Smart Investment in Medtech

Medical device companies are crucial for advancements in healthcare, yet the medical industry has struggled to attract sufficient venture capital in recent years. SEMI spoke with Tom Vanhoutte, partner at imec.xpand, about investment trends in medical technology innovation. Vanhoutte shared his views ahead of his presentation at the SEMI SMART MedTech Forum at SEMICON Europa, 12-15 November, 2019, in Munich, Germany. Meet experts from imec.xpand and other key industry influencers at the forum, 13-14 November, in Hall B2 (Inspiration Hub). Participation is free of charge for SEMICON Europa visitors. SEMICON Europa registration is open.

SEMI: When was imec.xpand formed and what is your mission?

Vanhoutte: imec.xpand was founded almost three years ago as an independently managed value-add venture capital fund to support hardware-based nanotechnology innovations where imec technology, expertise, network and infrastructure play a differentiating role.

There is a lot of exciting innovation going on at imec and a great potential to change the world. However, securing sufficient financing for these ventures hasn’t always been easy. At imec.xpand we typically make significant investments in the early stage of development because in hardware, unlike software, a few hundred thousand euros won’t get a start-up far. Our goal is to make sure that our ventures have sufficient capital to reach a meaningful milestone that will allow them to raise a next round of financing. That way ventures can focus on developing their technology and conquering the market rather than begging investors for the next small round of financing every few months.

SEMI: What criteria does imec.xpand use to target entrepreneurs?

Vanhoutte: We are looking for technology-driven hardware innovation with the potential to have a global impact. All our start-ups have developed unique technology in a certain domain. We are always on the lookout for teams who already have word-class expertise in a certain area so that introducing advanced semiconductor technology can bring the venture to a whole different level.

Our partnership with imec enables us to position ourselves as a value-add investor that, besides bringing money, also lets the start-up leverage the unique capabilities of the world’s most renowned semiconductor and nanotechnology R&D center. The perfect example of such a venture is Yesse Technologies, a company on a mission to digitize the sense of smell. Yesse Technologies already had a world-class team of odoromics experts but was missing the silicon expertise to scale its technology. Thanks to its partnership with imec, the company is on a fast track to success.

imec.xpand strategy

SEMI: Medical technology has made astonishing advances over the years. What challenges lie ahead for medical device companies?

Vanhoutte: In many cases medical device and digital health companies will need to rely on market pull to become successful. In push marketing, the idea is to promote products by pushing them to people. In pull marketing, the idea is to establish loyalty and draw consumers to the products. Today traditional pharma is built on market push. Companies develop a new drug, get it approved and then convince doctors to prescribe it to their patients. The stakeholder management in this chain is simple and well-established. However, this business model doesn’t work for health tech and digital health companies because it often interferes with or even disrupts the value chain. For example, monitoring devices and digital health solutions require a doctor to embrace a new way of interacting with his or her empowered patients, and certain medical devices could even remove the doctor from the value chain altogether. This shows how hard it can be to persuade a doctor to embrace an innovative medical device.

As medtech stakeholders and patients grow more familiar with medical devices and new digital health solutions, they will become knowledgeable about their benefits and patients will start demanding that their healthcare professionals use them. This is exactly what is needed to accelerate the market introduction of these type of solutions. However, creating that market pull is exactly one of the major challenges that medtech start-ups are currently facing. It takes time, money and expertise, key elements that a company in its early stage of development typically lack.

SEMI: What are the main market opportunities?

Vanhoutte: Today it is all about data and how data will change the world. Some even refer to data as the new oil. While it may sound surprising coming from a hardware aficionado, I agree with this assessment. Still, to generate data in a meaningful way and to process the data into information, hardware innovation will be essential.

Medical sensing is a great example. Today there are tons of wearables, watches or gadgets able to record data but very few of them deliver actionable, medically relevant data that can be used by physicians to diagnose a patient. Thus, innovation at the hardware level is essential to give the doctor the necessary relevant information.

Onera Health, one of our portfolio companies, is developing the first wearable, fully disposable medical device for sleep monitoring and diagnostics. It consists of a convenient two-patch solution that provides the identical data as a polysomnography tests traditionally used to diagnose sleep-related diseases. These tests typically require a minimum of 22 wire attachments to the patient. In a market dominated by tech gadgets that provide indicative and highly unreliable information about the quality of one’s sleep, Onera Health is a game changer.

We also noticed that pharma companies that have long been skeptical about medical devices are now showing interest in the medtech field. For the moment, most of them narrowly focus on devices that can help diagnose or treat conditions for which they have developed a drug already or that play a role in administering those drugs, but I am convinced that there are a lot more opportunities out there.

And finally, we also see great market opportunities in everything that has to do with DNA sequencing and synthesis and cell therapy.

SEMI: Fragmentation, the role of the public sector, and the high level of regulation, make it difficult for the medtech industry. Why is healthcare innovation so hard? What is preventing the medical industry from benefitting from venture capital?

Vanhoutte: The fragmentation of the European market is obviously a disadvantage for European medtech start-ups especially when it comes to reimbursement. However, we noticed that there are few successful medtech companies in the United States and China too. Hence, the market fragmentation in Europe is only part of the problem.

The high level of regulation doesn’t facilitate attracting investors to medtech start-ups. But to be honest, the regulatory requirements for pharma and biotech start-ups are even more stringent and never stop investors from raising large amounts of money.

The key issue is that medical devices and digital health solutions often focus on making existing procedures more efficient, cheaper and/or more patient friendly. Very rarely do they provide a new, revolutionary treatment for an existing disease. For this reason, sticking to the traditional market push approach remains the first option.

A successful market introduction requires a lot of stakeholders to be convinced of the medtech device value before it can be marketed. Let’s say, for example, that I developed the perfect flu vaccine: The path to regulatory approval may be long and hard, but once you get the drug approved every doctor will administer the drug to his or her patients. No stakeholder needs to be persuaded.

Now imagine I developed a medical device that allows a patient to self-administer a flu vaccine. The device will still need to be approved, but once the regulatory path is over I will also need to convince doctors and insurance companies that my solution is better than any other existing option. What is good for the patient may not necessarily be in the best interest of the doctors or even the healthcare systems, and this is probably the main challenge when we talk about medtech devices.

There are certainly numerous great medical device start-ups in Europe, but as of today the perceived value of medtech devices among patients, medical communities, insurance companies and potential acquirers is not strong enough. Medtech companies need to demonstrate that there is a market for their product before they can start thinking about an exit for investors get a return on their investment. This requires a lot of time and, more importantly, a lot of financial investment, two things a traditional venture capital is very conscious about.

Other medtech companies that are active in a completely new and revolutionary segment of the market, such as DNA sequencing or cell therapy, are better positioned as they do not clash with any existing solution and are therefore less vulnerable. It is not surprising that most successful exits in recent years happened in those areas.

SEMI: What are your expectations for the SMART MedTech Forum at SEMICON Europa 2019 in Munich and the future of medtech innovation?  

Vanhoutte: I am extremely excited to present at SEMICON Europa and to realize that the semiconductor industry promotes the incredible impact that its technology can have on medical devices. We have met a lot of founders with a medical or biology background who were unaware of the force semiconductor technology could add to their products.

Imec is perfectly positioned to help medical device start-ups integrate their technologies on  chips. The semiconductor technology makes the device small, scalable, low-power consuming and cheap because it can easily be manufactured in large volumes. Those are all factors that are key in the further advancement of implantables, wearables, swallowable diagnostic capsules or decentralized sequencing tools. Silicon technology will open new and much larger application domains for medtech start-ups. In the years to come, semiconductor technology will become crucial for the growth of new medical device innovation.

Medtech stakeholders are still getting familiar with the impact of medical devices and digital health solutions in their lives. Once people become more used to those solutions and more convinced about the positive impact they can have on the quality of their lives, they will expect more devices, but also improved, cheaper and faster options. Integrating silicon technology innovations into medical devices is a tremendous growth opportunity.

Tom Vanhoutte is founder and managing partner of imec.xpand, an independently managed early stage and growth fund that invests in start-ups where imec knowledge, expertise, network and/or infrastructure play a differentiating role in the success of the company. The company was founded in 2016. Tom has almost 20 years experiences in private equity and venture capital. He spent the first 12 years of his career at PwC in New York, where he provided audit and advisory services to some of the largest and most reputed hedge and private equity funds in the world. In 2011 he joined Capricorn Venture Partners as CFO and a member of the management committee. Tom holds a master’s degree in business engineering from the Catholic University of Leuven. He is often a guest speaker or panelist at start-up events.

Imec and imec.xpand are sponsors of the SMART MedTech Forum at SEMICON Europa.

Serena Brischetto is senior manager, marketing and communications, at SEMI Europe.