Investing in MedTech: the true value of platform technologies

Medical innovation has become a significant focus for venture capital investment in the last ten years. A growing, ageing population combined with the opportunity to develop global solutions is driving a spike in investment towards innovation that helps people better manage their wellbeing or enables them to get well sooner. Traditional pharmaceutical innovation has been supplemented with developments in medical technology. The medical device industry is predicted to be worth more than $8.5 billion by 2025 – with bioelectronic medicine being one of the fastest growing areas of healthcare. In 2019 alone, almost 14,000 patent applications were filed with the European Patent Office (EPO) in the field of medical technology.

 

One company more familiar with the opportunities to enable medical innovation than many, is Deepbridge Capital. The company initially focussed on technology investment before also launching a life sciences fund in 2017. A Partner and Head of Marketing, Andrew Aldridge, outlines that the most lucrative opportunities may well lie at the cross section of these two markets.

Deepbridge Capital was founded in 2010 to provide a vehicle for people to invest in companies, initially in technology and later in life sciences, taking advantage of the UK’s tax efficient investment legislation. The company’s ethos is to provide opportunities to invest in commercially viable innovation, while helping the innovative companies to realise positive growth and outcomes.

Deepbridge was founded by partners that had a clear understanding of the commercial realities of bringing innovation to market. Andrew Aldridge, a Partner and Head of Marketing at the company, believes the Deepbridge difference is in combining three important factors to identify the right companies for investment: “Our focus is on whether an innovation solves a genuine commercial need. So many people have a great idea, but that does not deliver a commercial solution. Our primary objective is to help companies deliver their commercial potential. The second consideration is whether the technology is protected by robust IP. The third part of the jigsaw is the people involved: this is particularly important because their drive is what makes a company successful.”

Extending into life sciences

Initially focussed on technology, Deepbridge diversified into life sciences in 2017. “Initially our focus was entirely on technology and we continue to invest in software, hardware, fintech, insuretech, event agri-tech,” comments Andrew. “In fact, we recently made our first investment in a rocket scientist!”

In addition, the company also made early investments in MedTech companies and by 2017 it was clear that life sciences were going to be critically important – not only to building successful companies but also to the future of healthcare provision globally.

“One of our first investments was Sky Medical Technology. This company had developed a core technology called OnPulse™ and was looking for funds to make this into a wearable, medical grade device. When we first got involved, the product was little more than a box with two electrodes. The key thing was the technology was both unique and protectable and the team were people that you wanted driving the business forward. That meant the company ticked all the boxes for Deepbridge.”

The initial challenge was turning the technology into the product. The result has been the geko™ device – a wearable medical device that helps address a multitude of medical disorders, from complications related to swelling after surgery, to the closure of hard-to-heal wounds, to the prevention of life-threatening blood clots. The device is applied at the knee and works by sending a small electrical pulse down the lower leg to increase blood circulation. It’s an easily understood, yet proprietary, mechanism of action, well protected by a large family of separate patents that translate to multiple separate therapy areas – meaning each therapy area simply needs study data and health economics to embed the device into clinical practice.

The value of ‘platform technology’ to investors

While careful to emphasise the importance of focus, Andrew believes the ‘one technology, multiple applications’ approach was one of the important aspects of Deepbridge’s investment in Sky Medical. “We describe technology like that of Sky Medical as ‘platform technology’ – by this we mean that one technology can be applied to multiple medical applications. While it is important not to lose focus on the most important markets, platform technologies also offer benefits for investors. Multiple potential vertical markets mean multiple routes to revenue – a significant advantage, so we see platform technologies as highly investable,” continues Andrew.

Andrew highlights that many of the investments the company makes have more than one purpose or have opportunities to generate revenue from more than one source. “A further MedTech example is Zilico – a cancer diagnostic company that uses Electrical Impedance Spectroscopy (EIS) to provide an early warning of potentially cancerous cells.” Initially deployed to identify anomalies in smear testing, the technology is equally able to diagnose other skin cancers. Likewise, an investment in a VR company VTime has applications in sport, tourism and the workplace as well as the traditional VR hotspot of gaming. “Having multiple routes to market – a clear prioritisation of markets based on solid economic arguments – is particularly powerful in attracting investment and support.”

One of the advantages of combining technology and life sciences funds under one investment company, is the ability to be able to take a balanced view of timescales for exit, as Andrew outlines. “Some technology and life sciences investments are unlikely to need significant funding and will realise a return relatively quickly,” he comments, citing digital health apps as a good example. “Medical technology devices that will be adopted by healthcare systems can take longer to realise, because devices need to be fully regulated for medical purposes. And pharmaceutical innovation can take up to ten years to realise an investment. Therefore, we diversify our portfolio across multiple industries and companies. It means we have a mix of investments. Typically, the longer the runway, the better the potential return that can be realised.”

MedTech – solving complex and expensive challenges

Andrew sees MedTech as a key element in making healthcare affordable and effective in an increasingly complex world. “We are seeing increasing number of retired people globally, which is great news for mankind but brings new pressures to healthcare systems,” Andrew comments. “Less people are in employment to fund the healthcare needs of a growing ageing population. Medical technology products provide the X factor that enable healthcare systems to cope with increased demand in a far more efficient way. In fact, I would say that the two continual investment trends of the 21st century will be environmental issues and healthcare.”

Andrew believes the recent global medical crisis can act as a primer for the adoption of new medical technology globally. “Covid has highlighted how fast we can move to address medical emergencies. I think Covid has helped demonstrate a much wider understanding of how business works with universities to deliver medical innovation and I expect that to continue in the future. But we also need to recognise the impact of the pandemic on healthcare systems globally. There will be backlogs of medical procedures for many years. Any medical technology, such as Sky Medical’s geko™ device, that speeds the time to recovery and can be globally scaled will make a massive difference to the future of healthcare.”

Driving global innovation from the UK

The UK has been a hotbed for medical innovation – partly thanks to the investor friendly environment created by schemes such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) that both encourage early-stage investment. This combined with the UK being the home of the NHS offers significant advantages: “Getting a clinical evidence-based recommendation from National Institute for Health and Care Excellence (NICE) and subsequently being deployed in the NHS is a huge stamp of approval globally for medical technology like Sky Medical’s geko™ device,” comments Andrew. “It’s hard to underestimate its importance globally.”

“What’s really interesting is seeing how the traditional pharma and technology industries are complementing each other to innovate and bring new solutions to market. Often big pharma companies struggle to innovate internally, and we are seeing them show an increased appetite to acquire ambitious and effective MedTech companies to help their own growth through innovation.”

Investment for return and global wellbeing

Delivering value to both investors and companies is critical to Deepbridge. However, Andrew recognises that investing in medical technology can deliver more than just returns to investors. It also offers an emotional attachment by being part of something that helps people’s wellbeing. “A really memorable moment for me was when a financial adviser told me his client had been to hospital to see a relative and had seen a poster for the geko™ device on a wall. It was being used in the hospital. He took a photograph of it and sent it to the financial adviser, saying “look – this is what we are investing in”. These kinds of moments demonstrate that investing in medical technology can be more than just a financial decision, it’s also an emotional investment that ties people in and offers the reward of seeing a company doing well but also doing good.”