Healthcare Startups Make a Market Impact

While the U.S. remains crucial for startup founders’ inspiration and early-stage financing, Taiwan government support has given them a sound environment in the healthcare sphere. 

Taiwan is a global leader in innovative information and communications technology, blessed with a skilled workforce, advanced R&D capabilities, a favorable regulatory environment, and strong intellectual property protection. Those attributes provide a solid base for the estimated more than 100 healthcare startups on the island to gain strong footholds in the local and global markets.  

However, the experience of Joe Yeh, CEO of Taipei-based medical image AI company aetherAI, illustrates that much of Taiwan startups’ fortunes are still tied to the American connection. 

After Yeh earned his medical degree in Taiwan and worked there for a year on reconstructing the wiring diagram of the fruit fly brain, he went to the University of Southern California for a Ph.D. program in pathology. There, an odd-looking makeshift microscope collecting dust in a university laboratory caught his eye. The microscope had been designed and built by an engineering professor and his students, but the software that was meant to run it never worked properly. Yeh lent a hand by writing a completely new piece of software, which succeeded in finally getting the microscope into operation.  

“In the U.S., I learned to build a microscope on my own instead of just using a microscope, which was the sort of life-changing inspiration I would have never gotten in a Taiwanese university,” Yeh says. “I just fell in love with programming and returned to Taiwan to found aetherAI, which is now a leading medical image AI company that has more Taiwanese hospitals among its customers than competitor [Dutch health-technology company] Philips has,” he adds. 

aetherAI’s AI models help pathologists and radiologists achieve faster and more accurate diagnoses. Whereas the conventional method of investigating tissue samples for the presence of aggressive cancer cells is done with a microscope and the human eye – and is thus relatively perfunctory – aetherAI turns the physical sample slides into digital images that can be looked at on a computer screen and saved for re-examination. AI facilitates the quick identification of lesions that could point to the spreading of cancer cells to lymph nodes. Faster and more accurate diagnosis is often a matter of life and death, as a late diagnosis usually reduces the number of remaining treatment options.  

aetherAI’s first round of financing came from Yeh’s family before investors such as Taipei-based venture fund Cathay Venture, Taipei-based notebook-maker Quanta, and Japan’s Ono Pharmaceutical jumped in. According to Yeh, all three investors fall into the category of “strategic investors.” Cathay Venture’s parent, Cathay Financial, owns hospitals, among its other businesses, and Quanta is seeking to move into higher value-added business sectors.  

aetherAI CEO Joe Yeh was inspired to fund a leading medical image AI company while attending a Ph.D. program at the University of Southern California.

“Our revenue is mainly created by selling software licenses to hospitals, including 10 in Taiwan,” Yeh says. “In 2022, we expanded into global markets, including Japan and Germany, where we won the tender for digital transformation for pathology at University Hospital Tuebingen last year.”  

“Nevertheless, it is still challenging for healthcare startups to get capital in Taiwan given that Taiwan venture capital funds are typically not founded by entrepreneurs,” he adds. “That translates into limited understanding of the risks and complications involved in starting a company.”  

iXensor, whose founding team members met at Stanford University in 2011, is another Taiwanese healthcare startup that says it could not have come this far without first gaining inspiration and experience in the U.S. iXensor turns ordinary smartphones into versatile lab-grade medical diagnostic devices for point-of-care testing and at-home self-testing solutions. The user places a urine sample, blood sample, or nasal swab sample in a rapid test that is then attached to a smartphone through a small scanning device. The companion app controls the smartphone camera and display lighting models through the proprietary PixoTech algorithm to analyze the sample for any color changes in the light particles. Those changes serve as markers for cardiovascular disease, diabetes, infectious diseases, or gynecological disorders that could affect women’s pregnancies and childbirth. iXensor says that its advanced optical detection technology can also help other rapid test manufacturers digitally transform their test strips to add more value.   

 “The smartphone has evolved so much in the past 20 years that our PixoTech platform can run on virtually any model, and the Covid-19 pandemic has greatly boosted people’s receptiveness for at-home self-testing solutions,” says Dr. Carson Chen, iXensor’s CEO. 

 “Although our solutions greatly increase the convenience of testing and accessibility to health checkups, we needed to get seed funding in Silicon Valley first before we also became attractive for investors in Taiwan,” he explains. “Gaining the world’s first FDA approval for smartphone camera-based blood testing in 2017 was the other crucial breakthrough allowing us to grow our business further.”  

Taiwania Capital  

Seeing that the enormous potential of Taiwanese healthcare startups can be unleashed only if the government lends a hand, the Executive Yuan’s National Development Fund established venture capital firm Taiwania Capital in 2017. The move was part of the government’s Asia Silicon Valley Development Plan, which had been approved the year before to connect Taiwan with high-tech R&D communities worldwide and seize opportunities in next-generation industries. 

Three of Taiwania’s six funds can be tapped by healthcare startups, giving them access to a total pool of US$315 million in available funding. Taiwania’s website currently lists 26 healthcare startups in its portfolio. The company’s stated goals include enhancement of the local ecosystem by investing directly in Taiwanese startups and attracting overseas venture capital investors to raise the profile of Taiwanese startups and facilitate their access to global capital. 

To execute this strategy, Taiwania invests both in Taiwan and the U.S., covering preclinical to clinical-stage companies with a 50/50 investment split. Additionally, the company invests in pharmaceutical contract development and manufacturing organizations (CDMOs), particularly in biologics CDMOs with proprietary competitive know-how. This investment not only brings returns but also supports preclinical-stage biotech companies, mitigating their early development risks. 

“Taiwan’s WTO accession in 2001 forced the government to do some downwards adjustments to some incentive regimes, which compelled some venture capital firms to leave Taiwan for greener pastures,” says Jerome Shen, Taiwania’s Biotech fund general partner. “That had a negative impact on the availability of funds for Taiwanese healthcare startups.”  

“The establishment of Taiwania Capital counters this shortcoming, with our team of advisors addressing the second major shortcoming of Taiwanese healthcare startups, which typically is that they have strong technological solutions while lacking a robust strategy to bring their products to the markets,” he says. 

iXensor CEO Dr. Carson Chen says his company could not have come as far as it has without first gaining inspiration and experience in the U.S.

Shen singles out Hsinchu-based FaceHeart Corp. as an example of Taiwania shaping a promising startup to make it internationally competitive. FaceHeart’s main product, FH Vitals, is an AI-driven smartphone app that measures key vital signs by having the user make a 60-second selfie video. 

“We invested in FaceHeart nine months ago because they had brought in a president who is highly capable to lead the team and establish a corporate governance that is solid enough to partner with big players in Taiwan, South Korea, and the U.S.,” Shen says. He was referring to Jerry Chang, who in the late-1990s led his telecommunication tech company Clarent to its Initial Public Offering on the NASDAQ, and later served as a partner in several venture capital firms in Silicon Valley.  

“FaceHeart’s journey illustrates the challenge: while the innovative expertise comes from Taiwan, it’s the U.S. where the big market is, where clinical trials are conducted, and where the regulators must be convinced, which are all very costly requirements to be met,” Shen says. 

Besides the establishment of Taiwania Capital, another key driver of growth for Taiwan’s digital health industry includes the government’s push for healthcare reform, which involves facilitating the adoption of digital health technologies to improve healthcare outcomes and reduce costs. The government has also launched several initiatives and funding programs to support the development of the digital health industry, such as the Biomedical Industry Innovation Promotion Plan. In 2017 the government set up the Taiwan Tech Arena (TTA) as a startup incubator, bringing academic and R&D talents, startups, accelerators, enterprises, and investors under one roof. Located in the Taipei Arena, TTA occupies a co-working and event space of more than 30,000 square feet, specifically designed for tech innovation. 

Taiwania also stresses to investors that Taiwan’s National Health Insurance Research Database, with comprehensive data on 23 million individuals collected over the decades, provides unique opportunities for Big Data and AI applications. Moreover, there is a range of tax incentives and grants available to encourage investment and engagement. 

“Another strong selling point of Taiwanese healthcare startups is that Western-style laws and regulations give security and peace of mind to enterprise operations, with intellectual property well protected,” Shen says.