Podcast: Decoding Digital Health: Digital Health Dealmaking with John Vaughan, Verily Life Sciences (Part I)
The Ropes & Gray Decoding Digital Health podcast series discusses the digital health industry and related legal, business and regulatory issues. On this episode, Digital Health Initiative co-lead and IP transactions partner, Megan Baca, is joined by Verily Life Sciences Lead Product Counsel, John Vaughan, for a two-part discussion on digital health dealmaking. Megan and John dive into topics related to partnership strategies between biopharma and tech companies, as well as the key opportunities and challenges associated with digital health innovation deals.
Megan Baca: Welcome to Decoding Digital Health, a Ropes & Gray podcast series focused on legal, business and regulatory issues impacting the digital health space. My name is Megan Baca, and I'm co-head of Ropes & Gray's IP transactions and licensing group, and co-head of the firm's digital health group. I have a background in computer science, and I practice law in the heart of Silicon Valley, so I represent pharmaceutical, biotech, data, software, artificial intelligence, hardware, and technology companies and investors on complex IP and technology licenses, collaborations, and other transactions. Today, I am thrilled to be joined by John Vaughan, who is lead product counsel at Verily Life Sciences. John joined us as a guest panelist during our webinar hosted by HLTH called "Digital Health Dealmaking by Biopharma and Tech: An Innovation Match Made in Heaven?" You can replay that entire webinar either on the HLTH website or on the Ropes & Gray digital health website by just searching for that title. On this episode, John and I will dig deeper on some of the topics we explored during the webinar, including partnership strategies between biopharma and technology companies, as well as the key opportunities and challenges associated with digital health innovation deals.
John, let's kick things off. Why don't you tell us about Verily's focus in the digital health space and what your role is there?
John Vaughan: Thanks, Megan—happy to. Verily is an Alphabet company combining a data-driven and people-first approach to precision health. We are focused on generating and applying evidence from a wide variety of sources to change the way people manage their health and the way health care is delivered. So, we're shifting the paradigm from one-size-fits-all medicine to one focused on a more comprehensive view of the individual that leads to a more personalized path forward. There are a lot of different ways to talk about precision health, but I'd just like to focus on three. One is a wide variety of data inputs, both clinical and non-clinical. Second is a focus on using that evidence to arrive at the most tailored, personalized intervention for a person or community. And third is a paradigm shift from the way health care is typically practiced to something more integrated in the future.
Here at Verily, I'm the lead product counsel, and I lead a team of product lawyers who help our colleagues manage our products throughout the product lifecycle. In technology, product is a technology category; but in life sciences, the analogy for my group might be a regulatory or commercial legal team. I also served as the interim commercial lead here at Verily and I am, for the better part of a year and a half, the interim lead of the corporate legal team as well. So, it's been amazing working with a talented group of lawyers across a lot of different disciplines here at Verily, and in the 18-19 months that I've been here, I’ve learned quite a lot about how to manage the intricacies between health care and life sciences.
Megan Baca: It's totally a fascinating space. Let's talk about products, then. You mentioned the whole product lifecycle. If we look at a go-to-market strategy, this is obviously a paradigm shift in terms of how products are launched and provided to consumers or in the B2B space. So, can you tell us what are some of the challenges that companies are facing in terms of go-to-market (or GTM) strategy for digital health tools?
John Vaughan: At a really high level, the main challenge companies face is aligning the expectations of their customers and their end users with the product that you're manufacturing or the service that you're providing. And so, that can come in a variety of different ways. Here at Verily, we have a number of different product platforms that have everything from something that's more traditional, like health care software as a service, to software as a medical device, to actual devices or artificial intelligence and machine learning products—and when you're working across those different categories, aligning perspectives and incentives both from a B2B perspective and a B2C perspective to make sure that there are no surprises, and that we're all working from the same definitions and the same general set of expectations. So, for instance, there is a variety of services and products that might make sense in theory, but they require a careful analysis in legal terms. For instance, if you're trying to promote health care software as a service to a large health care network, you might have a fast way of getting something done, you may have a good way of creating value, but are you thinking carefully about whether introducing some new tactic into, let's just say, how health care is provided, or how health care is administered, how it might from an anti-kickback risk standpoint, destroy health care incentives? Or does the product that you're providing, even if it works really well, have a clear path to reimbursement? So, for instance, certain pathology tools might work really well, they might be really fast, but are you going to get alignment of all the stakeholders in that ecosystem to make sure that folks understand that your product is faster and better, and also can be reimbursed, which is really important?
Another big challenge is to demonstrate value to the buyer post-purchase, so this opens up a conversation about the importance of data. And here's where I think Verily has an interesting story to tell. Not only do we provide these different services, but we've got large data capabilities that we're able to look at data in new and unique ways, and we can then also quantify to a buyer of a product after they've used a service as to how that's led to improvements in quality or improvements in the number of customers using a product, or so forth. And so, one way that we also can do that is we can work on the user experience (or UX). We have deep knowledge of the marketing tech stack, and so there is a variety of ways that we think we can do this, but it's also a way of showing that what you're providing is something that is actually providing value and making a difference out there in the health care system. To that end, I also think you need to make sure if you're a smaller company with, say, a stand-alone solution, you need to think that it might be challenging for providers and for the health care system to might want an enterprise solution to reduce their IT burdens, or to prefer easy adoption. So, even having a stand-alone great product, if it doesn't fit into a larger ecosystem in health care within a health care system, you might face a lot of challenges actually getting adoption of that product, even if it works really well.
Megan Baca: That all makes total sense, and it highlights, I think, that one of the unique things about the digital health landscape is how it brings together stakeholders with pretty drastically different perspectives between the technology companies, the payors, providers, pharma companies, the users or patients or consumers—whatever we call them. So, let's think about building these partnerships across that unique ecosystem of different stakeholders. In our last webinar, we spoke about the importance of communicating and assessing all of the different stakeholders' risk tolerance before entering into a partnership. Do you have examples of where you and/or Verily and other partners' risk tolerance or other kinds of perspectives didn't align, and how you attempt to resolve that in the process of dealmaking?
John Vaughan: Sure—that's a great question, and it's one we actually face every day. I go back to a couple of minutes ago when I introduced myself. I introduced myself in two ways—I introduced myself as a product lawyer, which is a tech term, but also as a regulatory or commercial lawyer, which is more of a life sciences term. We're constantly translating both of those disciplines to other stakeholders on either side of that divide, and I do think that you'll see in the future that everyone in the health care system is going to get more fluent at these. But I do think that that point of view is important to understand, both from you as a stakeholder, where your point of view is, and what the counterparty is looking at, too, in terms of risk. So, for instance, if you have an app that takes photos for assessment by a pathologist, is that a pathology tool, or is that a really great camera? Because from a tech standpoint, maybe you're focused on the ability to get really crisp, clear, detailed images, but from a life sciences perspective, maybe if you're selling it to a customer, they're going to think about that as an assessment tool. And, Megan, as you and I both know as regulatory lawyers, how you quantify that, what intended uses you use for something that might be very simple that might look like a camera, might actually take that into a space that's highly regulated by FDA. So, understanding what your value proposition is, understanding how this affects a health care system, is really fundamental when you first start discussing these issues with a counterparty And the thing that I've also learned, especially as a life sciences lawyer who moved into technology, is that you cannot take for granted that the counterparty understands your point of view or has the same priorities that you do when you're assessing a particular situation. So, again, when you're thinking about telehealth solutions, it's conceivable that you could speak to your doctor over FaceTime, but that would take you into highly regulated space. And when you're thinking about moving backwards and forwards from life sciences technology, understanding the players, understanding the regulators, and understanding how difficult it is to do these things right really matters in terms of expectations.
Megan Baca: That's actually a perfect segue into what I wanted to talk about next, which is the perspective of working with less sophisticated or less developed companies, perhaps, let's say, tech companies, and any strategies that you have for mitigating the risk of working with less developed companies. And in particular, I would think that not just on your side conducting assessments to understand the level of sophistication of your partners, but perhaps also things like communication strategies for dealing with them, or even putting yourself in the position of an educator having to inform and ensure that your partners understand the obligations that they will be under. Have you run into those situations of working with smaller, younger tech companies?
John Vaughan: Yes, absolutely. Startup companies tend to have a product that is really interesting or really effective and might be a better mousetrap, but understanding how that fits into the larger health care system is something that a startup company has different incentives for. They're trying to get something either bought or they're trying to get lots of new users quickly, and so, something may be effective, but you actually have to work through a checklist. And so there are a couple of things that I would recommend any lawyer or any business development person think about when they're working with a counterparty that may not be as sophisticated.
Number one is—particularly if you're making a purchase or merger and acquisition—working with a firm that really understands both technology and life sciences is critical. It's one of the reasons why I really enjoy working with Ropes & Gray. You've got a lot of professionals who understand the entire ecosystem that we're working within. That is really important when you're doing diligence.
I think the second piece is understanding that just because something works well as a tech product, you need to really kick the tires on that also as software as a medical device or as some sort of health care tool. And so, where I do see this a lot in particular are security protocols or whether your API can talk to each other. So, if you're trying to plug a program into a larger ecosystem, is that going to work? Is it secure? I think just understanding that sometimes a particular product or a particular platform might appear great, and it might work really well, there are reasons why there are barriers to adoption in health care, and it's important to go into that with your eyes open, because technology is only a part of that story. In a highly regulated industry such as life sciences, it's not enough to have something that works really well—it has to be something that works really well and is compliant with all of the laws that you're working within.
Megan Baca: Yes, that is not an easy feat. Talking about the smaller tech companies is, I think, a good pivot to the larger partnerships, say, between pharmaceutical companies and health tech companies, like Verily. Pharma companies, on the other hand, compared to the startups, are steeped in this regulatory environment and just highly aware of the regulatory environment. And so from that perspective, I feel like that almost puts Verily on the other side of the teeter-totter where you're part of an extraordinary technology company, and the risk tolerance, frameworks, and regulatory landscapes are slightly different, but so are I think the cultural aspects, like expectation for how fast transactions should go and how the teams interact with one another. How has it been working with some of the more traditional, large pharma companies, and how you have to adjust your style of dealmaking when you're working with those companies?
John Vaughan: It's a great question. Coming from big pharma or big medical device companies, it's been an interesting transition for me where you see how fast a technology company works. And one of the reasons why we work fast is because we've got a lot of engineers—we’ve got a lot of people developing these products. They can iterate products really quickly, and what that sometimes means is that because it takes a long time to negotiate with a larger partner, a couple of things can happen.
One is the technology can change over the course of your discussions, and so that's something to keep in mind. Because you have teams of engineers who are problem solvers, they tend to build things quickly, and they can iterate different versions of things faster than sometimes negotiations might take. And that can be great, but it might also change your perception of the value of a product that you're offering because over the time that you've been discussing this project, we as a company have gotten far better at it. So, this is something to be thinking about.
The second piece is that what we are offering to our partners in pharmaceutical companies, medical device companies, and in a hospital system are different ways of thinking about health care and different ways of thinking about categorizing health care. So we offer a variety of products, but we also have insights from machine learning or AI that we're also working with data that will help pharma companies make decisions about clinical trials quicker. We have a product that will also help them run clinical trials faster, in more sites, and with more consistency. And so making sure also that pharma companies or device companies understand that these tools are being engineered by technology companies that have deep expertise in life sciences is important, and it's a challenge because the thing that we're offering is speed, efficiency and more insights at a faster pace. But the traditional model in life sciences is to go through multiple clinical trials—to go through multiple phase studies; making sure that you're constantly assessing a drug or a device over the course of years, and that is just a totally different timeline than a technology company would work on.
Megan Baca: On that note, we’ll end our first segment here. John, thank you so much for these insights into Verily’s vision to create partnerships that drive solutions across health care and life sciences, and the risks you face as a digital health company. To our listeners, we’ll follow up with the second part of my discussion with John Vaughan from Verily in the coming weeks. Thank you so much for listening today—we appreciate you tuning in to our Decoding Digital Health podcast series. If we can help you navigate any of the topics we've been discussing, please don't hesitate to get in touch with us. For more information about our practice or other topics of interest in the digital health space, and to sign up for our mailing list with access to alerts and updates around notable developments as well as invitations to digital health-focused events, please visit ropesgray.com/digitalhealth. You can also subscribe to this series wherever you regularly listen to podcasts, including on Apple, Google and Spotify. Thanks again for listening.