Biotech and digital health funding soared in the wake of the COVID-19 pandemic, but both sectors slowed down in 2022.

Elena Viboch, partner at General Catalyst, said startups need to focus on the end goal — building technology or therapies that can help patients. She sat down with MobiHealthNews to discuss her takeaways from this year and her predictions for 2023.

MobiHealthNews: What do you think the investment environment will look like next year for health tech and biotech?

Elena Viboch: On the biotech side, there's a slight turn toward assets over platform. We call 2022 a bridge year, but at least through 2021, we were in the era of the platform company. And biotech, in particular, goes through cycles of platform versus products that are asset centric. And they're really one and the same, right? 

When we think about what we'd like to invest in, we look for a company with a research platform that can make drugs that couldn't be made other ways, that address areas with high unmet medical need. The point of it, though, is to make medicines for patients. 

And I think markets maybe got a little bit distracted with platform for platform's sake. I love a cool technology, but the whole point of that technology is to direct it toward making medicines for people. In the current market environment, there is a big shift to focus on – "Okay, well, what are you trying to build? For whom? By when?" 

Whether it's a therapeutic or a tech product, in a little bit more of a pressured or constrained financing market, it forces a little bit more discipline.

MHN: What do you think are some of the value propositions or clinical areas likely to be promising next year?

Viboch: Even though there's some pressure, it also pulled the best out of these platforms. There are new ways of making medicines. There's the "precisionization" of clinical development. And then there's high-throughput discovery science. 

For precision medicine, the first wave was all about monogenic disorders and targeting cancer drivers in oncology. And what we see now is a next generation that's about understanding the underlying biological pathways of polygenic diseases. What that lets you do is take these big, meaty challenges like cardiovascular disease or kidney disease or psychiatric needs, and then segment patients. 

What you can do is find therapeutics that are more effective because you're treating the underlying biological drivers of their disease. So, you increase drug efficacy, and you reduce patient heterogeneity. The reason that's possible now is because of some of the advances in AI drug discovery in terms of applying new tools to existing human datasets. Then there are also companies that are going out and finding or generating novel datasets, like looking at populations that have been through population bottlenecks or rare homogeneous populations. 

Then on the cellular side, there's all this neat high-throughput science. You can connect really high-throughput science, understanding genetic drivers at the cellular level, and then, population genetic data and kind of triangulate or reverse translate between those two, figuring out how to treat and make new therapies for really complicated diseases. 

So, if you can get to those underlying biological pathways of disease, you can make more effective medicines because you have less patient heterogeneity.

More year in review stories:

How cooling digital health funding changed the market in 2022

Where digital health funding could go in 2023

How retail healthcare, telehealth trends could evolve in 2023

MHN: Digital health and biotech funding have slowed a little bit this year compared to 2021. What do you think are some of the factors behind that decline?

Viboch: I think on the digital health side, COVID was such an incredible tailwind that people are recalibrating. What are the changes that are here to stay, and what were temporary changes in behavior? Probably the easiest example is we looked at a lot of companies that had COVID diagnostics and didn't invest because it was a super important problem but it's kind of a peak and trough unless you have a generalized roadmap. Where are you going? What are you going to do from there?

So, those are the kinds of companies that really have suffered, versus sustaining companies or enduring companies. For example, Cityblock Health is a company in our portfolio that delivers care into the Medicaid population. That population isn't going away; they still need care. So, whether it's COVID care or healthcare, they're still there. 

On the biotech side, I think it really is driven by public markets, and probably the same thing for digital health, as well. We're still very bullish and active. And the reason we are is because in challenging environments, the best companies are created. They're not trying to solve all of the problems. There's a constrained resource that focuses the team. And we think that's a really good thing. So, we like to lean in during these environments.

MHN: How has that affected the companies you're looking at and investing in? How has it changed your investment strategy? And how are you advising your portfolio companies in this more challenging economic environment?

Viboch: I think that we're really lucky because we've always told our companies to focus on making medicines. If your true north is, what do patients need? How am I trying to either keep patients healthy or address their illnesses? Whether it's a go-go market, or more of a challenging market, your behavior is the same. 

And on the digital health side, or the tech side, I think what we tell companies is focus on building something that matters. The healthcare market is enormous. You just have to focus on building your business and, if you're able to, bend the cost curve, expand health access and equity, or advance the transformation of the healthcare system from a sick care system to a healthcare system. 

If you can do any one of those things, or ideally all three, the market is so large that even if revenue multiples are down, if you grow into a meaningful company, you will create value for your investors and for society. 

If you're trying to build an enduring company, then you only have to focus on a couple of things – and be really good at those things. Science is hard and risky. But you have to focus on those few things and just keep chipping away at it. And that's why we exist to help fund people to do those hard things.