Health specialists hope to stitch up home grown medical technology
LOS ANGELES: Former Merrill Lynch banker David Bottomley says he first became aware of the premiums global medical device firms were willing to pay for Australian science while overseeing a string of healthcare deals two decades ago.
Despite the success of stand-outs like hearing implant maker Cochlear, medical technology, or medtech, is a notoriously complex sector and struggles to attract the same level of funding as the biotech industry, where the returns are far higher, but so are the risks of failure.
Bottomley went on to co-found Ryder Capital and was an early backer of ASX-listed medical device start-up Tetratherix, whose polymer technology is used for tissue repair and regenerative medicine.
He became convinced that there were many more Australian companies with the same potential if they could find the right backers. A year ago, he teamed up with neuroscience major Jeff Reid and former group president of US giant Stryker, Andrew Fox-Smith, to start one of Australia’s only dedicated medtech funds.
Sydney-based Bioshore Ventures will announce this week that it has closed its first fund and has invested $27 million in eight early-stage companies. The deployment of capital from its surgeon and high-net-worth investors was rapid, with the fund fully allocated within a year.
Bioshore plans to launch a second fund with an allocation of $50 million or more next year.
“We are actually very good at medical devices in Australia – we generate more IP [intellectual property] per person than any other nation on earth in terms of medical devices, but no one takes it from the university through to the clinic,” Bottomley says.
“We have torn our hair out about how hard it is to raise capital, so we thought, let’s get together a bunch of people who really understand this space.”
Bioshore recruited surgeons and clinicians specialising in fields such as vascular, orthopedics, and cardiology as investors because they understood the technology and what would work in the operating theatre better than anyone else. Bottomley and his team assessed more than 100 prospective investments and settled on eight.
About 65 per cent of its investors are clinicians. For many, the Albanese government’s capital gains tax changes have made med-tech startups a more attractive place to park their money than property.
Bioshore is an early-stage venture capital limited partnership – a fund structure set up by Malcolm Turnbull’s government which offers tax-free returns.
“The clinicians love being involved. The neurosurgeons are often doing the same procedure day in and day out, and they like being involved to help identify the next novel technology in their field,” Bottomley says.
Other backers include Quadrant managing partner Marcus Darville; Paradice Investment founder David Paradice; Rodney Muse, co-founder of the Asia-focused fund Navis Capital; and Phil Latham, a Sydney-based partner at Navis.
Other venture capital firms in Australia, such as Brandon Capital, also invest in medtech, but those prospective investments must compete with a larger cohort of traditional biotechs developing medicines and other treatments.
Reid says the risk-return profile for medtech is very different to biotech. About 92 per cent of novel molecules developed by biotechs never make it through commercialisation, even after clearing phase 1 clinical trials in humans. The 8 per cent that do make it tend to generate high returns.
Reid says 75 per cent of medical devices, once they enter human trials, make it to commercialisation. He says returns in that sector are five to 25 times lower than in biotech, but less risky.
“If you are a fund that is investing in pharmaceuticals and biologicals, you have to spread your risk over a different bunch of technologies. It is a kind of spray-and-pray approach. We can be a lot more focused in medical devices. If something is not working in a human trial, you can tweak the device”, Reid says.
Bioshore’s investments include Leo Cancer Care, which has developed a machine that can rotate a patient during radiation therapy; the University of Sydney nanoparticle carrier platform Nanomedx; and the imaging technology group Vexev.
