This week saw the BioTrinity conference in Newbury, UK, organised by OBN. It’s a fairly big date on the UK life sciences scene, with over 800 attendees, and impressively, a very healthy VC turn-out from London, Europe and even the US. While the conference is mostly focused on biotech, it was great to see a growing presence of medtech firms and entrepreneurs, including a dedicated medtech and regenerative medicine stream on Wednesday afternoon.
I met with a number of medtech entrepreneurs, and also attended a good part of the medtech stream, listening to company pitches. Many of them had fascinating stories, and here are a few of the insights I picked up:
1. Platform Technologies – Multiply Your Upside
Oval Medical is a company developing novel autoinjectors for injectable drugs. The core technology and IP is around their autoinjector system. While Oval have signed up some early pharma partners already, they suggest there are a potential 140 injectable drugs which could be administered through the system. While no-one expects the company to capture ALL this market, it does lead to a significant multiplication of opportunity, without related increase in cost or development for each new drug the system is adopted to.
Platform technologies seem to come in and out of fashion. Sometimes they’re favoured, as it’s a way a company can get multiple “shots on goal” and de-risk an opportunity. Other times, they’re less popular as some investors feel there’s not enough focus on end product. I think they’re a really good thing, and create a lot of discipline around a company. It brings focus on the question: How can we monetize what we know?
2. Creative Financing
Every company within the medtech sector usually needs fairly significant funding (defining signficant depends on your context – 6-8 figures is normal). An obvious choice is VC funding. While this can bring industry specific expertise, contacts and deep pockets for future development, it’s usually the most expensive form of funding. Founders and early investors get diluted real fast. So, any strategy which can reduce such requirement, and better still is non-dilutive, should be considered closely (and most likely, part of your funding repertoire).
Orthox, a company developing a biomaterials technology for cartilage and meniscus repairs has done this in spades. Throughout its history, the company has raised grant and loan funding to the tune of £4.25 million (not a typo). While some of this is dilutive, and some of it requires external equity funding to enable the full draw-down, it can be incredibly powerful. Such funding gives a company lifeline, and enables much of the early validation and development work to be done. When it does come time to raise further equity VC funding (the company projects it will need around £10 million over three rounds) the development work is further along so valuation is usually stronger. Also, the company is in a better negotiating position as everyone knows it’s not about to run out of cash tomorrow.
3. Creative Partnering
This is really a specific extension of point 2 above – do whatever you need to do to get your company funded. Bringing on board well-chosen partners early can share the burden of development work, and often provide specific expertise that adds more than just monetary value.
Momentum Bioscience, a company developing next generation rapid microbial diagnostic technology, has done this. Early on in its history, it signed a co-development deal with an US based partner. The partner is paying for much of the development work on the product as it pertains to US application. It also has the US rights. In return, Momentum receives royalties on any future US sales, and can use IP developed for its diagnostic technology in the rest of the world. Some may argue that giving away US rights is the biggest jewel in the crown. Maybe, but if it means your investors suffer much lower dilution, it means you can still generate a very healthy return for them. And many UK companies look for US partners to market downstream anyway.
Oval Medical have also employed creative partnering strategies. This includes big pharma partners running pilot studies early in the development process and paying all of the company’s burn for the duration of such pilot. The sums can run into hundreds of thousands of pounds. Again, this is non-dilutive, so adds all-important extra value at a very low dollar cost.
Oxtex, a company developing novel unidirectional tissue expanders for reconstructive and dental surgery, had a “pre-formation” partner that continues to add value. The company is a spin-out from the University of Oxford. Practically, this has benefited the company in two ways – firstly, over £600k of soft funding from the Wellcome Trust was made available to develop the core technology pre-spin-out. Secondly, through its relationship with the University (as an investor) Oxtex is able to leverage additional scientific, clinical and commercial skills that benefit the company.
4. Early Outreach with Potential Partners
As highlighted above in point 3, Oval Medical have been in touch with potential pharma partners, their target customer, from very early on in the development phase. As well as providing useful funding, this is critical since it means the company can test and modify the specification of their autoinjectors to match the needs of the customers – both on a general level (useful to other customers too) and specific level (relevant, say, to a particular injectable drug).
Too many companies develop their soon to be world-changing technology in a vacuum, or a black-box. They like to fly “under the radar” so that no-one else thinks of their opportunity and can beat them to market. Wake-up-call to entrepreneurs: if you’re opportunity is that good and fulfills a real need, someone else is already working on an alternative solution (think unravelling of DNA, or the public vs. privately funded race to sequence the human genome).
Often, flying under the radar is naive on two levels. Firstly, partners aren’t usually looking to rip off your ideas and go do a non-core activity themselves. It makes more sense for them to work with specialists that can deliver an effective solution. Secondly, developing a product in black-box mode means even with the brightest and most genius minds on your team, the real feedback that actually matters, that from paying customers, comes way too late.
I’m not suggesting go tell the whole world about your invention ahead of time – you still need to be mindful to protect your IP and opportunity. But selective engagement with partners that will win if you do can add massive value early on.
5. Sales, Sales, Sales
I’ve talked in previous posts about how important it is to get out and sell product early, in Lessons from Medtech and 6 Lessons for Medtech Entrepreneurs from Covidien’s Recent Acquisitions – the core reasons being it forces a commercial mindset and discipline, and provides vital feedback from the most important user group in the world – paying customers. Any other feedback is theory.
So, I was really glad to see quite a few of the medtech companies focusing on early sales. Some of these include:
- Oxtex, the company developing tissue expanders, has no sales yet but plans to have a veterinary surgery application for sale within just 18 months of its start-up date
- Cambridge Cognition, a company selling an app based, computerised diagnostic test to detect Alzheimer’s Disease up to 3 years before it’s clinically detectable, and follow on products offering therapeutic potential
- The Electrospinning Company, a company which has a novel approach to developing 3D scaffolds for tissue culture, with initial applications in drug development, currently offered as bespoke services while product development progresses.
With each of these companies, the initial sales are not going to be the greatest eventual revenue or valuation driver. But in the real world, businesses start with early products that can go to market first, then develop higher value follow on products. So long as they stay true to their core expertise, such early sales are not a distraction. They are training for bigger things. And a vital offset against the need for dilutive funding.
6. Super Niche Focus
When you’re small and competing in a big, bad world, focus matters. It really matters. I’ve written about this before in Lessons from Medtech and 6 Lessons for Medtech Entrepreneurs from Covidien’s Recent Acquisitions. You’re competing in a global market, often for a significant prize. You don’t have the resources or firepower of a big medtech. So get really, really good at a super niche area – be the best.
Glysure, a company developing real-time glucose monitoring for intensive care unit (ICU) patients, has such a niche focus. The company is not trying to develop a suite of real-time monitoring for multiple applications in varying hospital settings and primary care. No. What they are developing is a real-time glucose monitor for ICU. Period. The market potential for getting that right is huge. And, by the way, Glysure just closed a £7 million VC investment round. VCs don’t back anything unless they see potential for significant return (10x) and a super focused strategy.
Of course, I’m not saying this is a slam dunk. Somebody else is almost certainly working on something similar elsewhere in the world. And it doesn’t mean that after the first application has been nailed, follow on related products shouldn’t be pursued – they should (unless of course you get bought out). But a step-wise, focused strategy is the way to bet.
7. What’s Your Regulatory Approval Strategy?
Everybody knows regulatory approval matters – to sell product and capture maximum value for shareholders. On a VC panel, Abingworth pointed this out succinctly with an industry statistic: 70% of medtech acquisitions occur AFTER a company has gained FDA approval for its product.
So, know your regulatory approval strategy. Have it in place early on, and include it in your budget. Not every company will need FDA approval (I’m aware of some where, based on the less-invasive nature of product, even CE approval is worthwhile). But as an entrepreneur, know where the regulatory value is for your product and get it.
8. VCs Like Sales
In speaking with a number of VCs at the meeting, particularly about their medtech portfolios, I was struck by the prevalence of companies with sales. I shouldn’t be since I talk about the importance of sales quite a bit. But it was revealing to know that VCs think the same way about medtech and either want companies already with sales, or with a clearly defined and near-term path to get sales.
Remember, a VC has his or her masters to answer to aswell – the limited partners. And the objective for the VC business is making a return on funds. Plain and simple. Since most medtech acquisitions are made post regulatory approval and post product launch, VCs rightly look for this criteria. So, as an entrepreneur, know your strategy and path to sales. You don’t have to hit big numbers – that’s the upside potential that will be maximised by your acquiring big medtech trade buyer. But you need to be in the market with at least early sales.
Finally, a big thanks to all the entrepreneurs whom I either listened to present, or met in person. Spending time with you is always a joy. As a friend (and a life sciences VC) once put to me – “Entrepreneurs are the poets of business” – you have a wonderful knack of taking the same words (i.e. resources – capital, people, raw materials, finance) available to the rest of us and making them dance.
What do you think?
This post is by Raman Minhas. He is a medtech enthusiast, CEO of ATPBio, and works with entrepreneurial companies, providing support with partnering, financing and exit planning. He is also an investor in medtech stocks, using a value based approach.
Raman’s next conference attendance will be at a Medtech focused event – EuroMedtech in Grenoble, France. He will be moderating a panel: Keys to emerging company commercialization. Feel free to reach out if you’re going to be there.
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