Gary Finnegan speaks to seasoned life sciences investor Dr Daniel O’Mahony about backing game-changing medtech and how startups can win funding
Dr Daniel O’Mahony knows a thing or two about investing in technologies with the power to change healthcare. O’Mahony, a partner at Seroba Life Sciences who has worked in high-growth companies, venture capital funds and in academia, is preparing to close a new multi-million-euro investment fund which will look to support startups and university spin-outs.
He says medtech startups need patience, partnerships and persistence if they are to attract enough funding to fuel their big ideas. ‘It’s very simple,’ O’Mahony says, ‘if you are a startup company or are about to spin your technology out of a university you’ve got to pick up the phone.’
Relationships are built slowly as investors develop a deeper understanding of the technology, get to know the founders and explore the market to assess the product’s potential. ‘I advise that founders send an executive summary, come and meet for a chat, set clear milestones and connect with all the venture capital firms in this space,’ he says.
But don’t expect overnight success. O’Mahony says it can take up to a year before any money is raised. ‘We do a lot of due diligence before investing. We talk to leading clinicians, patent lawyers, regulators, industry people – it’s a fully 360-degree view.’
It may be a daunting task, but many investors are happy to share insights, offer free advice and provide valuable contacts even if they decide against backing the product. ‘You’d be surprised how willing people are to give support and connect startups to people in their network,’ he says.
When investment comes, more often than not it’s from multiple sources. ‘When we back a company we tend to co-invest with others,’ O’Mahony explains. ‘Building a syndicate is important because it allows us to spread the financial risk. For new companies, building this investor base takes time but is very valuable.’
Seroba, which is about to launch its third fund, invests mainly in Ireland and the UK as well as migrating medtech innovation from North America to Ireland. In its second fund, Seroba has had a number of success stories including Apica Cardiovascular where they were involved in the initial set-up. Apica was acquired by Thoratec (now part of St. Jude Medical) in 2014. The fund also backed the biotech company Covagen, which was acquired by Janssen Pharmaceuticals also in 2014. Now, as the Seroba team gears up for their next big round of investments, medical devices are an area of major interest.
‘The reason is simple,’ says O’Mahony. ‘We believe that over the next five to 10 years, medical devices will have a major role to play in areas such as cardiovascular, neurology, pain management – there are huge opportunities for devices addressing a clear unmet need.’
Seroba prefers to work with young companies, guiding them through some of the regulatory mazes that lie between them and market access. The fund invested in Veryan Medical, a spin-out from Imperial College London, helping it develop its business and establish an R&D and stent manufacturing plant in Galway, Ireland. It also invested in the Galway medtech company Novate Medical, which recently recruited the last patient into their US clinical trial.
‘We invest in early stage companies with breakthrough, first-in-class technologies – but we also invest in firms that are further along the regulatory path; that are maybe looking for clinical approval in the US,’ O’Mahony reveals.
How do the returns on medical devices compare with other investments? O’Mahony says Seroba’s funds are in good health and returning cash to its investors, thanks to the mix of biotech and medtech products it has backed in the past. ‘The returns from Seroba’s current fund are in the top quartile of returns of life sciences fund established in the same timeframe.’
While biotech companies can sell for hundreds of millions to billions if their drug clears all phases of clinical trials, medtech is a little less spectacular. But the risk is not always as great as in pharma. ‘A drug either succeeds or fails in clinical trials whereas medical device trials are a little less binary. Trials help you to learn and develop a new iteration of the device. It’s not all or nothing.’
Seroba’s big backers include Enterprise Ireland and the Ireland Strategic Investment Fund, along with institutional investors such as pension funds – all of which are willing to stay the course for a 10-year investment.
‘The first five years are spent investing and the second five are where you try to get a return,’ says O’Mahony. ‘With interest rates so low, putting money in the bank is basically a loss, so venture funds are increasingly attractive to those looking for long-term gains.’
The regulatory system too makes medical devices a little more flexible than medicines. Europe’s CE marking system is seen as quicker and more cost-effective than the FDA in the US, although market access is less fragmented on the other side of the Atlantic.
‘We see a lot of early-stage US companies looking to move to Ireland to run clinical studies and secure regulatory approval,’ says O’Mahony. ‘Ireland is in the top four medtech clusters in the world so they know they will find the skills they need here.’
Looming changes to EU regulations may blunt that competitive edge if the costs and administrative burden are significantly increased. ‘We will see what comes out of talks in Europe but my own view is that the European system works very well in bringing safe and efficacious devices to patients,’ O’Mahony believes. ‘The FDA also does an excellent job but if you look at heart valves, for example, European patients have access five years earlier than their US counterparts.’
Looking further down the line he sees Europe, and Ireland in particular, as a place where technology and funding can come together to fuel the innovation that patients need. ‘If you consider the US-based Innovation in Medtech medical conference that comes to Ireland each spring, with the marriage between the top US clinics and access to European markets, there’s a real sense that it’s the place to be.’
Technologies that can dramatically reduce the costs of healthcare are likely to be valued by the health system in the years to come. It’s a feature that Daniel O’Mahony looks for when weighing up new investments.
‘In our current fund we have backed companies like Quanta Fluid Solutions, which is developing a home haemodialysis machine,’ he says. The device allows patients with end-stage kidney failure to undergo regular dialysis at home instead of attending clinics. The new machine is smaller, easy to use and crucially, with a little training, patients and their families can operate it without nursing support and achieve excellent clinical levels of dialysis.
The device uses a replaceable cartridge system, enabling a quick turnaround that’s not possible with hospital-based machines, which require cleaning between patients. ‘This is a game-changing technology and will be of huge benefit to patients,’ he says.
Similarly, another device backed by Seroba and developed by PQ ByPass to overcome or bypass large 20-30 cm blockages from the blood vessels of the upper leg, groin and knee, is cutting the costs of surgery. Rather than using four-hour open surgery to bypass the blocked vessels, a minimally invasive procedure taking just 1.5 hours promises to drastically reduce time spent in hospital and hasten recovery time.
‘Instead of being out of work for months, people are returning to normal life a week after the procedure. It’s truly transformative.’
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