How do uk med tech startups cope with the capital pressure

Analysing the current state of R&D in the UK and global

MedTech markets: how do start-ups cope with capital pressure?

Dror Nir, [email protected]

mailto:[email protected]

•The UK MedTech arena

•Coping with hurdles

•Summary

Agenda

67% of the life-science companies in the UK are MedTech companies

Source: The “Strength and Opportunities” governmental annual report by the department of Business Innovations and Skills (BIS) for 2013, reviewing the UK life science industry

3309

1073

121477

Companies

UK’s life-science cluster is the largest in Europe

In Europe, UK is presenting the highest

number of life-science products that are in

development.

Source: KPMG - European Life Sciences Cluster 2013 Report

USA & UK – global MedTech trends

The National Health Service directed the Clinical Commissioning Groups, which manage 65% of the NHS budget, to be cautious in budget planning across the board in order to meet a £30 billion budget shortfall by 2020/21.

NHS budget cuts

….. is born…..

2013: 3096 MedTech companies in UK


3309

1073

121477

Companies

Largest employer in the life-science segment


99% SME’s, 62% have micro status (≤ 10)

0-446%

5-916%

10-1912%

20-4915%

50-997%

100-2493% 250+

1%

£0-49,0007%

£50-99,0008%

£0.1-0.249m16%

£0.25-0.499m17%

£0.5-0.999m12%

£1-4.9m23%

£5m+17%

MedTech companies distribution by turnover; ~40% presenting annual turnover in the range of £0.1m - £0.5m


Essentials for a MedTech company

•Technology

•Funds

•People

No longer just a

TECHNOLOGY

Needs a

SOLUTIONTo an important health problem

Typical to UK

Funding

In the last years, the number of UK based VCs that are specialised in MedTech has dramatically declined.

For UK investors, revenue and margins have much greater importance than technology in establishing a valuation.

Source: EY Pulse of the industry 2013 Report

Typical to UK

Funding support

Investment-boosting tax breaks are offered by the government to encourage investors to plough money into early-stage companies:

Incentives for R&D expenditureSeed Enterprise Investment Scheme (SEIS)10% R&D tax credit of qualifying expenditures

etc…Source: KPMG - European Life Sciences Cluster 2013 Report

Typical to UK

Funding supportOngoing R&D support schemes: SMART (for industry), MRC (academies), Charities.

Source: BIS- 2013 Report

Typical to UK

Funding support

Government (TSB and MRC) is investing £310m of non-dilutive grants, matched with private funding, to support R&D and commercialization of technology:• £180 million for the Biomedical Catalyst• £130m for Stratified Medicines

Source: BIS- 2013 Report

Typical to UK

90% of the interviewed entrepreneurs say that the UK fundraising environment is challenging:

• UK investors prefer to invest in advanced stage companies.

• Access to government grants is overly restricted.

YET

Source: EY & KPMG 2013 Reports

Typical to UK

PeopleExecutives of UK MedTech startups are looking primarily for workers with STEM (Science, Technology, Engineering, and Math) skills.

UK is considered to have a very good education system and is second best in Europe regarding labor market flexibility.However: Nine in ten say it is “challenging” to find workers with the skills needed to grow their businesses.

Source: EY & KPMG 2013 Reports

Typical to UK

Balancing the flowCash (in-out)/Time

Time…

Regulations

Dogmatism of the market

Navigate around increased regulation complexities.

Pacemakers need to be verified for accuracy and safety to much higherstandards than electrical switches installed in household appliances.

Navigate around increased regulation complexities.

Pacemakers need to be verified for accuracy and safety to much higherstandards than electrical switches installed in household appliances.

Unlike general-purpose technologies, IVD kits and medical-imaging devices needs to be validated in lengthy clinical trials.

Available solution to shorten time to market

UK Health Technology Campuses in collaboration with the NHS: The goal is to accelerate the development of innovative medical technology solutions and their adoption by hospitals. Transparent benchmarks to drive improved performance of clinical research by the NHS: the NIHR (National Institute for Health Research) made the 70-day benchmark, from receipt of a valid research application to the recruitment of the first patient for trials, a condition of new contracts with providers of NHS services. Fast track for regulation: Developing and implementing together with the MHRA (Medicines and Healthcare products Regulatory Agency) of a workable Early Access Scheme. This is currently on hold for budgetary reasons.

Legacy of hundreds of years of established protocols,

processes and procedures

Novel products are no longer reimbursed without also proving that they are contributing to better health care at a reasonable cost.

PLANETARY ALIGNMENT WITH THE GIZA PYRAMIDSIT ONLY HAPPENS ONCE IN 2,737 YEARS

What UK MedTech startups do?

•Delegate fundamental R&D problems to universities.

•Partner with university hospitals to perform the clinical studies required for products validation

1.Universities do not follow regulations and quality procedures

2.In practice, operational processes and administration related to running clinical studies by universities are very heavy.


What UK MedTech startups do?Earliest possible commercialisation

Reach self-sustainability

break-even

profitability

EXIT

Going beyond the classical business approach of selling

innovation: MedTech companies expand into services and

solutions.


While continuing to innovate?

Sales has a cost: time and resources….

Can startups sell enough to maintain their R&D momentum?

Changes in management focus?

Investors’ focus?

How does all that influence innovation?

Typical budget

•Average gross annual salary – 50K£ + cost of salary 10% - 15%

• R&D & Infrastructure – From ~30% of the initial budget decreasing to few percentages of sales (8% - reported)• QA/RA – Typically adding 20% - 30% to the global costs of R&D• Manufacturing – Depends…• Cost of marketing & sales - From several Ks >>>>• Legal (e.g. agreements, IP) – From several Ks >>>>• G&A – ~10% of the total budget

Distribution of MedTech companies by turnover.


£0-49,0007%

£50-99,0008%

£0.1-0.249m16%

£0.25-0.499m17%

£0.5-0.999m12%

£1-4.9m23%

£5m+17%

31%

Distribution of MedTech companies by turnover.


£0-49,0007%

£50-99,0008%

£0.1-0.249m16%

£0.25-0.499m17%

£0.5-0.999m12%

£1-4.9m23%

£5m+17%

Summary

Solving big health care challenges - in a highly regulated industry with numerous parties and conflicting interests - is likely to take much longer than the relatively straightforward task of building a new product.

UK Government Supports

• R&D grants

• Tax incentives


• Strive to generate early revenues

•Delegate fundamental R&D to universities.

•Partner with university hospitals to perform the clinical studies required for products validation.

Help universities provide better support

to the MedTech segment

• By incentivising:

• Timely delivery of R&D results

• Running high quality and cost-effective clinical studies

• Adherence to MHRA regulations

• Over 20 years experience in development and commercialisation of medical-imaging devices comprising machine learning.

• Expert consultant:

• Management• Business & technology development• Access to market• Clinical studies

• PhD in Nuclear Physics, TAU, Israel.

Dror Nir

Thank you!