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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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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]
•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
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
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
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
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
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?
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.
What UK MedTech startups do?
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.
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
£0-49,0007%
£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.
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
£0-49,0007%
£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
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.
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!