Disruptive innovation can attend to a market that is currently badly served. It can also present an outstanding relay to seek alpha in a return environment that has become less inclined to respond to classical financial instruments. The case of CeiROx Life Sciences, currently known as BioTissue, as a disruptive technology platform in the biotechnology industry, is eloquent in that it can be viewed as a standalone asset class. Disruptive technology can also be viewed as an extension of private capital in its quest to leverage the return of a financial portfolio.
Building return and looking for alpha has become an unparalleled challenge in a world characterised with the shattering of classic return metrics. Interest rates have become structurally low and flat in the aftermath of the financial crisis and with the subsequent sovereign European crisis and the current pandemic-related one. This has also led to continuous ‘corrections’ for equity returns. Furthermore, global equity returns enhancements such as correlation and what has become known as ‘decoupling’ has brought with it serious questions. Today’s pandemic only highlights this observation. It is in this context that disruptive technology can be viewed a relevant relay to generate alpha and growth in a sustainable manner. The key challenge becomes how to assess a disruptive innovation that can be pertinent in playing this role of leveraging return. In my opinion, the assessment can be achieved through both a quantitative and qualitative approach. I intend to go through these approaches using the case of CeiROx as well as to analyse the calibration of the associated return metrics.
Market dynamics
Quantitatively, a disruptive technology can be qualified as such in regards to the market it intends to serve. The big market premise is a condition for making an innovation truly disruptive. This condition measures the power of the innovation to alter the dynamics of the market. From this angle, we aim to build a business thesis that is pertinent and that stands out by recognising the fundamental and structural shifts in global demographics. With a world population that is witnessing both a higher life expectancy and a more active life-participation, the direct consequence is the potential tissue damage especially in cartilage in synovial joints. This translates to a multi-billion-dollar orthopedics market that we are intending to serve. In terms of order of magnitude, the current annual incidence rate of cartilage defects across all synovial joints can be estimated at 0.9 percent of the overall population. Males have a lifetime risk of one in six while females reach a risk level of one in four. Bringing together the aggregate patient population across all ages with degenerative or traumatic tissue defects, we get the following distribution of the target market over the next decade (see Fig 1).
The qualitative assessment of a disruptive innovation resides in analysing the characteristics of the market currently served. Indeed, the pathology of cartilage defect in synovial joints (such as the knee and the hip) is not a newly discovered one. Both degenerative and traumatic defects are a well-established problem. However, the solutions that have been brought forward have all fallen short of treating the underlying pathology efficiently. Most are only symptomatic in their effects while others are just delaying total loss of the joint’s functionality. This is the perfect example of a market that is maintaining the status quo. It is not about creating a new market, as is the case with artificial intelligence, for example, which makes its assumptions yet to be validated. CeiROx Life Sciences is addressing a market that is currently badly served, which allows us to serve an unmet medical need. This makes the market size assumption significantly hedged through on-going ill-treated cases because of the complexity of the underlying problem: destroyed cartilage cannot be regenerated through the body’s own healing system. We achieve successful treatment by creating new medicinal paradigms as we are pioneers of tissue engineering and the forerunner of regenerative medicine.
Four domains of innovation
Besides solving the status quo, assessing disruptive innovation is also reached through modelling the impact it accomplishes. A strong impact validates the disruption brought forward. We achieve great impact through the four domains of innovation: technology, product, process, and business model. From a technology perspective, our platform has developed through 20 years of research and developments of tissue regeneration concepts and applications from the skin to the bone. We have also given birth to the two latest generations for cartilage tissue regeneration: the third and today the fourth generation. We observed the limitations of the first-generation solutions that consisted of injecting cultured cells into synovial joints, and the second-generation solutions that consisted of associating to the cells’ membrane gels. We then developed a third-generation solution introducing a three-dimensional matrix as a carrier of the cells. We progressed afterwards to optimise our own solution through the introduction of a smart scaffold that ensures optimal cell distribution along with shape and mechanical stability. These have led to a strong clinical impact by achieving a good-quality regenerated tissue of hyaline type in cartilage, and restoring joint functionality.
The solutions that have been brought forward have all fallen short of efficiently treating the underlying pathology
In terms of product innovation, our fourth-generation chondro-tissue relies on developing a user-friendliness from medical, regulatory, and business perspectives. This has led in turn to a process innovation, which has been cut by half in terms of time. It has eliminated complex procedures with biopsy-taking and clinical treatment, cost-intensive cell-culture, and a burdensome regulatory framework. As in a domino effect, these aspects led to a business process innovation. The reduction in complexity through minimally invasive approaches as well as the possible scaling opportunities offer an innovative business process. While the first innovation domains focus more on the proof of concept in terms of clinical impact, the business process innovation domain focuses on the ‘proof of relevance.’ The latter assesses the economic impact that will condition the adoption of the technology, time-reduction and cost-saving being the cornerstone for successful market adoption.
Purpose and professionalism
The other dimension to assess a disruptive innovation is to study the qualities of return it generates. Both the direction of growth and its rate are important in boosting the quality of returns. This connects with the underlying premise of finance as a force of good: investment must flow to where capital is needed to solve the challenges of the moment. And in the effort to rethink capitalism, there is a need to rethink the ‘direction’ of growth – as opposed to the rate of growth only. Our business propositions evolve around both facets. In light of demographics, the direction can only be around a regenerative medicine solution as opposed to prosthesis replacement or short-lived symptomatic answers. Growth is also built on solutions that fully leverage the body’s own healing system without introducing components of metallic or animal origin. As to the rate of growth, it is strongly correlated with its direction. The demographic trends, along with changing lifestyles, will accelerate such a rate. In addition, disruption presents a perfect platform to express ‘decoupling.’ Almost always coming from an upstart outsider, in the words of Clayton Christensen, disruptive innovation provides great opportunities for effective diversification.
Above all, a disruptive innovation can have a strong foundation only if its components respond to the sustainability assessment. This is achieved through a comprehensive answer to a complex living problem. At CeiROx Life Sciences, we have made every facet of our response relevant in a disciplined and consistent effort. Purpose and professionalism are the building blocks for trust in a technology platform and in an investment thesis. As a sustainable value proposition, we respond to Prince Charles’s call that capital need not be geared towards investment that generates negative externalities. There is nothing more positive than a more able population.
