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Scaling Health Tech Businesses in COVID Times by VP PORTFOLIO RELATIONS - Varun Athi

Updated: Feb 10, 2021

Almost no industry has escaped the disruption from COVID-19. Notably, in the healthcare sector, stretched capacity along with delays in life-saving non-Covid related diagnostics and procedures has created a massive challenge to healthcare economics as well as overall health outcomes.

As a founder, it's important to preserve the value of your enterprise to ensure the company effectively solves the underlying problem and realize its potential. This article from HBR gives a useful framework for measuring the impact of COVID-19 on your business. Many health tech companies have not seen a reduction in long-term value despite the early concerns. However, the most successful firms have been applying plenty of course corrections including:

  • Manage the runway by reducing cash needs, reprioritizing overall spend, and working with investors for securing additional capital. The HBSAA team, for example, has been involved in several such capitalization initiatives.

  • Selectively reprioritize essential spend. For example, clinical trials were adjusted to accommodate the reduced bandwidth of healthcare professionals who were dealing with the COVID-19 outbreak and freezes from lockdowns.

  • Revise expectations about revenue growth in order to adapt to the new normal.

  • Modify sales and marketing strategies by selling into a new market or new buyer personas. Some firms adapted selling into low margin markets in the short run, where sales cycles are shorter to create cash flow.

Clinical trials represent significant expenses for health tech companies. High-value applications of health technology products often need longer, tailored trials to demonstrate the appropriate health and economic outcomes. COVID outbreak and subsequent lockdowns have impacted clinical trials as procedures were delayed and research staff furloughed. The associated time delay is expensive for a growing health tech firm and needs significant adaptations to preserve value.

For example, a HBSAA portfolio firm, SIA (Surgical Innovation Associates), has developed an innovative product that can significantly enhance clinical outcomes for breast cancer patients and as well lower the costs associated with reconstructive surgeries. Its DuraSorb Monofilament Mesh is designed to integrate into the patient’s tissue in order to provide strong support during the critical initial phases of healing, and then slowly absorb within one year, leaving the patient free from foreign material. Durasorb is cleared for use in general soft tissue support, but promotion for use in breast reconstruction, where the product benefits are greatest compared with competitive offerings, requires successful completion of a clinical trial.

The company had planned to commence selling in the more competitive surgical segments through a modest rollout early in 2020, carefully balancing the costs of adding salesforce with limited revenue expectations while laying the foundation for the more valuable future indication. The pandemic shifted all commercial expectations and implementation by two quarters, but as of the third quarter the company has been able to add key personnel and quickly achieve an annualized run rate in excess of $1M with high gross margins. While this delay was modest compared with the timeline disruption for other medical ventures, it still required accessing additional capital to shore up the company’s runway. HBS Alumni Angels participated in a bridge financing round for this purpose, adding new investors to the group that participated in seed financing last year.

Alexei Mlodinow, CEO and co-founder says, “We were fortunate to be in a position to pivot with a delayed hiring plan, a near-term focus on a more easily-accessible market, and a modest bridge round to ensure capitalization through our Series B with the help of Harvard Business School Angels. HBSAA helped us think through our options. They also set the ultimate terms of this bridge to maximize the appeal within their organization while positioning us well for an upcoming raise. This is exactly the kind of support that makes us proud to be part of the HBSAA portfolio!”

Simple and efficient adaptations as this need a sound understanding of the healthcare system and understanding of the ground reality at Customer organizations. In times like these, these adaptations are necessary to realize the long-term benefits of an innovative technology. HBSAA is proud to support a diverse portfolio of health tech companies, which are taking such innovations forward and improving the cost-care paradigm across the board.

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