Generation Health Growing Boston-Area Presence, Backed by Highland Capital Partners

3/18/09

Though Generation Health, launched last year with backing from Highland Capital Partners and others in the Boston area, is based in New Jersey, it’s staging much of its effort to build a novel benefits management system for genetic tests here in Massachusetts. And Per Lofberg, the firm’s chairman and CEO, tells Xconomy that he anticipates that its Bay State operations will continue to expand.

The Upper Saddle River-based startup this month hired Douglas Walton, a former vice president of medical information provider WebMD Health, who will be the firm’s chief technology officer based in the Boston area. The firm is developing some of the technology behind its planned service in the Waltham offices of founding companies D2Hawkeye, a heath data analytics firm, and Correlagen Diagnostics, which operates a genetic testing laboratory and develops genetic tests. Also, Stanley Lapidus, a well-known founder of Massachusetts life sciences companies Cytyc (now Hologic), Exact Sciences (NASDAQ:EXAS), and Helicos BioSciences (NASDAQ:HLCS)—joined the board of directors at Generation Health late last year.

The company sees a major opportunity in offering benefit management services for the rapidly growing field of genetic testing. Genetic tests—which analyze patients’ DNA, RNA, or other biological materials for information that can help diagnose diseases, predict the effectiveness of drugs, and screen fetuses for chronic illnesses—are rapidly becoming more central to healthcare in the U.S. There are now more than 600 labs in the country that provide genetic tests for some 1,700 diseases, according to GeneTests, a nonprofit group based at the University of Washington in Seattle. Generation Health says it’s building the technology and organization needed to help health insurers, companies, and other providers of health benefits decide which genetic tests are the most useful and how and whether the tests should be covered under health plans.

“This whole area is sort of exploding right now [and] there’s new stuff coming out almost every week that offers new opportunities to use genetic testing to personalize or tailor treatments for individuals,” says Lofberg, “and as of now there aren’t consistent programs and policies about what tests should be covered or what shouldn’t be covered.”

Lofberg, the former chairman of drug benefit management giant Merck-Medco (now Medco Health Solutions), says that Generation Health plans to negotiate terms with commercial labs regarding the costs and standards of genetic tests. The firm is also building a processing system that will connect the labs, itself, and its clients that provide health benefits. In addition, he says, the company is in the process of building an online repository of information for patients and doctors to find information about all available genetic tests.

Lofberg compares what Generation Health plans to do in the genetic testing market to what he and his colleagues did in building Medco into a powerhouse in the drug benefits management business. Franklin Lakes, NJ-based Medco (NYSE:MHS), which had 2008 revenue of $51.26 billion, is among the largest drug benefits managers in the country and fills prescriptions for millions of patients through its direct-to-patient services and network of pharmacies. Lofberg became an executive at the company in 1988 and served as chairman of the company prior to the spin-off of Medco from Whitehouse Station, NJ-based drug-maker Merck (NYSE:MRK) in 2003. (Walton, Generation Health’s new chief technology officer, is also a former employee of Medco.)

Highland Capital Partners in Lexington, MA, was the sole venture investor in Generation Health’s Series A round of financing, revealed last November. (The firm and Lofberg declined to say how much was raised in the financing, but website PE Hub reported it was $5 million.) Highland general partner Bob Higgins and principal Graham Gardner are on the startup’s board of directors. Gardner says the venture firm decided to back the company after spending more than a year researching the rapid adoption of genetic tests in clinical practice and the implications of this trend in healthcare.

Highland’s research led the firm to the founding team of Generation Health, which included Lofberg, former Medco executive Richard Schatzberg, David Margulies, founder and CEO of Correlagen, and Chris Kryder, who is founder and chief executive of D2Hawkeye. (D2Hawkeye was acquired in January by Jersey City, NJ-based data analytics firm ISO, but Kryder continues to lead the business as CEO of ISO’s Verisk Health unit.)

Lofberg, who credits Kryder and Margulies for the original idea for Generation Health, says that the company may establish its own office in Massachusetts by the end of the year. Meantime, the company will maintain a significant presence in the state in the offices of D2Hawkeye (Verisk Health) and Correlagen, he says.

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