Building Bigger Businesses: The Medtech and Edtech Opportunities

Health Analytics, a Cambridge company started in a garage by two software engineers, is leveraging big data to give Britain’s National Health Service a big-picture view of patients in its care.The challenge facing the NHS is how to improve patient care while reducing costs. The answer may lie in connecting the millions of pieces of patient data that are now stuck in silos.

Using linked data sets to create a holistic view of patients’ needs across health and social services could allow the NHS to pinpoint groups of patients who would benefit from preventative treatments, significantly cutting costs by reducing the number of patients who get sick, turn up in accident & emergency rooms or require long-term care. It also represents a huge opportunity for entrepreneurs like Health Analytics founders Phil Wigglesworth and Stuart Bond, who can help them figure out how to do it.

Health Analytics is an example of the next wave of companies coming out of Cambridge, Europe’s largest tech cluster (see the story about Cambridge on pages 2 and 3). Cambridge has already produced 11 billion-dollar companies and two companies worth about $10 billion. Going forward, medtech and edtech are seen as two of the most promising sectors for start-ups that want to build world-beating businesses. So it is no surprise that these two sectors – and how to scale up – are the themes of this year’s Silicon Valley Comes to the UK conference, an annual event started six years ago by Cambridge-based serial entrepreneur and investor Sherry Coutu and LinkedIn co-founder Reid Hoffman, now a partner in the Silicon Valley venture firm Greylock Partners. The conference, which is taking place this year from November 14 to November 19, aims to promote closer ties with Silicon Valley, encourage students to become entrepreneurs, and boost start-ups not just in the UK but across Europe.

Europe is not as adept at scaling start-ups as Silicon Valley but medtech looks like a good way to try and change that. The UK lays claims to many world firsts in the health sciences. Louise Brown, the world’s first “test-tube baby,” was conceived in the UK in 1978 using a procedure later to become known as IVF (in-vitro fertilization), developed by Patrick Steptoe and Robert Edwards. Edwards won a Nobel prize in medicine for his work. Dolly the sheep, the first mammal to be cloned from an adult somatic cell, using the process of nuclear transfer, was born in 1996 in Scotland, thanks to the efforts of researchers at the Roslin Institute near Edinburgh and the biotech company PPL Therapeutics.

“There is lot of knowledge about basic genetics; at the life science center in Hinxton near Cambridge more of the human genome was decoded than at any other center in the world,” says Cambridge tech pioneer Hermann Hauser (see the Q &A with Hauser on page 6). A number of billion-dollar Cambridge-based companies have been built around DNA. For example Solexa, a company started in Cambridge which was sold to the U.S.’s Illumina, is now responsible for 90% of gene sequencing globally, says Hauser. The venture firm he co-founded, Amadeus Capital Partners, was an investor in the company.

The next wave of companies will focus not only on decoding DNA and drug treatments but also on how to empower patients and leverage big data. “We’re seeing a slow revolution – a really profound revolution in the way health care is thought of, funded and dealt with in mature economies,” says George Freeman MP, a member of Britain’s Parliament and Government Life Science Adviser to Rt Hon David Willetts MP, Minister of State for Universities and Science.

Freeman sees four drivers of this revolution: the collapse of the big pharma “one size fits all” blockbuster model, which required huge amounts of spending on a single drug in the hopes that it would be a “hit”; the extraordinary innovations coming from young start-ups in health technologies and parallel IT technologies that can smartly parse huge amount of data; the rise of the empowered patient; and the pressure on western government health care budgets to more efficiently provide a growing demand for better health care.

“Our aim is to develop a health innovation economy in the UK through which we can make Britain a hub for the emerging technologies, diagnosis and preventative medicines of tomorrow,” says Freeman, who before becoming an MP created several successful start-ups and worked as a venture capitalist in the biomedical sector. What’s more, “by opening the NHS to adopting innovation quicker we can leverage health care data to empower patients and use drugs and treatments more effectively,” he says. “This is a fast emerging new field and we want Britain to be a global leader.”

The building blocks are being put in place. Britain has built a number of billion-dollar companies in the life sciences space. But many biotech companies struggled when the bubble burst in 2000. So did VC firms focused on the area.

Industry insiders say the focus in the UK during the 1990s was to build little companies and float them fast. Whereas in the U.S. the sector was driven by entrepreneurs with innovation delivering healthcare benefits, in the UK it was more about capital chasing big returns rather than building sustainable businesses. Now, Freeman says, Britain – with the Government’s help – is trying to build a strong ecosystem with a richer mix of small, medium and large companies.

The key, says Freeman, is “to put patients back at the heart of the medical innovation process and think about translational medicine with industry, clinical and hospital working together for the good of patients. If we can make Britain the place where medical innovations can be most rapidly developed and clinically validated, we will benefit both patients and our economy.”

Over the last four years Britain has been creating partnerships between universities and hospitals. One of the biggest projects, involving four universities and four hospitals, is in Dundee, Scotland. Academic Health Science Centers have been set up at Cambridge University, Kings College, University College London (UCL), Imperial and Manchester. And the government, under the supervision of the UK Department of Health’s Chief Medical Officer Sally Davies, has launched ambitious programs in translational biomedical research. “There is a huge opportunity in stratified and personalized medicines.” says Freeman.

“The opportunity for European companies in the health care space is actually very exciting because the regulatory process for new medical treatment is much more lean and efficient then in the U.S. so it is possible to bring new technologies to market in Europe at a lower capital cost,” says Alex van Someren, managing partner of the Cambridge-based Amadeus Seed Fund.  “That means Europe companies have an intrinsic advantage and that is a powerful motivation for us as investors to want to be investing in European businesses.”

Leveraging the power of the data collected by Britain’s NHS also represents a huge opportunity. Britain’s single payer healthcare service gives the government and service providers an incentive to find and support solutions that prevent disease in the population as a whole to reduce overall national healthcare costs. In contrast, the fragmented US healthcare system’s competing interests lack that common goal. And, unlike the U.S.’s system, Britain started digitizing health records back in 1994 and standardized the coding of documents, which are all centralized with the NHS. That gives Britain an edge and could help it become a leader in the development of personalized medicine, say industry experts. “Our new strategy within the UK has triggered a lot of positive interest from patients, companies and other nations,” says Freeman. “Watch this space.”

Beyond Medtech

Edtech is still relatively underdeveloped in Europe but the opportunity is huge. Education start-ups in the United States are currently experiencing their biggest boom since the Internet bubble burst in 2000. The first nine months of this year saw 117 investments worth $870 million. And Rohan Silva, senior policy adviser to British Prime Minister David Cameron, says he sees big companies developing in the edtech sector. “Britain is recognized around the world as having a strong record in education and can help existing education brands with online offers,” he says.

Of course information technology affords lots of opportunities to scale up, too. Autonomy, a Cambridge-based software giant, was acquired by HP for £7 billion last year, and ARM Holdings, which builds RISC semiconductors and microprocessors, has a market cap of between £9 billion and £10 billion. Cambridge-based ARM is a spin-off of Acorn, the company behind the BBC Micro, a computer distributed to a generation of UK children to teach them computing skills. Now a new Cambridge entity, the Raspberry Pi Foundation, which has created a tiny $25 computer for kids, is teaching children in the UK and across the world not just how to use a computer but to code and create apps. “We’ve shipped roughly 500,000 units, and continue to ship between 100,000 and 200,000 units a month, split roughly a third between UK, U.S. and rest of world,” says Eben Upton, executive director of the Raspberry Pi Foundation. “We’re working hard to drive adoption in South America, India and China, where we’re currently weak. I certainly hope we can have a global effect on computing education.”

Meanwhile Neul, which develops innovative and disruptive wireless network technology to enable the use of TV “white space” spectrum, another “new wave” Cambridge company, is leading the development of a new global communications standard called “weightless,” specifically designed for traffic on the Internet of Things.

Building More Billion-Dollar Companies

All of these sectors are likely to help Europe spawn promising start-ups. But “creating a start-up is not the difficult part,” says Nicholas Heller, co-chair of the event and Google’s head of product partnerships and new initiatives for Europe, the Middle East and Africa. “Scaling up is the real challenge and where most start-ups run into trouble. Some never manage to scale up and others scale too early. You need to get growth, but you need to do it without burning through all your cash.”

The lack of a real single market — as evidenced by different regulations, tax laws, languages, cultures, and ultimately users — makes it particularly difficult for European companies to scale up and compete with their American counterparts, says Heller. “American companies have an advantage because they can scale at home and then move on to smaller markets,” says Heller. In Europe, “it’s an uphill battle still, but that is why we are doing the event. The potential is there; we need to connect the ecosystem.”

The organizers of Silicon Valley Comes to the UK are convinced that with the right encouragement, mentoring and cooperation between governments an environment can be created in Europe that will make it possible for entrepreneurs to achieve the scale and momentum required to create the next tech phenomenon.

That is certainly the ambition of Health Analytics’ founders. “I have worked in Silicon Valley at Netscape and a bunch of other companies and done due diligence for VCs, a lot of things cross my desk, but I have never seen anything so obviously a winner as this particular thing,” says Wigglesworth. “We put everything we got into it because it is the best thing I have seen in terms of an opportunity.”

When Health Analytics demonstrated its analytical software, it was the first time that patient data from primary, secondary, social and community care were linked together. The NHS was shocked because it didn’t think it could be done, says Wigglesworth. Health Analytics’ technology was the 2011 Winner of the Cabinet Office’s Innovation Launch Pad award. Now that the government is starting to make it easier for small companies to sell into the NHS the company hopes its software will be adopted across the UK and it hopes to later expand globally.

Health Analytics has big dreams for a company that started in a Cambridge garage and only recently moved into proper offices. But then again, “If Apple can do it why can’t we?” asks Wigglesworth. Spoken like a true entrepreneur, proving once again, as the saying goes, that Silicon Valley isn’t a place. It is a state of mind.

 

—Eric Sylvers contributed reporting to this story.

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