While COVID-19 has brought the world economy to its knees, you might think a global health emergency would be seen as an opportunity by biomedical startups — just the sort of challenge agile entrepreneurs are drawn to tackle. To their credit (and with our gratitude), many are.
But if past experience is any guide, the companies best positioned to take advantage (if that’s the right term) of the current situation are the ones founded years ago, now developed enough that they can deploy, or rapidly adapt, an existing product or asset. On balance, unfortunately, the pandemic is likely to hurt many more young companies than it helps, resulting in a huge hit to the biomedical ecosystem, given the increasing dependence of Big Pharma on external innovation. True, a few biomedical startups may find their prospects lifted. But most will be consumed with the deadly existential threat posed by the current crisis.
The grim reality is that the current economic standstill is devastating many health startups. Laboratories (except for essential functions) have shut down as researchers are confined to their homes. Clinical trials, generally organized around dedicated trial sites or large medical centers, struggle to continue, and many studies have been frozen in place — despite recent FDA guidance seeking to make remote patient-monitoring somewhat easier.
Moreover, this sort of disruption wasn’t on any founder’s plan for the year and probably not even in any contemplated downside scenarios. As one startup CEO recently told me: “We, like many other companies, are concerned about the impact the virus will have on our business. Nobody planned on a coronavirus pandemic.” Startups run exceptionally lean and generally on fairly tight timelines. So the current crisis dramatically changes their calculus for what they’ll do and how much it will cost. Companies that were in the process of raising new money are likely to be hit especially hard. And there are already a number of stories circulating of investors behaving badly — for example, reneging on recently signed deals that they now see as overly generously in the new, depressed economic climate.
Startup founders are now in a difficult, if not untenable, position, and many are now focused almost exclusively on conserving enough cash just to survive. This has predictable consequences. The lifeblood of startups is talent, and a huge effort goes into finding and hiring the right people and creating a culture in which they can thrive. Yet survival in a crisis often entails painful cuts and releasing a number of employees, one hopes only temporarily. Regardless, this experience can be devastating for the employees and also painful for executives who need to make these hard decisions. Moreover, startup CEOs are being almost universally advised to move early and decisively and make whatever workforce reductions are likely to be necessary now, rather than let a few more people go week by week.
To be sure, all is not lost for startups during these difficult times, as seasoned investors Bill Gurley and Chetan Puttagunta recently emphasized. Constraints, experts suggest, inspire creativity. Downturns tend to force companies to focus and to deepen their relationships with partners, which can pay big dividends when the crisis abates. The pressures of a downturn can also winnow the competition, again creating opportunities for companies that manage to squeeze through this bottleneck. Gurley cites the restaurant reservation system Open Table, which persevered through the downturn of 2001 while two prominent competitors were sunk.
It’s also easier to hire talent during a downturn (assuming you have the resources to do so). Gurley contends that the quality of entrepreneurs goes up during a downturn, as many of the “hangers-on” attracted to entrepreneurship during fat times “because it looks easy” flee for more secure gigs when the environment tightens up. Those who remain, he says, do it because that’s who they really are. Finally, while it’s traumatic (and guilt-inducing) for employees to lose cherished colleagues, survivors tend to form an especially close bond, imbued with the sense that the fate of the company rests in their hands.
And then there’s the adage about never letting a crisis go to waste. Certainly, stories of innovation driven by urgent need abound, and there’s a tendency to assume that change necessitated by crisis will inevitably become permanent. But there are two problems with this. First, crises can catalyze harmful changes — for example, if we were to surrender key information privacy rights, these could be difficult to recover.
The second limitation of the power of crises to drive change is that they can do only so much. To borrow an expression from medicine: “You can heal the sick, but you can’t raise the dead.” Crises can reduce the barriers for adoption of technology, which for telehealth would include regulatory, reimbursement, provider preference, and often patient preference (to name a few). Yet, as consultant Andrew Matzkin of HealthAdvances points out, after the crisis subsides, successful technologies still “have to overcome a series of hurdles in order to realize their promise at scale.” He cites companies that enable drug developers to bring trials to patients, rather than patients to trials. These seem attractive right now, he says, but he worries that the approach has a long way to go before it’s ready for prime time.
To the extent there’s still a silver lining in this crisis for biomedical entrepreneurs, and for the industry more broadly, it may be, in the words of Recursion Pharma founder Chris Gibson, the opportunity to help “rebalance the world’s faith in science, in vaccinations, and more . . . a chance for Bio to regain a position of respect in the world.”
It’s a hopeful thought in a difficult time.