The conventional wisdom in the medtech industry is to pursue the “razor-razor blade” business model, as each placement of capital equipment generates a lucrative annuity of recurring revenues from disposables. The corollary to this conventional wisdom is that so-called “big iron” is to be avoided as, in sharp contrast, it suffers from greater early cash requirements and longer sales cycles that create difficulties forecasting quarterly revenues, and provides no annuities. But that view is no longer the only one that counts, Health Advances CEO Mark Speers argues.

In the last two years, several major venture capital firms that had previously been major investors in life sciences companies abandoned health care for the rarified worlds of information technology and telecommunications. This created a void in health care investing that has seen two venture firms formed recently to focus exclusively on life sciences. First was Versant Ventures (formerly Palladium), which was started in September 1999 by the life sciences partners from Brentwood, IVP and Crosspoint Ventures. And more recently, in February 2000, four veterans of the life science investing wars--John Simpson, MD, Fred Dotzler, Richard Ferrari and David Mauney, MD--got together to form De Novo Ventures, which is also health care-focused. In addition to providing financing, De Novo is also looking to take advantage of the extensive operational experience of its partners by providing start-ups with hands-on management expertise.

The subject of medical mistakes has drawn increased attention over the last five years, culminating in the November 1999 Institute of Medicine's report, which made front page news and triggered responses from President Clinton and Congress, as well as the medical establishment and the health care industry. Of particular interest to pharmaceutical and medical products companies is the problem of medication errors, which appear to be increasing for a variety of reasons, ranging from the complexities posed by ever-increasing numbers of drugs and delivery regimens, to more basic factors such as indecipherable physician handwriting and the increased pressure resulting from medical staffing reductions. Whatever the cause, one thing is clear: medication errors are a systemic problem not given to any one quick fix. With the potential for errors occurring at every stage of the medication delivery chain--prescribing, processing, dispensing, and administering drugs--there's plenty of room for companies with potential solutions. Yet, existing information and automated drug distribution systems only incidentally address the problem of medication errors. Bridge Medical, a start-up focused exclusively on developing systems to prevent medication errors, is looking to correct mistakes no matter where they originate by concentrating on the final step in the drug delivery process: the patient's bedside. Bridge recently parted ways with its founder, choosing to move in a different direction that will bring it into more direct competition with large health care information technology players. The company is betting that having a technological headstart and being the only pure-play medication-error company will enable it to successfully navigate what is rapidly becoming a crowded and heavily scrutinized market.

E-commerce upstart Neoforma is leading a pack of companies trying to make money by helping hospitals to purchase more efficiently via the World Wide Web.