little bit of your background and how you came to health tech and VC investments.

1:31 Edward Kliphuis 

Yeah, thanks for having me, Eugene. My background is probably best described as failed scientist. I started out as a pharmacologist, but unfortunately, wasn’t necessarily that successful at it. So I then reached out to a number of my friends in the VC industry, asked them what they were doing– I hadn’t had the slightest idea of what venture capital was…something where science and business seemed kind of [inaudible]. And through that journey, [I] came to M Ventures in 2009.¬†

This was in the time when M Ventures was originally being set up. So that was a very interesting experience for me, witnessing the inception of a corporate venture capital fund. I then left, went into commodities trading randomly enough, ended up on the sale side as an equity research analyst and a broker. And I guess that sort of shaped my view going forward; there’s a disconnect of what early-stage venture prices in and looks at, and the scientists’ value. And then on the other end of the spectrum, the way that let’s say, public markets and large investors value assets that we invest in at the early stages.¬†

I then came back to M Ventures in 2014. Originally focused on therapeutics investments, and in 2015, we basically set up a fund that was geared towards what we now call frontier tech and sustainability. And a large part of that mandate was healthcare technology. So that’s how we got a focus into the DTx space. And in fact, without a lack of pride, I’ll say that we were the first European investor to make a DTx investment, when in 2016, we [inaudible]. That was a very, very interesting journey on that side.

3:04 Eugene Borukhovich    

I’ll just touch on your comment about therapeutics. So in 2014, you came in around therapeutics, and then 2015, [around] frontier tech and sustainable technology. How does that tie back in to the original molecular therapeutics piece? Maybe talk a little bit about the thesis that you guys set up. How does it tie with the core business of therapies?

3:39 Edward Kliphuis 

Right, so I’m actually going to take a bit of a detour on this one, because in 2009, when I was first M Ventures, we started off with an investment at that point called Healthcare IT. That was an investment in Auxogyn. And Auxogyn later on became Progyny, which is now listed on NASDAQ. So we sort of had an idea of what technology could do in the healthcare realm and how it could impact clinical outcomes, patient experiences, reduce costs, and ultimately become a true value driver in this domain. So we basically looked for opportunities that were evidence-based, could be used independently or in combination with existing therapies, and we didn’t limit ourselves to regulatory approval.¬†

Now, the thesis at M Ventures– when in 2015 and 2016, we embarked on this journey of looking at digital solutions in the healthcare space with a dedicated vehicle– we tried to sort of turn the narrative around from I would say a traditional venture capital, sort of the Tinder approach to VC where you just swipe right and swipe left on deals that are being presented to you. We said, why don’t we try and make a little bit of sense of the noise we see. And we built a thesis in this.¬†

The thesis we built was around what we observed to be the biggest threat to humanity, which is delayed feedback. How can we cut delayed feedback cycles and ultimately bring a point of intervention close to the point of diagnosis? Or if you think about disease management, bring a point of redosing closer to a point of needРmake precision medicine (which has been hallowed for like decades on end) closer to reality and make medication much more bespoke for individuals? As a sidebar, the fact that we still dose on milligrams per kilogram seems pretty damn archaic to me. 

So I’ll give you one example of how we got to Akili. We said we want[ed] to make a number of investments in the biosensing domain, and ultimately use the ability of continuous data collection to get a more granular view of individuals and evoke a response in ways that hadn’t been able to be delivered before. So the first part we said was, we want to do a biosensing investment where we can not only sense but also make an impact in a modality that cannot be targeted with traditional therapeutics. And so we looked at neurology, because the blood-brain barrier is a pretty insurmountable barrier for a lot of the traditional molecular entities. We looked at stress and depression, and what are the hallmarks and the drivers of that? And are there any digital solutions that can have an impact on that?¬†

That’s how we got to Akili. They had this fantastic Nature publication in 2013, on the cover of Nature, which had the title “Game Changer”; how they could impact cognition and how they could impact people’s core drivers of disease like ADHD.¬†

Before digressing too far into that, the other two areas where we built a thesis in that same biosensing domain, aside from the novel modalities that Akili tackled, were continuous sensing making clinical inferences (that ultimately became a company called BioLink, which is a microbial bio sensing device). For example, if you want to have blood concentrations at certain analyze, you want to make those decisions within a certain amount of time. So from least invasive– sweat, tears– can you actually use those biomarkers to analyze, to pick up in those liquids to make a clinically relevant decision? Turns out you cannot, because the lag time and dilution is too much. So we basically went into the dermis, and that’s how we got to BioLink.¬†

And then the last one was completely non-invasive, zero-interaction data collection; we looked at eye tracking, we looked at [inaudible], we looked at gait, and ultimately we settled on voice, and that became Sonde Health, a vocal biomarker company we backed in 2017.

7:21 Eugene Borukhovich    

Gotcha. We’re gonna spend most of the time speaking about M Ventures and the hypothesis there and how you guys progressed. When you guys were setting this up– let’s not go back all the way to 2009, as you did with Healthcare IT, but let’s stick with that 2015, 2016 thesis– was the M Ventures mandate strategic? Financial?¬† A combination? Even from a setup perspective. What was that business hypothesis for M Ventures and the CVC?

7:54 Edward Kliphuis    

It’s a good question. It’s both. The initial investment for M Ventures is always strategic. You think about it, I mean, you have a big pharmaceutical firm, or a big conglomerate carving out $450 million to make investments into early-stage technologies. The returns of that can be– on an absolute basis, quite impactful– but on a relative basis to the firm size, it’s not that meaningful.¬†

So the initial investment is always strategic. The agreement was that any follow-on investment was always financial. And the reason we constructed it that way is with a financial follow-on investment, you make sure you’ve aligned yourself with the other investors in the syndicate.¬†

Also, if a strategic direction should change, and the company still performs that you invested in, you don’t have to walk away from the investment. It was basically aligning– from the initial investment– any investing company with the direction of the mother firm, making sure that the dialogue is established, that the synergies are there, and the support is appropriately lined up. But also making sure that any follow-on investments basically is by the merit of the company, and there’s no adverse effects to the investing company.

9:00 Eugene Borukhovich    

I love your comment around delayed feedback. You already alluded to your investment in Akili– and we had Eddie on this podcast in some of the early episodes– you planted some of the seeds around why Akili, but let’s peel the onion a little bit more. The prescription route versus the employer or enrollment base, or other channels. (Will Gibbs from Octopus was on in the previous episode, and I would tend to say that they invested somewhere early on as well.) [What was] your investment decision and what attracted you to the company?

9:49 Edward Kliphuis    

I mean, for us it ticked the major box of evidence base. That was the first thing. The fact that there was a robust, controlled study that basically showed this robust effect, which was also validated, not only by biomarkers, such as people doing tests, but also actual clinical biomarkers. 

In a nutshell, Akili basically has an effect of neuroplasticity. It creates a new activity that perhaps wasn’t there before in the prefrontal cortex, and that can be seen by doing midline frontal beta test. So measuring the prefrontal cortex activity. That’s damn cool. There’s no other therapeutic agent that has ever been able to evoke that response. We see the same response for individuals, in an uncontrolled fashion, soldiers going to war or people going through trauma, but we haven’t been able to harness that power of neuroplasticity for good, and in a controlled manner to actually impact in a reliable and meaningful way, the functioning of human beings. So that was the idea.¬†

The other thing that we looked at was scalability. Now, when you think about how we look at the effect of therapeutics, traditional therapeutics, usually endpoints are quite clinical. Which is a bit of a contradiction in terms, I realized myself (because clinical study/clinical endpoint), but if you think about an oncology trial, overall survival, progression-free survival, those are very hard data points. But it doesn’t take into account the way that these people live; it doesn’t take into account how you’re surviving, it doesn’t take into account the softer elements that actually impact that survival rate. Those elements are oftentimes to do with cognitive functioning: stress, depression.¬†

Investing in a solution that has a meaningful impact, but also a controlled impact on stress and depression, and allows us to impact that in a clinically meaningful way, not only has an impact in ADHD (which is the first indication that Akili is going after) but has a fantastic potential for understanding the onset of Alzheimer’s or even impacting COVID fog, chemo fog. Making sure that people can actually live their lives better, and therefore have a better experience of that therapy and treatments and have a better outcome. That, of course, ties into an economic argument as well. So that was the real investment thesis behind it. It was rooted in evidence, and ultimately, something that is massively scalable.

12:10 Eugene Borukhovich 

Let’s jump a little bit to the present. We’ve seen investments going into DTx, we’ve seen a number of deals between the number of different institutions along the healthcare pathway; what do you think have been some of the capital injection drivers into the DTx field, in the last year or two?

12:31 Edward Kliphuis    

I’ll go from, let’s say, the altruistic ones, to perhaps the less altruistic ones. I think the first element is just macro. We see the proportion of people contributing to the health care systems, as we built them over the last decades, changing the proportion of people contributing to the systems– getting less, as compared to the people drawing from the systems and the inefficiencies there have to be [inaudible] out. So healthcare technology, by and large, is set to impact that. The way that we constructed our systems, especially in the West, are simply not tenable for the coming decades. And DTx is part of that, it rides that wave of potential disruption.¬†

The second part of it is that most DTx still have an effect on experience. A large proportion of the solutions will ultimately go towards cognition, behavior change, etc. Now, these softer parts of the healthcare system, these softer elements that actually have very meaningful impact on outcomes have come out of obscurity in the last couple of decades, and perhaps even more so now, in the last year with COVID. Depression has been a widely accepted–or mental health– has been a widely acceptable issue. It hasn’t been something that was at the forefront of people’s minds, no pun intended, before that. That’s, I think, a second driver.¬†

Then the third driver, I guess is the argument “a rising tide lifts all boats.” Low interest rates, and a flurry of capital, has simply allowed for a large amount of capital flowing into venture capital as a whole, and healthcare technology as the bastion of¬† the final undisrupted, industry vertical, is seeing an influx therefore as well. Now, the final argument I’m going to make is that I think [the] democratization of healthcare, including putting power back into the patient’s hands will be, in my opinion, the accelerator of the trends that we’ve observed so far.¬†

That will be the main driver– at least, this is my personal prediction– the main driver of what we will see going forward. I hope that that will be a main driver for good, because at this point, this is one of these weird industries where the actual purchaser is not the end consumer. And that is, I think, set to change [inaudible].

14:51 Eugene Borukhovich    

It’s time for a question from my journalistic partner on this podcast, Brian Dolan, who is the founder of Exits & Outcomes, and as I like to call him, the digital health detective. Let’s see what question Brian has for our guest today.

15:04 Brian Dolan    

In the past year, we’ve seen acquisitions and IPOs ramp up for digital health companies significantly. But that’s especially been for companies that have been employer focused and telehealth focused. We’ve seen larger virtual care providers buy up complementary peers. We’ve seen health insurance companies snap up telehealth companies, and even smaller companies are going public via SPACs. So as an investor, I’m curious to get your take on exits for this category of companies that we’ve been talking about on this podcast. So more pharma-like, digital therapeutics, companies. Do you foresee pharmaceutical companies buying up some of these? What’s your overall take of the exits end game for digital therapeutics? And if you could kind of take us back, how has that evolved for you? How were you thinking about exits maybe a couple of years ago when you first started investing in digital therapeutics companies?

16:00 Edward Kliphuis    

There’s a lot to unpack there. Let me take the first bit separately, and that is the IPOs and acquisitions and equity IPOs. I think what we’ve observed so far is we’ve seen traditional methods repackaged in new delivery mechanisms. Telehealth is a prime example of this. It’s an existing product– your interface with your physician– and ultimately through a new channel, i.e. digital, it comes to you. In my prediction, the next phase that we will witness is fundamental new technologies; not delivery of existing technologies through a new channel but fundamental new technologies. Akili is an example of that. We see a flurry of opportunities in this space.

The version 2.1 of that is completely blue-sky markets. Markets that haven’t been able to be quantified before. Now, if you think about it from the other side, from the public market side, for people to build confidence that these things exist, they need to have witnessed that this premise actually can be fulfilled. It is much easier to back a delivery of an existing market, because you can quantify the market and the efficiencies and therefore you can extrapolate what that market share will be and therefore what the value of such a venture could be. Therefore, it is a relatively “low-hanging fruit” for people to make a purchasing decision on such a business.

Fundamental new technology has a lot more inherent risk to it. And a fundamental new technology playing in an unexisting [sic] market has another layer of risk. Now the reward is arguably bigger as well. But people need to at least have confidence, or investors need to have confidence, that there can be players that can deliver on the premise here. Then you will see, at least in my experience, in my prediction, increased activity in fundamental new technologies ramping up. 

So where does that leave us with regards to the question around SPACs and smaller companies going public, and the axis playing out for pharma-like DTx companies in the coming years? I think pharma-like DTx companies need to play to their own strengths. Coming back to something I said earlier, for me, a DTx company that is successful plays to the strengths of evidence. Evidence is key. You need to get the customer need right, you need to demonstrate value to your patients. It’s a unique tool, which is very important. And a large number of these plays actually put the responsibility back into the hands of patients through direct feedback cycles, and cut that delayed feedback cycle that we mentioned earlier.¬†

The last one is you need to demonstrate near-term value. You’re sitting here on an intersection between two worlds. If you think of where venture capital in tech goes, the capital usually goes into markets that are quickly de-risked or ventures that are quickly de-risked because they can collect quick customer feedback. In therapeutics, you de-risk along the regulatory framework. Here, you’re playing to the strengths of both sides; you can still have the protection of a regulatory framework, if you would like to do so, and you can get quick customer feedback.¬†

Really successful DTx, in my opinion, plays to both sides. Now, where does that leave us for exits? I don’t think there will be a lot of pharma companies buying DTx, frankly. I think you’ll see partnering– absolutely. But my prediction will be that there will be a number of larger players in the DTx space having licensing deals with various pharmaceutical companies. But simply because of their vastly different methods of commercialization and vastly different methods of de-risking, I would see it rather as a partnership than an acquisition by one or the other. And so in my opinion, pharma should partner up. They should partner up with players like this. I hope that answers your question.

19:24 Eugene Borukhovich    

I’m gonna actually hop in here. You and I had been talking about biosensing delays, instantaneous feedback, intervention at point of diagnosis, as well as on the pharma side, we keep talking about real-world data, and ultimately, over time, this turns into evidence; DTx companies that know the end consumer really, really well, and then pharma companies that honestly don’t (or they are a couple of hops away, outside of patient support programs, which are also highly outsourced). You talked about your hypothesis. I would challenge you a little bit. Is the DTx company going to swallow the pill inside that more human experience? Or again, it sounds like your answer is no, pharma companies are not going to swallow the DTx inside. More of a partner role. I would add in another component; DTx companies are a great set of patient support programs as well. It all depends. Unravel your thinking on DTx swallowing the pill or the pill swallowing the DTx.

20:40 Edward Kliphuis    

I think we’re both right. You could draw a line in the whole ecosystem and say, okay, there are products. Like Akili is a product. It is built like a product almost; it can be delivered, and therefore can be licensed by any pharma company that, for example, strikes a licensing deal in any geography and then licenses that therapy standalone or in conjunction with an existing therapy to impact patients.¬†

Now, if you think of another company we back, called Medisafe, which is a medication management solution, they will benefit from horizontal scale. This is, by the way, the company we co-invested in with Octopus, so Will knows [it] very well as well. But that is a very horizontal play. So parking a technology like that into one particular pharmaceutical company precludes other pharmaceutical companies from using it, because nobody wants to share that level of data. And ultimately, it will limit the scope of such a venture. The companies such as that, whose active ingredient is behavior change to make individuals take their pills on time or take their medication on time, ultimately will benefit from horizontal scale. Those companies will not be able to partner, or at least I think they should stand alone and not be acquired and partner with pharmaceutical clients.

21:54 Eugene Borukhovich    

By the way, I did look up while you were speaking, Octopus did invest in 2016. It might be a matter of months that you guys were the first; I didn’t look into the date, but Index did invest into Big Health earlier than 2016. Just a side note.

22:10 Edward Kliphuis    

Ah, you’re debunking my claim here, that’s painful.

22:13 Eugene Borukhovich    

I am debunking your claim, but hey, wouldn’t be fun without it. We talked about the regulatory component, evidence base, and some of the decisions you guys made around investment in Akili, the prescription DTx route. I don’t know that much, but [Akili has] now launched Akili Care as well. Talk to me a little bit about any distinction (or you may not be seeing it) [between] a pure prescription DTx versus (or in conjunction with) disease management. 2.0. Can you talk to me about how you think about that space, and where it’s going?

22:57 Edward Kliphuis 

You’re hitting a very contentious point in it, and a matter of debate in this space all the time. We look at it basically turning the world around. If the end goal is to benefit patients, whatever it is that you do in a quantifiable manner, because the quantification of the impact is your product ultimately, that can drive you to displaying relevant levels of revenues and margins. I’m talking about margins here in the realm of like 50%, 60%, 70%, because it’s a large part software after all, and indeed addressing those payers’ and patients’ needs. Then regulatory approval, or even prescription becomes a tactical decision, and not an end goal.¬†

We see, for instance, when we look at Sonde Health, which is a vocal biomarker company, building vocal biomarkers for different solutions. When COVID hit, we cranked out a quick biomarker that is really helpful for employers getting their employees back to work. That is not a regulatory-approved solution, but it’s really beneficial in its positioning right now to have as an initial data point to temperature screening for people coming back. Now the next biomarker there will be for a “harder” clinical indication that will most likely have to go through a regulatory approval. So what I’m trying to say here is illustrating the point that therefore for Sonde, and we see it for a number of other companies we’re involved with as well, regulatory approval is a tactical decision and not a strategic end goal in and of itself.

24:22 Eugene Borukhovich    

You just talked about the vocal biomarkers, and while [there is] no FDA approval, it could be a helpful tool. So where do you look at prescription digital therapeutics and going after the regulated and the risk-reward ratio here?

24:38 Edward Kliphuis 

Again, it is a tactical decision. If you think of regulatory approval, it will basically give you very high barriers to entry, because any follower will need to collect the same amount of clinical data, which will presumably cost at least a similar amount of money and a similar amount of time. There’s no direct need for high customer acquisition costs. You’re mostly allowing a B2B or a B2B2C route; you’re basically unlocking that gatekeeper of the payers to enable commercialization through those channels. But your timelines are at the grace of regulators, and usually are high cost.¬†

Now, the non-regulatory side, on the other hand, will allow you a direct route to revenue. It will basically enable a B2C route, in addition to a B2B and a B2B2C route. You typically have these direct-to-consumer business models, so your CAC/LTV metrics are all of a sudden important, and they will be used for your valuation. So you mostly have high customer acquisition costs to stay ahead of competition, and you have low barriers to entry. 

On the one side, you see a fairly protected yet costly route, that ultimately people will commit to in a more biotech fashion because valuation will be done on area under the curve after that. On the non-regulatory side, you’ll see more tech-enabled, hyper-growth, hyper-speed path.

Now, the final thing I’m going to say about that is on the regulatory side, therefore, if you think about how traditional therapeutics are being commercialized, usually we look at a [inaudible]. If it’s for small molecules, we look at the area under the curve of commercialization and we risk that [inaudible] back through a risk-adjusted net present value–basically VCF. That’s it. Then you have standardized metrics for phase one, phase two, phase three, and standardized timelines or risk numbers.¬†

For digital therapeutics, those numbers are not there yet. They’re not relevant yet. We don’t understand them entirely yet, because it’s such a new industry. Moreover, the commercialization partners are highly questionable, because we don’t know what is [inaudible] with his rheumatoid arthritis franchise going to be equally good at commercializing a digital solution as they are going to be at commercializing [inaudible]– that’s a different thing. If you’re looking at it that way, and you still have to build out your commercialization side, then the price can be great, because you can become the digital pharma, if that makes sense, and not just stick to being a digital biotech. But the costs and time is also equally great. Therefore you need to have very deep pocketed and very trusting investors.

27:06 Eugene Borukhovich    

What do you think the drivers of success [are] going forward for DTx as an industry?

27:11 Edward Kliphuis    

It’s all about delivering a true outcome. If we can show as an industry, that what we’ve been seeing here actually works in a real-world setting: where Akili is indeed delivering neuroplasticity; or Sonde is picking up certain vocal patterns that ultimately can signify the onset of a certain disorder; for BioLink, we’ll be monitoring your biomarkers in a continuous fashion that we know exactly what happens to you when and why.

If we can show the clinical benefit of these things in a real-world setting, then we have a massive business case in our hands, because it not only will allow more potential for individuals to take control of their own healthcare, it also will cut a tremendous amount of inefficiencies out of the system. Inefficiencies of people not responding to certain treatments, people continuing bad behaviors, whilst knowing that ultimately it will cause them harm, and it will cause the system enormous costs, and ultimately making sure that those two incentives are aligned. 

But when we look at these companies, we ask ourselves three questions: who benefits, who pays, and who needs to adopt? The challenge with healthcare is that oftentimes the stakeholders in those three questions, so the answers to the three questions, are not the same. But with digital, you have a solution to make them the same, to align them. That’s the power of this.

28:32 Eugene Borukhovich    

So we started with you, Ed, and let’s finish with you. What is your why? What gets you up every morning?

28:37 Edward Kliphuis    

I love to play with new toys every day, and toys that do something for humanity and make our lives better. I’m well aware of the flip side of some of the technologies that we invest in. If you think about wielding out potential genetic malformations that could lead to cystic fibrosis, the flip side of that is that we’re going to progeny selection and say I want a highly intelligent child, and you’re getting into Gattica territory. That’s equally valid.¬†

So what gets me out of bed every morning is basically being able to play with these toys, in my mind extrapolate what this could be, and have a dialogue about it. I think it’s also our obligation– equally for you as it is for me– to have a dialogue about what is the dark side of some of these things that we’re potentially embarking on? And what does that mean for us? And why shouldn’t we have regulation about data privacy? That’s what we’re doing now, but maybe even privacy of thoughts? Or when you think about machine-brain interfaces, which we haven’t touched on, where is the line between sovereignty of an individual and benefit to a group? Enabling that dialogue whilst hopefully driving force for humanity, and satisfying my own curiosity. That’s what gets me out of bed.


29:49 Eugene Borukhovich    

Pleasure having you on Ed. Thank you for making the time and we’ll be talking soon.

29:53 Edward Kliphuis    

Fantastic. Thanks Eugene.

29:56 Eugene Borukhovich    

Thanks so much for tuning into Digital Therapeutics Edition of Digital Health Today, a production of Mission Based Media. Be sure to hit that subscribe button to this podcast on your favorite podcast player, so you’re then automatically notified when we post our upcoming episodes, where I speak with dozens of leaders and trailblazers who are forging the path for digital therapeutics. If you’d like to learn more about YourCoach Health, or Brian Dolan’s Exits & Outcomes, you can always find the links to this and more in the show notes for this episode. You can connect with me personally on Twitter @HealthEugene, or follow my journey of writing my first book, Hard Pill to Swallow at [email protected]. I’m Eugene Borukhovich, and catch you next time.


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