Editor’s note: Kairous Capital, AC Ventures & StratifiCare are participants of Life’s a Pitch! (MedTech) on Feb 25.

Even before the COVID-19 pandemic hit, medical organizations around the world have increasingly used technology to improve efficiencies, effectiveness and preventive care, as front liners race against time to save lives and provide the best treatment for patients.

The ongoing pandemic has accelerated the use of technology as the coronavirus strains healthcare systems globally, presenting more growth opportunities for medical technology (MedTech) startups.

MedTech is commonly used for diagnosis, patient care, treatment, and improvement of a person’s health. It is mostly used in hospitals and is oriented toward diagnosing and treatment rather than prevention, according to software house Ideamotive.

Medtech includes equipment, devices, machines, software, and tools. They have a regulated path to market since they may have a severe effect on people’s health.

Globally, the MedTech market will achieve sales of $594.5 billion by 2024, growing at a rate of 5.6 percent per year between 2017 and 2024, according to data platform Statista.

According to management consulting firm McKinsey, Asia is expected to become the second-highest MedTech market in the world by 2020, and it could account for a third of global sales by 2025.

Zooming into Southeast Asia, its growing population of more than 600 million with a combined GDP of more than $3 trillion and a rapid growth of the middle class are expected to fuel strong demand in healthcare coverage.

“We see many emerging technologies increasingly being deployed here, especially with the pandemic and the rise of a new generation of digital natives entering the workforce, consuming healthcare services as well as caring for their older family members,” Malaysian private equity and venture capital firm Kairous Capital partner Dr Michael Gan told TechNode Global.

Kairous Capital Partner Dr. Michael Gan

“Technology is able to help in many facets of healthcare, improving efficiency and outcomes. Hence, there is much potential for tech utilization. There are also spillover effects from relevant sectors such as FinTech/payments, InsurTech and etc. Emerging tech such as artificial intelligence (AI)/machine learning, 5G, augmented reality (AR) and virtual reality (VR) will also contribute to this drive,” he said.

Kairous’ main investment thesis is to invest in Chinese tech companies and export their technology and expertise to Southeast Asia. It also invests in Southeast Asian tech companies by referencing proven business models and strategies of tech unicorns in China. Kairous Acquisition Corp Ltd, an Asia-focused special purpose acquisition company (SPAC) led by the founder of Kairous Capital, started trading on Nasdaq in December last year. Kairous Acquisition has raised $75 million.

Valuation-wise, Dr. Gan said MedTech startups generally have a higher valuation than other tech firms and more so with the pandemic.

“There is a flurry of liquidity going into this area, and most of the listed MedTech firms are also trading at a premium. Due to their sudden explosive growth as well as comparative valuations of their listed peers, the valuations would definitely be high,” he said. “This is another challenge for investors, whether the startup will be able to sustain their growth and prove to justify their rich valuations, especially post-pandemic.”

“MedTech is actually a huge area, it encompasses heavy Capex areas such as pharmaceutical/biotech, medical/lab equipment, etc. For us, we prefer areas that are not too capital intensive, or with too long a horizon,” Dr. Gan said. “We look at areas that address a particular problem or pain point, employing an innovative solution that is highly efficient and scalable. Solutions that are able to scale regionally, with adequate barriers to entry. These are mainly within the digital health sphere. Southeast Asia has a plethora of problems plaguing its healthcare systems, hence many opportunities are out there,” he added.

Dr. Gan has noted strong deal flows in the MedTech space in Asia and Southeast Asia, especially in the digital health sector.

“There are many good opportunities with innovative models, and the space will get increasingly competitive. The difficulty is predicting which startup will be the leader in its space,” he said.

In its current portfolio, Kairous invested in CareLinker, which operates online system linking health terminals across China and Skinrun, a beauty AI developer in China.

Indonesian VC firm AC Ventures also sees immense opportunities in MedTech although it has yet to back any Medtech or healthtech startup in Indonesia.

AC Ventures Founder and Managing Partner Adrian Li

“The health tech landscape is at a nascent stage, particularly in Indonesia. There are still immense opportunities, whether in distribution (input or output), integration with insurance/employers, and SaaS/enabler for startups to address,” AC Ventures Founder and Managing Partner Adrian Li told TechNode Global.

“We see plenty of business models and ideas that worked well in more developed countries and believe that some of the models would work in Southeast Asia, such as the hospital information system and online pharmacy,” he said.

In December last year, AC Ventures had closed its Fund III with over $205 million in committed capital, bringing the firm’s total asset under management to over $380 million across its funds.

Medtech is still at an early development in Southeast Asia, with startups addressing the first layer of discovery and access to healthcare services in the region, Li noted.

“In total, the healthcare market size is a critical pain point, especially in Indonesia, as the ratio of bed to population and percentage of physicians are below the regional average. As a VC, we are actively looking for solutions to bridge this pain point and increase utilization and efficiency to fulfill the healthcare demand,” he said.

Although there is a general perception that the MedTech industry is dominated by western nations, MedTech startups in Asia and Southeast Asia still have a chance of success, according to StratifiCare Co-Founder and CEO Dr. Anthony Chua.

“Some of the diseases are more prevalent in Southeast Asia as compared to the US and Europe. Therefore, some of the MedTech companies from the west will have to collaborate with startups in the region,” he told TechNode Global in an interview.

Based in Singapore, StratifiCare is an innovative medical diagnostic solutions company which has secured close to S$1 million ($739,233) in an oversubscribed Seed round from investors including Asian Development Bank Ventures, Sprout, PatSnap CEO Jeffrey Tiong, and Carousell CEO Quek Siu Rui in October last year. The funds will mainly go towards setting up pilot production facilities and supporting clinical trials for StratifiDen™ in Dengue-impacted countries in Asia.

“Western or the so-called advanced nations may have the expertise and immense amount of funding required but Southeast Asia has a growing captive market and will definitely provide many opportunities,” Kairous’ Dr. Gan, who was previously in medical practice, said. “There are already decent-sized MedTech companies in the region, especially in China and Korea.”

Furthermore, new innovations will have to undergo trials and get registered in Asia as well, which would provide some opportunities to this part of the world.

“Startups in Asia will have deep local and regional knowledge as our healthcare systems are different from the west, and that would provide them with advantages here. Some examples include the different payor systems between countries, different levels of access to healthcare, etc,” he said.

“In Southeast Asia, the problems we have might be different from the west, and hence our focus too. For example, certain Southeast Asian countries still lack rudimentary equipment, drugs, expertise, or practitioners in rural areas. Hence the tech that facilitates these will be able to help improve the quality of care immensely as compared to doing something really sophisticated but basic issues are still not solved. This can be the main focus of startups originating from here,” Dr. Gan said.

Challenges – funding, regulatory approvals, long gestation period

Long gestation period, the need to obtain regulatory approvals for MedTech products are among the reasons why it is difficult for MedTech startups to secure funding, according to StratifiCare’s Chua.

“For [most] tech startups, with a minimum viable product (MVP) or with certain monthly active users, they can raise funds from investors. For MedTech startups, we will only be able to raise funds after our products get regulatory approvals,” he said.

StratifiCare Co-Founder and CEO Dr Anthony Chua

MedTech investors in Southeast Asia are generally more risk-averse unlike the ones in Europe and the US, he said.

“It is challenging for MedTech startups, especially when they use up the grants or funding from the government secured in the initial stage and there is still a huge gap before they are able to get regulatory approval for their technology or products,” he said, adding that MedTech products usually would need at least five years to get substantial traction.

Even in Singapore, where the MedTech industry is more robust as compared to its peers, there are not many grants or funding MedTech startups could apply, he said. MedTech companies would generally require a bigger amount for research and development.

Funding and grants are the main deciding factors for MedTech industry to flourish, he said. With more grants and funding, there will be more clinical findings and results for commercialization. Within the region, the MedTech industry in Singapore and Thailand are among the more robust ones, based on his observations.

“MedTech industry is a highly-regulated industry. We also need a lot of talents to ensure the business development of the products is in tandem with all the regulatory requirements. These talents are available at bigger MedTech companies. It is difficult to convince them to join startups and give up on their more stable job,” said Chua, who obtained his Ph.D. in Virology from the National University of Singapore.

“For MedTech startups in Singapore, the main challenge is that the addressable market is small, so we have to think global since the beginning,” he said.

AC Ventures’ Li opined that the main issue faced by MedTech startups is getting support and endorsement from key stakeholders in the healthcare sector such as doctors, hospitals, clinics, pharmaceutical suppliers, and insurance providers.

“A large part of the healthcare industry interfaces with the government, requiring a lengthy integration process. Healthtech startups also face a higher trust barrier from patients. Customers tend to exercise greater caution in buying or using health-related products online.

While there are many good opportunities for VCs to invest in MedTech space, given the strong deal flow in Asia and Southeast Asia, investors will need to evaluate the ESG aspects of a startup, Kairous’ Dr. Gan said.

“The difficulty is predicting which startup will be the leader in its space. Going forward, apart from financial considerations, investors will also need to evaluate the environmental, social and corporate governance (ESG) aspects of a startup, especially the ‘social’ and ‘governance” components which are rather relevant in a healthcare setting. Enterprises should demonstrate how they improve the standard and quality of care, provide equitable access to the underprivileged, clinical trials shown to be done ethically and transparently, just to name a few,” he added.

Commenting on how he will consider investing in a MedTech startup, Dr. Gan said the founder’s quality, the path to profitability are among the criteria he will prioritize.

“We typically invest in the growth phase of a startup. The founder needs to have a strong vision and great execution capabilities, product/solution offering would have gained traction and experiencing strong growth, the core team is present and demonstrates good collaboration, and preferably with sufficient skin in the game,” he said.

“Path to profitability needs to be visualized, especially for MedTech. The founders and the core management need to have in-depth domain knowledge, as this is not an area you can just jump in without prior experience, expertise or network. It’s a lot to ask for, but it’s a competitive field,” he noted.

Feature photo credit:  StratifiCare 

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