After many months of unsuccessfully talking to European VCs, university spin-out Durham Scientific Crystals (DSC) recently received the funding it was looking for from US based investor Amphion Innovations plc. The previously little-known investor in life sciences companies, which recently listed on London’s AIM market, is injecting a Chilli R1 of $1.8m into DSC. The Chilli takes a look at the company.
Background
Durham Scientific Crystals (DSC) was formed in 2003 to commercialise a proprietary production process of compound semiconductor materials technology, developed in the physics department of Durham University. DSC claims to produces radically improved and more cost effective compound semiconductor material for use as detectors in medical, security and defence, and x-ray imaging. The company says that its special optoelectronics material has the potential to revolutionise the medical x-ray imaging market, as well as dramatically improve the screening of baggage in airports and railways, and enabling the manufacture of in-demand handheld scanners.
DSC is headed by a strong entrepreneurial management team, led by CEO, Dr. Arnab Basu, and chairman, Brian Tanner, Professor of Physics at Durham University and founder of Bede plc, which is listed on LSE. Professor Max Robinson is a director and principal investor in DSC. He was founder of ImageScan plc, which is listed on the AIM market. Andy Brinkman, founder director, is a reader in physics in Durham and led the team that developed the unique growth technique. Dr. Ben Cantwell is the technical manager.
Dr. Basu’s took his PhD at Durham and arrived in the UK in 1996 from India, where he had graduated in natural sciences. Previously he had taken an engineering course, and also worked in the material processing industry in India and at the Invensys Group in the UK.
The company is an example of innovation originating from universities in the North-east region of England. It recently moved into dedicated facilities at NetPark, the flagship technology park for the region located at Sedgefield in County Durham, an initiative of County Durham Development Company (CDDC).
The investment
In addition to new investor Amphion Innovations plc, other shareholders are Durham University and DSC's founders. Amphion's investment in DSC represents the first fully external round of funding, after an earlier angel funding round of €257k by members of the management team.
Amphion’s investments have historically been focused principally in the US, with its offices based in New York City. Its investment in the North–East of England was Amphion’s first investment in any UK-based university spinout since its London AIM flotation. The investor’s senior management team were previously involved in Medisense, a UK university spin-out, which was sold to Abbott for $900 million in 1996. Medisense was based on technology from Oxford and Cranfield Universities. Amphion says it will be seeking some further highly select UK investments through its UK office.
This investment from Amphion will allow DSC to further develop its technology and patent portfolio, building up its management and marketing teams. Amphion's participation will also accelerate access to key US markets. Dr. Basu commented, “In addition to developing our team and the technology, the investment also gives us a route to the North American market.”
With regard to the search for investors, Dr. Basu said, “We actually talked to a lot of VCs in the UK and Europe, and this went on for a few months, before Amphion [introduced through CENAMPS, Centre of Excellence for Nanotechnology, Micro and Photonic Systems] showed interest. We finalized the MoU in March. I think that in the UK there needs to be a higher degree of public support in the overall development of early stage high-tech spin-outs.”
With regard to the future, Dr. Basu says that the company will be looking for a significantly higher round of funding next year.
Technology, market, and value proposition
DSC has developed a proprietary compound semiconductor production process for cadmium telluride and cadmium zinc telluride in a single crystal form. DSC initially acquired exclusive worldwide rights to commercially exploit these technologies researched and developed at Durham University over the last three decades. As part of the investment DSC has now been assigned the original IP from the university and is rapidly growing its own IP (patent) portfolio.
The company’s technology addresses the emerging demands in electronic x-ray imaging which is undergoing a change analogous to the move to digital in the home photography market. In medicine for example, users have turned to digital X-ray image capture because it improves the capabilities for diagnosis and treatment of patients.
The digital systems convert X-rays directly and electronically into high definition images that can be viewed in real time, enhanced and analyzed by computer and more cost-effectively stored, retrieved and transmitted when required.
Cadmium telluride and related compounds (such as cadmium zinc telluride and cadmium mercury telluride) have long been known to be the ideal detectors for such systems. However, before DSC and its newer process method, they were very difficult to grow into the high quality crystalline structures required. The current suppliers of these speciality materials charge extremely high prices, more per gram than gold, and in very small and often inconsistent quantities. The material is in great demand, in spite of these difficulties, because of its superior performance and properties.
End-user demand
Driven by an increasing number of procedures that require diagnostic imaging and by the sizeable replacement market for older film based devices, the digital x-ray system markets have been experiencing market growth of up to 20 -30% per year in recent years.
There are many types of device and application that DSC can supply into, for example the digital flat panel x-ray detector market alone worldwide will be over $500 million in 2006 and is growing at 20 percent per year. The specific applications, which DSC is particularly well placed to serve, like digital radiography equipment, will be among the fastest growing segments.
There will also be major opportunities in homeland security including more rapid and accurate baggage scanning and new generation hand-held scanners, in non-destructive testing (NDT) in industry and in high quality infrared imaging systems used in defence and elsewhere.
The diagnostic imaging market is a $70 billion industry in the US, representing approximately 10% of all expenditures for medical care. X-ray based systems dominate the market in terms of growth and revenue, with over a 50 percent share, so the transition to digital X-ray imaging represents enormous market potential.
