March 2, 2015

Derby's Griffin Hospital dips toe into VC investing

PHOTO | Pablo Robles
PHOTO | Pablo Robles
In a rare move for community hospitals, Griffin Hospital CEO Patrick Charmel convinced his board of directors to invest in a tech startup developing a device that draws blood samples through an existing IV in a patients hand or arm.

Nonprofit community hospitals are typically conservative investors, placing bets on stocks, bonds, real estate and other securities to supplement their income and strengthen their balance sheet.

But a recent venture investment by Derby's Griffin Hospital in a medical technology startup may have broken the mold for a hospital of its size.

Griffin — the ninth smallest hospital in the state by net patient revenue — recently joined a $5 million early stage investment round in Philadelphia-based Velano Vascular, which has developed a device that draws blood samples through an existing IV in a patient's hand or arm.

Griffin's investment is modest — somewhere in the ballpark of $100,000, according to CEO Patrick Charmel — but it is unusual for a Connecticut hospital of its size, observers say.

It also comes at a time of increasing financial difficulty for many hospitals, which have suffered declining government reimbursements and new taxes.

VCs typically make investments that offer big potential payoffs, and if Griffin's gamble strikes gold it will open an additional income stream. Venture investing, however, is a risky business; more bets fail than succeed.

Charmel said he doesn't know of any similarly sized Connecticut hospitals jumping into the VC game, but he wouldn't be surprised to see it happen in the future.

"Hospitals are going to be looking for alternative sources of revenue," he said. "How they go about that, I don't know. They have to be careful about what their core capabilities are."

Following in larger footsteps

While Griffin's venture investment is rare given its size, larger health systems around the country — like Partners Healthcare in Massachusetts — have formed their own VC funds to back medical technology companies.

Michigan-based Trinity Health, which is in the process of merging with St. Francis Hospital and Medical Center, invested $10 million in a joint VC fund with four other hospitals in 2011. And both Yale and UConn's medical schools, and their respective hospitals, are working to spin out medical technology companies.

Nathaniel "Nat" Brinn, a Simsbury-based principal of Vital Venture Capital — which invests in bioscience, surgical, software and other companies — said many hospitals invest in startups with technology that was developed by their own researchers or doctors.

One advantage hospitals have as investment partners, Brinn added, is that they can help develop and test technology.

"Hospitals are kind of these giant incubators for technology development," said Brinn, whose fund has invested in Yale spinoff NovaTract Surgical. "They've got the inside track on the sense that something's going to be successful."

Griffin didn't help develop Velano Vascular's technology, but it will be involved in the product's live testing and roll out.

The state's quasi-public venture capital arm, Connecticut Innovations, has invested heavily in medical technology as well as in research at both UConn and Yale. But CI hasn't partnered on an equity deal with a hospital, spokeswoman Kelsea Michael said, although the investment fund would be open to the idea.

"Most often we see medical innovation coming from other areas, which is where we have directed our investments," Michael said, adding that CI plans to increase its outreach to hospitals.

Reputation leads to partnership

Velano Vascular co-founder Eric Stone said he is well aware that Griffin's investment is atypical. Many medical tech startups like his turn to larger academic hospitals for venture funding, he said in an interview.

But it was actually Stone who sought out Griffin and Charmel last year, on the advice of a board member.

"I've spoken with a lot of venture firms, and we wanted to ensure we had the right parties around the table," Stone said of Griffin.

The board member, former Humana executive Dr. Jack Lord, was familiar with Griffin's reputation in what the industry calls "patient-centered care," a philosophy and set of practices that focuses on providing a better patient experience within the hospital. Charmel co-authored a book on the subject in 2004. Griffin also has a subsidiary nonprofit business, Planetree, which offers patient-centered care consulting and advisory services to a network of approximately 280 hospitals, mainly in the United States.

Velano's technology fits right into that philosophy, Charmel said, because it aims to reduce patient discomfort. Needles can be painful and are a common phobia among patients. By using Velano's device to draw blood through an existing IV, medical staff can avoid sticking patients with additional shots.

Stone met with Charmel at a Cleveland conference last year. Shortly after, both sides agreed Griffin would chip in some cash for an equity stake in Velano.

Charmel believes the technology could catch on, and he sold his board of trustees on the investment.

Stone said he wants Griffin to be among the first hospitals to use the device. That could happen soon because Velano Vascular's product just won marketing clearance from the U.S. Food & Drug Administration.

An entrepreneurial hospital

Griffin's modest size belies its entrepreneurial bent over the years. Planetree, which it acquired in 1998, is just one example.

In the mid-2000s, a Griffin-based team developed a nutrition scoring algorithm that aimed to improve upon existing nutrition labels displayed on products. In 2008, the hospital parent's for-profit subsidiary, GH Ventures, formed NuVal LLC with Illinois-based Topco Associates to market the system to supermarkets.

Today, NuVal ratings — displayed on blue octagonal stickers — can be found in the aisles of Big Y, Price Chopper and a number of other grocery chains.

Charmel said developing the algorithm was more expensive than Griffin's recent investment in Velano — though he would not say by how much. However, he said the hospital made its money back on NuVal.

As with the Velano deal, the nutrition-rating system is in Griffin's healthcare wheelhouse, which is why it made sense as an investment, Charmel said.

"A hospital our size has limited capital to invest in something like this," Charmel said.

St. Francis Hospital last year joined a Chicago-based technology accelerator to potentially help develop technology that could improve patient care, said CEO Chris Dadlez. They haven't made any investments yet, he said, but they are exploring opportunities.

"We are just trying to find ways to improve the delivery of health care and if we can make money at it too, why not?" Dadlez said.

Greg Bordonaro contributed reporting to this story.

Correction: The original version of this article spelled Kelsea Michael's last name incorrectly.

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