health tech 2017 - cmsresearch methodology 19 health tech 2017 a case for greater connection eath...

Health Tech 2017A case for greater connection

Report


The health tech sector is a market full of potential opportunities for innovation and investment. We surveyed 202 NHS physicians, procurement managers, health tech investors and SMEs for their thoughts and opinions on the state of the UK health tech market.

of managers support doctors’ desire for mobile tech but only 20% are willing to purchase wearables, focusing instead on existing technology.

Just over a third of investors consider wearable technology an attractive investment opportunity, while a fifth rate wearables unattractive.

of all respondents think procurement procedures focus more on cost than quality, and 60% think procurement is too complex.

61%

Different technical priorities

of purchasers spent money on tech aimed at improving compliance and prescriptions. 65% of purchasers spent money on infusion pumps and 29% on patient care pathways.

of doctors think spending on tech that improves compliance and prescriptions is not a high priority. Just 41% want more access to infusion pumps and place less emphasis on patient care pathways.

While 6% of doctors desire rehabilitation devices,43% from Q4 of doctors are pro wearable monitoring technology that supply real-time data about a patient’s condition.

Doctors, managers and investors have different priorities.

of doctors worry about the possibility of rationing testing and procedures should investment levels fail to rise. 22% anticipate an increase in clinical errors.

ERROR

51%

Frontline impactClinicians feel there’s a disconnect between procurement and staff needs.

The importance of innovationThere are different views of what innovative health technology is.

A third of SMEs chose the MRI scanner as the most innovative health tech of the past two centuries. Just 16% of SMEs place the same emphasis on the computer.

of clinicians feel the computer is the most innovative health tech of the past 200 years as it allows for access to diagnosis records, saves time and improves care quality. Just 6% chose the MRI scanner.

22%

32%from Q11

A healthy market

Investors see their investments lasting from 4-5 years and have an exit strategy in place.

of health tech SMEs aspire to remain privately owned and focus on the longer term.

of doctors feel procurement is focused more on cost than quality.

of managers feel that procurement takes clinical needs into account. Less than half say that quality is down to the procurement manager.

of investors believe NHS

procurement is worse than other

countries and hinders the introduction of new services and products to NHS patients.

Procurement

Managers

Clinicians

Investors

SMEs

84%

44%

25%

74%

Sums over substance

43%from Q4

69% of purchasers are concerned about a potential increase in the number of clinical errors and complications. 35% feel rationing may be a likely consequence of a fall in investment.

Rational concernsClinicians and managers worry about the impact of possible lack of investment.

34%

>50%

37%

of health tech investors increased the value of their investment with almost all the remainder breaking even. 78% feel confident the UK is the primary investment market.

of pre-Brexit respondents feel the EU is a tougher market than the UK’s. The domestic market makes up 70% of health tech SME turnover, with 48% of SMEs and investors anticipating growth.

of physicians feel clinical needs are not taken into

account by purchasers. Doctors are concerned about the potential impact on safeguarding and patient welfare.

67%from

Q10_4

of clinicians and of all respondents feel there is a disconnect between procurement practicesand front-line staff.

52%

>51%

44%

82%

20%

C

M

Y

CM

MY

CY

CMY

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Nabarro_diconnect_v6.pdf 1 12/01/2017 13:58

Health Tech 2017: A case for greater connection04

Contents

Introduction 05Who’s who 06Budgets and wishlists 07Differing perspectives 09Procurement is too complex for its own good 10What does Brexit mean for the health tech sector? 12The regulatory environment 15Investment in the health tech sector 16Conclusions 18Research methodology 19


Health Tech 2017: A case for greater connection 05

Introduction

The health tech sector is a market full of potential in terms of both innovation and investment.

To better understand how key players are involved in the development, manufacture, purchasing, and utilisation of health technology, Nabarro commissioned a survey of hospital physicians, hospital purchasing managers, SMEs involved in health tech, and investors who had either put money into it or were planning to do so.

Highlights from our findings67% of clinicians believe that procurement practices are disconnected from front-line staff; and 51% of clinicians believe that clinical needs are not taken into account.

The domestic market makes up 70% of the average turnover of SMEs in the health tech sector. The EU is the second largest market, comprising 14% of turnover on average.

When asked about it specifically, 44% of businesses agreed with the proposition that regulatory approval hinders the development and introduction of important new products and services.

Further developments are on the horizon. But government intervention, in terms of reviewing regulatory requirements and procurement practices as well as greater access to public finance for SMEs, seems critical if the UK health tech industry is to prosper.

In fact, in many ways, this report is a call to action which focuses on opportunities the sector offers.

•There are opportunities for doctors to make their jobs easier and achieve better clinical outcomes via health tech.

•Procurement managers have opportunities to increase efficiencies and save money in the long-term by listening better to clinician needs.

•SMEs have fresh opportunities in new product development (e.g. wearables) and new markets, and to source additional capital.

•Finally, investors can take advantage of opportunities to break into novel technologies and open themselves to a whole stratum of companies they are currently unaware of.

Thank you to the experts whose comments put in context how these findings are likely to impact the sector.

Please contact me if you have any feedback or would like to discuss the contents of the report.

Warren Taylor Head of Healthcare & Life Sciences T +44 (0)20 7524 6392 [email protected]

uk.linkedin.com/in/nabarrollp @nabarrollp

of clinicians believe that procurement practices are disconnected from front-line staff.

67%

Health Tech 2017: A case for greater connection

Who’s who

David Porter, Managing Director of Apposite Capital LLPApposite Capital are private equity investors working in the healthcare industry, providing operational support, strategic guidance and capital to companies. David Porter has 30+ years of experience in private equity and investment banking, and has served the UK government’s Health Reform Group, Cancer Partners UK and Ulthera to name but a few.

Giovanna Forte, CEO of Forte MedicalForte Medical offers specimen collection systems (Peezy Midstream) that enable “super-hygienic, right-first-time analysis” for patient diagnosis and treatment. Giovanna Forte has direct experience in selling medical equipment in the NHS and abroad.

Nishan Sunthares, Chief Operating Officer of the Association of British Healthcare Industries (ABHI)ABHI is the industry association for the UK medical technology sector, advocating advanced access to medical technology and the use of safe, effective medical equipment. Nishan Sunthares has a keen interest in digital health and industry, including NHS procurement and commissioning.

Maxine Mackintosh, Chair of HealthTech Women UKHealthTech Women UK is a global non-profit organisation that brings together female professionals working in the health tech space to educate members about new technologies and innovation. In addition to her work at HealthTech Women UK, Maxine Mackintosh is a Digital Health Fellow at the Digital Health Forum and has experience in health tech consulting.


Budgets and wishlistsImproving dialogue between physicians and procurement managers

Delivering safe and effective healthcare has always depended on having the right tools available, in the right place and at the right time. In the survey, doctors and purchasing managers who work in hospitals broadly agreed that the range, quality and availability of medical equipment in their trusts were sufficient. The reliance on technology has increased in recent years, yet only 49% of doctors and 55% of purchasing managers believe that current investment in medical equipment is sufficient. Doctors are looking towards technology that helps provide patients with high-quality secondary care; this is where the health tech sector has a key role to play to develop further novel solutions.

Do hospitals spend money on the right things?The benefits of medical equipment are widely acknowledged; it significantly contributes towards optimum quality of care, preventing mistakes and reaching the correct diagnosis. Across the main areas of medical equipment, clinical needs and purchasing decisions seem well-aligned. For example, mobile devices such as tablets topped the wishlists of doctors, with 67% saying they would like more access to them in future. They were also first on the list among purchasers, 69% of whom said that they had spent money on such devices in the past year. For categories such as mobile devices, ultrasound, MRI and CT scanners and implantable devices, clinical needs are well matched against current spending.

There is general agreement that NHS procurement practices are too complex, too costly and focused on cost rather than quality of the equipment. Only 25% of doctors believe that current practices secure the best equipment available.

Furthermore, the survey found a concerning disconnect between procurement manager practices and clinicians. 67% of clinicians believe that procurement practices are disconnected from front-line staff, and 51% of clinicians believed that clinical needs were not taken into account.

of clinicians believed that clinical needs were not taken into account.

of doctors believe that current practices secure the best equipment available.

Only

A concerning disconnect between procurement manager practices and clinicians?

51%

25%



Budgets and wishlistsImproving dialogue between physicians and procurement managers

Discrepancies lie beyond purchasing decisions and clinical wishes. They also feature in the way purchasing managers spend their budgets on medical equipment. NHS procurement managers adopt a scattered investment strategy; on average, 28% of their budget is spent on new equipment but this is driven by a minority of high-spending trusts. In fact, more than a quarter spend only 10% of their budgets on buying new equipment. Since some of these managers have responsibilities limited to a single department, it is impossible to generalise these figures to trusts as a whole.

The survey highlights the need for better communication between doctor and purchaser. Procurement managers need to address issues of inefficiency and lack of forward thinking, and listen better to what doctors need rather than focusing on what can be bought cheaply.

An expert viewHow should the discourse between physicians and procurement managers be addressed?

David Porter believes that bridging the gap between what doctors need and what procurement managers purchase is a “very difficult” “multi-layered” situation:

“Frequently doctors do not know what they need and often get too happy with what they are used to using. A good procurement manager will understand what doctors need, consider finance and search out need items which will both save money and improve patient benefit. Probably my one-line answer is to hire better procurement managers.”

Giovanna Forte suggests that SMEs should directly “go to clinicians and get their support and then go to procurement”, as “procurement remains cloaked”, “difficult to get to” and is “nervous of innovation”.

“A far easier route is one that I think clinical health networks are already implementing or considering. Each region must have an established Innovation Hub with design, clinical and financial people involved. The Hub receives innovators, inventors and ideas; they can combine their experience and knowledge to assess the concepts then reach out to clinical and procurement experts for a view on the idea. Involving both teams will more effectively dovetail decision-making. It is important that procurement can understand what long-term aims or benefits of the invention would bring to the health system; something they are quite closed to in the current climate. If procurement is an implicit part of the process, new ideas have a chance of growing into something meaningful. The Hub must be responsible for feeding back to innovators and collaborate with them to get an accepted idea developed – securing pilot trials and so forth. It is still up to the SME/innovator to fund their idea but implicit support from the NHS teams that ultimately make or break new concepts will make it easier to attract investment. This is a more natural, implicit way to evolve and adopt new ideas. Change is difficult to implement in the NHS and this might alleviate some of the challenges for all.”


Differing perspectivesDisconnects between key groups within the health tech sector

Physicians, purchasing managers, SME owners, and investors have different backgrounds and experiences which have informed their distinct views on health tech and its value to healthcare. While differences in opinion can spark debate and innovation, they can also hinder the future development of the health tech sector. With investment in medical equipment likely to increase in the next few years, SMEs have the opportunity to address any issues that may impede these future investments (such as unfocused and misaligned clinical needs) and stay ahead of the curve.

Different views of innovationWhat exactly is “innovation”? The survey indicates that SMEs and investors perceive health tech innovation differently from doctors. When asked to choose (from a list provided) the most important medical innovation in the past 200 years, a third of SMEs chose the MRI scanner, a choice shared by only 6% of doctors.

When referring to MRI scanners, SMEs believed: “I think it’s the only way you can look inside someone to diagnose things quickly and easily rather than operating on them to have a look”.

There is an evident divide in how doctors and SMEs define innovation. Workflow innovation is preferred by physicians, but SMEs tend to favour large big ticket medical equipment. SMEs perceive innovation in technical terms, whereas the clinician’s definition of innovation is focused on workflow and maximising patient benefit overall.

Who stands to benefit from innovation?Wearable technology is very much in demand with clinicians. 43% of physicians want more access to wearable monitoring systems, but only 20% of NHS procurement managers are currently planning to buy these, and focus more on existing technology. Doctors are enthusiastic about wearable devices which provide real-time data about a patient’s condition, yet this category ranked lowest for investors, with only 34% rating it attractive.

chose the MRI scanner as the most important medical technology innovation in the past 200 years.

Only

of doctors agreed with this.

SMEs and investors perceive health tech innovation differently from doctors.

33%

6%


Procurement is too complex for its own good

Complex procurement practices, regulatory requirements and reputational risks may impede the growth of the health tech sector. The most commonly (54%) cited barrier to businesses taking advantage of the opportunities presented in health tech was the complexity of procurement practices. 44% of investors believed that NHS procurement was worse than other countries’. The procurement process is problematic because it hinders the introduction of important new products to patients in the NHS and services coming to the market.

In total, 61% of all the doctors, purchasers, SMEs, and investors in our survey thought procurement procedures are focused more on cost than quality; 60% thought the procurement processes are too complex and more than half (52%) agreed with the claim that they are disconnected from front-line staff. 60%

61%

52%

Too complex

More focused on cost than quality

Disconnected from front-line staff

Do you agree with the following propositions regarding NHS procurement?

0 75 10025 50

An expert viewNHS procurement landscape: what makes it complex and how do we simplify things?

Nishan Sunthares views the procurement landscape as “complex”, “fragmented” and “bureaucratic”:

“We want it to be simpler, to focus on value for money but without being aggressive, short-termist and price-focused in a way which frankly risks shrinking the industry. I worry most about the effect on small British businesses of the approach the NHS is following now.

“There are lots of technologies that are not being adopted consistently. If that were to change the NHS could solve its efficiency challenge, it could solve its demand versus capacity challenge, and it would support economic growth.”

Giovanna Forte suggests that procurement managers are key to simplifying the process:

“There are a lot of very good procurement people out there who can ultimately only do what they are allowed to do and that comes from the top. For those with vision I imagine this is a frustration given their brief is to save money; fulfilling this brief should extend to the long term, not just this year. “To procure” is an active verb and people in this job must be allowed to be proactive, seeking out the most pertinent long-term savings whilst delivering the best – and most current – ways to deliver clinical excellence. Everyone is so intent on instant cost savings and this year’s bottom line that they fail to see the bigger picture. It’s not all about immediate cost; less direct efficiency savings continue next year, the year after and long into the future. If the NHS is to become a sustainable system that can afford to implement the best innovation for the future, this short-term culture has to change.”


Procurement is too complex for its own good

Problems with procurement are rifeAlso consistent with these views were high levels of disagreement with positive statements about the procurement process.

The statement “NHS procurement procedures are as efficient as they can be” was supported by only 15% of all respondents, while 57% disagreed. When asked if procurement secured the best equipment available, 27% agreed and 41% disagreed.

Respondents were asked whether procurement “took clinical needs into account”: only 45% of procurement managers agreed with this proposition roughly the same as investors, of whom 46% agreed. In addition, 84% of doctors agreed that procurement is focused more on cost than quality, and 67% said that it is disconnected from front-line staff.

Three quarters of doctors agreed that procurement was dependent on the nature and quality of the procurement manager – yet just under half (49%) of procurement managers did. These findings highlight the need for enhanced communication between clinicians and procurement managers to acknowledge and address these apparent issues.

“ The NHS has frequently been likened to a tanker, which is slow in shifting and turning – procurement is a perfect reflection of that too.” Maxine Mackintosh

An expert viewWhat will the impact of Brexit have on procurement practices?

Maxine Mackintosh notes that the results of Brexit may do little to change the procurement rules in the immediate future:

“The NHS has frequently been likened to a tanker, which is slow in shifting and turning – procurement is a perfect reflection of that too. My instinct is that procurement will remain much the same. It will be an interesting time for the EU over the coming years, as other referenda take place; I am not sure how much longer the EU, as it is now, will remain.”

Nishan Sunthares speculates that there may be interesting implications for the way UK hospitals procure medical equipment post-Brexit:

“The EU’s Public Procurement Directives have been implemented into UK regulations and will apply until we leave the EU. The principles of transparency, equal treatment, and non-discrimination I would imagine any new relationship would want to maintain those, because the NHS is a publicly-funded system and therefore it’s about value for money in the use of public funds.

“But there are nuances and it depends on the relationship the UK negotiates with the EU, as well as trading relationships it wants with the rest of the world. ‘Buy local’ measures – that is restricting public contracts to UK companies and so giving them an advantage – sound appealing to some, but would be difficult to achieve without infringing other obligations.”


What does Brexit mean for the health tech sector?

Over the past year, the industry has exhibited relative growth: before the 23 June vote 62% of health tech SMEs had experienced increased turnover in the previous 12 months, with an average 4% increase. At the time of the survey growth was expected to average 6% next year.

SMEs expect growth to come from the markets with which they are already familiar, in particular the domestic market which 48% of respondents expect to be the main driver of growth in future. Turnover from both the US and EU is relatively small at present – the EU for example is the second largest source of turnover at 14% – and only time will tell how Brexit will affect growth in both domestic and overseas markets.

44% of SMEs in our survey said working in the EU was ‘easy’ while 14% described it as ‘difficult’ with the remainder not knowing. When asked the same question about working in the US, only 20% described it as ‘easy’, 24% described it as ‘difficult’ with the remaining 56% not knowing. At home, 58% said working in the UK was ‘easy’, 32% described it as ‘difficult’ with 10% not knowing.

Brexit has created an opportunity to review and renegotiate regulations that would be useful to keep or change for the benefit of the UK.

An expert viewWill Brexit be a good thing for health tech?

Expert opinion remains divided at this stage as to whether Brexit will be a good thing for the UK health tech industry.

David Porter envisages that the effects of Brexit will hamper the growth of the UK health tech industry as “markets will get smaller and the benefit of the EU support will disappear to be replaced by likely less UK support” and that “this effect of Brexit will be felt over the next decade”. However, Porter also speculates that Brexit may be beneficial for the UK health tech sector as “putting the industry under pressure should make it more efficient. Also the NHS having less money to spend might begin to force positive changes. Also if some clunky EU procurement processes are replaced with something cheaper, quicker and easier, that would be a great help”.

Maxine Mackintosh:

“The health tech industry is not an isolated industry, but a complex web of academia, law and regulation, healthcare, economics, and technology, all with different benefits and difficulties following Brexit. But with every change comes opportunities and fear of such change must not paralyse one’s ability to capitalise on the opportunities. The UK must promote its competitive advantages hard and paint an optimistic, yet realistic picture. Hope and optimism are strong motivators. Whichever way you voted, it is better to prove the Brexiters correct in their arguments of economic strength, regulatory flexibility and ability to interact with an international market, than Remainers wrong, now that we are here.”

of respondents described it as easy, compared to 58% thinking the same of the UK.

The EU was regarded as a tougher market to do business in than the UK

44%



An expert viewDoes Brexit provide the opportunity to break into new international markets?

When asked if sector attention will shift to the US and China after the EU referendum, Nishan Sunthares said:

“The results of our recent EU survey show that 48% of SME members see increasing business with the rest of the world as a priority.

“The US is the world’s largest healthcare market. But businesses find the US very difficult to penetrate. The East Coast is different to the West Coast; the Midwest is different to the southern states. So it’s difficult to decide where to start.

“We have reshaped how we support our smaller members do business there. We conducted our market analysis and decided that the state of Texas is best positioned as a starting point. The Texas Medical Centre in Houston is one of the largest in the world for example. For the past year we’ve been scoping with partners how we can create a market access programme in Texas. We road-tested our programme in May with a group of companies and that was hugely successful. We’re building partnerships in San Antonio, Dallas, Houston, Austin and on the back of that creating opportunity for smaller businesses.

“China’s difficult for different reasons – registering your product, navigating the regulatory framework, ensuring that ethical compliance measures are in place. We’ve taken many companies to the Chinese Medical Equipment Fair, we’ll continue to do that and we’ll work with the Department of International Trade to build on that.”

From an SME perspective, Giovanna Forte says that support from ABHI is critical for businesses to engage with new, foreign markets:

“A recent triumph for Forte Medical is joining the ABHI; I wish we’d done this years ago. Their networks, introductions and export missions have made meeting our markets far easier (and cost effective) because they provide experience, muscle and credibility. In the past we have had no way of assessing the real value of distribution or licensing approaches from the Middle East, Australia and USA; we now have a route to the best networks and introductions. Having confidence in the integrity of those with whom you may go into business is essential.”

Forte believes that having a well thought out strategy is crucial for SMEs to engage new markets, as they may not have the resources to approach different continents sequentially. Furthermore, Forte says “it is not a case of this market or that market” and turning our back on the EU markets post-Brexit, though markets further from home may be appealing to SMEs that have not yet sold to the NHS:

“Worth noting is that when approaching Europe for export of an innovation, buyers ask: is this in the NHS? And if the answer is “a bit” or “getting there”, they are not interested because the NHS is very much regarded as an exemplar health system. Further afield, they tend to look at things in the context of their own culture of healthcare provision.”


The domestic market is strongAs well as breaking into new markets, it is also wise (irrespective of the Brexit decision) for investors and SMEs to focus on growing the domestic market. The UK currently makes up 70% of the turnover of SMEs in our survey. Smaller businesses are more heavily concentrated on the UK market than larger ones; those with three to nine employees averaged 86% of their sales in the UK.

In our pre-Brexit survey, most SMEs expected their sales to remain unchanged or to grow in the next 12 months, with 48% expecting growth to come from the UK market against 30% expecting growth from the EU. A fifth expected to see growth in US turnover.

While the media may be quick to paint a picture of a fragile UK following the EU referendum, future forecasts for the UK’s health tech space are less gloomy; businesses that grew last year are more willing to adapt and be flexible, as well as understanding how to access the market and potential customers. Therefore, having a clear vision and strong leadership will be important in ensuring the continued growth of the health tech sector post-Brexit.

An expert viewWill the UK remain attractive for health tech investment?

Maxine Mackintosh is confident of the attraction London holds for many businesses and investors abroad:

“We will soon have the lowest corporate tax rate of the major economies and a rate of capital gains for entrepreneurs of just 10%. We are already in the top 20 easiest places in the world to set up a company, compared to our EU powerhouse Germany, at 107th. London is in the top three highest performing city economies in the world, holds 40% of all European tech businesses valued greater than $1bn and 275,000 businesses in London alone. The UK attracted 40% of all venture capital funding in Europe in the 2nd quarter of 2016 alone, despite full knowledge of the referendum. The UK and London specifically is a highly attractive place to do business, so the view that leaving the EU will immediately make us an unattractive place to do business dramatically underestimates our global position as a key player in innovation, business and technology.”



The regulatory environment

The regulatory environment remains a concern for the health tech industry. While regulatory issues were seen in our survey as less of a barrier than procurement, they still rated higher than pressures of competition in the market. Many more respondents agreed that the regulatory environment hinders new products and services (40%) than disagreed (14%). But even more (46%) neither agreed nor disagreed, suggesting that different SMEs have different experiences with regulation.

An expert viewHow will regulation change post-Brexit?

Nishan Sunthares suggests that in leaving the EU, the UK should “maintain the benefits of the market and, critically, the unified regulatory arrangements”:

“In the 1990s the UK and the ABHI in particular were instrumental in contributing to the formation of the Medical Devices Directive – the framework that governs the regulations. We’ve also contributed to the further revision of those directives. We support being part of Europe’s unified regulatory arrangements through some form of mutual recognition. Any potential for the UK to diverge from that would add cost, bureaucracy and delays to patients’ access to treatments.”

Giovanna Forte says it may be better for British SMEs to maintain EU regulations post-Brexit:

“All the regulatory rules have been EU ratified and they are overall quite sensible. There are stringent manufacturing standards, usability standards, annoying but essential (and not cheap) shipping, age-testing and so forth but if the Brits make wholesale changes it will be harder to export to Europe. Any new regulations will have to be recognised and ratified; the only sensible way I can see of doing it is for regulatory to be maintained with the EU in some way.”

Forte believes that imbuing the MHRA (Medicines and Healthcare products Regulatory Agency) with “a little more common sense” would greatly benefit the regulatory approval process:

“The MHRA is the first port of call for new products and its insistence that a medical device is registered before it is tested – even at prototype stage – makes no sense. We have a new product that requires in-house testing, but the MHRA says we cannot do this until it is approved by them. I understand that these rules are in place for safety reasons relating to invasive or pharmaceutical products but ours is neither. This presents us with an illogical chicken and egg situation: how do we register a product that we need to develop before we develop it?”


Investment in the health tech sectorSMEs and investors are on different pages

Health tech represents a potentially lucrative sector for a majority of investors who responded to our survey. For those already invested in healthcare, medical equipment or technology, there has been a predominantly healthy return on investment; on average, 82% of those that currently hold investment in the health or tech sector have seen an increase in value, with only 2% saying these holdings had decreased in value.

The global appeal of the health tech industry is reflected in investor portfolios spread across many markets; 78% of investors said the UK was the primary market for the companies they had invested in, with the US second (44%) and European markets accounting for most of the rest. More than half have investments in companies trading in the EU.

SMEs and investors envision different futuresSMEs and investors questioned in the survey both painted positive pictures of health tech, yet these pictures are not the same. The SMEs questioned were mostly long-established businesses, two thirds of them with more than 15 years of trading behind them. It is possible that up-and-coming businesses would have had different views, but 74% of SMEs in the survey want to maintain the business as a privately-owned company, with just 10% envisaging a trade sale and 4% a private equity sale or management buy-out. None of those questioned envisaged an initial public offering of shares.

Investors are looking for an exit strategy; they see their investments as lasting from four to five years. Except for a minority (16%) who have yet to make a decision, all investors have some idea how their investments will end: almost half (49%) expect a trade sale, 20% an IPO, and smaller numbers for other exit strategies including private equity sales and refinancing. These findings are consistent with data from a previous Nabarro report (Taking AIM: ambition and fear in the UK technology sector) released in May 2016, where the vast majority of tech start-ups envisioned an exit through trade sale over IPO.

of those that currently hold investment in the health or tech sector have seen an increase in value, with only

saying they had decreased in value.

Health tech represents a lucrative sector for a majority of investors.

82%

2%

An expert viewHow should different aspirations between SMEs and investors be addressed?

Giovanna Forte reflects on how to find balance between investors and SMEs:

“90% of my investment is through family and friends. I have thus far avoided the private equity route due to the overt VC or PE priority to cash-in and clear-off, which may be ok in the context of most enterprise investments, but not ok in healthcare. Here, we need investors who understand the complex system we have to engage with and the hurdles navigated before acceptance comes. Forte Medical is ten years in and luckily has the support of shareholders who understand the obstacles we encounter and where possible, add value. The road to successful healthcare innovation exit is longer, but when it comes it is worth the wait. We are looking further afield for our next funding round, but those with a short-term view need not apply!”


Investment in the health tech sectorSMEs and investors are on different pages

Opportunities and obstacles in the health tech sectorWhen asked to list the attractions of the health tech sector, SMEs cited a range of considerations. 40% thought large domestic demand was seen as a good opportunity, and 38% said the same about a guaranteed market for goods and services. Good, long-term investment opportunities were cited by 32%, low barriers to entry by 20% and the relative ease of selling was mentioned by 18%. Other considerations rated by a flexible regulatory environment (by 16%), ease to secure competitive advantage (14%), demand abroad (12%) and high growth investment (10%).

Investors regard adherence to regulation and safety standards as most important when making an investment. Almost three quarters (72%) of respondents said this was extremely important, and the other 28% rated it as quite important. The quality of the senior leadership team was rated almost as highly (extremely important 70%, quite important 26%). Ownership of any relevant patents and intellectual property was rated as extremely important by only 44%.

SMEs need to be original and progressive in how they raise capitalTo sustain the growing investment in the health tech sector, SMEs must revitalise the ways in which they raise capital. SMEs currently have a conservative approach to raising capital. The most popular way to raise capital is through overdrafts, with public finance (e.g. grants) second, credit or loans third, and leasing and asset finance fourth. With investors interested in putting money into the sector, these results suggest that SMEs may be missing an opportunity to attract investment. As evidenced in a previous Nabarro report (Taking AIM: Ambition and fear in the UK tech sector), health tech shares do not feature prominently in investor portfolios, accounting for only 1% to 10% of the current investment capital of AIM investors. Therefore, new creative ways of generating investment for SMEs would not go amiss.

38%

40%

32%

20%

Guaranteed market

High demand

Good long-term investment opportunities

Low barriers to entry

Cited attractions of the health tech sector by SMEs

0 75 10025 50


Conclusions

This report presents a generally positive view of the UK industry. Pressure on NHS budgets does not appear to have had as severe an effect as might have been expected, and both SMEs and investors appear content with the returns they are making. For SMEs, the conclusion is that once the barriers to selling to the NHS have been surmounted, sustaining business largely on UK sales is the option followed by the majority. This conclusion is consistent with figures for the national balance of trade in medical devices, which show that the UK has been a net importer for many years.

Procurement practices in the NHS came in for heavy criticism, with few agreeing that they are as efficient as they could be. Even purchasing managers familiar with the procedures shared this critical view. Regulation is also criticised, with 40% of SMEs saying it hindered the development and introduction of new products (46% neither agreed nor disagreed with this view). These issues require government action and an opportunity to change regulation and procurement practices for the better.

This report has also revealed a disconnect between SMEs and investors. While SMEs serving the NHS are content to continue much as they have in the past, as privately-run businesses financed by overdrafts and loans, investors and would-be investors are looking to make good their investments by exiting at a profit after a few years.

It is clear that government attention is required to steer the UK health tech industry towards success in the post-Brexit environment. The UK government needs to take action and review regulatory requirements and procurement practices to support innovation. It is notable that a third of SMEs said manufacturing costs were one of the top three challenges facing their business currently. The range of tax reliefs and R&D capital allowances is attractive and certainly applicable to businesses in the health tech space, but while the government is helping with tax reliefs, not much is being done to improve the broader business environment.

It is, of course, premature to predict the impact of the EU referendum on the UK health tech sector. Leaving the EU may, in theory, liberate the UK from increasing regulation, and access to the European market is likely to be contingent on complying with it. This survey points towards positive investment and domestic growth within the industry. Perhaps now is the time to embrace new opportunities and open new channels for this sector to flourish.

“ It is clear that government attention is required to steer the UK health tech industry towards success in the post-Brexit environment.”


Research methodology

The research was carried out by Opinium Research. Opinium conducted 202 telephone and online interviews with four key groups involved in the health tech sector – to understand the current state of investment in health tech, the challenges and opportunities facing the sector, and the impact and benefits that health tech has in the provision of high quality healthcare. The research was carried out between 3 May and 10 June 2016. No weighting has been applied.

Who we spoke to:

Key facts about the researchRepresentation of NHS Trusts in EnglandOur research includes respondents from 73 NHS Trusts across England out of the total 154 acute trusts. This means we have spoken to over 40% of acute trusts across England.

NHS procurement71% of our NHS procurement managers were responsible for making the final decision over equipment purchases. 63% of respondents made purchase decisions for the entire trust.

SME decision-makers48% of respondents were the business’s CEO. 64% of SMEs we spoke to had been established for over 15 years.

NHS PhysiciansCurrently practising in an NHS Trust hospital (excludes GPs) and use medical equipment at least once per week.

NHS ProcurementCurrently employed in an NHS Trust and involved in equipment purchasing decisions.

SMEsSenior decision-makers in businesses with between two and 249 employees engaged in or looking to enter health tech.

InvestorInstitutional, PEG or angel investors invested in health, technology or medical equipment.

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