Top five considerations for healthtech start-ups
Hayley Davis managing associate in the commercial technology team at Kemp Little, the London law firm, explains what healthtech start-ups need to consider from the outset.
Starting a “healthtech” business can be an exciting venture, but there are certain things you should consider from the start – here are our top five considerations:
1. To contract or not to contract, that is the question…
As with any business, you will need to negotiate contacts (ideally in writing) with all of your collaborators, investors, suppliers, manufacturers, logistics providers and customers.
When creating and developing your healthtech product, you will also need to consider who your intended market is from an early stage – will you sell direct to consumers, to private businesses or to public sector organisations (i.e. the NHS)?
Where selling direct to consumers, you must comply with the consumer’s statutory protections; this includes enhanced cancellation rights and restrictions on how much you can limit your liability. Consumer terms will also need to be written in plain English and clearly set out the consumer’s legal rights and obligations.
If your healthtech product is aimed at the NHS, you will need to adopt a very different approach. Government and NHS contracts are usually very detailed, subject to public procurement regulations and are on the purchaser’s standard terms. You will also need to ensure that your product meets certain additional criteria, including NICE’s Evidence Standards Framework for Digital Health Technologies and NHSX’s Digital Technology Assessment Criteria.
Collaborations are common in the healthtech market and it is important to ensure the contract sets out each party’s rights. Consider who is responsible for performing each stage (parties should play to their strengths and experience) and who will own, or be able to use, any resulting rights.
2. Protect your property, intellectual property…
The intellectual property (“IP”) in your products may be protected in different ways depending on the part you are trying to protect. These are some key considerations for most healthtech business:
Brands: A strong brand name and image is key and clearance searches should be conducted when considering brand names to ensure it isn’t already in use and you won’t infringe an existing trademark. It’s important to register brand names and logos as trademarks to prevent copycats from exploiting the goodwill you develop in your business.
Designs: Product designs can be registered in a similar way to trademarks and may attract unregistered design right protection upon creation. Inventions may be patentable if they meet the criteria (e.g. they are novel, have an inventive step, are not obvious and have an industrial application). Obtaining a patent can be a long and expensive process (but allows a monopoly right over your invention for 20 years), so start-ups often rely on confidentiality during the early stages. In the UK, copyright protection automatically arises to protect items such as the design of your app/website and in the source code of any software you create.
Data: Healthtech businesses often rely on a large amount of data. Specific database rights protect the effort you put into compiling and structuring the data (this may apply to patient data, algorithms or research data more generally).
3. Keeping within the law…
The regulatory framework for the health sector and health products is complex.
Therefore, it is important to consider whether certain regulations will apply early on, for example, healthtech apps and products may be classified as “Medical Devices” and, if so, will need to meet certain standards and requirements. The medical device regulations apply where an app or product has a “medical purpose” and it fulfils a certain medical function or influences treatment provided (e.g. it is intended to diagnose, treat or prevent a disease or illness).
It is important that start-ups understand this regulatory divide and either:
- follow the requirements (which includes a registration process and evidencing its reliability); or
- apply a consistent approach to ensure that they do not inadvertently cause the product to be regulated (for example, by claiming the product performs these functions on your marketing materials, website or labelling) – including a disclaimer that it is not a medical device will not be enough to avoid the regulations.
4. The value of data…
As mentioned above, healthtech businesses often rely on a large amount of data – the complexity is increased by the fact that, in order for this data to be valuable, it often includes a large amount of personal data (including, more sensitive, health data).
Protection of personal data should be at the forefront of your mind when developing your healthtech product. Your product should include ‘privacy by design’, meaning protection of personal data should be incorporated into the design of your product from the start, not as an afterthought.
Developers will need to consider the types of personal data collected or used by the product, how and where the information will be stored and whether it will need to be shared with third parties (e.g. healthcare professionals) – you will need to comply with all of the data protection requirements and consider what permission is required from data subjects.
5. It’s all about the money…
Start-ups should always consider whether they require external funding, whether in the form of equity or debt. Equity funding (usually) isn’t required to be repaid, but mean that the founders might need to give up some of their control over their business, whereas debt funding (loans) will need to be repaid, but founders maintain control. Securing debt funding might also be difficult for a start-up, so you might want to consider a specialist healthtech lender.
If you’re considering equity funding, the UK government’s funding schemes created to support early stage businesses during the pandemic, including the Future Fund, might be a good start.
The Future Fund provides Government-backed convertible loans worth between £125,000 - £5 million to early-stage businesses, provided the money is matched by private investors and certain conditions are met.
Some other sources of funding that healthtech start-ups should consider include:
- Innovation Grants;
- Coronavirus Business Interruption Loans (CBILS);
- Venture capital funds; or
- SEIS and EIS investment from angel investors.