A16Z dips its toes in the digital therapeutics market, leads $23M Series B in Omada Health

By Michael Carney , written on April 9, 2014

From The News Desk

For all the transformative technologies to emerge out of Silicon Valley in the Internet age, few if any can claim to save millions of lives or billions of dollars in wasteful healthcare spending. But that’s exactly the mission of Omada Health, a digital therapeutics company that’s combining data analytics, social networking, and good old fashion beautiful design to help stave off the global diabetes epidemic.

Today, two-and-a-half years after its 2011 launch, Omada announced that it has raised a $23 million Series B round of funding led by Andreessen Horowitz* (A16Z), with participation from Kaiser Permanente Ventures and existing investors U.S. Venture Partners and The Vertical Group. A16Z's newest partner, Balaji S. Srinivasan, will join Omada Health’s board of directors.

Omada flagship product, Prevent, brings the power of technology to the CDC's National Diabetes Prevention Program, an offline diet and exercise regimen that has proven clinically effective although difficult to administer at scale. Omada works with insurers, employers, and other healthcare payees to help the one-in-three Americans suffering from “pre-diabetes” from advancing to a full blown Type 2 Diabetes diagnosis.

Program participants are matched into groups of 12 and paired with a health coach who provide accountability and guidance in following the CDC program. At the center of the 16-week program is a social network like interface that serves to surround participants with a new peer group, positive behavioral models, and healthy competition. Each user also receives a WiFi-enabled scale that transmits their weight-loss progress to the group (based on relative results, like percentage of goal weight lost) to add additional motivation.

Omada has clinical results that prove its technology-enabled approach to be more effective than analog methods. More importantly, it’s repeatable and scalable, co-founder and CEO Sean Duffy says. As an alumni of the renowned Ideo design firm, Duffy attributes this success, first and foremost, to Omada’s intuitive and easy to use user interface. That is, and the bridge-building power of the Internet.

The toll diabetes enacts on our nation is staggering. Those diagnosed with the disease spend an average of $13,700 on medical care each year, 2.3-times more than those without diabetes. Worse yet, the problem continues to grow. United Health research indicates that total US spending on diabetes and pre-diabetes care will reach $500 billion annually by 2020.

This is largely avoidable. A recent report by the Urban Institute concludes that the US could save up to $191 billion over the next decade through wide adoption of Prevent or programs like it. The biggest beneficiaries would be Medicare and Medicaid.

“We’re caught in an unacceptable paradox: despite staggering technological advances in nearly every aspect of our lives, for the first time in history we find that preventable, chronic disease now kills more people than infectious disease,” Duffy says.

Omada Health is a new kind of investment for Andreessen Horowitz, Srinivasan says, but one that the firm looks to make more of in the near future thanks in part to his background as a genomics academic and prior healthcare entrepreneur.

“We think of healthcare as five-layered onion,” Srinivasan explains, outlining these areas from the surface to the core as: search, medical records, diagnostics, devices, and therapeutics. “The last two interior layers of the onion are less amenable to software, but when software solutions are created they can be incredibly powerful.”

Looking ahead, Omada plans to expand beyond diabetes prevention to address other chronic preventable diseases. One area the company is currently exploring is smoking cessation, although there is no clear roadmap as to where and when it will expand.

“Diabetes is a multi-hundred billion dollar problem in the US so if that’s all they addressed it would be a huge opportunity,” Srinivasan says. “But we believe that there are a number of other preventable lifestyle-related diseases that can benefit from this type of approach.”

Omada writes on its website that “the future of healthcare for the 75% of Americans who will die prematurely from preventable lifestyle-related chronic conditions lies in behavior change, not simply traditional medicine."

Omada faces likely competition from legacy healthcare institutions like insurers. United Health, for example, has announced plans for a diabetes prevention program but has yet to launch one to the public. The company will do well to race as far out ahead of these giants as possible. One ally in that fight may end up being the CDC, which has received massive diabetes-related funding as part of the Affordable Care Act and which is working with Omada to get its Prevent program implemented as the industry-wide standard of care.

The 30-person company has now raised $28.5 million dollars and will likely double its headcount by year’s end, Duffy says. His co-founders and teammates include fellow Ideo alumni as well as industry and academic veterans from Google, Amazon, Harvard, and Stanford, the CEO says.

The type of rapid growth that Omada is seeking may be foreign to the academic or healthcare sectors, but it is something with which A16Z and other Valley firms are intimately familiar and one area where the new investor should be able to provide immediate value. The other area, according to Srinivasan, will be through making strategic introductions to enterprises via the firm’s Executive Briefing Center (EBC).

The most pressing issue Omada faces at this stage is convincing insurers and employers to embrace and adopt digital therapeutics. The company plans to address this through a combination of market education – publishing research and case studies – and through building a hybrid sales force combining elements of the software and healthcare industries.

Changing the way an entire industry thinks about technology is no small feat and will require all the financial and intellectual resources that Omada can muster. The potential impacts of succeeding, however, would seem to more than justify the risk.

“The technology industry has gotten a bad rap for focusing on things like gaming and social networking,” Srinivasan says. “This is the kind of investment that I’m interested in and hope to do even more of going forward – ones where we’re going after huge problems with the potential to deliver massive impact.”

(*Disclosure: Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are investors in Pando.)

[Illustration by Hallie Bateman for Pando]