Life sciences investors move to MedTech’s safe harbour

The European Tech Tour Association was founded in 1998 by veteran venture capitalist, Sven Lingjaerde, to promote technology transfer and commercialisation by pinpointing the most promising high tech start-ups and introducing them to senior industry and investment professionals from all over the world.

For the first time last month the Association’s focus fell on Medical Technology (MedTech). After a due diligence process, its international committee selected 24 European and Israeli MedTech start-ups (see the list below) from among 240 candidates. Members of the selection committee included partners of venture firms such as Polaris and Highland from the US, Sofinnova from France, Neomed, Endeavour Vision, and Ares Life Sciences, the new venture arm recently launched by former owner of  Serono, billionaire Ernesto Bertarelli, from Switzerland.

Amongst the audience were leading US companies such as Medtronic, Boston Scientific and Johnson & Johnson. And according to the MedTech summit’s President, Brian Hashemi, a former NASA biomedical scientist, there was more than polite interest. Here is why.

The European Tech Tour has been promoting technology entrepreneurship for years, but this is your first involvement in life sciences. Why did you choose medical technologies?

Brian Hashemi: “Everywhere around the world, the aging of the population is having an enormous impact on healthcare systems that are absolutely not prepared for such phenomenon. The only way to address this problem is to create technologies that have not only new beneficial outcomes for the patients but that are economically efficient for healthcare systems.

Technologies such as non-invasive surgical products that diminish the cost of surgery and hospitalisation time will make a significant impact on global healthcare.  Another area of great impact is new advanced diagnostics for early detection of cancer, which will benefit millions of patients and prevent costly cure. You have to remember that in western societies 80 percent to 85 percent of all healthcare spending devoted to an individual is incurred during the last two years of life. With the aging of the population, medical technologies that reduce those costs are urgently needed.

How did investors react to that economic argument?

The very fact that MedTech is massively addressing cost issues makes it the fastest growing venture capital investments area in the healthcare sector.  In the US alone, VC investments in MedTech and medical instruments grew more than $1 billion in 2007 to reach over $4 billion.

And what about Europe?

In Europe, unfortunately we do not have such precise figures. But there are numerous signs that the dynamic of MedTech investments is similar, if not stronger than in the US.

What signs?

For a very long time, European scientists have been very inventive in the field of medical technologies. But often the innovations were born in Europe and commercialised in the US.  For example, the electrocardiogram was invented in the UK in the 1920s and further developed in the Netherlands - Willem Einthoven got the 1924 Nobel price in medicine for it. But it was only in the fifties, when NASA started to use electrocardiograms to monitor astronauts’ heartbeats that the technology was developed by American companies and became a gold standard in medicine.

But times are changing. European MedTech companies are ever more competitive now. A good sign of that is that they are attracting managers and serial entrepreneurs from the US.

Some kind of reverse brain drain?

That would be an exaggerated assumption. But take the examples of two companies we’ve selected: Endosense, which is developing a force sensing catheter for ablation of the heart, and CeQur a spin off from Danfoss, which is commercialising a patch pump to replace regular injections of insulin for diabetes patients.

In the first case, Eric Le Royer, a former vice president of marketing for Guidant became CEO of Endosense. In the second, James Peterson an American graduate of Stanford University with thirty-year track record in the MedTech industry, and advisor to the Health Care Group for Warburg Pincus LLC in New York, recently founded CeQur in Switzerland.  To me, that is a clear sign that the tide is now reversing to the benefit of European MedTech.

Is this mirrored in the market?

It is starting to change. With a share of between 50 to 55 percent of the global MedTech market, the US remains a determining place for a successful product launch. Because of its consumption-oriented society that embraces innovations, and its regulatory framework with a more coherent reimbursement system and one safety authority to deal with in the FDA, the US market remains central  for MedTech companies.

But we now live in a world of globalisation and European companies open offices in the US and vice versa, but this does not mean that companies change their ownership or heritage.

You’ve mentioned the strong interest of VC investors for MedTech. Aren’t they deterred by the financial crisis?

We are currently living through the most profound global financial crisis since the Great Depression.  There is no doubt that this crisis will affect the healthcare industry as well.  But while in the short- and medium-term MedTech companies will have to revise growth projections and establish conservative cash management strategies, the long-term outlook for this industry remains extremely strong.

In terms of fundraising, companies will experience a decline in valuations but those with promising technologies that will make a global impact will continue to attract investments.  Our first MedTech Summit attracted over thirty major venture capital firms from Europe, the US and Israel, and they all come because they have cash to invest.

Meanwhile they have plenty of other opportunities in life sciences. Why MedTech and not biotech, genomics etc?

There is clearly a movement of capital from other tech sectors towards MedTech. If you look at biotech, for example, biotech bubbles and bursts have alerted investors to the risks associated with new chemical or biological compounds to be introduced in the human body. There was an illusion about would-be blockbusters. But many venture investors have discovered that the binary risks of failure of a new drug at each step of clinical trials are extremely high, particularly because of tougher regulation regarding side effects.

In the case of MedTech, be it drug delivery, non-invasive surgery, telemedicine, devices etc., you do not have as many binary failure points as in biotech and pharma.  For example, in the case of drug-device combinations the risks are more manageable because you often already know the biological effects of an existing drug.  As for new medical devices, you can better manage the risk associated with introducing a new medical procedure, or improving an existing one, compared to biotech, and the clinical trials are often far less expensive.

But isn’t it also the case that the returns of MedTech are not comparable with biotech?

Generally speaking a MedTech innovation will have a lower margin than a successful new biotech or pharmaceutical product. But your rate of success is considerably higher, and even if a new MedTech application fails during the first trials you still have intellectual property that could be adapted for other applications.

Biotech applications are generally much more specific. For venture capitalists, MedTech has a much more manageable risk profile. That is certainly a key argument in the current economic environment.”

The companies selected to present at the summit were BioControl, Biospace Med, CeQur, Elana, Endosense, EyeSense, Fertility Focus, Forth Photonics, GluSense, IMI Devices, Kuros, Leman Cardiovascular, Lifebridge, MaestroHeart, Michelson Diagnostics, Novalung, Novashunt, Occlutech, OptiNose, Pantec, Skyline, Slender Medical, Symetis, Vexim.