Why Ontario health tech startups may finally be able to find financing at home
Note: This post originally appeared in the Financial Post.
To say that it’s been a busy 12 months for one-year old Limestone Labs is an understatement. The founders came up with the idea for CleanSlate, a device that sanitizes portable electronics and tracks when they’ve been cleaned by scanning the item’s RFID sticker, while taking part in an accelerator program at Queen’s University in Kingston, Ont.
“We recognized that cellphones and tablets are incredibly dirty and not a lot of technologies can clean them effectively,” Taylor Mann, president and chief executive of Limestone Labs said. “After a month of customer validation, we realized healthcare was an area that was under-served in this respect and they have a strong reason to want to make sure their devices are clean and sanitized.
“In the average hospital today, one in four portable electronics—thermometer, smartphone— has some form of pathogenic bacteria on it that can lead to hospital wide infections. No one was creating a technology that would allow hospitals to safely use these technologies.” The company filed its provisional patent this April and will pilot CleanSlate in three Ontario hospitals.
Limestone Labs is one of hundreds of health tech startups popping up in Ontario, where a synergy is taking place in pockets such as Toronto, York region and Windsor, as engaged academic partners, municipalities and large multinationals come together to create an ecosystem for health technology startups.
The province is entering the picture, too. In its 2015 budget, the Ontario government earmarked $20 million for made-in-Ontario health technologies. It also promised to help innovators connect to resources and open the door to procurement opportunities for startups.
The government’s announcement is a big deal and a strategic move for a region that is well positioned to become a global health tech leader, said Zayna Khayat, lead of MaRS Health and director of the technology incubator’s Excellence in Clinical Innovation Technology Evaluation (EXCITE) program, which received $2.3 million from the new Health Technology Innovation Evaluation Fund. The money will help the program deliver on its mission to proactively pull proven technology into the health system to give local manufacturers an advantage over outside competitors and help keep jobs in the province.
“Procurement is a big part of the commercialization piece. It de-risks investments for investors if a market is in place,” Khayat said.
“We have a lot of technology that gets a positive nod for value for money but zero uptake. So no value is created. Right now we’re operating on a sales model where R&D is undertaken here and then moves to other countries where these technologies are made. We want to change that.”
Ontario is the world’s largest single-payer healthcare system with a budget of more than $50 billion. It also ranks in the Top 3 biomedical clusters because of its biomedical infrastructure and the research that takes place in the province. The 2015 Life Sciences Ontario Report says there are more than 5,600 life sciences companies that employ 83,000 skilled workers, generate an estimated $40.5 billion a year and contribute $21.6 billion to the province’s GDP.
“Yet no globally recognized Canadian-based health company is trading on the TSX,” Khayat noted. “Where we fall down is commercialization, converting medical R&D into revenue and venture capital. We simply do not have the same access to venture capital that other medical technology clusters such as Cambridge [Mass.] and San Diego have.”
Ontario’s new fund plus annual events such as the Bloom Burton conference and MaRS Healthkick, which connect investors to pre-venture health tech companies, are starting to change that. Still, the Life Sciences Ontario Report cites a lack of capital as the biggest barrier to growth.
Difficulty getting financing at home is the reason Limestone Labs set up an office in New York. “We were able to do a lot of early stage discovery and validation in Ontario but when it came to developing our business and gaining investment and channel partners, we had to go to New York,” Mann said.
“The magnet that drew us to New York specifically was the Blueprint Health Accelerator, which just focuses on medical technologies. That has been a big catalyst for us. It not only has expertise in the investment and business space we’re working in, but has the network necessary to get you started. It is a hub of digital health innovation and connection. In a week and a half we secured $200,000 in investment. Our goal is to raise $1 million.” That money will fund CleanSlate’s pilot projects in Ontario.
Jeremy Laurin, president and chief executive of Markham, Ont.-based accelerator VentureLab, understands the power of connection and in many ways is doing in Ontario what Blueprint is doing in New York.
“We have a base of large medical companies such as Johnson & Johnson and Teva headquartered down the street from our offices in the Markham Convergence Centre. We have their leadership engaged in our programming to help the startups get going. As well, the three community hospitals in York region are members of our organization and active participants in helping med tech entrepreneurs build the right type of technology solutions that will get market uptake.
“So we have large established companies co-mingling with small startups and engaged hospital and municipal communities working collaboratively,” Laurin said.
In its last quarter, VentureLab helped clients raise $7 million in venture money; $5 million went to med tech companies alone. “This is direct foreign investment seeing a healthy investment climate in this space in Ontario to help these companies grow here. That’s good news for all of Ontario and the entire country.”
It also challenges the notion you have to go outside Ontario to build a med tech company. Khayat estimated there are about 400 pre-revenue health tech startups in the province, building apps and medical devices. “We’re at an inflection point,” she said.
Laurin agreed. “The foundation has been built and is generating net real results,” he said.