Harnessing innovation in the healthtech sector
Sanofi’s acquisition of Cambridge UK-based, Kymab in early 2021, in a deal worth up to $1.45bn, was the largest sale of a UK biotech company on record, but was soon dwarfed by the $6.9bn acquisition of GW Pharmaceuticals by Jazz. These announcements drew global attention to the UK life science and healthtech sectors, and form part of a growing trend in these industries for increased funding, commercial and M&A activity.
But what else has contributed to the huge surge in investment in these sectors, where more life science companies than ever are listing, and unmatched financing rounds are being seen across the industry (including CMR Surgical’s recent £425M Series D financing round), and how can the industry maintain the positive direction going forward?
In this article, Start Codon’s Michael Salako and Daniel Rooke discuss the drivers behind the increased focus on innovation the the healthtech sector, and what is needed to support and successfully commercialise startups in this space.
Daniel Rooke: While the UK has, particularly in recent years, seen sustained levels of capital coming in, the surge in funding seen in 2021 can be attributed to several factors. Most notably, the increasing success of UK healthcare and life sciences companies on a global stage. Kymab and GW are two of the larger acquisitions, but NightStar, Blue Earth Diagnostics, Oxford ImmunoTec, Horizon Discovery, Convergence Pharmaceuticals, Vectura, UDG Healthcare, Inivata and many others have been acquired over the last 12-24 months. The cash returned to investors is increasingly being redeployed into new opportunities, with founders and management of acquired companies seeking new challenges.
We have also seen capital coming from technology investors transitioning from their traditional investments and finding opportunities in the life sciences, where trends toward technology and digitisation have accelerated. This has been triggered partly by COVID-19, which has seen these investors moving further into healthtech as an area that plays to their strength and leverages their experience in technology.
Michael Salako: I agree and have recently had discussions with many tech VCs that would typically be investing in fintech, but have been interested in coming into the healthcare space because they could see that their knowledge on tech could lend itself well to this great pool of information of data coming out from sequencing as just one example.
Daniel Rooke: Technology investors have seen first hand how companies can use consumer data to enhance the performance and value of various search engines, social media and consumer facing businesses. Healthcare has lagged other sectors on the use of data and the crossover of health/tech on AI and machine-learning and also the data processing that can take place in the cloud, has enabled their application across a range of subsectors within healthcare and underlined their importance in the field. The huge increase in health-related data has been a key part of the pandemic response and we think these trends will present many opportunities for innovators and investors in the years ahead.
Michael Salako: To add to Daniel’s previous point, prior to the pandemic, there was already a lot of activity in the healthcare and life sciences space, but in effect, COVID has just accelerated the activity. I think people have seen how important life sciences and research is, but also the direct patient benefit as well. It also highlights how efficient spinning out companies can be - take, for example, the BioNTech and Moderna vaccine efforts; these were companies that had been around for some years and had really exciting promising platforms and technologies. Out of necessity, COVID drastically accelerated the transition from research to commercial products in record time, which reflect warp speed improvements in clinical trial phasing, manufacturing, regulatory efficiency and global supply chains and distribution.
It is widely accepted that the US is the leader in spinning out companies from academic institutions. Underpinning this achievement is the more defined market practices, particularly in equity shares between university technology transfer offices (TTOs), scientific founders and private capital. Find out more here.
Unlike the US, where equity share hovers between a modest 5-10%, many UK institutions demand a much more aggressive equity share of upwards of 25% (and in many instances, around 50%) of the equity. With UK companies competing with US companies for global capital, these differences can make a big difference in the eyes of investors.
In the UK, while there is an acceptance that private capital can help to accelerate science and technology greater than in academia, there remains a lack of universal terms between these two parties, leading to a barrier when it comes to commercialising UK Science that the likes of Cambridge Innovation Capital, IP Group, Start Codon, Syncona and Oxford Science Innovation, have sought to fill, although each employ very different structures for spin-outs.
And it’s important not to lose sight of the end result of an spin-out: increases in new companies, jobs and, most vitally, technology that can get to patients earlier. So, how can the UK work to shift this pattern?
Daniel Rooke: The UK could do more to harmonise terms and prevent excessive equity from some institutions. There needs to be an appreciation as well that, while institutions need to protect their own position, their own IP, in order to make companies in this sector competitive, implementing more standard and reasonable commercial terms on the equity and on the licensing side will inevitably serve to make those opportunities more attractive to private capital.
The more attractive opportunities are, the more companies can be spun out, leading to benefits for all. Of course, In the US, their model is also aided by startups’ access to a more liquid capital market, perhaps a greater appetite for risk (and a less conservative view to scaling opportunities and technologies) and a greater diversity of opportunities for investors. However, there is also a lot of cash here in the UK, it’s just waiting for opportunities. This has result in, for instance, the establishment of a huge amount of larger venture funds setting up within the Golden Triangle (London – Cambridge – Oxford) to take advantage of UK innovation.
Michael Salako: I agree, and I would also say that, when speaking to academics, they are really keen on entrepreneurship and spinning out companies, but often they’re not sure how to go about it; which is exactly Start Codon’s wheelhouse. So there’s this mutual interest shared between universities and PIs of spinning out, but more guidance and a fairer equity share from TTOs will be required to open access to private capital and facilitate more spin outs. In the UK there is an increasing awareness that great principal investigators (PIs) should be able to spin out companies effectively, and we are here to support them
Outside of institutions, several organisations are working to bridge the access/process gap in the UK, providing mentoring and negotiation capabilities early on to empower potential spin-outs and early-stage healthtech companies. Most notably, large pharmaceutical companies often support bioaccelerator programs, which develop companies through access to their network of investors and partners, as well as mentorship in areas such as business development and IP licensing.
Daniel Rooke: So, I think part of what bioaccelerators are here to do is to function as the access point, to overcome the barriers that usually prevent the effective spin out of companies, by educating founders/entrepreneurs on the steps they need to take. In terms of access, it’s actually dedicating the time early on – something that some later VCs just won't do - and enabling founders/entrepreneurs to discuss the possibility (and consider the idea) of spinning out a company and whether that's the right thing, and the right time, for them to do this or not. It is particularly relevant to give these entrepreneurs access to teams and indivuduals that have done this before, and can provide informal advice and support.
Michael Salako: In doing this, the hope is that it will continue the positive trend, where bio and business accelerators act as catalysts in building an ecosystem where the knowledge of spinning out companies is democratised. Recent successes in the UK, and the increasing overlap with technology companies, have significantly expanded the pool of talent that investors can select from to support founders in building a leadership team. The recycling of talent and upskilling has been sorely lacking in the UK, but has begun to properly develop and accelerate. For example, we are now able to draw on talent from engineering, software, robotics, finance and consumer sectors, in addition to traditional life science leaders.
Daniel Rooke: Industry can also do a lot more to support the career progression of future potential leaders. We shouldn’t be focused solely on hiring in existing/the same talent into spin outs, but instead also focus on nurturing and developing the next generation of UK leaders within industry.
For example, in the US, there are defined schemes within industry which are focused on producing/nurturing the next generation of talent. Whilst we are seeing the beginnings of that here, we still lack this type of support on a large scale, and we could be doing more. It's not just about democratising access to training and experience, it's about giving leaders the ability and support to provide this. We can also help here: by marrying up first-time founders with an experienced chair who can guide them and develop their talent.
Michael has both broad scientific and commercial expertise and is Investment Director at Start Codon. With a strong passion for facilitating entrepreneurship, he worked for 10 years at Cancer Research UK focusing on identifying, developing, transacting and seed-investing in next-generation oncology programmes and spin-out opportunities (both within and outside the charity’s network).
Michael is an active and frequent speaker, panellist and judge on the life science/healthcare startup scene and currently mentors at Cambridge Judge Business School and Imperial College London.
Michael has a first-class degree in Biochemistry, a PhD in Molecular Virology and Molecular Toxicology, an MBA focused on finance and entrepreneurship, postdoctoral experience in immuno-oncology, drug discovery expertise to Principal Scientist level and is a Certified Licensing Professional.
Daniel is the COO and Co-founder of Start Codon, a Cambridge based seed stage healthcare investor, which identifies the most disruptive healthcare founders and innovations worldwide, seed funds them and leverages the exceptional resources of the Cambridge cluster to de-risk and drive their success.
Daniel has a background as a senior life sciences and technology lawyer, both in house and in private practice, and has been ranked as a “leading lawyer” by various legal directors. Daniel also sits on the life sciences consulting editorial board at Lexis PSL (Part of LexisNexis), and is a contributing author for life sciences for Practical Law and a mentor at the Cambridge Judge Business School.