The lack of funding for early-stage medtech companies seems to be getting worse, with venture capital funding hitting a new low in the second quarter. Large medtech companies have been plugging the gap left by a lack of institutional investors by providing cash to start-ups – and some big players are taking this even further.
GE Healthcare is one example, setting up so-called innovation villages, first in Helsinki last October and now in Cardiff. The new UK centre is focused on the company’s life sciences business, which is involved in the discovery and development of drugs, vaccines and diagnostics and has outgrown GE’s traditional diagnostic imaging offering in recent years.
Initially, GE will provide office space for five businesses with 35 employees in total. In the next phase of the project, the company plans to expand this to include “lab space, more interaction with our global supply chain network, and some of the other facilities, instruments and infrastructure that a start-up might find a little bit difficult to access”, Ger Brophy, chief technology officer at GE Healthcare Life Science, tells EP Vantage.
An association with the GE name can open doors, says Didier Deltort, managing director of GE Healthcare Finland, who set up the first innovation village. “What we have put in place helps [the smaller companies] with credibility. Investors can visit them and see something fairly structured here.”
This has allowed some of the companies in the Helsinki innovation village to get increased exposure and eventually attract VC funding, he adds.
There are around 25 start-ups in the centre in Finland, housed on their own floor in one of the GE buildings. Many are focused on digital technology such as wearable devices, wireless communications and analytics; GE has benefitted from Nokia's sale to Microsoft, as some of the innovation village tenants were founded by ex-Nokia staff.
“The selection process is really: are they working in fields that might interest us in the future or might complement what we're working on, or do we believe they've got a cool idea?” Mr Deltort says. But places are sought-after – 48 hours after announcing the Helsinki innovation village, he had already received 400 emails from interested parties.
As for the new Cardiff centre, GE has only disclosed the identity of two of the start-ups so far: the life sciences consultancy firm Fulcrum Direct, and CMD, which is developing diagnostics, including a point-of-care test for sepsis.
What is GE looking for in future? “Companies that are developing new technologies, new biomarkers, and diagnostics, are all absolutely in our wheelhouse,” Mr Brophy replies. “And if we can help those companies and give them access to facilities … and also by implication if we can stay close to them, then there may be an opportunity in the future for us both to benefit from that type of relationship.”
GE will not automatically gain rights to any of the technology developed in its innovation villages. “But if the companies are successful, I would hope we would be the go-to partner in any case,” Mr Brophy says.
Another advantage of the scheme is that it encourages GE to be more outward looking than it usually would be, he adds. “It helps us a lot if we can get entrepreneurs and innovators on our site, working with us and exposing us to areas that we wouldn’t otherwise see.”
Mr Deltort agrees. “People are more open to new ways and ideas when they are mingling with start-ups on a daily basis. They bring the speed, the candour, the innovation, and they help us to change our culture.”
Both believe that the innovation village model could eventually be rolled out across the whole of GE Healthcare. “It’s early days yet, but I wouldn’t be surprised if we want to take this type of initiative and spread it to more of our sites as well,” says Mr Brohpy.
This could include emerging markets. “We have to be careful, because each country will have its own different approach. But, for example, we know from experience that in China that to be successful in the Chinese space you really have to have a local partner.”
Other companies are also interested in the approach, according to Mr Deltort. “Others have visited us, and have been trying to replicate what we've been doing. My recommendation would be that every big, traditional, 'slow' R&D company should try to do something similar,” he says.
Indeed, this is already happening at some medtech companies, such as Johnson & Johnson with its innovation centres and Bayer, with the recent launch of its Grants4Apps Accelerator for digitial health start-ups.
Letting go of control can be difficult for big groups like GE, Mr Brophy concedes: “I think it’s a signal change – and not just from us, but from other companies as well. To relax sufficiently so that we can invite other parties into the initiative and to put in place structures that allow us to make the best of those.”
But in spite of these issues it seems certain that this model is here to stay, at least for GE. Mr Brophy concludes: “This has been successful, so we want to do more of it.”