If the market fails
ROM InWest invests in innovations within LSH that make our healthcare system future-proof: by preventing diseases, making treatments more effective and controlling healthcare costs. We do this in three domains: digital solutions for healthcare (digital health), innovative medical devices (MedTech) and biotechnology (biotech), which uses knowledge of biological systems and living organisms to develop new treatments and diagnostics. “We see our role in these areas as crucial,” Sara explains: “For many LSH startups, it is extremely difficult to find the right funding to grow. Many investors are reluctant to provide capital to these companies because it often takes a long time and a lot of money for their innovations to reach the market. This is because they have to invest a lot in research to comply with strict healthcare regulations and because implementation in healthcare is often slow. This makes it difficult for many entrepreneurs within LSH to attract so-called early-stage capital.”
Bridging the Valley of Death at MedTech
According to Sara, the early-stage problem is readily visible, for example, in MedTech companies. “These companies make hardware and need strict, healthcare-specific CE certification to do so. That means they have to demonstrate extensively that their medical device is safe and works properly before it can be used in healthcare. To obtain it, the product has to be fully developed, which costs a lot of money. As a result, these companies have a clear ‘Valley of Death’, a period in which all kinds of business activities have to be carried out, without generating revenue. This makes many investors prefer to invest in companies that can go to market faster and scale up more easily. Because of this market failure, ROM InWest does step in. We have done this, for example, at HeartEye, a company that has developed a fully wireless ECG recorder that allows a GP, assistant or nurse to take a high-quality,12-channel ECG in less than a minute. This contributes to more efficient care, lower healthcare costs and reduced workload in secondary care. With the investment from ROM InWest and other parties, HeartEye can bridge the Valley of Death on its way to CE certification.”
The obstacles in biotech
When it comes to biotech, Sara cites the example of Amplio Pharma: “This company has developed a technology that can significantly improve existing drugs. Their first application is NovoBioJect, a drug that makes the rheumatoid arthritis drug methotrexate more effective. As a result, patients suffer fewer annoying side effects and can often do well for longer with this standard treatment, before expensive follow-up treatment with so-called biologicals is required. This is a win for patients and it reduces the cost of care enormously. The impact is clear and there is a solid revenue model behind it. Yet many investors prefer new ‘breakthrough’ drugs, because they can be marketed at a very high price and therefore have the greatest commercial potential. That many investors mainly go for yet another expensive new drug with a new mechanism of action, while improvements to existing drugs are hardly ever picked up, is also a form of market failure. Because those improvements can demonstrably deliver both social and financial value, we at ROM InWest see it as our role to help companies like Amplio Pharma support in their mission to use existing medicines smarter to advance both patients and the healthcare system.
Another obstacle with biotech companies is that they often have to invest a long time and a lot of money in demonstrating and validating a new mechanism of action, even before it can be scaled up in multiple market applications. As a result, it takes a long time and costs a lot of money before it is clear how big the market potential really is. For many investors, this is a reason to be cautious, preferring to step in when the commercial opportunities are already well validated. That can make it difficult for entrepreneurs to raise the necessary capital. That is also when ROM InWest looks to step in.”
Getting healthcare excited about digital health
Digital health companies are less affected by market failures. Sara explains: “Software is seen as more attractive by many investors: it is more scalable, it provides stable, predictable revenues, its development is often faster than hardware and it is easier to customise. Still, that doesn't mean capital is there for the taking. We have recently invested in Healthplus.ai. This digital health company has developed an AI system for hospitals that allows them to predict the risk of post-operative complications for each individual patient. This allows hospitals to provide proactive care instead of reactive treatment. Treating infections alone costs an average hospital €35 million a year. Even a limited reduction in infections then leads to large savings. An obvious story whose financial benefit is well founded. Yet the adoption of these kinds of AI models in the healthcare sector is slow, partly due to complex IT landscapes and decision-making processes. So the slowness is not so much in the revenue model of the technology, but in the way healthcare is organised. That makes it take longer for companies like Healthplus.ai to sell their solution at scale. It is precisely in that phase, where the added value is clear but market adoption lags behind, that ROM InWest plays a role. We invest in companies like this because we believe their technology can make a substantial contribution to the affordability and quality of care.”
The bridge to impact
Sara concludes, “At ROM InWest, we identify these problems and consciously choose to invest yes in the early stage of these ventures in LSH. By acting as a bridge to the moment when traditional lenders can step in or there is sufficient revenue from commercial sales, we increase the chances of impactful innovations actually reaching healthcare practice. That is important for keeping healthcare affordable and accessible in the Netherlands as well as for the North Holland economy.”
