The novel coronavirus represents a global pandemic the likes of which haven't been seen for roughly a century, and has put enormous pressures on the healthcare system and the economy alike.
To date the World Health Organization reports 209,839 confirmed cases and 8,778 deaths due to the virus. Healthcare providers and government agencies have scrambled to find ways to treat and stop the spread of the disease.
Digital health has quickly come onto the world stage – with telemedicine acting as a substitute for in-person visits, and chatbots filling in for nurse triage lines. However, like the rest of the world, the industry still faces an unknown financial future.
The pandemic has also caused major economic ripples. With the bulk of shops, restaurants and bars closed in the United States, the country could be facing soaring unemployment rates within the next year. Additionally, yesterday the stock market closed at a three-year low.
So what does the healthcare demand and the shaky financial footing mean for health tech startups? MobiHealthNews spoke to digital health investors, stakeholders and consultants about what the coronavirus will mean for startup investment, as well as about the opportunity and responsibility to contribute to this global crisis.
Slowdown depends on the type of investor
In the last few years we have seen different kinds of investors emerge onto the digital health stage, including payer and provider funds as well as the traditional venture capital funds. The origins of a fund may give a hint as to their strategy in the upcoming year.
“I think it is a mixed bag depending on the type of investor: Strategic investors (providers venture capital funds) are going to slow down because COVID-19 will require all hands on deck, and so many of the staff that generally are involved in the diligence process will be reallocated to deal with COVID-19-related issues, so they won’t be able to do diligence at the same pace they are used to,” Emma Cartmell, an angel investor and founder of Cartmell LLC, told MobiHealthnews. “Conversely, many traditional VCs are sitting on a lot of dry powder, and I think they’ll continue business as usual in 2020. But I do think we'll see the slowdown in preceding years. Also, with the reduction in funders, I think that VCs will negotiate harder and look to get better deals.”
While the economic slowdown may be on the minds of investors, it might not be doomsday for digital health companies seeking funding just yet.
“Today VCs are investing from a pool of money they raised yesterday,” Halle Tecco, founder of Rock Health and CEO of Natalist, wrote in an email to MobiHealthNews. “They may be more cautious about the business ideas they back (and if those companies can likely withstand a downturn), but I don't think we'll see any drastic decrease in funding this year.”
However, investors warn that, with the additional pressure mounting on the healthcare system, companies looking to break into the market are going to have to prove themselves.
Julie Yoo, a general partner at Andreessen Horowitz and cofounder of Kyruus, said that companies with a B2B go-to-market strategy need a mitigation plan, as decision-making around purchases may be deprioritized.
“I think that is something that is going to force the conversation around how strong is the value proposition that you have. And what makes this mission-critical versus something that is nice to have,” Julie Yoo said. “That is a key question that we've been working with our portfolio companies on asking.”
For strategic partners, it's not just the money being spread thin, but the manpower to evaluate these tools, too.
“I think probably in the short run, deal flow will slow and I think we'll see it really start with some of the more strategic investors; the health plans, the health systems, the pharma companies making investments in digital health," Jeffrey Ries, managing director at Healthbox, told MobiHealthNews. "The reason for that in my mind is because their intention is likely going to shift to what is going on around coronavirus and it's not because they don't think it's important or at least in the short run don't have the capital to make investments. I just think once senior leaders need to get brought in [they] will get distracted.”
Reis said that while hospital systems are focused on managing the spread of the coronavirus, most startups are looking to the long game, which may not put them as a top priority for these strategic investors just yet.
“I think a lot of the companies in the market are not building tools specifically for situations like this," Reis said. "They are trying to build long-lasting solutions to fight chronic disease and improve operations. Hopefully something like this is not long lasting.”
Digital health's time to shine?
While digital health has been around for more than a decade, even some of the industries more traditional tools, like telehealth are often viewed as futuristic by the public. The COVID-19 pandemic has certainly made a case for more virtual tools – pushing the entire industry into a public spotlight.
Some companies even appear to be growing in the market. In February, Teladoc, one of the only publicly traded telemedicine companies on the market, announced a 27% year-over-year increase in its Q4 earnings call.
“There's a lot of opportunities in the current environment and I have several companies in my portfolio that are doing incredibly well because of the need for remote engagement and care. One of those companies is Care.coach, they provide avatars, leveraging a combination of AI and human interaction, to help treat chronic disease and prevent loneliness,” Cartmell said. “Their solution was previously adopted by Humana for their Medicare Advantage population, and [they] are now adding acute needs for these patients such as COVID-19. I love the idea of avatars being able to keep elderly people comfortable and healthy, so they don't have to go into the hospital and risk infection.”
As more needs around the virus emerge, this gives startups and digital health companies the chance to meet the growing demands. For example, the U.S. was facing a massive shortage of testing kits aimed at the coronavirus. According to a report by Oxford University's Our World in Data, the per capita number of tests in the U.S. is 40 times lower than that in South Korea. Recently tech enable take-home test startups Nurx and EverlyWell announced they would be deploying the coronavirus kits, as did Scanwell Health and myLAB Box.
“Regarding investing, the light has certainly been shifted to the value of medical technology--from rapid testing to drug/vaccine development,” John Nosta, founder of NostaLab, wrote to MobiHealthNews in an email. “We have a social imperative to meet market opportunity and that's where the magic happens. Further, government involvement and prioritization will provide a catalyst for these changes.”
The current epidemic is also creating a need for self-reporting and tracking.
“I think companies that have a remote monitoring capability and passively detect but also enable self-reporting of information in a structured and systematic way, so we can track what is happening systematically and what is happening outside of the four walls of the hospital, [will succeed],” Yoo said.
While some startups have direct use cases for managing and tracking the virus, this gives the technology a spotlight of sorts, and more public acknowledgment of the technology.
“That fuels more and more innovation so whether or not it creates new technology is unclear, we are going to see some specific things, but I think we are going to see more validation around the needs for virtual care delivery and people who haven't been using it because they didn't think it would be as good or as effective,” Neil Patel, president of Healthbox, told MobiHealthNews.
Startups in a "Bear" market
The market's rapid decline may not have the same impact on private investors and startups as it will the rest of the markets.
“If we are entering into a bear market it's actually a great time to start a company and a great time to be an investor. So from that standpoint, funds that have recently closed or have a lot of capital to deploy, ... they are looking at it from the benefit of being able to invest in companies with lower valuations,” Patel said. “There is quite a bit of data out there that shows that funds that were having an active investment period during an economic downturn had much higher returns than those in a bull market. I think we are at a good place in a sense that there are a lot of funds out there that are digital health-focused, or have big allocation in healthcare, that have either recently just raised or have a lot of dry powder who are going to be able to use that to do rollup."
But that being said, some startups will be winners and others losers in this time of uncertainty.
“Some digital health companies are well positioned to take advantage of the current situation while others are not. Anyone selling into providers and not addressing COVID-19-related challenges will not be able to get to their buyers for a while. Non-essential personnel aren't even allowed into hospital right now. These companies need to start thinking about adjacent markets they can sell into like payers, self-insured employers and even selling directly to patients. I do expect that some of the companies in my portfolio that currently only sell directly into hospitals will be impacted negatively and, unfortunately, some of them will not be able to pivot and will have to lay off staff,” Cartmell said.
These layoffs could mean that newly funded companies or companies meeting the needs of the current pandemic are able to snatch up new talent.
"Those companies going under have good teams or talent. Obviously the downside is the customer buying cycle is going to be lower because as the economy goes down money gets tightened and healthcare systems are dependent upon commercial business and those job markets impact margins,” Patel said.
But there are also new challenges for startups looking to grow in the current situation. For example, the hiring process is going to look radically different in a predominately work from home environment.
"I can't imagine what it must be like to be hiring right now without being able to meet in person. Companies that are solving the challenges I outlined above are going to see a surge in demand and will need to scale to increase capacity," Cartmell said. "They’re going to have to get more comfortable doing video interviews, hiring people and having them work-from-home day one without having met anyone in person. It will be more challenging to ingrain new hires into your company culture; but, I think we will be able to change the hiring and onboarding processes so that these digital health companies can respond to the needs of the marketplace."
While the market is still unsteady at the moment, traditionally healthcare has been able to weather the storm, and many are predicting digital health will as well.
“Outside of the COVID-19 issue health care is generally not recession-proof but able to withstand macroeconomic trends better than most," Patel said. "So assuming that is still the case when we come out of COVID-19 cycle the future for digital health should be pretty strong.”