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Group
Project Team:
Martin Holi
Alexander Jan
Stephen Mounsey
Dr Jonathan Lawton
Dr Siobhán Ní Chonaill
Malgosia Rozycka
For more information about the contents of this report, please contact: i
L.I. Group
St John’s Innovation Centre
Cowley Road
Cambridge
CB4 OWS
United Kingdom
www.li-group.co.uk
info@li-group.co.uk
Contents
1. Executive summary.............................................................................................1
2. Introduction........................................................................................................2
3. The healthcare technology sector.........................................................................3
3.1. Pharmaceutical industry................................................................................................. 4
3.1.1. Global and European pharmaceutical industry................................................................5
3.1.2. The UK pharmaceutical industry......................................................................................5
3.1.3. Pharmaceutical industry in Yorkshire & Humber..............................................................7
3.2. Medical technology industry...........................................................................................7
3.2.1. Medical technology product naming classification......................................................... 8
3.2.2. Cardiovascular................................................................................................................ 8
3.2.3. Diagnostics.................................................................................................................... 8
3.2.4. Orthopaedics................................................................................................................. 9
ii 3.2.5. Global expenditure in medical technologies..................................................................10
3.2.6. Medical technologies in Europe.....................................................................................10
CONTENTS
The healthcare technology venture market is the second largest sector, behind information and telecommunications,
attracting around 24% of all deals in Europe and 29% in the UK. This represents over £2.1bn of investment in European
healthcare companies and £434m in the UK in 2007 and 2008.
However, despite the buoyancy of the sector and the strengths of the region, many healthcare technology companies
still face difficulty in raising private equity particularly in the early stage where they face the so called ‘equity gap’ .
Typically this is the first round of venture capital investment of around £500K to £2m where investors regard propositions
as particularly risky.
To help companies in Yorkshire & Humber best position themselves to secure funding we are very pleased to announce a
new programme, ‘Access to Finance for Healthcare Technologies’, which will assist these companies to become ‘investment iii
ready’. We are delighted to be part of a consortium with a track record of success in this area, led by Grant Thornton and
including Quotec and BITECIC, which will work closely with companies in the region to provide skills, business model reviews,
FOREWORD
mentoring and investor introductions to get them in the best possible shape to secure investment. The programme will run
from January 2009 to April 2012 and is open to all SMEs in the healthcare technology market based in Yorkshire & Humber.
This report has been prepared for the launch of the programme, with the needs of entrepreneurial companies in mind, to
provide an overview of the level of investment activity in the healthcare technology sector over the last two years in Europe,
the UK and Yorkshire & Humber. It details the types of deals that have been completed and who the most active investors
have been and also provides a commentary on the current status of the investment market and likely future trends. I hope
that you will find it informative.
Glenn Stone
Key Facts*
£2.1bn of venture capital has been invested into European healthcare companies.
133,000 people are employed by healthcare technology companies in the UK.
Over 300 venture capital investments have been made into UK healthcare companies.
71 first round investments have been made into UK healthcare companies. 1
iv £1.4m is the average deal amount for a UK first round investment into the healthcare technology sector
88 active companies spun-out from Yorkshire Universities (2nd place in the UK).
KEY FACTS
17 is the number of active venture capital backed healthcare technology university spin-outs in Yorkshire.
£383m is the total annual research income of the universities in Yorkshire & Humber.
£76.2m is the value of contract research with Yorkshire Universities (3rd place in the UK). 3
The healthcare technology sector is made up of a number of sub areas, including pharmaceutical, drug development, medical
technologies and other life sciences. These areas are of particular interest as they have experienced high levels of growth
in recent years due to increases in national health expenditure, the global ageing population, developments in technology
(including diagnostics and drug delivery) and the rise in the number of chronic illnesses.
The UK’s leading manufacturing industry is the pharmaceutical and drug development sector, with two of the world’s top
ten pharmaceutical companies based in the country. Within the Yorkshire & Humber region, pharmaceutical companies
make up less than half of all healthcare technology companies within the area. Johnson & Johnson, one of the largest global
pharmaceutical companies, has subsidiaries based in the Yorkshire & Humber region as are a number of major publicly-listed
UK pharmaceutical companies including; Avacta Group, Syntopix Group and Fusion IP.
1
Although the UK is heavily reliant on imports it accounts for 11% of the total European medical device market and 20% of all
European medical technology companies. Within the UK, the sector employs some 60,000 individuals and nearly a tenth of
EXECUTIVE SUMMARY
these are employed within the Yorkshire & Humber region accounting for an output of £450m. In addition to four public- quoted
companies (quoted on the London Stock Exchange) there are several large international medical technology companies based
in the Yorkshire & Humber region.
Venture capital in the healthcare technology sector accounts for approximately 24% of all investments in Europe. Of the 311
deals completed between 2007 and 2008 there was an almost equal split in investment activity between the pharmaceutical
and medical technology area. The average investment size into a healthcare technology company was £2.7m, £1.3m lower than
the European average in this sector. There have been six first round investments in the Yorkshire & Humber region over the past
two years accounting for nearly 10% of all first round investments in to healthcare technology companies in the UK.
The Yorkshire & Humber region benefits from the presence of a number of strong research universities that have contributed
several spin-out companies to the local healthcare technology sector. The universities collaborate closely with intellectual
property commercialisation companies which provide capital and advice to spin-out companies. However, the number of
products or services that can be transferred into separate spin-out companies is limited at any university. This therefore
requires a sustained effort by the region to establish, finance and grow additional start-up companies.
This report has identified a number of technological trends within the healthcare technology sector that are increasingly
appealing to venture capital investors. These include miniaturisation and nano-biotechnology, stem cell, ophthalmology,
standardisation, imaging and personalised medication. The report also investigates the latest financial trends for early-stage
businesses within the sector.
The Healthcare Technology Venture Market
2 Introduction
Over the years the European healthcare technology sector Methodology
has provided many attractive investment opportunities Venture capital investment data is derived from different
for investors. Venture capital investments into this sector information sources and news providers. The main data
now count for one-third of the European and UK venture source for investment activities was the Library House
capital market. The emergence of biotechnology within the database ‘European Venture Intelligence’ (EVI) as of
pharmaceutical and drug development sectors has created November 2008. Additional information was taken from
a niche venture capital market with specialised early- from correspondence with investors, technology transfer
stage investors. In the field of medical technologies many offices and universities. Market capitalisation values are
innovations are now explored through smaller companies taken from the statistics of the London Stock Exchange
developing diagnostic tools, implants, medical instruments (LSE) as of December 2008.
and drug delivery systems to serve patients, with particular
focus on the ageing societies across European countries. The data presented in this report is taken from publicly
available sources. Due to the nature of the venture capital
Despite the relatively high venture activity in medical market not all information about investments is disclosed.
technology in the UK all venture capital stakeholders are However, the L.I. Group claims to provide an accurate
2 aware of the challenges that the venture capital market will picture based on the information that is currently available.
face in the upcoming months and possibly years. The impact
of changes taking place in the economic and financial
INTRODUCTION
Table 1 – Top world pharmaceutical corporations, 2007 (Source: IMS World Review 2007)
The Healthcare Technology Venture Market
Employees R&D employment R&D as a % of total Salaries and wages Gross output per
Year
(1,000s) (1,000s) employment (£m) employee (£)
1980 73.3 12 17 412 33,315
1985 66.9 15 22 662 60,239
1990 71.1 18 26 1,120 90,549
1995 61.9 17 27 2,039 160,242
2000 66.0 25 38 2,214 190,492
2001 71.0 27 38 2,624 198,862
2002 84.0 29 35 3,086 183,940
2003 73.0 27 37 2,698 212,712
2004 73.0 27 37 3,040 208,753
2005 68.0 26 38 3,084 231,588
2006 72.0 28 39 3,414 235,278
6
Total market sales
Rank Corporation Nationality Market share (%)
(£m)
SECTION THREE THE HEALTHCARE TECHNOLOGY SECTOR
Table 3 – Nationality of top 20 pharmaceutical companies in the UK (Source: IMS Dataview, 2007)
Trade 3.1.3. Pharmaceutical industry in Yorkshire &
Year Exports Imports
Balance Humber
2006 13,400 9,114 4,286 In the Yorkshire & Humber area, pharmaceutical and
2007 14,080 9,871 4,209 biopharmaceutical companies account for significantly less
2008* 12,085 7,934 4,151 than half of healthcare technology companies in the region.
* as up to date as November 2008 Although the number of companies correlates with previous
Yorkshire Forward reports10, the reliability of this dataset
Table 4 – UK exports and imports of pharmaceutical goods (Company House) is questionable and the true percentage
2006-2008 (Source: uktradeinfo.com,2008) is up for debate. Key publicly listed pharmaceutical and
biotechnology corporations in the Yorkshire & Humber
The UK is home to a number of global pharmaceutical region include Avacta Group, Syntopix Group and Fusion IP.
companies, especially within the Greater South East.
The Yorkshire & Humber region is home to several of
3.2. Medical technology industry
the Johnson & Johnson family of companies. As Table 3
suggests only a small minority of the Top 20 UK-based Medical technology is generally defined as the use of technology
pharmaceutical corporations originated and are active to manage a range of health conditions through diagnostic11
within the UK. Nonetheless, the pharmaceutical industry and therapeutic application. In a more general sense, the
is considered to be Britain’s leading manufacturing sector. term can be used to refer to the procedures, equipment, and 7
This claim is backed up by HM Revenue & Custom data from processes by which medical care is delivered.
uktradeinfo, which has shown a trade surplus from 2006
3.2.1. Medical technology product naming with an annual estimated cost of €192bn to the overall EU
classification economy.
Though the health sectors with which medical technology
companies focus upon seem very well defined and limited, According to the WHO’s 2007 statistical data, heart disease
there is a huge range of products that can be developed and strokes account for 21.7% of deaths worldwide,
for each area. Table 5 shows the common nomenclature while cardiovascular disease accounts for 30%. The WHO
developed by the Global Medical Device Nomenclature estimates that in 2015 almost 20 million people will die from
Agency. a cardiovascular-related condition. This can all be related
to both an ageing global population and a sustained rise in
obesity. In fact, rising obesity levels are not only responsible
Term Examples
for the growing number of cases of heart disease and
Active implantable Cardiac pacemakers,
strokes, but has also contributed to the rise in deaths
technology neurostimulator, etc.
related to diabetes. The WHO predicts that within the next
Anaesthetic and respiratory Anaesthetic and respiratory
ten years diabetes-related deaths will increase worldwide
technology technology
by more than 50%.
Dentistry tools, alloys, resins,
Dental technology
dental floss, brush, etc. This in turn has created a viable marketplace with the
8 Electromechanical medical X-ray machine, scanner, laser, cardiovascular device market expected to reach US$40.46bn
technology etc. by 2011 in North America alone. Cardiovascular medical
Hospital hardware Hospital bed, etc. technology products include cardiac rhythm management,
SECTION THREE THE HEALTHCARE TECHNOLOGY SECTOR
Figure 5 – Top 25 global expenditure in medical technologies in 2007 (€bn) (Source: Eucomed,2008)
The Healthcare Technology Venture Market
3.2.5. Global expenditure in medical technologies Within Europe, Germany is both the biggest exporter (€14bn)
Figure 5 provides a quick overview of the 25 countries with and the biggest importer (€9.2bn) of medical technology. In
the largest global expenditure in medical technologies. As terms of exports, Germany is followed by France, the UK and
can be clearly seen, the US has the largest expenditure, Ireland. The biggest importers after Germany are France,
almost €80bn. In fact, US expenditure is equivalent to the Italy, the UK and Spain. Germany, the UK, Ireland, Sweden,
entire expenditure of Europe. Denmark and Finland have trade surpluses in medical
technology, while all other countries have trade deficits,
3.2.6. Medical technologies in Europe suggesting the prowess of these countries in this area.
As stated recently in a report15 by the McKinsey Group, the
European medical technology market, which is regulated
by the European Medical Devices Directives, is growing
at a rate of 5–6% each year – a model of consistency in
an otherwise turbulent economic climate. In support of
this, Espicom Business Intelligence predicts that the main
medical device markets in Western Europe will grow by over
40% in the coming years to reach an estimated US$82.4bn
by 2013.16
10
According to Eucomed medical technology sales in Europe
amounted to €63.6bn in 2005, making up one-third of the
SECTION THREE THE HEALTHCARE TECHNOLOGY SECTOR
Figure 7 – Number of employees employed by European medical technology companies (Source: Episcom, 2008)
3.2.7. Medical technologies in the UK
The UK makes up an 11% share of the European medical
device market and in 2008 this was valued at approximately
US$9.9bn. Despite the fact that 20% of all European
companies operate from the UK and that the UK has a trade
surplus in this industry, the UK medical technology industry
is heavily reliant on imports. This is indicative of a domestic
industry that is composed of manufacturers that are small
and undercapitalised.
12 • Swann-Morton; www.swann-morton.com
• Tunstall Healthcare; www.tunstall.co.uk
It is believed that the existing presence of these firms plays
SECTION THREE THE HEALTHCARE TECHNOLOGY SECTOR
climate, legal and tax frameworks, a country’s innovative 4.3. Is this also true for healthcare
capacity and so forth, on the venture capital market has technology companies?
been discussed extensively elsewhere and is not the subject
The healthcare technology venture capital market is
of this report.18
the second largest sector behind the information and
At the outset an entrepreneur is mostly inflexible regarding telecommunications sector. Around 24% of all European
the decision of where to locate the company. While spin- deals and 29% of all UK deals are invested into healthcare
out companies often choose an initial location close to their technology, meaning that nearly every third deal in the UK
incubator organisation, start-up companies are normally is healthcare-related.
based near to where the entrepreneur lives.
Europe
UK Ratio
(incl. UK)
Table 8 – Overview of European venture capital investments (Source: EVI, Jan 07 - Nov 08)
UK dominance within the European healthcare technology In terms of deal size, the UK healthcare technology
sector is indicated by the fact that 35% of all European deals investment landscape differs significantly from the European
are closed by UK companies. landscape where the average deal size is £1m above the UK
average. The average deal amount for medical technologies
UK pharmaceutical and drug development companies have is at the same level in both regions. By contrast, European
received in total over £433m in 161 disclosed deals. The lower pharmaceutical deals are on average £2.3m bigger.
average deal size in the UK is a result not only of the higher
disclosure rates for small deals, but also because there are fewer In summary, the UK has the biggest healthcare technology
deals above £10m compared to other European countries. investment market in Europe. Entrepreneurs have
the opportunity to secure substantial venture capital
A breakdown of the different technology areas shows that investments to establish and grow their companies. But
‘pharmaceuticals and drug development’ and ‘medical before entrepreneurs can expect multi-million pound deals,
technologies’ offer almost equal investment opportunities in they have to prove that there is a market for their product
the UK. In Europe, however, the number of pharmaceutical- or service.
related deals is significantly larger than those related to
medical technology. This would suggest that the UK has a far
greater emphasis upon medical technology.
15
Europe (incl.
UK Ratio
UK)
Table 9 – Overview of European and UK healthcare technology investments (Source: EVI, Jan 07 - Nov 08)
Number of
Rank Country first round
investments
1 GB 71
2 DE 48
3 FR 17
4 SE 18
5 CH 17
Number of
Rank Investor Country Investor type
investments
1 High-Tech Gründerfonds DE Public Sector Backed 13
2 Clave Mayor SASGECR ES Institutional Investor 6
2 KFW Bankengruppe DE Public Sector Backed 6
4 SEED Capital Denmark DK Public Sector Backed 5
4 Bayern Kapital (Seedfonds Bayern) DE Public Sector Backed 5
Table 14 – Most active European first rounds investors (Source: EVI, Jan 07 - Nov 08)
Table 15 – Most active UK first round investors (Source: EVI, Jan 07 - Nov 08)
The Healthcare Technology Venture Market
Pharmaceuticals &
Medical
Europe Total drug Others
technologies
development
Total number of first round investment
280 118 113 49
(Disclosed and undisclosed deal amounts)
Number of first round investments with disclosed deal
138 66 54 18
amount
Disclosure Rate 49% 56% 48% 37%
Deal amount of first round investments (£000s) 392,364 268,852 95,933 27,579
Average amount of first round investments (£000s) 2,843 4,074 1,777 1,532
Table 16 - Overview of first round investments in Europe (Source: EVI, Jan 07 - Nov 08)
In the UK the average size of a first round investment is up by strong research universities and a substantial capacity for
to 50% lower than the European average. However, the spin-out companies which traditionally receive lower first
disclosure rates are 17% higher, indicating that more deals round investments than independent start-up companies.
for smaller amounts have been disclosed. The average deal
18 amount for first round investments into pharmaceutical and 4.7. Follow-on investment rounds
drug development companies is, at £2.44m, almost identical The high cash-burn rates of research-based companies
to the average investment amount of all deals in this sector, means that they immediately have to look for follow-on
SECTION FOUR THE FINANCING CYCLE OF HEALTHCARE TECHNOLOGY COMPANIES
at £2.63m. By contrast, deals into medical technologies and funding. The next funding round, usually referred to as a
other healthcare technology areas tend to be smaller. Series A round, often involves investment sizes from around
£1m up to several million pounds. These investment rounds
Despite the data indicated in Tables 16 and 17, first
are often led by recognised national institutional investors
round investments can still be large, such as the £33m
while other investors join the deal in a syndicate (syndicated
investment into the Belgium-based drug development
deal). At these relatively early stages in a company’s
company Movetis. Founded in 2006, the company received
development, a syndicate of investors often rely upon a
investments in January 2007 from BIP Investment Partners,
lead investor to monitor the company closely and to provide
GIMV, KBC Private Equity, Life Sciences Partners, Quest for
hands-on support while the rest of the syndicate can be
Growth, and Sofinnova Partners. In the UK in 2007, Vantia
located all over world. Consequently, it is rare that overseas
Therapeutics, benefiting from its position as a spin-out of
investors take the lead in a Series A investment round.
Ferring Research Ltd, received £19m from MVM, Novo and
SV Life Sciences. An additional aspect to consider at Series A is that venture
capital organisations have become more specialised with a
A more detailed analysis of Europe and the UK shows that the
later stage focus. Whereas early-stage investors often invest
average deal size in Yorkshire & Humber region is far below
across different sectors, later-stage investors often have
the European and UK average. This is probably related to
more specialised teams for specific technologies and sectors.
the fact that the Yorkshire & Humber region is characterised
Table 17 – Overview of first round investments in the UK (Source: EVI, Jan 07 - Nov 08)
Pharmaceuticals
Medical
Yorkshire & Humber Total and Others
technologies
drug development
Total number of first round investment
6 2 4 6
(Disclosed and undisclosed deal amounts)
Number of first round investments with disclosed
4 2 2 0
deal amount
Disclosure rate 67% 100% 50% n.a.
Deal amount of first round investments (£000s) 1,435 650 785 n.a.
Average amount of first round investments (£000s) 359 325 393 n.a.
Table 18 – Overview of first round investments in Yorkshire & Humber (Source: EVI, Jan 07 - Nov 08)
Table 19 – Most active investors in the European healthcare technology sector (Source: EVI, Jan 07 - Nov 08)
embedded in a complex regulatory framework, this sector public backed investors like Scottish Enterprise, KfW and
has more similarities to the development of products and the High-Tech Gründerfonds populate both tables, Table 20
services in other non-healthcare related sectors and has a indicates that the pharmaceuticals venture capital market
significantly shorter time-to-market.Tables 20 and 21 provide is lead by sector specialist Sofinnova Partners, followed by
an overview of the most active investors in pharmaceuticals MIG Fonds, Novo, Atlas Venture, Life Science Partners, TVM
and drug development, and medical technology. Capital, Augira Partners and MVM Life Science Partners; all
of whom have dedicated life science investment teams.
Tables 20 and 21 replicate Tables 14 and 15, highlighting the
most active early-stage investors. What is obvious from Table In terms of medical technology, the picture is more diverse
20 and 21 is the level of specialisation among the investors, and, as Table 21 shows, public sector backed investors again
particularly in pharmaceuticals and drug development. While rank well.
1 Sofinnova Partners FR 14
20 1 KfW Bankengruppe DE 14
3 MIG Fonds DE 13
4 Scottish Enterprise Fund GB 12
SECTION FOUR THE FINANCING CYCLE OF HEALTHCARE TECHNOLOGY COMPANIES
Table 20 – Overview of the most active investors in pharmaceuticals and drug development (Source: EVI, Jan 07 - Nov 08)
Table 21 – Overview of the most active medical technology investors (Source: EVI, Jan 07 - Nov 08)
Deal
Date Company Region amount Sector Investors Investment round
(£000s)
Pharmaceuticals
Ganymed Germany ATS Beteiligungsverwaltung;
Nov-2008 54,820 & Drug Venture Funding 5
Pharmaceuticals Rheinland-Pfalz Future Capital; MIG Fonds
Development
3i Group; Abingworth
Management; Atlas Venture
Pharmaceuticals LLP; BIT; Edmond de Rothschild
France
Jan-2007 Novexel 33,702 & Drug Investment Partners; Goldman Venture Funding 2
Seine-St-Denis
Development Sachs Capital Partners; NIF SMBC
Ventures; Neomed Management;
Novo; Sofinnova Partners
Pharmaceuticals
May-2008 Pharma Swiss Slovenia 27,883 & Drug Enterprise Investors Venture Funding 2
Development
3i Group; BC Brandenburg
Capital; DH Capital Gmbh & Co
KG; EMBL Ventures; Grazia Equity
Gmbh; KfW Bankengruppe; 21
L-EigenkapitalAgentur (L-EA);
Germany Pharmaceuticals
immatics Landeskreditbank Baden-
Feb-2007 Baden- 26,424 & Drug Venture Funding 3
Only one investment went into a medical technologies During the same period, there were three investments into
company which, incidentally, is also the only UK later-stage drug development companies based in Yorkshire & Humber
investment in the league table. Germany, however, had five (Table 24).
investments in total (as mentioned before, two belonging
to Ganymed) and two from France and one from Slovenia.
22 Out of the 45 biggest investments in Europe, only six
investments were made into UK-based companies.
SECTION FOUR THE FINANCING CYCLE OF HEALTHCARE TECHNOLOGY COMPANIES
Deal
Investment
Rank Date Company Region Amount Sector Investors
round
(£000s)
United Kingdom
9 June-2008 Apatech 23,096 Medical Technologies 3i Group; HealthCor Partners Venture Funding 5
East of England
Oxford United Kingdom Clarus Ventures; DFJ Esprit; Wellington
14 Oct-2007 19,478 Medical Technologies Venture Funding 3
Immunotec South East Partners Venture Capital
Vantia United Kingdom Pharmaceuticals &
15 Mar-2008 19,000 MVM; Novo; SV Life Sciences Venture Funding 1
Therapeutics South East Drug Development
ABN AMRO Capital; Biogen Idec New
Ventures; Credit Agricole Indosuez Private
United Kingdom Pharmaceuticals &
19 Mar-2008 PanGenetics 17,618 Equity; Edmond de Rothschild Investment Venture Funding 3
East of England Drug Development
Partners; Fortis Private Equity NV (Fagus NV);
Index Ventures
Abingworth Management; Johnson &
United Kingdom Pharmaceuticals &
24 Oct-2007 Syntaxin 16,000 Johnson Development Corporation; Life Venture Funding 2
South East Drug Development
Sciences Partners; Quest for Growth; SR One
Goldman Sachs Capital Partners; Imperial
Circassia United Kingdom Pharmaceuticals &
45 Jan-2008 11,000 Innovations; Invesco Perpetual; Lansdowne Venture Funding 2
Holdings South East Drug Development
Capital
Table 23 – Overview biggest UK venture capital investments (Source: EVI, Jan 07 - Nov 08)
Deal Amount
Rank Date Company Region
(£000s)
53 Nov-2007 Neoss Yorkshire & Humber 10,000
88 Dec-2007 Photopharmica Holdings Yorkshire & Humber 6,000
157 Jan-2008 Tissue Regenix Yorkshire & Humber 3,000
Table 24 – Overview of the biggest investments in Yorkshire & Humber (Source: EVI, Jan 07 - Nov 08)
5. The attractiveness of Yorkshire & Humber
Similar to measuring early-stage investment activity, the Rank Location Deals Investments
attractiveness of a region for later-stage investments is analysed
by comparing the investment activity across different regions. United Kingdom
1 41 138,418
But unlike early-stage investments, later-stage venture capital South East
organisations invest internationally. International comparisons United Kingdom 33
can be made by scaling the investment activity by, for example, 2 22,037
Scotland
‘per capita’ or ‘all companies’. This, however, has some
methodological disadvantages due to the different sizes and United Kingdom
3 32 35,985
London
industrial structure of the European countries. Another way is
ti compare one region to another. One advantage of this is that Germany
the comparison happens within the same industry. To avoid a 4 30 80,649
Bavaria
bias, Yorkshire & Humber was compared to other regions in
the two main European economies Germany and France. In United Kingdom
5 26 89,712
East of England
Germany the ‘states’ and in France the ‘regions’ have a similar
structure and function as the UK ‘regions’. United Kingdom 23
6 22 25,305
North West
The table shows that Yorkshire & Humber is well placed and
Germany
Table 26 - Overview of universities located in Yorkshire & Humber (excl. Open University)
24 (Source: Yorkshire Universities and HESA) 21
The local universities strongly contribute to the regional 2006, Fusion IP entered a partnership with a £10m
SECTION FIVE THE ATTRACTIVENESS OF YORKSHIRE & HUMBER
healthcare technology landscape through their knowledge side fund from Nikko Principal Investments Ltd that
and technology transfer activities. Eleven universities are is “exclusively available to invest in our existing and
represented by Yorkshire Universities,20 the regional higher future portfolio companies.” 23
education association for the region. • IP Group Plc core business is the commercialisation
of intellectual property originating from research
The two biggest universities by total income and by research intensive institutions. The company was founded in
income are the University of Leeds and the University of 2001 and also provides management of venture funds
Sheffield. Both universities are members of The Russell focusing on early-stage technology companies and the
Group22 and count for 69% of the region’s research income in-licensing of drug related intellectual property from
and 44% of the total income. research intensive institutions.
All the three major universities in the region have entered
Different opinions exist regarding the capacity of universities
agreements with partners to commercialise their intellectual
to engage in knowledge and technology transfer activities.
property. These partners can supply experts to provide advice
One opinion is that universities should have a research income
and also have the capital to back these companies.
in excess of £20m to produce sufficient research output to run
a technology transfer office. However, smaller universities
The University of York and the University of Leeds have
can also have substantial knowledge and technology transfer
entered into an agreement with IP Group Plc, while the
activities. In such cases it might be useful to collaborate across
University of Sheffield cooperates with Fusion IP:
universities or with external partners.
a) University of York
The big three universities in the region work with external
partners, predominantly IP commercialisation companies The agreement between the IP Group Plc with the University
who support them in the commercialisation of the of York started in 2003 with the Centre for Novel Agricultural
intellectual property created in the university to provide the Products. In March 2006 the agreement was extended to
best service for their entrepreneurial academics. The most cover the entire university.
active organisations in Yorkshire & Humber are two public-
In the field of healthcare technologies, IP Group and the
quoted companies, IP Group and Fusion IP:
University of York have spun-out Bioniqs Ltd which has
• Fusion IP Plc (formerly known as Biofusion Plc) developed unique expertise in ionic liquids that can facilitate
commercialises intellectual property that is developed and improve bio-chemical and bio-catalytic processes that
at universities and similar establishments. In March are difficult to undertake using conventional technologies.
b) University of Leeds a) University of Leeds
In 2002 the University of Leeds outsourced its • Photopharmica (Holdings) Ltd (2001) develops novel
commercialisation activities as one of the first UK universities photosensitisers as products for medical use and has
to the Techtran Group. In 2005 Techtran Group was acquired opened up new applications of topical photodynamic
by IP Group. therapy. As of June 2008 the company was valued at
£26m with the IP Group holding a 49.9% stake; www.
c) University of Sheffield photopharmica.com
In 2005 the University of Sheffield signed an exclusive ten • Tissue Regenix Ltd (2006) is leveraging innovative
year agreement with Fusion IP, focusing on biosciences and tissue engineering platform technologies to develop and
commercialising all of university’s medical IP. In July 2008 the commercialise cellular tissue; www.tissueregenix.com
agreement was expanded into an exclusive agreement that b) University of Sheffield
allows Fusion IP to commercialise all of the university’s IP.
• Asterion Ltd (2001) owns novel, patented
therapeutic platform technologies to generate and
5.1.2. Venture capital backed university spin-outs
develop long-acting biopharmaceutical products;
in the healthcare technology sector
www.asterion.co.uk
Many of the university spin-out companies in Yorkshire &
• Adjuvantix Ltd (1999) is an early-stage
Humber have received initial seed and early-stage investment 25
biopharmaceutical company focused on the
or even further-stage investments. Most of the healthcare
development of rational means to effectively and
technology university spin-out companies originated from
safely enhance the immune response to prophylactic
Disclosed
Company Origin investments Investors
(£000s)
Absynth University of Sheffield 325 Fusion IP
Adjuvantix University of Sheffield 857 Fusion IP and WRTSF
Asterion University of Sheffield 1,000 Fusion IP and WRTSF
The Viking Fund, WRTSF, Yorkshire Cancer
Cizzle Biotechnology University of York 1,070
Research
Diurnal University of Sheffield 221 Fusion IP
Imagel University of York 280 IP Group
Lifestyle Choices University of Sheffield 221 Fusion IP
Medella Therapeutics University of Sheffield 320 Fusion IP
Paraytec University of York 845 Viking Fund & Co-Investors; YFM Group
Phase Focus University of Sheffield 1,050 Fusion IP, Viking Fund and WRTSF
Photopharmica Holdings University of Leeds 15,750 IP Group, WRTSF
WRTSF, Aberdeen Asset Management, Yorkshire
Pro-Cure Therapeutics University of York 2,950
Cancer Research
IP Group, Aquarius Equity Partners, Ora Capital,
Tissue Regenix University of Leeds 4,105
WRTSF
Xceleron University of York 5,270 Close Ventures, Foursome
Zilico University of Sheffield Undiscl. Viking Fund & Co-Investors
Table 27 – Selected venture capital backed healthcare technology spin-out companies in Yorkshire & Humber (Source: EVI, Jan 07 - Nov 08)
The Healthcare Technology Venture Market
• Zilico Ltd (2006), formerly Aperio Diagnostics Ltd, • Imagel Ltd (2006) offers a full 3D dosimetry
is a medical diagnostics company pioneering new and imaging solution for radiotherapy planning;
technologies that will allow swifter, more accurate www.imagel.co.uk
detection of cervical cancer and pre-cancerous • Paraytec Ltd (2005) is designing, developing and
conditions; www.zilico.co.uk manufacturing ultra-violet area imaging detectors
• Phase Focus Ltd (2006) is developing an alternative which can be used with simple micro-syringes and/
approach to microscopy; www.phasefocus.co.uk or existing separations hardware including capillary
• Absynth Ltd (2007) is developing vaccines and electrophoresis systems, nano- and capillary LC systems
antibodies to treat infections caused by the bacterium to enable high sensitivity across a wide dynamic range
Staphylococcus Aureus (S. Aureus) including its more without sacrificing spatial resolution. The company
difficult-to-treat drug-resistant form, methicillin-resistant was a finalist in the BioEntrepreneurial Company
S. Aureus (MRSA); www.absynthbiologics.co.uk of the Year Award and received a Pittcon R&D 100
Award in 2007 for its product ActiPix™ D100 detector;
• Medella Ltd (2007) focuses on the use of monoclonal
www.paraytec.com
antibodies to inhibit the action of Adrenomedullin
a molecule found in 80% of cancer cells; • Pro-Cure Therapeutics Ltd (2001) is researching for
www.medellatherapeutics.co.uk new therapeutic drugs for the treatment of prostate
cancer; www.pro-curetherapeutics.com
26 • Diurnal Ltd (2004) is a pharmaceutical company that
creates therapeutics using advanced proprietary • Xceleron (1996) is one of the longest active spin-
formulations and novel physiological treatment outs in the region. The company has raised over £4m
SECTION FIVE THE ATTRACTIVENESS OF YORKSHIRE & HUMBER
regimes of approved drugs for use in the endocrine in funding and is focused on human microdosing;
(hormone) area; www.diurnal.co.uk www.xceleron.com
• Lifestyle Choices (2005) launched its first product, a 5.1.3. Independent healthcare technology start-ups
new triple hormone ovarian reserve test called Plan
Other companies have been started independently from
Ahead in 2006; www.planaheadtest.com/index.php
universities or research organisations, for example:
c) University of York
• Cizzle Biotechnology Ltd (2005) is focused on the • Activ4Life Healthcare Technologies Ltd is offering
development of novel Ciz1-targeted therapeutic improved, cost-reduced clinical results by providing
products and related diagnostics for lung cancer; patient activity monitoring, predictive modelling
www.cizzlebiotechnology.co.uk and management to inform clinical decision-making;
www.a4lhealth.com
Table 28 – Selected venture capital backed healthcare technology start-ups in Yorkshire & Humber (Source: EVI, Jan 07 - Nov 08)
• Kirkstall Ltd is developing toxicity screening products majority of seed and early-stage investments into the local
to be used by the pharmaceutical and cosmetic university spin-out and start-up companies:
industries that will reduce the need for animal testing;
www.kirkstall.org 1. South Yorkshire Investment Fund (SYIF);
• Pharmacy 2U Ltd founded internet pharmacy in www.syif.com
the UK in 1999 and is now the country’s largest 2. Viking Fund; www.vikingfund.co.uk
dedicated internet and mail order pharmacy; 3. White Rose Technology Seedcorn Fund (WRTSF);
www.pharmacy2u.co.uk www.whiteroseseedcorn.com
• Platform Diagnostics Ltd is creating and developing 4. Yorkshire & Humber Equity Fund (YHEF);
platform technologies for the In-Vitro diagnostics www.yhef.co.uk
industry; www.platform-diagnostics.com
5. Fusion IP; www.fusionip.co.uk
• Rostra UK Ltd is providing solutions to National Health
6. IP Group; www.ipgroupplc.com/ipo
Service patients for the treatment of symptomatic
varicose veins; www.rostrauk.com South Yorkshire Investment Funds (SYIF) is a venture
capital and loan fund tasked with investing in small and
• Tissuemed Ltd is researching, developing and
medium sized (SME) businesses in South Yorkshire who
manufacturing proprietary polymers and films for use
struggle to secure finance for growth through the traditional
as surgical sealants; www.tissuemed.com
banking system or from other lenders. SYIF was established
27
in 2001 and has invested almost £50m in 500 investments
in South Yorkshire businesses. SYIF can provide seedcorn,
Figure 12 – Location of venture capital backed companies in Yorkshire (Source: L.I. Group, Dec 2008)
The Healthcare Technology Venture Market
The Viking Fund is a co-investment venture capital fund, investments of between £2m and £10m in UK unquoted
specialised in providing finance for early-stage technology companies; www.nvm.co.uk
companies in Yorkshire. The fund received £5m under the • Partnership Investment Finance is a £37m fund for
BERR/Small Business Service’s Early Growth Fund scheme Yorkshire, The Humber, and North Lincolnshire which
and provides early-stage finance to match investments by has been established to enable small and medium
business angels or other private sector investors. In the past sized businesses (SMEs) and social enterprises
three years, the Viking Fund has invested in more than 48 access to funding by way of equity or loan finance;
rounds in 23 companies, totalling £3.4m, plus an additional www.partnershipif.co.uk
£4.6m in match funding from other investors. The Viking
The region also benefits from business angel networks, for
Fund has invested in the Yorkshire-based healthcare
example
companies Phase Focus Ltd, Zilico Ltd, Paraytec Ltd and the
AIM listed Syntopix Plc. • The Viking Club is an investment club for high net
worth individuals interested in making investments of
The White Rose Technology Seedcorn Fund (WRTSF) is between £5,000 and £200,000 in early-stage businesses
an early-stage seedcorn fund managed by Aberdeen Assets with a technology bias and potential for high growth;
Managers, which invests in technology emerging from the www.vikingclub.co.uk
Universities of York, Leeds and Sheffield. The £9m Fund • Yorkshire Association of Business Angels (YABA) is a
28 provides venture capital funding of up to £500,000. The fund regional forum for business angels; www.yaba.org.uk
was founded in 1999 with £4.5m from the Government’s Funding local businesses
University Challenge Competition (the Office of Science and
The South Yorkshire Investment Fund, Viking Fund, White
SECTION FIVE THE ATTRACTIVENESS OF YORKSHIRE & HUMBER
Technology Trends develop innovative products for all segments of the eye has
Some of the key trends within the healthcare technologies raised over €44m in venture capital since the company’s
industry include areas such as nano-biotechnology, stem foundation in 2000 (www.novagali.com). Other examples
cells and ophthalmology. include the Swiss-based Sensimed (£3.5m, Series A,
www.sensimed.ch) and Cambridge-based Altacor;
Miniaturisation and nano-biotechnology www.altacor-pharma.com
Although this area has been a focus for investors for some
time, there is still a lot of interest in new approaches to drug Standardisation – or smaller, cheaper, better
delivery and dosing systems and the miniaturisation of Attractive propositions to any investor, especially within
medical products and drugs. As a result, a new sub-area has the field of medical technology, are companies that can
emerged, referred to as nanotechnology. Nanotechnology manufacture standardised products to a high quality at a more
firms produce products off the base of nanotechnology competitive price. These types of companies are interesting
platforms. The development of these platforms occurs to potential investors’ because they address large markets.
predominantly in small innovation-based companies, which
require early-stage capital investment to finance their An example of this is the French company Implanet,
research and development. Investments into this area has which has received €13m in an initial financing round from a
already resulted in a number successful exits, attracting Franco-German investment consortium led by Auriga Capital,
further interest into this sub-sector by the venture capital Edmond de Rothschild Investment Partners and Wellington
investment community. Partners (www.implanet.com).
Vivendy Therapeutics based in Switzerland was founded While the trend to outsource R&D has already started,
in March 2006, a spin-out of Inotech Biotechnologies AG, the current financial crisis will put additional pressure
and closed a financing round of nearly £20m in 2008. The on companies to keep activities off the balance sheet
The Healthcare Technology Venture Market
and maintain flexibility. This will result in interesting by broadening its risk profile. While larger acquisitions
opportunities for smaller companies, particularly in the area dominate the press, the management teams of corporations
of research services. emphasise that they are also interested in smaller companies.
For example Abbott Laboratories, which has $4bn in available
Over the past two years more than fifty venture capital cash, announced in January 2009 that it is looking to buy
backed healthcare companies have been acquired. companies both in pharmaceutical and non-pharmaceutical
The acquirers not only include all of the internationally sectors to take advantage of the heavily discounted company
recognised corporations but also many smaller and medium valuations that are now on offer33, both in the venture capital
sized companies as well. Some of which are themselves and healthcare technology market. Recent market activity
venture capital backed. has indicated that companies in the medical technologies
sector have valuations of EBITDA-multiples starting from 8,
The largest disclosed acquisitions of venture capital backed whilst those in the pharmaceutical sector have multiples of
healthcare technology companies over £20m were completed around 10-14.34
by pharmaceutical corporations. Table 29 confirms that the
UK and Germany are strong in producing successful drug Given the economic downturn and despite the fact that
development companies that go on to be acquired by large corporations are still active in acquisitions, there are a number
pharmaceutical companies. Not unsuprisingly, the price of disadvantages for early-staged innovation companies to
32 paid for medical technology companies is lower than drug consider.
development companies.
The acquisition and consolidation activity among the larger
SECTION SIX FUTURE TRENDS
When it comes to acquisitions, different acquirers have corporations means that there will be less investment
different strategic agendas. For example, some companies through acquisition for early-stage healthcare technology
try to strengthen their product pipeline by buying companies companies. Therefore the number of companies available
with similar products or services, while other companies try for licensing deals, as corporate investors, or even as
to build a broader product pipeline with acquisitions into buyers will decrease resulting in the continued downward
new areas outside their current product portfolio. Johnson & pressure.
Johnson’s acquisition strategy is to build a broad and varied
portfolio of drugs, medical devices and diagnostic tests so Moreover, the large acquisitions may also result in
as to try and shield itself against any economic downturns subsequently longer periods of inactivity whilst the two
Deal amount
Date Company Sector Region Acquirer
(£000s)
Pharmaceuticals &
2008 Direvo Biotech DE 166,710 Bayer HealthCare
Drug Development
Alantos Pharmaceuticals &
2007 DE 150,557 Amgen
Pharmaceuticals Drug Development
Pharmaceuticals &
2008 U3 Pharma DE 119,311 Daiichi Sankyo
Drug Development
Pharmaceuticals &
2008 PIramed GB 81,087 Roche
Drug Development
Pharmaceuticals &
2007 Arrow Therapeutics GB 76,412 AstraZeneca
Drug Development
Pharmaceuticals &
2007 Biolipox SE 65,502 Orexo Pharmaceuticals
Drug Development
2007 Precimed Group Medical Technologies CH 60,561 Greatbatch
2007 etkon Medical Technologies DE 51,808 Institut Straumann
2007 Endoart Medical Technologies CH 49,653 Allergan
Table 29 – Biggest acquisitions of healthcare technology companies (Source: EVI, Jan 07 - Nov 08)
corporations consolidate their product portfolios before In addition to these developments, in these the difficult
they again go out looking for other interesting investment economic time investors are increasingly focusing on their
opportunities. existing portfolio as opposed to scouting for new investment
opportunities. As many of their portfolio companies will
Focus on later stage deals and orientation towards have lower revenues than was forecasted at the time of the
licensing deals investment, additional funding will be required to keep the
There appears to be a trend towards later stage deals, which portfolio companies alive.
has its origins in several recent developments. Over the
past few years several investors in healthcare technology As venture capital supply is inelastic this will, as described
companies have built strong reputations, which has placed above, increase the demand for seed and early-stage capital
them in a strong position to raise bigger funds. For example, supplied by other sources. In particular, entrepreneurs will
Abingworth has closed a £382m life science fund in 2008 be increasingly looking to local business angels and public
and TVM Capital manages €240m in their latest Life Science sector backed funds for investments
Ventures VI. These bigger funds have been raised to focus on
later stage, larger multi-million investment pound rounds. The first signs for this development are found in, for example,
Smaller rounds are increasingly less interesting due to the former entrepreneurs and business angels who are already
relatively high transaction costs. attracted to the manifold investment opportunities. A recent
example is the venture capital organisation QureInvest, 33
Why is there a focus on later stage deals more prevalent? which invested up to €5m in companies in order to develop
them to a stage where they become interesting for licensing
Secondly, early stage investors with smaller investments Another spin-out from Zurich University is Neurimmune
often suffer from dilution in follow-on investment rounds Therapeutics (www.neurimmune.com) which showed that
and often have only limited capital to participate in the it is possible to enter into licensing deals when the company
follow-on investments. In particular, drug development is at an early stage. Neurimmune Therapeutics signed a
companies require several investment rounds before they deal with Biogen Idec worth up to £30m. Drug development
can be exited. companies are especially suited to this business model
where the presentation of promising data increases the
Thirdly, many investors have become more risk-averse likelihood of attracting venture capital investment and
focussing on more proven technologies or services of benefiting from future licensing agreements. Overall,
embedded in later stage companies. licensing agreements can offer some early-stage companies
an excellent funding alternative when venture capital
options are scarce.
The report shows the important role of the healthcare technology venture market in European and the UK. Healthcare
technologies and related services attract around one-third of all venture capital investments made in Europe. Besides being
the leading venture capital market in Europe, the UK benefits from a strong corporate and research base in this sector
which is contributing over 50% of all venture capital backed companies; and strong networks across universities, technology
transfer offices, service providers, entrepreneurs, SMEs and corporates.
This can also be seen in the Yorkshire & Humber region where several spin-out companies originated from strong research
universities and a network regional investors and service providers helps spin-out and start-up companies to secure their
funding. However, this region will feel the squeeze in the venture capital market and needs concentrated efforts to ensure
that the regional companies are in the best position to survive the current climate and can grow so much more under
improved market conditions. But this also requires ongoing support for research and development in research organisations
and corporates to develop marketable ideas, which is necessary to keep the competitive advantage of UK in the healthcare
technology sector.
The Healthcare Technology Venture Market
Acknowledgements
We would like to thank everyone who has contributed to this report, particularly the Access to Finance for Healthcare
Technologies consortium for their sponsorship and the following organisations that supplied data and provided insight in
one-on-one interviews for use in this report:
The value of investments can fall as well as rise and can be subject to large and sudden swings. In addition, it may be difficult
35
or impossible to buy, sell, or obtain accurate information about the value of, companies or investments mentioned in this
report. Past performance is not necessarily a guide to future performance.
This report does not form part of any contract and is provided for information purposes only. It is not, and is not part of, an
invitation or inducement to buy, sell, subscribe for, or underwrite any investments and shall not be construed as such. Any
recipient of this report who intends to acquire shares or securities in any company which is the subject of this report shall
make such acquisition solely on the basis of its own assessment and investigations. The L.I. Group shall not be liable to any
recipient of this report for any decision made or action taken in reliance on information in this report. Except as disclosed
in the report, L.I. Group does not hold any positions in companies mentioned in this report but may perform services or
solicit business from companies mentioned. L.I. Group’s founders, officers, employees, agents and members may have a
position in any such companies or in related investments. L.I. Group does not provide regulated investment services, and
is not authorised to do so. Nothing in this report shall be taken to constitute advice or recommendations on transactions in
investments, or any other regulated investment service.
Copyright
© 2009 L.I. Group. All rights reserved. This report or any part of it (including its words, graphics and layout) must not be
copied, printed, scanned, stored, communicated to the public or otherwise reproduced, distributed or made available in any
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L.I. Group.
The Healthcare Technology Venture Market
Endnotes
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