How do uk med tech startups cope with the capital pressure

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This was presented at the UK MedTec 2014 event by Dr. Dror Nir, managing partner in RadBee.
Dror analyses the financial eco-system of the UK MedTech segment based on data that was published in reports by the department of Business Innovations and Skills (BIS) in 2013, E&Y and KPMG. The bottom-line outcome of his analysis is that the majority of UK MedTech companies, particularly the startups, are straggling to survive with very little opportunities to carry on innovations.
New approach for sustaining long-term innovation is suggested.

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  • Good afternoon,
    in the following 20 minutes we will discuss the UK MedTech sector with focus on how MedTech startups cope with the capital pressure.
  • My presentation will follow this agenda
  • Starting a company is not a walk in the park. Particularly when it’s a MedTech startup. Nevertheless, having spent the last 15 years on bringing MedTech innovations to market, I find that it is a rewarding journey.

  • The UK MedTech is the biggest segment in the UK Life Science cluster.
  • Moreover; UK’s life-science cluster is the largest in Europe. It is very strong in R&D, and employs a large LS workforce.
  • As consequence, it has the highest number of LS products that are in development (followed by Germany and France…)
  • So far, these are the good news
  • On the other end…
  • As all other industries, the UK MedTech segment, suffers from the global financial-crises. Specifically for Medtech, where spending on R&D is so crucial, the large decline in availability of funds takes its toll.
  • The financial crisis influences also the availability of R&D resources at related 3rd parties; A UK specific example is the budget cuts within the NHS.
  • It is estimated that ~100 MedTech startups were founded in the UK during 2013
  • These startups joined a community of over 3000 already established MedTech companies
  • Employing more people than any other life science segment.
  • Interestingly, 99% of MedTech companies in the UK are SMEs, 74% are very small – less than 20 people.
  • Moreover, most of the revenues are generated by only 17% of the companies. About half of the companies are generating very small revenue.
  • Running a startup is all about crossing barriers. When it comes to MedTech startups , the common hurdles that defy all startups are enhanced by challenges specific to the medical sector .
    The next part of my presentation is addressing the main barriers that a MedTech startup needs to overcome with a focus on their UK version.
  • Most of the challenges MedTech startups face have to do with; developing technology, getting funded and recruiting the right people
  • MedTech startups are set to bring new technologies to the market . The current trend in the UK is that to gain R&D grants’ support, novel MedTech products needs to enable comprehensive healthcare solutions.
  • Funding opportunities for UK MedTech companies are mostly influenced by two factor: having less active investors in this domain AND; the fact that existing investors are driven more by opportunities for fast return on investment and less by technology or products.

    This is very much different from what happens in the USA, where investors are still more Technology and products driven.

    To help UK MedTech startups getting funded….
  • The Government is offering an impressive list of tax-breaks aiming to encourage investments.

  • Also, in addition to the traditional R&D grants schemes…



  • The Government came up in 2012 with a new 5 years scheme of £310m, designed to attract the matched amount from the private sector.
  • Recent reports by EY and KPMG reveals that these are hardly enough; a majority of UK entrepreneurs find that.. ..
  • Last, but not least.. MedTech companies require skilled workforce. AND; it appears that even in the UK, finding the right people isn’t easy
  • All startups needs to excel in balancing cash-flow and time.
  • And while time usually works against any startup, there are MedTech specific barriers , that even in the best case scenarios will take considerable time to pass, and with limited control on how long it takes.
  • The two most challenging are: Regulations and Dogmatism of the market.
  • The regulatory requirements a MedTech company needs to meet are constantly changing and constantly becoming more complex.

    FOR EXAMPLE; rigorous verification of product’s accuracy and safety – its costly and time consuming. Another example…
  • Product validation through clinical studies: Which in addition to the high costs, represents a major time-staller to commercialization.
  • The UK Government acknowledges these problems and is offering various reliefs..
    Health Technology Campuses - The goal is to accelerate the development and adoption of MedTech products.
    Imposing Benchmarks to improve performance of clinical research
    And there is an intention to implement a Fast track for regulation together with the MHRA this is currently on hold for budgetary reasons.
  • Market dogmatism: Although medical doctors can be early adaptors when it comes to smartphones, it takes years to convince them to use new medical technology or change workflow.

  • Also, it takes long time to prove that a product contributes to better healthcare and therefore deserves to be reimbursed. Non-reimbursed products are not likely to be used in the public system, even if they are excellent!
  • Like all startups also MedTech companies strive to an exit. WHICH REQUIRES ….
  • Being alive at the moment of stars alignment for their product. Unfortunately, this is not an everyday event.
  • So, what do startups do: Growing trends are *delegating fundamental R&D to universities, which make sense as it allows starting the project’s clock at a better position. AND *collaborating with universities on clinical studies, which has the potential to save costs since such studies can be fully sponsored by Government grants money.
    Unfortunately, many times, these potential solutions ends up delaying the overall access to market. And there are two main reasons for that: Academies do not follow regulations and quality procedures – This always needs to be patched up by the company
    In practice, running clinical studies by universities takes more time than otherwise.
    I’d like to mention that it could mean a lot if these would change!
  • What seems to be the most prevalent route taken by UK MedTech startups in order to stretch their lifetime
  • Is sales. UK Startups strive to reach sales as early as possible. In theory, revenues will help the startup reach STABILITY and according to the level reached should increase the probability of “being around” WHEN the conditions for an exit are fulfilled…
  • But as we have seen, commercializing an innovative MedTech product takes considerable time, so in order to fast generate revenues, Uk MedTech startups expand-into health related services and solutions.
    EXAMPLE…..a start-up that was developing innovative imaging biomarkers for cancer diagnosis is selling management of imaging procedures in clinical studies
  • So, then we ask: can a startup maintain focus on innovations and on sales?
  • As we know, Sales has a cost, in time and resources, so (1,2,3); can startups sell enough to maintain both sales and R&D? Which will demand more of the management focus? And what will be the influence of sales on investors focus?
     
    4…The main concern is that once sales will not meet their business-plan target, which always is the case, funding of R&D will diminish. (This might result in offering incomplete products which will not deliver the anticipated medical solution)
     
    To assess the feasibility of supporting R&D with sales let’s go back to review the typical cash situation in the UK MedTech segment.
  • If we only consider the salary costs AND leave-out the rest, which typically doubles the sum…..
  • We can see that 30% of the companies, those who hardly make 250K£/year, cannot afford paying the salaries of more than 3-4 employees. Not to say, maintain all other activities…
  • With ~60% of the companies presenting turnover of less than 1M£/year, reaching even poor profitability, seem to be a very demanding cost-saving exercise.

    It appears, that maintaining innovation in this environment is left for the very few. It’s not so good for achieving grand-variety of innovations.
  • It’s commonly agreed, that startups are an essential part of the MedTech eco-system with important contribution to it’s growth potential…
  • There is no way to go around time and funds consuming challenges typical to the medical sector.
    And no one can educate investors to be happy about it…
  • The UK government recognizes the importance of startups in developing new ideas and creating jobs and is doing an effort to provide tools to sustain and grow the MedTech startups community
  • And the MedTech community is constantly implementing solutions…
  • A relatively small effort that could transform the current environment into a much more welcoming one
  • Could be a program, to help universities contribute more effectively to the delivery of MedTech innovations by incentivizing…
  • Who am I…
  • How do uk med tech startups cope with the capital pressure

    1. 1. Analysing the current state of R&D in the UK and global MedTech markets: how do start-ups cope with capital pressure? Dror Nir, PhD Dror.nir@radbee.com www.radbeeqms.com
    2. 2. •The UK MedTech arena •Coping with hurdles •Summary Agenda
    3. 3. 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 121 477 Companies
    4. 4. UK’s life-science cluster is the largest in Europe
    5. 5. In Europe, UK is presenting the highest number of life-science products that are in development. Source: KPMG - European Life Sciences Cluster 2013 Report
    6. 6. USA & UK – global MedTech trends
    7. 7. 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
    8. 8. ….. is born…..
    9. 9. 2013: 3096 MedTech companies in UK 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 121 477 Companies
    10. 10. Largest employer in the life-science segment 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
    11. 11. 99% SME’s, 62% have micro status (≤ 10) 0-4 46% 5-9 16% 10-19 12% 20-49 15% 50-99 7% 100-249 3% 250+ 1%
    12. 12. £0-49,000 7% £50-99,000 8% £0.1-0.249m 16% £0.25-0.499m 17% £0.5-0.999m 12% £1-4.9m 23% £5m+ 17% MedTech companies distribution by turnover; ~40% presenting annual turnover in the range of £0.1m - £0.5m 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
    13. 13. Essentials for a MedTech company •Technology •Funds •People
    14. 14. No longer just a TECHNOLOGY Needs a SOLUTION To an important health problem Typical to UK
    15. 15. 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
    16. 16. 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 expenditure Seed Enterprise Investment Scheme (SEIS) 10% R&D tax credit of qualifying expenditures etc… Source: KPMG - European Life Sciences Cluster 2013 Report Typical to UK
    17. 17. Funding support Ongoing R&D support schemes: SMART (for industry), MRC (academies), Charities. Source: BIS- 2013 Report Typical to UK
    18. 18. 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
    19. 19. 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
    20. 20. People Executives 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
    21. 21. Balancing the flow Cash (in-out)/Time
    22. 22. Time…
    23. 23. Regulations Dogmatism of the market
    24. 24. Navigate around increased regulation complexities. Pacemakers need to be verified for accuracy and safety to much higher standards than electrical switches installed in household appliances.
    25. 25. Navigate around increased regulation complexities. Pacemakers need to be verified for accuracy and safety to much higher standards 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.
    26. 26. 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.
    27. 27. Legacy of hundreds of years of established protocols, processes and procedures
    28. 28. Novel products are no longer reimbursed without also proving that they are contributing to better health care at a reasonable cost.
    29. 29. PLANETARY ALIGNMENT WITH THE GIZA PYRAMIDS IT ONLY HAPPENS ONCE IN 2,737 YEARS
    30. 30. 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.
    31. 31. What UK MedTech startups do?
    32. 32. What UK MedTech startups do? Earliest possible commercialisation  Reach self-sustainability  break-even  profitability EXIT
    33. 33. Going beyond the classical business approach of selling innovation: MedTech companies expand into services and solutions. What UK MedTech startups do?
    34. 34. 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?
    35. 35. 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
    36. 36. Distribution of MedTech companies by turnover. 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 £0-49,000 7% £50-99,000 8% £0.1-0.249m 16% £0.25-0.499m 17% £0.5-0.999m 12% £1-4.9m 23% £5m+ 17% 31%
    37. 37. Distribution of MedTech companies by turnover. 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 £0-49,000 7% £50-99,000 8% £0.1-0.249m 16% £0.25-0.499m 17% £0.5-0.999m 12% £1-4.9m 23% £5m+ 17%
    38. 38. Summary
    39. 39. 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.
    40. 40. UK Government Supports • R&D grants • Tax incentives
    41. 41. What UK MedTech startups do? •Strive to generate early revenues •Delegate fundamental R&D to universities. •Partner with university hospitals to perform the clinical studies required for products validation.
    42. 42. 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
    43. 43. • 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
    44. 44. Thank you!

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