Palo Alto – March 13, 2020 – COVID-19 is a black swan event which, on the one hand is extremely disruptive, but on the other hand provides an opportunity for the digital health community to showcase its collective ability to take a challenge like this head on. We expect that the ecosystem will leverage the incredible progress over the past several years in fields such as big data analytics, AI, remote patient care and monitoring, tele/video medicine, genomics, computer vision, machine learning, and data interconnectivity to make a material impact globally across the “assessment-treatment-monitoring” cycle, efficiently, effectively and affordably. And while companies, both large and small will take a hit with the overall economic slowdown, interesting startups will emerge post COVID-19 along with a wave of defensive and offensive M&A activity.

A Disruptive Event

It’s an understatement to say that the novel coronavirus or COVID-19 has been a disruptive event in 2020. But it usually takes a jolt of this magnitude to expose the inefficiencies and vulnerabilities of regions, countries and economies. Nowhere is that impact more pronounced that in the healthcare infrastructure globally, but especially here in the US. What is truly shocking is the utter ignorance or incompetence on the part of the US government and the CDC, with respect to the preparation and response to what is now officially a pandemic. The NY Times article over the weekend mentioned that researchers in the Seattle area requested permission to test patient samples from a flu study for the coronavirus, but were denied, missing a chance to contain the virus. Despite having weeks to prepare, the CDC had tested fewer than 1600 people as of March 5th, and has been on the defensive for days trying to get out from a reputational hole it, and the so-called Coronavirus Task Force, has dug for itself. According to CNN’s Dr. Sanjay Gupta, the CDC did not conduct any tests on March 11th and the Public Health Department conducted only 8 tests! In the meantime, technology companies and individuals such as Bill Gates are taking action. The Gates Foundation announced their own test kits that they are looking to roll out in the Seattle area through collaboration with Amazon. Mark Zuckerberg is doing something similar in the San Francisco Bay Area. While the government response has so far been shockingly minimal, it’s interesting to see others with the will, intellectual capital and resources move ahead. On March 5th, Google’s Deepmind released the structure predictions of six proteins associated with the virus that causes COVID-19 to help researchers understand the virus better and accelerate the development of a vaccine. Typically, the release process would involve peer reviewed articles and months of experiments and analysis, but given the paucity of time, Deepmind felt compelled to make the model public. This is a great opportunity for the healthcare community, especially the health technology companies to collaborate and address this emergency that brings together three key promises of technology – efficiency (speed, timeliness), efficacy and affordability. All three are dire needs during a pandemic like COVID-19.

Managing a Pandemic

From a healthcare perspective, the issues during a pandemic can be broken down into the following categories – which, in turn, could be part and parcel of an overall policy that a region or government might have to implement during a pandemic like COVID-19:

1. Fast and Scalable Assessment/Testing

2. Defined Protocols and Processes (quarantine, treatment, assessment, discharge)

3. Accelerated Approval Process for Vaccine development

4. Ongoing diligent monitoring and intervention

Fast and Scalable Assessment/Testing:

As of Sunday, March 8th, US had tested 1,707 people. South Korea, by comparison had tested over 189,000, although the two countries announced their first cases on the same day! While technology may be leveraged to develop tests and assessment quickly, the political will, process and infrastructure is necessary to have the assessment implemented as soon as possible at a massive scale, especially during an epidemic. The fact that South Korea has drive-though testing with results available in as little as 10 minutes, versus a much longer turn-around in the US, 3-4 days post specimen pick-up according to Quest Diagnostics and Labcorp websites (although faster test will be rolled out “soon”). In a situation where there is community spread and a strong spread rate, time is of the essence. The sooner the infected can be identified the sooner one can take precautionary measures and try to control the virality of the disease. The extent of the damage that the CDC’s testing delay has caused may never be fully understood, but perhaps this is a wake up call for the industry at large (incumbents, startups and academia) that, if an episode like COVID-19 occurs again (and it’s a matter of when, not if), rather than rely on the powers that be, the responsibility may lie almost entirely on the technology-enabled healthcare industry to get ahead of the disease and address it head on, in a coordinated, timely, rigorous, effective fashion.

Defined Protocols and Process

Layered across the entire “assessment to containment to treatment” cycle is the infrastructure related to physical locations (test sites/labs, hospitals (make shift and otherwise), urgent care, ICUs, clinics, quarantine facilities etc.) where physical interactions between patients and medical personnel need to take place. Business models and payments need to be addressed to deal with situations where, by definition, everyone infected has to be treated. Currently, governments, at the state level, are declaring states of emergency and mandating free testing for anyone who needs it. There need to be detailed protocols to address the who, what, when, where, how of assessment, containment and treatment. There are several startups that could eventually play a role in terms of bringing remote diagnostics to bear. Companies like Nanobiosym (www.nanobiosym.com) and Sight Diagnostics (www.sightdx.com) combine AI and nanobiotechnology with purpose-built hardware for near real time CBC or pathology results.

In a scenario like COVID-19, it might make sense (hypothetically) to be able to remotely monitor the entire population, looking for early signs of the pathogen and pre-emptively address the issue through quarantine and/or treatment (if one is available). The entire process of assessing and monitoring the general population raises the often talked about dilemma – struggle between privacy and utility. While 24×7 monitoring of individuals who might be asymptomatic, or during a pandemic where community spread has kicked in, might make sense… having a “big brother” watching over us constantly may not be something that the American public is ready to formally embrace. At the same time, one can make the argument that the decision by the Chinese government to lock down Wuhan led to the virus being contained to tens of thousands, rather than hundreds of thousands or millions of people. Italy’s response, as difficult as it is, should also lead to the same outcome. The US is still a work in progress.

Vaccine Development

As the world tries to cope with the COVID-19 outbreak, research teams and the global scientific community have stepped up to offer expertise, tools and possible solutions. In the early stages of the outbreak front-line labs open-sourced genomes of the virus (to understand what the hell are we dealing with), which enabled other researchers to rapidly develop tests around the pathogen. Other labs modeled the coronavirus infection peak or produced molecular structures to develop drug compounds and treatments against the infection. The key is to get the genomic information out to the medical research community (academia and industry) as quickly as possible. Journals like Nature broke from their typical protocol and urged the research community to use the publications’ platform to openly and quickly share all relevant information in order to, based on that information, determine and administer tests as quickly as possible to as many individuals as possible.

That can be a government led approach (inefficient and potentially slow, at least in the US in the COVID-19 case) or industry led (faster), but with an organization like the CDC certifying the test for its accuracy and reliability. China was able to build 1000 bed hospitals in two weeks, which is an incredible feat that other countries might not be able to replicate. But countries do need to think about incredibly fast deployment of make shift hospitals or quarantine centers in such cases. The healthcare professionals who are on the front lines are the most vulnerable. Given the recent protests by nurses and other medical professionals on the front lines, there is a need to put in place detailed protocols and resources to deal especially with the initial onset of a pandemic and then the peak infection when the number of cases could far out-strip the resources (such as ICU beds or respirators) available.

But outside of the process, it’s a race against time to develop a vaccine, which will have a huge payout for those companies that can rapidly deliver the vaccine or alternative therapy to combat the virus, a therapy that is effective and safe. Moderna developed a COVID-19 vaccine candidate just 42 days from the virus being sequenced setting a new industry record. Gilead has already begun human trials of its IV treatment, with one infected patient being treated in the US. At the same time, AI based drug development technology platforms like Atomwise and Benevolent AI are collaborating with global biotech firms to accelerate drug development and should benefit tremendously, with COVID-19 acting as a catalyst.

Continuous Monitoring

Beyond the testing and vaccine development/administration cycle will be the impact of remote patient monitoring (RPM) and management. Advancement in RPM will help monitor those who have recovered and those who are most at risk based on their location or underlying physiological condition. Remote lab tests and ongoing measurements should create an early warning system in case there is a recurrence cycle that takes place. What we don’t know, for example, is whether the viral spread slows during summer months (which some are hypothesizing). We also don’t know if the virus comes back with a vengeance when temperatures drop again in the Fall. Digital health and overall health related technologies will play a big role in the entire cycle from discovery to treatment to continuous monitoring, remote healthcare delivery and pre-emptive intervention. Technology will have to be complemented by appropriate policy and protocol modifications incorporating learnings and best practices.

One bit is clear from COVID-19. A country like the United States with two large bodies of water provides physical buffers on either side can no longer consider itself immune, especially in the age of globalization and connectivity. While other parts of the world have had to dealswith more frequent onslaughts of pandemics (with the US spared for the most part), the US will have to be more prepared for future occurrences.

Social Impact

One of the biggest issues facing the US is the fact that millions don’t have health insurance and millions more are hourly or new “gig” workers who may not have appropriate health insurance. As Juliette Kayyem recently wrote, “A threat as dire as the new coronavirus exposes the weaknesses in our society and our politics. If Americans could seek testing and care without worrying about co-pays or surprise bills, and if everyone who showed symptoms had paid sick leave, the United States could more easily slow the spread of COVID-19. But a crisis finds a nation as it is, not as its citizens wish it to be”. The virus is having a massive impact in the US as I write this. The NBA has cancelled the rest of the season; all major conferences have been cancelled or postponed; over 100 colleges have gone online. We are in the middle of an election cycle where large gatherings are crucial for all candidates. Democracy itself is getting impacted. Clearly, companies like Zoom and Google (who provide remote learning and meeting environments) benefit from a COVID-19 type events. The key question is whether the notion of remote learning or meeting will become the norm, going forward. Remote healthcare is already there, with companies like Teladoc seeing an uptick in their activity.

GDP Impact

McKinsey has outlined three potential scenarios going from the best scenario of a “quick recovery” having a global impact of reducing GDP growth from 2.5% to 2%. A medium scenario shows growth of 1-1.5% and the dire scenario predicts recession that lasts well into 2021. The reality is that no one really knows. It’s unclear exactly how many are indeed infected; it’s unclear whether there is a second wave; we have yet to see major spread in highly dense countries like India, Bangladesh, Indonesia etc, who are all ill-equipped to deal with a sizable epidemic.

COVID-19 has caused unprecedented turmoil globally, with the markets going through a massive downward spiral and large and small companies alike making and implementing contingency plans with zero predictability. Sequoia Capital, of the most reputable venture capital firms in Silicon Valley recently sent out a note to their portfolio companies titled: Coronavirus, Black Swan of 2020. In that note, they basically cautioned their companies to expect massive headwinds, potentially for several quarters and plan accordingly, in terms of cash, hiring etc. This is similar to a note that was sent in 2008 titled “RIP Good Times”.

The Innovation Ecosystem

The innovation ecosystem will continue, but startups are feeling the impact. Customers are freezing or delaying making purchasing decisions, funding may slow or dry up through much of this year, startups who were at a term sheet stage might not see financing materialize. At the very least, milestones will slip and virtually every startup will miss its plan for 2020 and likely 2021. And unless they either have cash to survive or have deep pocketed investors who believe and can bridge them through the crisis, they may either fold or pre-maturely seek an M&A outcome. I call that a “defensive M&A” position. There will also be an “offensive M&A” wave where incumbents, many of whom are sitting on a pile of cash thanks to the long boom cycle, tax cuts and overall robust healthcare economy. With valuations adjusting downward, companies will likely go shopping for teams and especially technologies that address the inefficiencies in the overall healthcare system, some of which have become amplified during the COVID-19 phenomenon.

There will be plenty of collateral damage with high-flying companies who were expecting capital to be cheap and freely available, running off a cliff. There will, however, be others who leverage capital efficiency, are able to conserve cash, and come out on the other side even stronger. Similar pattern emerged in 2001 and 2009, and I don’t expect 2020/21 to be any different.

Summary

COVID-19 is a Black Swan event which, on the one hand is extremely disruptive, but on the other hand provides an opportunity for the digital health community to showcase its collective ability to take a challenge like this head on. We expect that the ecosystem will leverage the incredible progress over the past several years in fields such as big data analytics, AI, remote patient care and monitoring, tele/video medicine, genomics, computer vision, machine learning, and data interconnectivity to make a material impact globally across the “assessment-treatment-monitoring” cycle, efficiently, effectively and affordably. And while companies, both large and small will take a hit with the overall economic slowdown, interesting startups will emerge post COVID-19 along with a wave of defensive and offensive M&A activity

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Vini Jolly
Executive Director, Digital Health
Woodside Capital Partners International LLC
Vini.Jolly@woodsidecap.com
(650) 798-4243