A case study in bringing AI-based skin cancer diagnostics to the healthcare market
Supercharging the entrepreneurial journey
This month, in partnership with Spex Capital, we launched a call for early-stage digital health and medtech companies seeking seed and Series A investment. But what does an investor look for in a fledgling venture, and how does an entrepreneur accelerate the journey to adoption in the healthcare system?
To explore these questions, MedCity’s Programme Lead, commercialisation and investment specialist Sakura Holloway, sat down with Neil Daly (founder and CEO of Skin Analytics) and Claudio D’Angelo (Founder of Spex Capital and an early investor in Skin Analytics) to talk about their entrepreneurial journey.
Skin Analytics was founded in 2012 and provides AI-supported teledermatology services. Their machine learning algorithm DERM can be used to detect skin cancer from images of skin lesions.
Sakura: Neil, in 2015, you pitched at a MedCity Investment Hub event, can you tell us more about what you gained from that experience?
Neil: So much has happened since 2015 – we’ve quadrupled in size and raised investment a number of times since then – so it feels like a long time ago! But the Investment Hub event was the first chance we’d had to speak to investors who were focused on medical technologies. At the time, as we were relatively early to AI-focused technologies in healthcare, we were struggling to find investors that really understood what we were doing. The Investment Hub enabled us to have conversations with investors that understood medtech, which, in turn, helped us position ourselves and learn about how best to raise money in the future.
And, of course, it led us to Claudio!
Sakura: Claudio, what was it that you saw in Skin Analytics that made you want to invest in the company?
Claudio: First of all, I could see that the technology Skin Analytics was developing was something that was really needed. I believed in what they were doing and I could see what the path-to-market and operating model was, and could develop into.
Secondly, at the time, Skin Analytics was on the cusp of being able to validate their technology with a large study. This was a really important indicator that there was potential traction for the company.
And, thirdly, I had confidence in the skills of Neil as the principal. On that point, I can also say that Neil has since grown into a very experienced CEO, and I’ve been really pleased with my decision to invest!
Sakura: Neil, can you tell us about some of the key milestones for the company as you’ve grown?
Neil: Around 2014 (two years into starting the business) our hard work in what was called computer vision at the time (and later developed into AI, machine learning and deep learning), really started to pay off. We started to see some really solid results in the performance of our AI tool being able to identify cancer from images.
Then, we completed the clinical study that Claudio mentioned, which we ultimately published in 2018. That showed that the performance of the AI was something that could make a huge difference to the healthcare system and, to date, it’s the only study we’re aware of that uses AI in this way in dermatology. Having that strong world-class data led to a huge shift in the conversations we were having with both the healthcare system, and with investors. It led to us being able to raise investment, including via Claudio, that supercharged our efforts to develop a product that met all the regulatory requirements.
We raised more capital in 2018, and were able to then offer commercial services out into the market, beginning with teledermatology (without AI).
Following regulatory clearance for the AI, we’ve been able to launch AI products and services in the last two years, and that’s where we’ve seen a real explosion in our growth.
Sakura: It sounds like it was a slow start to begin with, followed by rapid growth in the last couple of years. What were the most important factors in triggering this period of rapid growth?
Neil: Unlocking access to capital has certainly allowed us to build a really strong team of people, which made all the difference to the progress we could make.
There’s also just a lot of work that goes into building the foundations of an AI healthcare business. Of course, you need to build the technology and turn that into something that’s useful in a clinical setting (not a trivial task). But many of the other processes are just as, if not more, time-consuming…
Doing the research and building the clinical evidence can involve very long, slow processes.
Then, there are the regulatory processes, which are, quite rightly, designed to be more difficult the higher risk your product is. In our case, cancer has a huge effect on people’s lives, and the regulatory controls are strong. Every aspect needs to be interrogated to make sure the right checks and balances are incorporated in the product and the business.
Once we’d built those strong foundations, they were our competitive advantage – the moat, if you like, that we’ve built around the business.
So, yes, we didn’t see a lot of growth in the first few years of the business, but during that time we were setting ourselves up for exponential growth when the timing was right.
Sakura: Claudio, how has Skin Analytics performed compared to your expectations when you first invested?
Claudio: In terms of funding, the company has surpassed my expectations – the money they raised in their Series A funding, followed by top-up funding, and grant funding, put them in a very healthy position. This reflects the trust investors have in the product, in the company and in its management. It’s also leading to healthy progression in revenue, and so I see even stronger performance still to come.
Sakura: Neil, you’ve now moved into the US market. Can you tell us about your plans?
Neil: Yes, our strategy was to first focus on the UK, where we’ve invested heavily in the last year, built our sales processes, and refined our approach to dealing with the NHS. As a result of that, we’re expecting to see a real consolidation of gains in the UK.
The second part of the strategy was to expand into the US, where we’ve been granted ‘Breakthrough devices’ designation by the FDA. This is effectively a fast-track programme to get FDA clearance. We’re now working with the FDA on how we can bring the product to market, and we’re also having discussions with healthcare providers in the US about how our technology can alleviate some of the challenges they’re facing in dermatology. Once we’ve completed all the regulatory requirements – which includes completing clinical studies in the US – we have some ambitious plans for America, as well as for further accelerating growth in Europe.
Sakura: What are the differences in conducting clinical trials in the US vs. UK – are there particular challenges?
Neil: The UK has national ethics committees that provide a really clear and simple ethics process. In the US, ethics committees are often regional, or even run by the study site itself. This can have a big impact on the time it takes to get up and running, depending on the sites selected for the study.
Another thing to bear in mind is the commercial nature of the US providers means that the cost of doing a study in the US can be up to 10 times more than when working with the NHS in the UK.
With all that in mind, a top tip for any health tech startup, is that doing research in the UK is a fantastic way to get started – it’s faster, it’s cheaper, and you get access to such talented people in the NHS.
Claudio: Yes, this is something that’s echoed in a number of the companies we work with. Although there’s a big market and a lot of money in the US, companies often like to start in the UK, just as Neil describes. The NHS provides an avenue for them to progress quickly and methodically with trials and approvals to validate their technology. Many then move on to other countries in the Commonwealth, which employ very similar rules to the UK, before looking towards Europe and, finally, the US.
Sakura: So, is London ‘the place to be’ then?
Neil: When we began expanding into the US, we had discussions within the business about whether we should move our headquarters. Although I’m currently based in the US to focus on our growth here, the feeling was unanimous that our headquarters should remain in London. Between the cluster of successful technology companies that are emerging from London, Cambridge and Oxford, and the fantastic AI researchers that are coming out of the London universities, we’re convinced that London is the best place for us to access talent in the future.
Claudio: On top of the access to talent, one of the key reasons that London is flourishing right now, is because the tax environment in the UK is second to none. High net worth individuals are able to invest in tax-efficient ways through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). That helps to fuel the ecosystem, as more and more entrepreneurs look to the UK, and London in particular, to kickstart their ventures.
APPLY HERE for investment through the MedCity-Spex Capital call before the 27th October deadline. The call is for early-stage medtech and digital health companies, and is open to both UK and non-UK companies.