The Need for Healthcare Innovation Only Increases as COVID-19 Causes a Digital Transformation
In a very short time, COVID-19 has had a dramatic effect on all aspects of our lives, and this certainly extends to include new adoption of promising technologies and a more challenging fundraising environment. As the trend for remote monitoring and virtual care continues, the need for healthcare innovation is only going to increase and the lessons derived from the current crisis will make for a better “new normal”.
Promising Technologies & Opportunities for Startups
The accelerated adoption of new technologies, such as AI-driven triage tools and telehealth services by providers, is a silver lining of this crisis. Leading healthcare into the digital age has been an important yet oftentimes frustrating effort of startups and established companies for a while now. Over the past few years, many platforms and tools have been developed but most of these solutions have seen low adoption rates. This has definitely changed within the COVID-19 environment. Instead of a digitization of healthcare, we are witnessing a digital transformation at an inconceivable speed. As healthcare systems are forced to respond to the social distancing measures and stay at home orders, they have no choice but to offer remote care and monitoring and accept that the digital transformation will continue and stay for the long-run. The lawmakers of the 21st Century Cures Act, signed into law in 2016 to accelerate medical production development, are now working on new legislation which would continue reimbursing for virtual visits thereby increasing access to telemedicine and digital health solutions. While the economy obviously has taken a huge hit, companies in the virtual care space have done extremely well, with the stocks of companies like Livongo or Teladoc soaring and private companies like Amwell or Mindstrong raising hundreds of millions of dollars to further scale their businesses.
Besides digital tools, diagnostic tests that can identify COVID-19 infections faster, more accurately, and cheaper than existing solutions have seen a lot of interest. Similarly, vaccine and antiviral drug development have become a focus of attention and are witnessing large investments in research and development. However, multiple past outbreaks, e.g. SARS or MERS, have shown that this interest can be short-lived and die down as soon as the acute crisis has been contained. While startups have been competitive in the race for new diagnostic tools, the resources needed for the development of drugs and vaccines are prohibitive for most smaller companies. However, some that have already been active in this space can now team up with big pharma or biotech companies like for example the Mainz, Germany based BioNTech who collaborates with Pfizer on developing an mRNA vaccine against COVID-19.
German Accelerator Life Sciences companies have been able to seize new opportunities that arose out of the current crisis. Examples include Ada Health’s rollout of a COVID-19 screening tool to triage patients or SpinDiag’s innovative PCR-based SARS-CoV-2 rapid test that can provide results within 30-40 minutes. For SpinDiag, this has resulted in remarkable fundraising successes. In mid-April, the company received a 6M EUR grant to develop the test from the State of Baden-Wuerttemberg, and only a few weeks later they closed a 16.3M EUR Series B to seek regulatory approval and launch the test at the end of May.
For other German Accelerator startups outside of the healthcare industry, plenty of opportunities have opened up, especially for those who offer solutions enabling remote work or providing access to virtual tools and services that help their customers to weather the crisis.
Fundraising & Recession Proofing
Overall, fundraising has become more challenging for many startups, especially those who do not have a well-connected, experienced management team or lead investors who can help them raise more money or provide bridge funding themselves. Most investors are currently focused on supporting their existing portfolio companies and are still reluctant to close deals without having met the founders or management team in person.
Startups who depend on revenue will certainly face a tough time, especially those who rely on on-going sales rather than recurring revenues. Selling to certain customers has become harder: Hospital systems are currently unlikely to make big investments and big pharma or device companies are even harder to connect and negotiate with while they are also navigating this crisis.
Startups will need to focus on how to extend their runway and position their product(s) to stay or become relevant in a changed environment. Having a strong value proposition is more important than ever as investors, as well as customers, have set the bar higher and will want to see that a solution is addressing a relevant and urgent need, rather than just providing a nice-to have service or product. For companies who have a technology or product that solves a current need or can be easily adapted, this is an opportune time. For those who do not, it will be hard to successfully pivot in time, and investors are unlikely to support or finance such a pivot. Hence, it is important for these startups to stay focused and not to chase the shiny new object.
With all of these cautionary remarks in mind, this can still be a great time to launch a company. Moving forward, there will be less noise and competition in the market as mid-tier companies will receive less funding or likely not survive the crisis. This could make it easier for top startups to stand out with their product or service. Another thing to remember is to take advantage of the talent on the current market as startups will now have access to talent that was previously not attainable for them. This could be a big advantage over companies that have reduced their workforce or stopped hiring.
In general, the startups that will make it through this crisis will emerge stronger and have great chances to succeed. Probably the biggest challenge all startups – as well as their big corporate counterparts – are facing is to predict which industries and technologies will be an integral part of the post-COVID-19 world.
“New Normal” – Healthcare post-COVID-19
Interestingly, a positive outcome of COVID-19 could be that it will improve data sharing and foster collaborations that would not normally exist. Tools such as contact tracing could be used for other infectious diseases such as the flu, thereby ensuring that fewer people get infected and in the case of vulnerable populations fall severely ill. From this terrible public health crisis, we may learn how to deliver healthcare in more cost-effective and convenient ways that allow for broad and timely access to care for everyone.
Investors and healthcare industry insiders alike remain optimistic that the trend towards remote monitoring and virtual care will continue, partially because it will be difficult to explain to consumers/ patients why these services should be taken away from them once they have gotten used to the convenience of e.g. remote consultations. However, due to the urgency of the crisis many exceptions have been made around regulatory and reimbursement to be able to answer to the pressing needs of care providers and patients alike. These exceptions were largely tied to state of emergency declarations and as of right now, it is still not clear how many of these changes will be incorporated in the long run. While the COVID-19 crisis has acted as a catalyst for the adoption of novel technologies, the continued use of these tools depends on the development and implementation of new payment models that incentivize all involved stakeholders to keep pushing for further innovation in this space. The lawmakers of the 21st Century Cures Act, signed into law in 2016 to accelerate medical production development, are now working on new legislation which would continue reimbursing for virtual visits thereby increasing access to telemedicine and digital health solutions. In a similar vein, more funding and better incentive structures are needed in areas such as public health research as well as the development of diagnostics, treatments, and vaccines that can help us better handle the next outbreak of a novel virus that threatens to kill thousands – or millions – and disrupt the world economy.