Library Innovation Group (2008) - European Healthcare Technology Venture Market

8/9/2019 Library Innovation Group (2008) - European Healthcare Technology Venture Market

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L.I. Group

The Healthcare Technology Venture Market

in Europe, UK and Yorkshire & Humber


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i

About Library Innovation Group (L.I. Group)The L.I. Group was formed as a spin-out company from the Library House Consulting Department. The company uses

established evidence-based research methodologies to deliver strategic insights into innovation-led companies and

markets. It also advises public and private sector organisations on strategic issues that involve technology, innovation,

entrepreneurship and nance.

Project Team:

Martin Holi

Alexander JanStephen Mounsey

Dr Jonathan Lawton

Dr Siobhn N Chonaill

Malgosia Rozycka

For more information about the contents of this report, please contact:

L.I. Group

St Johns Innovation Centre

Cowley Road

Cambridge

CB4OWS

United Kingdom

www.li-group.co.uk

[email protected]

Access To Finance For Healthcare Technologies Programme

Access to Finance for Healthcare Technologies is an investment readiness programme established by Yorkshire Forward to

assist companies in the Health Technology sectors. The programme addresses three key factors relevant to the Yorkshire &

Humber region:the opportunity to develop investment markets, especially for companies in complex and challenging markets such as

healthcare;

the opportunity to engage talented business support professionals able to provide advice and guidance on raising

nance in general and especially in this sector; and

a shortage of existing successfully venture backed companies to act as role models, explain the process and showcase

the benets.

The programme is scheduled to run for an initial period of three years from January 2009 and is delivered by a consortium of

three companies, led by Grant Thornton UK LLP and including Quotec and BITECIC.

www.investinginhealth.co.uk


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Contents1. 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 .............................................................73.2. Medical technology industry ..........................................................................................7

3.2.1. Medical technology product naming classication......................................................... 8

3.2.2. Cardiovascular ............................................................................................................... 8

3.2.3. Diagnostics ................................................................................................................... 8

3.2.4. Orthopaedics ................................................................................................................ 9

3.2.5. Global expenditure in medical technologies .................................................................10

3.2.6. Medical technologies in Europe ....................................................................................10

3.2.7. Medical technologies in the UK .................................................................................... 11

3.3. Medical technologies Yorkshire & Humber ....................................................................12

4. Thenancingcycleofhealthcaretechnologycompanies ..................................... 134.1. Where do healthcare technology companies come from?............................................. 13

4.2. Is the United Kingdom a good place to attract venture capital investments? ................ 13

4.3. Is this also true for healthcare technology companies? .................................................14

4.4. First round investments ................................................................................................16

4.5. Who are the early-stage investors? ............................................................................... 17

4.6. How much capital was invested? .................................................................................. 17

4.7. Follow on investment rounds .......................................................................................18

4.7.1. European investors in healthcare technology companies..............................................19

4.7.2. Top deals in Europe ......................................................................................................22

4.7.3. Top deals in the UK .......................................................................................................225. The attractiveness of Yorkshire & Humber .......................................................... 23

5.1. The investment landscape in Yorkshire & Humber ........................................................23

5.1.1. The origin of companies in the region ...........................................................................23

5.1.2. Venture capital backed university spin-outs in the healthcare technology sector ..........25

5.1.3. Independent healthcare technology start-ups ............................................................. 26

5.2. Investors in Yorkshire & Humber ...................................................................................27

5.3. Venture capital investment successes .......................................................................... 29

6. Future trends in the healthcare technology venture market .................................30

7. Sponsors of Access to Finance for Healthcare Technologies Programme ................38


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FOREW

ORD

ForewordYorkshire & Humber is at the forefront of the UKs latest advances in healthcare making it an important region for the

healthcare technology industry and one of the fastest-growing nationally. It has one of the UKs highest concentrations

of medical device companies, superb specialist skills (especially in surgical instrumentation, orthopaedics and advanced

wound-care), exceptional access to clinical trials, pioneering R&D and Europes largest teaching hospital.

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 diculty in raising private equity particularly in the early stage where they face the so called equity gap .

Typically this is the rst 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

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,

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 nd it informative.

Glenn Stone

Partner, Grant Thornton UK LLP


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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 rst round investments have been made into UK healthcare companies.1

1.4m is the average deal amount for a UK rst round investment into the healthcare technology sector

88 active companies spun-out from Yorkshire Universities (2nd place in the UK).2

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

*as of Jan 2007 Nov 2008


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1

EXECUTIVESUMMARY

1 Executive summaryThis report provides an overview of the healthcare technology venture capital market. It analyses both historical and current

investment data on the healthcare technology venture market in the Yorkshire & Humber region and benchmarks it against

European and UK gures. It uses a qualitative approach to gauge what the industry perceives to be both the future trends and

overall potential of the healthcare technology industry.

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 UKs leading manufacturing industry is the pharmaceutical and drug development sector, with two of the worlds 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.

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

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 rst round investments in the Yorkshire & Humber region over the past

two years accounting for nearly 10% of all rst round investments in to healthcare technology companies in the UK.

The Yorkshire & Humber region benets 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 eort by the region to establish, nance and grow additional start-up companies.

This report has identied 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 nancial trends for early-stage

businesses within the sector.


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2 IntroductionOver the years the European healthcare technology sector

has provided many attractive investment opportunities

for investors. Venture capital investments into this sector

now count for one-third of the European and UK venture

capital market. The emergence of biotechnology within the

pharmaceutical and drug development sectors has created

a niche venture capital market with specialised early-

stage investors. In the eld of medical technologies many

innovations are now explored through smaller companiesdeveloping diagnostic tools, implants, medical instruments

and drug delivery systems to serve patients, with particular

focus on the ageing societies across European countries.

Despite the relatively high venture activity in medical

technology in the UK all venture capital stakeholders are

aware of the challenges that the venture capital market will

face in the upcoming months and possibly years. The impact

of changes taking place in the economic and nancial

markets will undoubtedly inuence the venture capital

market signicantly and will require special eorts from

entrepreneurs to secure nancing for their companies and

for investors to close new funds.

This report analyses the European healthcare technology

venture market over the past two years (2007-2008) using

quantitative and qualitative research methods. Analysis of

venture capital investment data within this sector is used

to specify the investment activity and trends. The results

are backed by interviews with experts and professionals

from venture capital organisations, technology transfer

oces, venture capital backed companies and other service

providers.

Secondly, the results from the analysis provide the basisfor recommendations addressed to investment-seeking

entrepreneurs of healthcare technology companies located

in the UK and, more specically, in Yorkshire & Humber.

Finally, the report gives a detailed overview of the regional

healthcare technology market in the Yorkshire & Humber.

Through the analysis of companies, case studies and

historical investments, this report provides entrepreneurs,

investors, technology transfer professionals, universities and

business support organisations with a clearer understanding

of the regional investment landscape and ways in which

these groups can benet from investment opportunities.

Methodology

Venture capital investment data is derived from dierent

information sources and news providers. The main data

source for investment activities was the Library House

database European Venture Intelligence (EVI) as of

November 2008. Additional information was taken from

from correspondence with investors, technology transfer

oces and universities. Market capitalisation values are

taken from the statistics of the London Stock Exchange

(LSE) as of December 2008.

The data presented in this report is taken from publicly

available sources. Due to the nature of the venture capital

market not all information about investments is disclosed.

However, the L.I. Group claims to provide an accurate

picture based on the information that is currently available.


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CHNOLOGYSECTOR

The healthcare industry is generally dened as that which

has a focus upon the treatment and tending of patients

who are injured, sick, disabled or inrm and is facilitated by

professional health workers and technology. The healthcare

technology industry can thus be broadly segmented into

two areas:

Pharmaceutical and drug development

Medical technologiesInvestors look for companies that have excellent growth

potential driven by the companys own innovative capacity.

However, external factors such as market size and market

growth are part of the key reasons for investment as

companies are more likely to gain venture backing if they

can prove that their products and services can serve large or

growing markets that would have a high uptake of innovative

goods. Before an analysis of diering sectors within the

healthcare technologies industry can be undertaken, the

overall industry and the eects technology has upon it, has

to be understood.

The demand for innovation in the healthcare market is driven by

several factors including the increase in life expectancy across

developed western countries; the increase of expenditure to

Figure 1 Health expenditure as a share of GDP, 2006 (Source: OECD)

provide healthcare services; the identication of numerous

medical areas with unmet needs, particularly oncological,

cardiovascular, arthropathic and neurological diseases such as

Alzheimers and Parkinsons. Rising obesity levels worldwide,

which have led to much higher numbers of diabetes- and

cardiovascular-related conditions, have also created a demand

for innovative healthcare technologies. A company that is

able to serve any of these demands can provide huge nancial

returns to their investors, and is therefore a prime target forventure capital funds.

According to the latest OECD Health Data, the average

national spend on healthcare worldwide still remains at

the 8.9% of the GDP (denoted by the OECD in Figure 1),

with the US spending the highest percentage of GDP (see

Figure 1). It can be seen that healthcare spending remains

a large enough market to attract the interests of investors,

particularly when the innovation can garner a large enough

portion of the expenditure.

In previous years it has been stated that the focus on healthcare technology would cost the country

increasingly large amounts year on year, with some

healthcare experts stating that the development and

3 The healthcare technology sector


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diusion of medical technology was responsible for

the persistent dierence between health spending

and overall economic growth. Some argued that new

medical technology may account for about one-half or

more of real long-term spending growth. However, the

costs were shown to have specic benets such as:

Development of new treatments for previously

untreatable terminal conditions;

Major advances in clinical ability to treat previously

untreatable acute conditions;

Development of new procedures for discovering and

treating secondary diseases within a disease;

Expansion of the indications for a treatment over

time, increasing the patient population to which the

treatment is applied;

On-going, incremental improvements in existing

capabilities, which may improve quality;

Clinical progress, through major advances or by the

cumulative eect of incremental improvements that

extends the scope of medicine to conditions once

regarded as beyond its boundaries, such as mental

illness and substance abuse.6

As stipulated in the Impacts of Advances in Medical

Technology in Australia report (2005)7, increased

expenditure on new medical technologies is reected in

improved treatments and a signicant increase in the

numbers of people treated. Although advances in medical

technology have provided value for money particularly

as people highly value improvements in the quality

and length of life in practice the cost eectiveness of

individual technologies varies widely. This high level of

variation in healthcare cost eectiveness makes the overall

value, or net community benet, to be an important point

of consideration.

With this in mind, two key questions shown in Figure 2 must

be asked when looking at new healthcare technology.

These two questions and the subsequent thought process

have become the basis for determining the impact and hence

attractiveness to investors interested in the healthcare

industry.

Figure 2 Developed from Rettig (1994)

and Productivity Commission (2005)

3.1. Pharmaceutical industry

The pharmaceutical industry is one that is focused on the

development, production and marketing of medication,

which is dened as as any substance intended for use in

the diagnosis, cure, mitigation, treatment, or prevention

of disease.8 Lately the pharmaceutical industry has

undertaken intensive research and development activities

within the biotechnology industry and therefore the term

biotechnology has become synonymous with drug discovery

and production. In order to understand the healthcare

technologies industry one must look at these industries and

the potential market facing venture capital investors.


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3.1.1. Global and European pharmaceuticalindustry

Figure 3 Breakdown of global pharmaceutical sales by region

2007 (Source: IMS,2008)

The global pharmaceutical industry was estimated to be

worth over US$660bn in 2008. Figure 3 shows the breakdown

of global pharmaceutical sales by region. It can be seen that

one third of global pharmaceutical sales were in Europe. Of

the top ten pharmaceutical companies, ve are based in

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THEHEALTHCARETE

CHNOLOGYSECTOR

Corporation Country Sales (m) Market share (%)

Pzer US 22,292 6.7

GlaxoSmithKline GB 18,847 5.6

Novartis CH 17,154 5.1

Sano Aventis FR 16,788 5.0

Astrazeneca GB 15,010 4.5

Johnson & Johnson US 14,478 4.3

Roche CH 13,814 4.1

Merck & Co US 13,631 4.1

Abbott US 9,570 2.9

Lilly US 8,335 2.5

Top 10 149,920 44.9

Amgen US 8,188 2.5

Wyeth (acquired by Pzer) US 7,949 2.4

Bayer DE 7,020 2.1

Bristol-Myers Squibb US 6,519 2.0

Boehringer Ingelheim DE 6,277 1.9

Schering-Plough US 6,181 1.9

Takeda JP 5,479 1.6

Teva IL 5,300 1.6

Novo Nordisk DK 3,336 1.0

Daiichi Sankyo JP 2,925 0.9

Top 20 209,093 62.6

Europe, with two based in the UK (see Table 1). Despite this

sources claim that Europe still made up at least one-third of

the overall sales spend in 2007.9

3.1.2. The UK pharmaceutical industry

As shown in Table 1, the UK is home to two of the worlds

largest and most protable pharmaceutical giants, the

British founded GlaxoSmithKline and the Anglo-Swedish

AstraZeneca. The UK pharmaceutical industry is estimated

to be worth over US$19bn. It is directly responsible for

72,000 jobs, of which an estimated 28,000 are in R&D. Thisresults in a gross output to the country of approximately

235,000 per employee (Table 2). An analysis of DTI and

ONS data reveals that the pharmaceutical industry has used

over a third of its sales revenue for R&D purposes in 2007.

In line with this, ONS data shows that the pharmaceutical

industry contributes over a quarter of the entire UKs R&D

spend.

Table 1 Top world pharmaceutical corporations, 2007 (Source: IMS World Review 2007)


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YearEmployees

(1,000s)

R&D employment

(1,000s)

R&D as a % o total

employment

Salaries and wages

(m)

Gross output per

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

Table 2 Employment in the UK pharmaceutical industry (Source: ONS,2008)

Table 3 Nationality of top 20 pharmaceutical companies in the UK (Source: IMS Dataview, 2007)

Rank Corporation NationalityTotal market sales

(m)Market share (%)

1 Pzer US 1,091.5 9.3

2 GlaxoSmithKline GB 1,056.9 9.0

3 Sano-Aventis FR 782.0 6.7

4 Astrazeneca GB 667.6 5.7

5 Novartis CH 458.9 3.9

6 Roche CH 438.2 3.7

7 Wyeth (acquired by Pzer) US 387.0 3.3

8 Merck & Co US 353.0 3.0

9 Lilly US 344.5 2.9

10 Boehringer Ingelheim DE 267.6 2.3

11 Johnson & Johnson US 256.5 2.2

12 Schering Plough US 252.5 2.1

13 Novo Nordisk US 218.0 1.9

14 Bayer Schering DE 195.1 1.7

15 Abbott US 167.8 1.4

16 Teva IL 136.3 1.2

17 Bristol-Myers Squibb US 114.5 1.0

18 Mundi Int. US 113.8 1.0

19 Gilead Sciences US 105.0 0.9

20 Servier FR 102.3 0.9


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3.1.3. Pharmaceutical industry in Yorkshire &Humber

In the Yorkshire & Humber area, pharmaceutical and

biopharmaceutical companies account for signicantly less

than half of healthcare technology companies in the region.

Although the number of companies correlates with previous

Yorkshire Forward reports10, the reliability of this dataset

(Company House) is questionable and the true percentage

is up for debate. Key publicly listed pharmaceutical and

biotechnology corporations in the Yorkshire & Humber

region include Avacta Group, Syntopix Group and Fusion IP.

3.2. Medical technology industry

Medical technology is generally dened as the use of technology

to manage a range of health conditions through diagnostic11

and therapeutic application. In a more general sense, the

term can be used to refer to the procedures, equipment, and

processes by which medical care is delivered.

Medical technology companies have a range of focuses and

these include:

The UK is home to a number of global pharmaceuticalcompanies, especially within the Greater South East.

The Yorkshire & Humber region is home to several of

the Johnson & Johnson family of companies. As Table 3

suggests only a small minority of the Top 20 UK-based

pharmaceutical corporations originated and are active

within the UK. Nonetheless, the pharmaceutical industry

is considered to be Britains leading manufacturing sector.

This claim is backed up by HM Revenue & Custom data from

uktradeinfo, which has shown a trade surplus from 2006

to 2008 for the Pharmaceutical industry. According to HM

Revenue & Custom, this surplus has been ongoing since mid

1980, making the UK one of the top ve countries for global

pharmaceutical trade. However, there is speculation at this

time that due to the strength of the Euro and the subsequent

weakness of Sterling, UK-based pharmaceutical companies

may be less protable in the upcoming year.

Year Exports ImportsTrade

Balance

2006 13,400 9,114 4,286

2007 14,080 9,871 4,209

2008* 12,085 7,934 4,151

* as up to date as November 2008

Table 4 UK exports and imports of pharmaceutical goods

2006-2008 (Source: uktradeinfo.com,2008)

Figure 4 Key health sector focus 12


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with an annual estimated cost of 192bn to the overall EU

economy.

According to the WHOs 2007 statistical data, heart disease

and strokes account for 21.7% of deaths worldwide,

while cardiovascular disease accounts for 30%. The WHO

estimates that in 2015 almost 20 million people will die from

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

for the growing number of cases of heart disease andstrokes, but has also contributed to the rise in deaths

related to diabetes. The WHO predicts that within the next

ten years diabetes-related deaths will increase worldwide

by more than 50%.

This in turn has created a viable marketplace with the

cardiovascular device market expected to reach US$40.46bn

by 2011 in North America alone. Cardiovascular medical

technology products include cardiac rhythm management,

heart valves, cardiac surgery systems, minimally-invasive

image-guided technologies, interventional neurovascular

technologies and heart assist devices and stents. An example

of this is that the European drug-eluting stent market has

been forecast to reach $4.5bn by year end this year, up from

$1.6bn in 2001.14

Globally, the major cardiovascular device companies include

Cordis (Johnson & Johnson), Medtronic, Boston Scientic,

Guidant, St Jude Medical, Abbot, Sorin, Conor Medsystems

and Biotronik.

3.2.3. Diagnostics

As healthcare has improved, there has been an ever-

increasing reliance on better and faster diagnostic tests.

Such diagnostics include biotechnological-based testing aswell as medical hardware.

The pace of technological change in the diagnostic market

is enabling earlier and more accurate diagnoses of disease,

improving clinical decisions and assisting more eective

monitoring of treatment. The global market for in vitro

diagnostics was valued in excess of US$38bn in 2007 and has

been forecast to grow by 6.7% year on year until 2012. There

are two diagnostic methods in particular that are seen as

high growth areas: molecular diagnostics and point of care

diagnostic tests. These are expected to exhibit a Compound

Annual Growth (CAG) of 14% until 2010 from a base value of

$2.6bn in 2005, and 7.8% until 2010 from a base of $12bn in

2005, respectively.

3.2.1. Medical technology product namingclassication

Though the health sectors with which medical technology

companies focus upon seem very well dened and limited,

there is a huge range of products that can be developed

for each area. Table 5 shows the common nomenclature

developed by the Global Medical Device Nomenclature

Agency.

Despite the plethora of health-related focii listed above,

cardiovascular, diagnostics and orthopaedics are the largest

therapy areas within medical technologies.

3.2.2. Cardiovascular

This focus is on any medical technology, whether therapeutic,

diagnostic or procedural, that deals with disease or the

prevention of disease relating to the cardiovascular system.

It is estimated that the two most common occurrences of

cardiovascular disease, heart disease and strokes, cost the

US $448.5bn in 2008.13 In line with this trend, cardiovasculardisease is considered to be the major cause of death in the

European Union, killing over 2 million people each year

Term Examples

Active implantable

technology

Cardiac pacemakers,

neurostimulator, etc.

Anaesthetic and respiratory

technology

Anaesthetic and respiratory

technology

Dental technologyDentistry tools, alloys, resins,

dental oss, brush, etc.

Electromechanical medical

technology

X-ray machine, scanner, laser,

etc.

Hospital hardware Hospital bed, etc.

In-vitro diagnostic technologyPregnancy, blood glucose,

genetic tests, etc.

Nonactive implantable

technology

Hip, knee joint replacement,

cardiac stent

Ophthalmic and optical

technology

Eye glasses, contact lenses,

ophtalmoscope, etc.

Reusable instruments Various surgical instruments

Single use technologySyringes, needles, gloves,

balloon catheters, etc.

Technical aids or disabled

persons

Wheelchair, walking aid,

hearing aid, electrical bed, etc.

Diagnostic and therapeutic

radiation technology

Radiotherapy units

Table 5 - Global medical device nomenclature

(Source: Global Medical Device Nomenclature Agency, 2009)


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of years ago in the areas of reconstructive devices and joint

replacements, spinal implants and instrumentation, fracture

repair and orthobiologics.

In 2007, the European market for orthopaedic devices was

valued at around $3bn. On a global scale, worldwide sales

reached $25.9bn and it is estimated that by 2010 the sector

will top $44bn in global revenues.

Globally, the major orthopaedic medical technology

companies include Smith & Nephew, based in York, andDePuy (Johnson & Johnson) which is based in Leeds.

3.2.4. Orthopaedics

Orthopaedic conditions aect hundreds of millions of people

throughout the world. According to recent reports orthopaedic

conditions account for up to half of all chronic conditions in

people over the age of 50 in developed countries, a gure that is

set to double by 2020. Combined with the fact that a fth of all

visits to outpatient clinics worldwide are for musculo-skeletal

conditions, a focus on orthopaedics by medical technology

companies seems an obvious and lucrative choice.

The main products seen within this sector are divided into anumber of dierent elds, with strong growth seen a number

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THEHEALTHCARETE

CHNOLOGYSECTOR

Figure 5 Top 25 global expenditure in medical technologies in 2007 (bn) (Source: Eucomed,2008)


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0


Within Europe, Germany is both the biggest exporter (14bn)

and the biggest importer (9.2bn) of medical technology. In

terms of exports, Germany is followed by France, the UK and

Ireland. The biggest importers after Germany are France,

Italy, the UK and Spain. Germany, the UK, Ireland, Sweden,

Denmark and Finland have trade surpluses in medical

technology, while all other countries have trade decits,

suggesting the prowess of these countries in this area.

3.2.5. Global expenditure in medical technologies

Figure 5 provides a quick overview of the 25 countries with

the largest global expenditure in medical technologies. As

can be clearly seen, the US has the largest expenditure,

almost 80bn. In fact, US expenditure is equivalent to the

entire expenditure of Europe.

3.2.6. Medical technologies in Europe

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 growingat a rate of 56% 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

According to Eucomed medical technology sales in Europe

amounted to 63.6bn in 2005, making up one-third of the

global market share. Eucomed has also stated that the

European medical technology industry invests some 3.8bn

in R&D and employs 435,000 people across Europe, makinga major impact upon Europes economy while costing it less

that 0.7% of GNP.

Figure 6 Location of European medical technology companies

(Source: Episcom, 2008)

Figure 7 Number of employees employed by European medical technology companies (Source: Episcom, 2008)


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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.

At present it is estimated that the UK has 2,000 companiesengaged in medical device manufacture, 85% of which are

considered small companies (10 -50 people) with a turnover

less than 5m. As shown in Table 6, the medical technology

industry employs over 60,000 people, the second largest

employer in Europe after Germany in this sector. 17 Closer

examination of the industry landscape shows that the UK is

particularly focused on R&D and has excelled in the areas of

advanced wound care, diagnostics and orthopaedics.SECTIO

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Figure 8 European medical technology market split

(Source: Eucomed,2008)

Country Employees % o European Total Population (000s) Workorce per capita

Austria 6,000 1.40% 8,175 0.07

Belgium 5,500 1.30% 10,421 0.05

Czech Republic 12,760 2.90% 10,212 0.12

Denmark 14,000 3.20% 5,401 0.26

Finland 3,000 0.70% 5,228 0.06

France 40,000 9.20% 60,200 0.07

Germany 110,000 25.30% 82,491 0.13

Greece 2,500 0.60% 11,062 0.02

Hungary 4,250 1.00% 10,107 0.04

Ireland 26,000 6.00% 4,044 0.64

Italy 29,815 6.90% 57,553 0.05

Netherlands 9,500 2.20% 16,282 0.06Norway 500 0.10% 4,592 0.01

Poland 8,700 2.00% 38,180 0.02

Portugal 3,200 0.70% 10,509 0.03

Romania 15,000 3.50% 21,631 0.07

Slovakia 2,198 0.50% 5,382 0.04

Slovenia 1,237 0.30% 2,001 0.06

Spain 25,400 5.80% 42,692 0.06

Sweden 15,000 3.50% 8,994 0.17

Switzerland 40,000 9.20% 7,390 0.54

United Kingdom 60,000 13.80% 59,834 0.10

Total Europe 434,560 100% 498,863 0.09

Table 6 Workforce in medical technology companies (Eucomed,2008)


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3.3. Medical technologies Yorkshire andHumber

According to UK Trade and Investment (UKTI), and the

latest ONS and Companies House data, Yorkshire has the

UKs highest concentration of medical device companies.

Over 200 rms involved within the medical technology

industry have a base in Yorkshire, employing some 7,000

sta and producing an output of over 450m. These

companies include a large number of medical device rms,

particularly within the orthopaedic and medical devices

arena, including:

Reckitt Benckiser; www.reckittbenckiser.com

DePuy International (a Johnson & Johnson company);

www.depuy.com

Smith and Nephew; www.global.smith-nephew.com

Swann-Morton; www.swann-morton.com

Tunstall Healthcare; www.tunstall.co.uk

It is believed that the existing presence of these rms plays

a substantial role in the attractiveness of the area for new

investments.

It should be noted that there are a number of companies

that have originated from and are still based in the region.

These include Dawmed Systems, 1st Dental Laboratories,

Medical House and Surgical Innovations Group.


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4.1. Where do healthcare technologycompanies originate from?

The products and services of healthcare technology

companies are often based on experience gained by former

academics or researchers at R&D departments of technology

corporations. The scientic discoveries of academics are

usually commercialised through university spin-out companies

that acquire the intellectual property rights from the incubatororganisation in exchange for an equity stake or the payment

of a licensing fee. The same mechanism can also be used for

corporate spin-outs. By contrast, start-up companies are often

founded by entrepreneurs who have a strong professional

background and the necessary scientic expertise to start a

new company with a unique selling position.

An analysis of UK-based healthcare technology companies

that have received investments over the past two years shows

that the majority of companies began as independent start-

ups, followed by university spin-outs, spin-outs from non-

university research organisations, and corporate spin-outs.

Across the dierent healthcare technology areas there is a

distinct pattern of where healthcare technology companiesoriginate from. For example, pharmaceutical and drug

development companies do not usually originate from

universities (unlike medical technology companies). Despite

this, many entrepreneurs who have started companies have

done so with an extensive background in healthcare research

within public research organisations or large corporations.

4.2. Is the United Kingdom a good placeto attract venture capital investments?

There are many factors that inuence the provision of

venture capital within a country and all European countries

have made a commitment verbally at least - to improve theconditions surrounding the supply and demand of venture

capital. The impact of factors such as the entrepreneurial

Of the dierent sources of nance available to entrepreneurs

venture capital plays only a minor role. To put this in context,

of the 1.2m companies in the UK only around 2,000, or

0.16%, have received venture capital investments. However,

experts estimate that up to 80% of the fastest growing

companies, in terms of both revenue and employment, have

received venture capital investment during their life cycle.

Most of the worlds biggest healthcare companies including

Amgen, Genentech, Biogen and others have at some pointreceived venture capital investments or, like General Electric,

Medtronic, Johnson & Johnson and Amgen, have their own

venture capital activities that invest into the industry.

Innovation companies often display the following growth

pattern as they develop from an initial idea into an

established market player. The dierent stages of growth

are often linked to certain types of funding:

The report follows the nancing cycle of venture capital

backed companies from their foundation to the time when

the investors can exit their investments. The dierent

stages of the nance cycle will be presented in the following

chapters using the insights gained from both data analysis

and interviews with relevant market authorities.

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Figure 9 Financing lifecycle

Origin o healthcare technology companies Percentage

Independent start-up companies ~50%

Spin-outs rom universities 30-40%

Spin-outs rom research organisations 5-10%

Corporate spin-outs ~5%

Total 100%

Table 7 - Origin of UK-based healthcare technology companies

(Source: EVI, Jan 07 - Nov 08)

4. Thenancingcycleofhealthcaretechnologycompanies


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4.3. Is this also true for healthcaretechnology companies?

The healthcare technology venture capital market is

the second largest sector behind the information and

telecommunications sector. Around 24% of all European

deals and 29% of all UK deals are invested into healthcare

technology, meaning that nearly every third deal in the UK

is healthcare-related.

climate, legal and tax frameworks, a countrys innovative

capacity and so forth, on the venture capital market has

been discussed extensively elsewhere and is not the subject

of this report.18

At the outset an entrepreneur is mostly inexible regarding

the decision of where to locate the company. While spin-

out companies often choose an initial location close to their

incubator organisation, start-up companies are normally

based near to where the entrepreneur lives.

Entrepreneurs who start a company in the UK can benet

from the most active venture capital market in Europe with

29% of all European investments (1,076 deals) and 27% of

all disclosed investment (2.16bn) going into UK-based

companies. In terms of deal activity per capita, the United

Kingdom is comparable to the United States.19 Between

2007 and 2008 at least 3,600 deals were closed between

investors from all over the world and entrepreneurs with

European-based companies.

The total disclosed amount invested in the 2,070 recorded

deals in the UK was 8bn, meaning a European-based

company could secure an average of nearly 3.9m perdeal. The average deal size for a UK-based company is, at

2.9m, signicantly lower than for companies in the rest of

Europe. But this is not necessarily all bad news for national

entrepreneurs as the drop in the average value is possibly

a result of the higher disclosure rates for smaller venture

capital deals in the UK.

Europe

(incl. UK)UK Ratio

All venture capital

backed deals

Number o venture capital backed deals 3,668 1,076 29%

Number o investments with disclosed deal

amount2,070 748 36%

Total deal amount (m) 8,034 2,160 27%

Average investment amount (m) 3.9 2.9 74%

Table 8 Overview of European venture capital investments (Source: EVI, Jan 07 - Nov 08)

Figure 10 Distribution venture capital investments across sectors

in Europe in 2007 (based on 1,492 deals) (Source: EVI, 2007)


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In terms of deal size, the UK healthcare technology

investment landscape diers signicantly from the European

landscape where the average deal size is 1m above the UK

average. The average deal amount for medical technologies

is at the same level in both regions. By contrast, European

pharmaceutical deals are on average 2.3m bigger.

In summary, the UK has the biggest healthcare technology

investment market in Europe. Entrepreneurs have

the opportunity to secure substantial venture capital

investments to establish and grow their companies. Butbefore entrepreneurs can expect multi-million pound deals,

they have to prove that there is a market for their product

or service.

UK dominance within the European healthcare technology

sector is indicated by the fact that 35% of all European deals

are closed by UK companies.

UK pharmaceutical and drug development companies have

received in total over 433m in 161 disclosed deals. The lower

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

deals above 10m compared to other European countries.

A breakdown of the dierent technology areas shows thatpharmaceuticals and drug development and medical

technologies oer almost equal investment opportunities in

the UK. In Europe, however, the number of pharmaceutical-

related deals is signicantly larger than those related to

medical technology. This would suggest that the UK has a far

greater emphasis upon medical technology.

Europe (incl.

UK)UK Ratio

Healthcare

technologysector

Number o venture capital backed deals 886 311 35%

Percentage o all venture capital deals per region 24% 29%

Number o investments with disclosed deal amount 532 161 30%

Total deal amount (m) 2,106 434 21%

Average investment amount (m) 4.0 2.7 68%

Table 9 Overview of European and UK healthcare technology investments (Source: EVI, Jan 07 - Nov 08)

Table 11 Overview of European healthcare technology investments (Source: EVI, Jan 07 - Nov 08)

Table 10 Overview of UK healthcare technology investments (Source: EVI, Jan 07 - Nov 08)

UK

Healthcare technology sector

TotalPharmaceuticals &

drug development

Medical

technologiesOthers

Total number o investments

(disclosed and undisclosed deal amounts)311 130 113 68

Number o investments with

disclosed deal amount161 64 63 34

Disclosure rate 52% 49% 56% 50%

Total deal amount (m) 433.61 168.62 168.63 96.36

Average investment amount (m) 2.69 2.63 2.68 2.83

Europe

Healthcare technology sector

TotalPharmaceuticals &

drug developmentMedical technologies Others

Total number o investments (disclosed

and undisclosed deal amounts)

886 462 294 130

Number o investments with discloseddeal amount

532 297 164 71

Disclosure rate 60% 64% 56% 55%

Total deal amount (m) 2,106.10 1,476.83 472.68 156.59

Average investment amount (m) 3.96 4.97 2.88 2.21


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4.4. First round investments

As stated earlier, entrepreneurs with intellectual property (IP)

assets and companies that have proven their technology are

in the best position to approach investors such as business

angels or institutional seed and early-stage investors. Seed and

early-stage funds are often managed by institutional investors

and backed by public money in the form of co-investment

schemes or fund-of-fund investments. These public initiatives

address the so called equity-gap, which refers to the scarcity

of initial investments for early-stage companies up to 1m.

The main reasons for the lack of investments of this size isthat investing in early-stage businesses is considered to have

higher investment risks and proportionally higher transaction

costs in the form of due diligence and investment appraisals.

Besides a few independent investors, public sector backed

funds are primarily tasked with investing into companies that

fall in this equity gap. This funding is often used to nalise

the proof-of-concept stage and establish a management and

legal structure.

First round investments are a good indicator of the state

of the healthcare technology market, showing the level of

activity among entrepreneurs and investors. A Europeancomparison of rst round investments oers good news

to entrepreneurs in the UK as it shows that the UK has the

highest level of activity:

As noted earlier, entrepreneurs are often reluctant to base

their companies outside their own region. This means the

regional activity level for rst round investments provides

interesting insights into both the regional capacity for

starting companies and the availability of early-stage

investors. In the past two years, there have been a number

of early-stage investments into healthcare technologies in

Yorkshire & Humber.

Table 12 European countries with the most rst round venture

capital investments into the healthcare technology sector


Rank Country

Number o

rst roundinvestments

1 GB 71

2 DE 48

3 FR 17

4 SE 18

5 CH 17

Table 13 - Overview of UK rst round venture capital investments

in healthcare (Source: EVI, Jan 07 - Nov 08)

Figure 11 Distribution of rst round investments in the UK


Rank UK region

Number o

rst round

investments

1 South East 14

2 London 12

3 Scotland 11

4 North West 7

5 Yorkshire & Humber 6

6 West Midlands 5

7 East o England 58 Wales 3

9 South West 3

10 North East 2

11 East Midlands 2

12 Northern Ireland 1

Total: 71


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close relationships with universities and invest primarily in

university spin-out companies.

The good news for entrepreneurs is that nearly eighty

dierent venture capital organisations invested into UK

healthcare technology companies over the past two years,

although it was common for them to invest solely into

a single company. Our research indicates that the right

business has the chance to attract international investors

like the Novartis Venture Funds, Odlander Fredrikson or

True Capital.

4.6. How much capital was invested?

Around a third of all healthcare technology deals in Europe are

initial capital injections. In a similar manner to overall venture

capital investment, as discussed in section 4.3, the average

amount invested in the UK is lower (2.8m) than the average

for all European healthcare technology deals (3.9m). The

spread is around 1m per deal across the dierent healthcare

technology areas. However, for pharmaceutical and drug

development companies the average investment size is

still very high at over 4m per deal. This largely reects the

need to fund pre-clinical trials which are expensive and timeconsuming before any product can be brought to market.

4.5. Who are the early-stage investors?

A European analysis of rst round investments shows

that institutional investors backed by public money and

specialised independent investors play an important role in

providing the initial capital injections.

What these very active venture capital organisations all

have in common is that they invest within a specic region

or at least within their national boundaries. Only a few

organisations, like Life Science Partner and BB Biotech

Ventures, have undertaken rst round investment activityoutside their national boundaries.

The analysis of investment activity over the past two years

supports a commonly held view that entrepreneurs should

focus their search for an initial investor within the borders of

the country or region where their venture is located.

A follow-on analysis identied the most active early-stage

healthcare technology investors in the UK. The results are

similar to the European analysis with public sector backed

institutional investors dominating the league tables.

Interestingly, two of the independent institutional investors(Imperial Innovations and IP Group) in this league have very

Table 14 Most active European rst rounds investors (Source: EVI, Jan 07 - Nov 08)

Table 15 Most active UK rst round investors (Source: EVI, Jan 07 - Nov 08)

Rank Investor Country Investor typeNumber o

investments

1 High-Tech Grnderonds 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 (Seedonds Bayern) DE Public Sector Backed 5

4 Scottish Enterprise Fund GB Institutional Investor 5

Rank Investor Investor type Number o investments

1 Scottish Enterprise Fund Public Sector Backed 5

2 Imperial Innovations Institutional Investor 4

3 Rainbow Seed Fund Public Sector Backed 3

3 NESTA Ventures Public Sector Backed 3

3 Merseyside Special Investment Fund Public Sector Backed 3

3 IP Group Institutional Investor 3

3 Catapult Venture Managers Public Sector Backed 3


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by strong research universities and a substantial capacity for

spin-out companies which traditionally receive lower rst

round investments than independent start-up companies.

4.7. Follow-on investment rounds

The high cash-burn rates of research-based companies

means that they immediately have to look for follow-on

funding. The next funding round, usually referred to as a

Series A round, often involves investment sizes from around

1m up to several million pounds. These investment rounds

are often led by recognised national institutional investors

while other investors join the deal in a syndicate (syndicated

deal). At these relatively early stages in a companys

development, a syndicate of investors often rely upon a

lead investor to monitor the company closely and to provide

hands-on support while the rest of the syndicate can be

located all over world. Consequently, it is rare that overseas

investors take the lead in a Series A investment round.

An additional aspect to consider at Series A is that venture

capital organisations have become more specialised with a

later stage focus. Whereas early-stage investors often invest

across dierent sectors, later-stage investors often havemore specialised teams for specic technologies and sectors.

In the UK the average size of a rst round investment is up

to 50% lower than the European average. However, the

disclosure rates are 17% higher, indicating that more deals

for smaller amounts have been disclosed. The average deal

amount for rst round investments into pharmaceutical and

drug development companies is, at 2.44m, almost identical

to the average investment amount of all deals in this sector,

at 2.63m. By contrast, deals into medical technologies and

other healthcare technology areas tend to be smaller.

Despite the data indicated in Tables 16 and 17, rstround investments can still be large, such as the 33m

investment into the Belgium-based drug development

company Movetis. Founded in 2006, the company received

investments in January 2007 from BIP Investment Partners,

GIMV, KBC Private Equity, Life Sciences Partners, Quest for

Growth, and Sonnova Partners. In the UK in 2007, Vantia

Therapeutics, beneting from its position as a spin-out of

Ferring Research Ltd, received 19m from MVM, Novo and

SV Life Sciences.

A more detailed analysis of Europe and the UK shows that the

average deal size in Yorkshire & Humber region is far below

the European and UK average. This is probably related to

the fact that the Yorkshire & Humber region is characterised

Europe Total

Pharmaceuticals &

drug

development

Medical

technologiesOthers

Total number o rst round investment

(Disclosed and undisclosed deal amounts)280 118 113 49

Number o rst round investments with disclosed deal

amount138 66 54 18

Disclosure Rate 49% 56% 48% 37%

Deal amount o rst round investments (000s) 392,364 268,852 95,933 27,579

Average amount o rst round investments (000s) 2,843 4,074 1,777 1,532

Table 16 - Overview of rst round investments in Europe (Source: EVI, Jan 07 - Nov 08)

Table 17 Overview of rst round investments in the UK (Source: EVI, Jan 07 - Nov 08)

UK TotalPharmaceuticals &drug development

Medicaltechnologies

Others



Number o rst round investments with

disclosed deal amount47 17 22 8

Disclosure Rate 66% 77% 73% 42%

Deal amount o rst round investments (000s) 65,891 41,555 18,716 5,620

Average amount o rst round investments (000s) 1,402 2,444 851 703


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sector-backed investors like High-Tech Grnderfonds,

Bayern Kapital (Seedfonds Bayern), Scottish Enterprise

Fund and the German state-owned bank KfW.

Investors can also specialise in certain areas within the

healthcare technology sector. For example, there is a

clear dierence between the venture funds that back drug

development companies and those that back medical

technology companies. The regulatory requirements for

new drugs result in a long time-to-market period for new

products and the cash requirements for drug development

companies are among the highest of all sectors. Although

the development of medical technology products is also

4.7.1. European investors in healthcaretechnology companies

Around 300 institutional investors, corporations and other

investment organisations have invested in European

healthcare technology companies over the past two

years. The majority of them have only participated in

one investment (around 200) and a small number have

participated in two investments (around 50). Less than 50investors have participated in more than two investments.

The most active investors are mainly from the UK and

Germany, including established institutional investors like

Sonnova Partners and Life Science Partners; and public

Table 18 Overview of rst 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)

Yorkshire & Humber Total

Pharmaceuticals

and

drug development

Medical

technologiesOthers



Number o rst round investments with disclosed

deal amount4 2 2 0

Disclosure rate 67% 100% 50% n.a.

Deal amount o rst round investments (000s) 1,435 650 785 n.a.

Average amount o rst round investments (000s) 359 325 393 n.a.

RankMost active investors in healthcare

technologiesCountry Type o investor

Number oinvestments

1 Scottish Enterprise Fund GB Public Sector Backed 27

2 High-Tech Grnderonds DE Public Private Backed 26

3 KW Bankengruppe DE Public Sector Backed 21

4 MIG Fonds DE Institutional Investor 15

5 Sonnova Partners FR Institutional Investor 14

6 Imperial Innovations GB Institutional Investor 12

6 Catapult Venture Managers GB Public Sector Backed 12

6 Bayern Kapital (Seedonds Bayern) DE Public Sector Backed 12

9 Atlas Venture GB Institutional Investor 11

9 SEED Capital Denmark DK Institutional Investor 11

9 Lie Sciences Partners DE Institutional Investor 11

12 IBG Beteiligungsgesellschat Sachsen-Anhalt DE Public Sector Backed 10

12 Socit Gnrale Asset Management FR Institutional Investor 10

12 Auriga Partners FR Institutional Investor 10

12 HealthCap Venture Capital SE Institutional Investor 10

12 Novo GB Institutional Investor 10

12 Oxord Technology Management GB Institutional Investor 10

12 NESTA Ventures GB Public Sector Backed 10


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public backed investors like Scottish Enterprise, KfW and

the High-Tech Grnderfonds populate both tables, Table 20

indicates that the pharmaceuticals venture capital market

is lead by sector specialist Sonnova Partners, followed by

MIG Fonds, Novo, Atlas Venture, Life Science Partners, TVM

Capital, Augira Partners and MVM Life Science Partners; all

of whom have dedicated life science investment teams.

In terms of medical technology, the picture is more diverse

and, as Table 21 shows, public sector backed investors again

rank well.

embedded in a complex regulatory framework, this sector

has more similarities to the development of products and

services in other non-healthcare related sectors and has a

signicantly shorter time-to-market. Tables 20 and 21 provide

an overview of the most active investors in pharmaceuticals

and drug development, and medical technology.

Tables 20 and 21 replicate Tables 14 and 15, highlighting the

most active early-stage investors. What is obvious from Table

20 and 21 is the level of specialisation among the investors,

particularly in pharmaceuticals and drug development. While

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)

Rank Most active investors in medical technologies Country Number o investments

1 Scottish Enterprise Fund GB 13

2 High-Tech Grnderonds Management DE 12

3 NESTA Ventures GB 7

4 KW Bankengruppe DE 6

4 Bayern Kapital (Seedonds Bayern) DE 6

4 Imperial Innovations GB 6

4 Wellington Partners Venture Capital DE 6

5 Odlander, Fredrikson & Co(HealthCap Venture Capital) SE 5

5 Oxord Technology Management GB 5

5 OTC Asset Management FR 5

5 Catapult Venture Managers GB 5

5 IP Group GB 5

RankMost active investors in pharmaceuticals and drug

developmentCountry Number o investments

1 Sonnova Partners FR 14

1 KW Bankengruppe DE 14

3 MIG Fonds DE 13

4 Scottish Enterprise Fund GB 12

4 High-Tech Grnderonds Management DE 12

5 Novo GB 10

6 Atlas Venture GB 9

6 Lie Sciences Partners DE 9

8 TVM Capital DE 8

8 SEED Capital Denmark DK 8

8 Auriga Partners FR 8

8 MVM Lie Science Partners GB 8


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Table 22 Overview biggest European healthcare technology investments (Source: EVI, Jan 07 - Nov 08)

Date Company Region

Deal

amount

(000s)

Sector Investors Investment round

Nov-2008Ganymed

Pharmaceuticals

Germany

Rheinland-Palz54,820

Pharmaceuticals

& Drug

Development

ATS Beteiligungsverwaltung;

Future Capital; MIG FondsVenture Funding 5

Jan-2007 NovexelFrance

Seine-St-Denis33,702

Pharmaceuticals

& Drug

Development

3i Group; Abingworth

Management; Atlas Venture

LLP; BIT; Edmond de Rothschild

Investment Partners; Goldman

Sachs Capital Partners; NIF SMBC

Ventures; Neomed Management;

Novo; Sonnova Partners

Venture Funding 2

May-2008 Pharma Swiss Slovenia 27,883

Pharmaceuticals

& Drug

Development

Enterprise Investors Venture Funding 2

Feb-2007immatics

biotechnologies

Germany

Baden-

Wuerttemberg

26,424

Pharmaceuticals

& Drug

Development

3i Group; BC Brandenburg

Capital; DH Capital Gmbh & Co

KG; EMBL Ventures; Grazia Equity

Gmbh; KW Bankengruppe;

L-EigenkapitalAgentur (L-EA);

Landeskreditbank Baden-

Wuerttemberg-Foerderbank;

Merin Capital; National

Technology Enterprises Company;

OH Beteiligungen GmbH und

Co. KG; Vinci Capital; Wellington

Partners Venture Capital

Venture Funding 3

May-2007 Noxxon PharmaGermany

Berlin25,277

Pharmaceuticals

& Drug

Development

AVIDA Group; DEWB; Dieckell

Vermoegensverwaltung und

Beratungsgesellschat mbH;

Dow CVC; Edmond de Rothschild

Investment Partners; IBB

Beteiligungsgesellschat mbH;

IBG Beteiligungsgesellschat

Sachsen-Anhalt mbH; Medical

Strategy; Seventure Partners;

Sonnova Partners; TVM Capital

Gmbh; Undisclosed Institutional

Investors

Venture Funding 4

June-2008 ApatechUnited Kingdom

East o England23,096

Medical

Technologies3i Group; HealthCor Partners Venture Funding 5

April-2007Ganymed

Pharmaceuticals

Germany

Rheinland-Palz22,793

Pharmaceuticals

& Drug

Development

Private investor(s); ATS

Beteiligungsverwaltung; Future

Capital; Ingro Finanz; Landesbank

Baden-Wuerttemberg KW

Mittelstandsbank; MIG Fonds;

Nextech Venture Lp; ONC

Partners; VI Partners AG (Venture

Incubator); Varuma

Venture Funding 3

April-2008 Apogenix

Germany

Baden-

Wuerttemberg

21,768

Pharmaceuticals

& Drug

Development

Undisclosed; dievini Hopp

BioTech holding GmbH & Co KGVenture Funding 2

Dec-2007Fovea

Pharmaceuticals

France

Paris21,612

Pharmaceuticals

& Drug

Development

Abingworth Management; CrditAgricole Private Equity; Forbion;

GIMV; Sonnova Partners;

Wellcome Trust

Venture Funding 2


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4.7.3. Top deals in the UK

The UK has not seen as many big investments as some other

European countries over the past two years. The majority

of big investments went into German companies (ten),

followed by French companies (eight). Swiss companies

received the same number of investments as UK companies

(six).

Within the UK, ve of the six biggest deals were closed

by companies in the South East and one in the East of

England.

During the same period, there were three investments into

drug development companies based in Yorkshire & Humber

(Table 24).

4.7.2. Top deals in Europe

The league table of the biggest deals (over 20m), as shown

in Table 22, in the European healthcare sector is dominated,

as expected, by companies active in the pharmaceuticals

and drug development area. The largest investments were

closed by the German-based Ganymed Pharmaceuticals,

with a 54.8m investment in November 2007 and a 22.8m

investment in April 2007. It is also noted that these

syndicated later-stage deals involve several investors,

with some of them joining as new investors while others

participated in earlier nancing rounds.

Only one investment went into a medical technologies

company which, incidentally, is also the only UK later-stage

investment in the league table. Germany, however, had ve

investments in total (as mentioned before, two belonging

to Ganymed) and two from France and one from Slovenia.

Out of the 45 biggest investments in Europe, only six

investments were made into UK-based companies.

Table 23 Overview biggest UK venture capital investments (Source: EVI, Jan 07 - Nov 08)

Table 24 Overview of the biggest investments in Yorkshire & Humber (Source: EVI, Jan 07 - Nov 08)

Rank Date Company Region

Deal

Amount

(000s)

Sector InvestorsInvestment

round

9 June-2008 ApatechUnited Kingdom

East o England23,096 Medical Technologies 3i Group; HealthCor Partners Venture Funding 5

14 Oct-2007Oxord

Immunotec

United Kingdom

South East19,478 M edi cal T echnologi es

Clarus Ventures; DFJ Esprit; Wellington

Partners Venture CapitalVenture Funding 3

15 Mar-2008Vantia

Therapeutics

United Kingdom

South East19,000

Pharmaceuticals &

Drug DevelopmentMVM; Novo; SV Lie Sciences Venture Funding 1

19 Mar-2008 PanGeneticsUnited Kingdom

East o England17,618

Pharmaceuticals &

Drug Development

ABN AMRO Capital; Biogen Idec New

Ventures; Credit Agricole Indosuez Private

Equity; Edmond de Rothschild Investment

Partners; Fortis Private Equity NV (Fagus NV);

Index Ventures

Venture Funding 3

24 Oct-2007 SyntaxinUnited Kingdom

South East16,000

Pharmaceuticals &

Drug Development

Abingworth Management; Johnson &

Johnson Development Corporation; Lie

Sciences Partners; Quest or Growth; SR One

Venture Funding 2

45 Jan-2008Circassia

Holdings

United Kingdom

South East11,000

Pharmaceuticals &

Drug Development

Goldman Sachs Capital Partners; ImperialInnovations; Invesco Perpetual; Lansdowne

Capital

Venture Funding 2

Rank Date Company RegionDeal Amount

(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


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23

Similar to measuring early-stage investment activity, the

attractiveness of a region for later-stage investments is analysed

by comparing the investment activity across dierent regions.

But unlike early-stage investments, later-stage venture capital

organisations invest internationally. International comparisons

can be made by scaling the investment activity by, for example,

per capita or all companies. This, however, has some

methodological disadvantages due to the dierent sizes and

industrial structure of the European countries. Another way is

ti compare one region to another. One advantage of this is that

the comparison happens within the same industry. To avoid a

bias, Yorkshire & Humber was compared to other regions in

the two main European economies Germany and France. In

Germany the states and in France the regions have a similar

structure and function as the UK regions.

The table shows that Yorkshire & Humber is well placed and

directly follows the major and most well-known European

biotech regions in the UK and Germany, and on the same

level as Paris and the populous German state of Nord-Rhine

Westphalia which contains cities like Cologne, Dsseldorf,Essen, and Dortmund.

5.1. The investment landscape inYorkshire & Humber

The following section considers the venture capital industry

in Yorkshire & Humber. In recent years, an interesting

blend of university spin-outs and start-up companies were

nanced by a variety of regional, national and international

investors.

This analysis is based on data released into the public domain

mainly through the companies or investors themselves. Thereport provides a comprehensive picture of the regions

investment landscape by presenting the nancing cycle

of local companies as well as regional investors and their

investment history.

5.1.1. The origin of companies in the region

As previously noted, universities play an important role

in creating promising technology-based companies.

University spin-out companies provide excellent investment

opportunities for regional, national and international

investors. A basic factor for the creation and quality of

university spin-out companies is the extent and qualityof the underlying research embedded in the universitys

SECTIO

NFIVE

THEATTRACTIVENESS

OFYORKSHIRE&HUMBER

Table 25 Overview of the number of deals in dierent European

regions (Source: EVI, Jan 07 - Nov 08)

researchers and students and their means to study and

undertake research. Therefore it is important to look into the

innovative capacity and the technology transfer activities ofthe universities in the region.

5. The attractiveness of Yorkshire & Humber

Rank Location Deals Investments

1United Kingdom

South East41 138,418

2United Kingdom

Scotland

3322,037

3United Kingdom

London32 35,985

4Germany

Bavaria30 80,649

5United Kingdom

East o England26 89,712

6United Kingdom

North West22 25,305

7Germany

Baden-Wuerttemberg16 95,506

8

United Kingdom

Yorkshire & Humber 15 22,570

8Germany

North Rhine-Westphalia15 13,061

8France

Paris15 87,028

11United Kingdom

Wales10 6,926

11United Kingdom

East Midlands10 4,940

11

Germany

Thueringen 10 6,028

14United Kingdom

West Midlands9 2,620

14United Kingdom

South West9 17,420


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4


2006, Fusion IP entered a partnership with a 10m

side fund from Nikko Principal Investments Ltd that

is exclusively available to invest in our existing and

future portfolio companies. 23

IP Group Plc core business is the commercialisation

of intellectual property originating from research

intensive institutions. The company was founded in

2001 and also provides management of venture funds

focusing on early-stage technology companies and the

in-licensing of drug related intellectual property from

research intensive institutions.

All the three major universities in the region have entered

agreements with partners to commercialise their intellectual

property. These partners can supply experts to provide advice

and also have the capital to back these companies.

The University of York and the University of Leeds have

entered into an agreement with IP Group Plc, while the

University of Sheeld cooperates with Fusion IP:

a) University of York

The agreement between the IP Group Plc with the University

of York started in 2003 with the Centre for Novel Agricultural

Products. In March 2006 the agreement was extended to

cover the entire university.

In the eld of healthcare technologies, IP Group and the

University of York have spun-out Bioniqs Ltd which has

developed unique expertise in ionic liquids that can facilitateand improve bio-chemical and bio-catalytic processes that

are dicult to undertake using conventional technologies.

The local universities strongly contribute to the regional

healthcare technology landscape through their knowledge

and technology transfer activities. Eleven universities are

represented by Yorkshire Universities,20 the regional higher

education association for the region.

The two biggest universities by total income and by research

income are the University of Leeds and the University of

Sheeld. Both universities are members of The Russell

Group22 and count for 69% of the regions research income

and 44% of the total income.

Dierent opinions exist regarding the capacity of universities

to engage in knowledge and technology transfer activities.

One opinion is that universities should have a research income

in excess of 20m to produce sucient research output to run

a technology transfer oce. However, smaller universitiescan also have substantial knowledge and technology transfer

activities. In such cases it might be useful to collaborate across

universities or with external partners.

The big three universities in the region work with external

partners, predominantly IP commercialisation companies

who support them in the commercialisation of the

intellectual property created in the university to provide the

best service for their entrepreneurial academics. The most

active organisations in Yorkshire & Humber are two public-

quoted companies, IP Group and Fusion IP:

Fusion IP Plc (formerly known as Biofusion Plc)

commercialises intellectual property that is developed

at universities and similar establishments. In March

Total income (m)Total researchincome (m)

Total income rom

research grants and

contracts (m)

Recurrent research

income rom unding

council grants (m)

The University o Leeds 422,334 136,804 90,794 46,010

The University o Shefeld 338,706 127,300 84,556 42,744

The University o York 188,339 66,588 43,748 22,840

The University o Bradord 105,689 16,569 9,762 6,807

The University o Hull 127,372 15,299 9,296 6,003

Shefeld Hallam University 177,249 13,829 10,014 3,815

The University o Hudderseld 102,276 3,134 1,702 1,432Leeds Metropolitan University 146,006 2,921 2,432 489

The University o Lincoln 71,652 1,416 1,162 254

York St John University 33,273 87 37 50

Total: 1,712,896 383,947 253,503 130,444

Table 26 - Overview of universities located in Yorkshire & Humber (excl. Open University)

(Source: Yorkshire Universities and HESA) 21


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25

SECTIO

NFIVE

THEATTRACTIVENESS

OFYORKSHIRE&HUMBER

a) University of Leeds

Photopharmica (Holdings) Ltd (2001) develops novel

photosensitisers as products for medical use and has

opened up new applications of topical photodynamic

therapy. As of June 2008 the company was valued at

26m with the IP Group holding a 49.9% stake; www.

photopharmica.com

Tissue Regenix Ltd (2006) is leveraging innovative

tissue engineering platform technologies to develop and

commercialise cellular tissue; www.tissueregenix.com

b) UniversityofSheeld

Asterion Ltd (2001) owns novel, patented

therapeutic platform technologies to generate and

develop long-acting biopharmaceutical products;

www.asterion.co.uk

Adjuvantix Ltd (1999) is an early-stage

biopharmaceutical company focused on the

development of rational means to eectively and

safely enhance the immune response to prophylactic

and therapeutic vaccines; www.adjuvantix.com

b) University of Leeds

In 2002 the University of Leeds outsourced its

commercialisation activities as one of the rst UK universities

to the Techtran Group. In 2005 Techtran Group was acquired

by IP Group.

c) UniversityofSheeld

In 2005 the University of Sheeld signed an exclusive ten

year agreement with Fusion IP, focusing on biosciences and

commercialising all of universitys medical IP. In July 2008 the

agreement was expanded into an exclusive agreement thatallows Fusion IP to commercialise all of the universitys IP.

5.1.2. Venture capital backed university spin-outsin the healthcare technology sector

Many of the university spin-out companies in Yorkshire &

Humber have received initial seed and early-stage investment

or even further-stage investments. Most of the healthcare

technology university spin-out companies originated from

one of the three major research universities:

Company OriginDisclosed

investments

(000s)

Investors

Absynth University o Shefeld 325 Fusion IP

Adjuvantix University o Shefeld 857 Fusion IP and WRTSF

Asterion University o Shefeld 1,000 Fusion IP and WRTSF

Cizzle Biotechnology University o York 1,070The Viking Fund, WRTSF, Yorkshire Cancer

Research

Diurnal University o Shefeld 221 Fusion IP

Imagel University o York 280 IP GroupLiestyle Choices University o Shefeld 221 Fusion IP

Medella Therapeutics University o Shefeld 320 Fusion IP

Paraytec University o York 845 Viking Fund & Co-Investors; YFM Group

Phase Focus University o Shefeld 1,050 Fusion IP, Viking Fund and WRTSF

Photopharmica Holdings University o Leeds 15,750 IP Group, WRTSF

Pro-Cure Therapeutics University o York 2,950WRTSF, Aberdeen Asset Management, Yorkshire

Cancer Research

Tissue Regenix University o Leeds 4,105IP Group, Aquarius Equity Par

Library Innovation Group (2008) - European Healthcare Technology Venture Market

Documents