Navigating COVID-19 for Startups: The Pharma Perspective
A candid interview with Ameya Phadke, PhD, head of technology partnerships at Parma-based pharmaceutical company Chiesi
StartUp Health: Can you give us a quick background about yourself?
Ameya Phadke:
Thanks for having me! Let me first start by making it clear that the opinions I’m putting forward are my own only, and don’t represent those of my employer, Chiesi Farmaceutici. And, secondly, anything in here isn’t meant to be legal or investment advice (or making an offer or solicitation for an investment)- please, please seek the advice of a qualified professional before acting on any of this!
I started out as a scientist (well, technically as a beatboxer and singer — my music career never quite panned out though… I digress), but quickly moved to commercial strategy at a F500 medtech company and got to work on emerging businesses in genomics and digital health––this was a transformational experience in learning how to build things (and businesses). I then realized that unless I got some real operating experience at early-stage companies in these spaces, I’d run the risk of building ivory tower strategy- something that makes for a compelling business case but ultimately doesn’t sync with reality on the ground. I spent a number of years helping a genomics company build out its commercial strategy and understand the market- and in the process, learned a lot about the pharma-startup collaboration model from the startup side. I also saw a lot of good practices (and a lot of not-so-good practices) in how pharma companies engage tech and digital companies- I’m now using that background to influence how I work with startups in my current role on the pharma side.
As someone who is regularly fielding inbound solicitations from startups, what advice would you give a startup as think about the sales process in the midst of a pandemic?
The first piece of advice I’d give is qualify, qualify, qualify- qualify a potential customer, qualify the use case, and qualify the person who’s going to be your internal champion at that customer. When you have an idea for a collaboration, you have to know how that use case aligns with the incentives of that organization. And not just the organization’s incentives, but your internal champion’s personal incentives. A quick test is to consider what the pain would be on the customer organization, if you fail- and what the upside is if you succeed.
Put another way, ask yourself (and be honest)- if you fail, how much pain will your partner organization feel, and who at that organization will take the flack? And on a more positive note, what does realistic success look like? What impact will that have on the partner organization? Who will get promoted? At the end of the day, you want to align with an organization that will take you seriously- and give you not just the money but also the sweat equity to make the partnership work. And that’s not just about financing. There are multiple ways for them to show that they have skin in the game. When I was on the startup side,, that was one of the most important filters I had to finding good potential partners- the best potential partners were willing to put some real skin in the game- not just from a financial standpoint (which is tablestakes) but also from an overall engagement standpoint. The partner should be selling themselves to you as much as you are to them. Finally- to assess how a given company is as a partner, make a few reference calls (much as they’ll likely do before engaging you)- health tech is a highly networked world, and the good/bad partners tend to become fairly well known in the ecosystem, so if you’ll know if someone in your network has had a particularly good (or not-so-good) experience with a prospective partner.
What are some of the on-the-ground challenges you expect pharma companies to face during the pandemic? How can organizations rise to address them??
People think that pharma companies are completely insulated from events like a pandemic, because “people always need medications.” I’d like to state the obvious- that no business is completely insulated from an event of this magnitude. I’ll give you two specific examples- sales and clinical trials. The reality is that if you’re commercializing a new or existing drug, you’re limited in how you can promote it. Your reps are stuck at home and can’t engage with the clinical community. Medical conferences, where you have an opportunity to showcase your data and engage clinical stakeholders, are either canceled or virtual. Several clinical trials are also facing some very public hurdles- how do you get patients to enroll, and come to trial sites in the middle of a pandemic shutdown (especially since many of these patients may be at a particularly high-risk)?
The flipside of this situation is, organizations are rising to meet the challenge. As an example, the sales process is changing. It’s causing many companies to question the mechanics of how their reps interact with physicians. For example, we’ve seen companies publicly announce that they’re using tools like sentiment//voice analysis, behavioral analysis, strategic intelligence, etc to help their field force have a more effective and substantive relationship with clinicians and other stakeholders (similar to sales in other fields). I suspect that this situation is forcing these initiatives out of the “innovation shadows” and more into prime time- obviously, some will succeed and others will fail but I see the challenge to the status quo as a net positive. Many of these changes, intended to be temporary, will end up sticking around if they demonstrate real value.
And even on the clinical trial front, it’s forcing companies and authorities alike to think more about newer concepts like real world evidence, synthetic controls, etc- and more importantly, to take them seriously as legitimate tools of the trade, vs trinkets. Trial dropout, while never a positive, is now a devastating thing- losing patients from a trial is bad enough, but orders of magnitude worse if you can’t find new patients to replace them due to a shutdown. So, this situation is also forcing companies to take the experience of clinical trial participants very seriously. I must also add that the situation (and the volatility of the community’s understanding of potential therapies for COVID) is highlighting one important fact- that real world evidence should not be a replacement for, but rather a complement to, well-controlled and well-designed randomized clinical trials.
What trends are you seeing on the startup side?
I’m seeing a lot of companies that are trying to see how their product or capabilities can help in the pandemic. That’s great, but I would caution entrepreneurs to remember that people have short attention spans. I think we’ll see an influx of investment into pandemic preparedness for the next couple of years, and then, unfortunately, that’s going to diminish. Here’s an example: we got hit with H191 in 2009…it wasn’t nearly as scary as this one, but did infect a massive number of people. And yet, there wasn’t a concerted move to make sure we were prepared for future pandemics, even though that that was barely 10 years ago- as an example, a one-time investment of a few billion dollars in PPE (i.e. a tiny fraction of the amount being injected into the economy) would have had our health systems well prepared for a pandemic of this size. Governments clearly didn’t do that, and the unfortunate reality is, that once the dust settles, I am not terribly optimistic that investment into pandemic preparedness will have sticking power. This means that startups need to think about longevity of their value proposition- and whether they will still be able to sell in a post-COVID world, not just a COVID-world.
You don’t necessarily want to completely pivot and adopt a new business model because of COVID-19. Of course, there are companies where COVID just reinforced the great work they were already doing. That’s a wonderful situation to be in- particularly if rather than just surviving this situation, you are able to deliver unique value and grow in it.
Where are you seeing new opportunities?
The pandemic has created opportunities for startups whose USP is lowering costs- whether that’s for hospitals, payers or other stakeholders in the system. In the past, enterprises were slow to take up new initiatives to lower cost because it represented a lot of paperwork and hassle for a seemingly small benefit- and even if the potential benefit was large, there was a massive adoption barrier (or activation energy) to trigger adoption. Now, stakeholders (and hospitals in particular) are seeing revenue plummet, so if a startup now can mean the difference between being solvent or not being solvent, they’ll get a much bigger audience. The market is absolutely there- the trick is to make yourself stand out from all of the other noise since literally every company is putting out PR materials about the role they can play in addressing COVID.
Are companies on a buying freeze due to COVID?
Absolutely not. If there’s a strong cost-benefit argument, there is still an appetite. If the product is more exploratory or discretionary in nature, it’s probably going to take a significant hit. And if your solution requires the buyer to use a lot of resources — a lot of training or work involved — that is going to be more of a challenge in this environment. There’s also the obvious caveat that for many companies whose businesses are severely impacted by the pandemic, they’re focused on keeping their head above water. Then again, if your product is a “life jacket” that enables that, there will clearly be strong awareness of your value proposition now- and you might see a desire to get around otherwise bureaucratic processes.
What’s your advice for a startup that was right in the middle of a product launch or test when the coronavirus hit? How can a startup reach out to a client to get a yes or no on the launch without seeming crass or tone-deaf?
I don’t think it’s crass at all. You’re not giving an ultimatum. You’re asking to have an open and frank discussion on what the next steps should be. I believe that when an enterprise engages a company’s time as someone testing their service, there’s a certain amount of professional responsibility that goes along with that- otherwise you’re just window-shopping (which itself is OK, provided you’re very transparent about it). In a product test situation, the startup is putting forward a lot of resources and expecting them to be putting those resources on ice isn’t fair. There’s a responsibility that the larger company takes on when they agree to test a product, at least to be transparent and communicative.
Historically in-person meetings have been an essential step in fundraising and creating strategic partnerships. Do you see the pandemic shifting this in a major way?
It depends. I have found that the most fruitful in-person meetings are the ones where I’d taken the time to build a relationship ahead of time, virtually, and then use the in-person meeting to dive deeper. Do I think in-person meetings will go away? No, I think they’re important, I believe you just shouldn’t be using them for prospecting.
Other strategies for startups trying to get their foot in the door during the pandemic?
Something you might want to consider would be risk-sharing contracts, which is something I have done. The idea is to say, Let’s tie what we get paid to a meaningful revenue generator (or value generator in general). That way everyone has some skin in the game, but it makes it an easier decision for the buyer. Doing deals that align incentives sets you up for success and it’s been a tool that’s served me very well. There is a fine balance though- don’t take on all the risk as a startup- ensure that the partner is taking on enough risk so that they’re incentivized to help you succeed (or conversely, disincentivized to let you fail).
Not to state the obvious, but avoid free pilots/proofs-of-concept at all costs (yes, pun intended)- you can always structure it creatively so that you’re giving the partner a chance to try before they buy at scale. Additionally, you can do so in a way that weeds out someone who’s just kicking the tires, vs a serious buyer. There’s no one size fits all, but ensure you have (either through contractual or financial mechanisms) give the potential partner some skin in the game before embarking on a pilot/PoC- at the very least, if you do a free pilot/PoC, try to agree on some specific success metrics in advance, which if met, put the buyer under a minimum commitment to be negotiated in advance. If they’re not willing to do that, they probably don’t really know what they want to do with your product/service at scale, and are probably not worth the time you’d spend any way (I’ve learned this the hard way in previous jobs). That’s a major signal that you’re at the risk of getting sucked into “Death by a Thousand Pilots”.
How has your thinking around digital health changed, and how can startups communicate effectively given evolving attitudes towards tech solutions?
I firmly believe that pharma has way too many “innovators” and not enough executors- innovating for the sake of appearing innovative is the enterprise version of “Keeping up with the Joneses”. I’d like to use a fabulous analogy I first heard a prominent digital therapeutics CEO use at a conference: historically, pharma companies traditionally approach digital health with the mentality of toys that go into kids’ meals in fast food restaurants.. In other words, they have often tried to throw digital solutions on top of their core products — like a flashy but ultimately useless trinket in a kid’s meal — in the hopes of looking innovative and possibly driving more sales of their core product via reputation bump. The reality is that it makes them look like wannabes, and if this does provide a bump in core sales, even that will be just be temporary until the shine wears off. No one wants that add-on pharma app unless it actually adds value.
That said, you do still really have to think about what your product or service fits into the pharma company’s core business. I found that real deals (i.e. deals with true substance and potential to scale) tend to move more definitively if the core business is fully behind it — versus being done as an innovation/incubation project that might be more exploratory in nature but without a true “So what?” behind it. To re-iterate, the focus should be on execution, not innovation.
To that point, the biggest advice I can give companies is qualification (yes, I know I’m repeating myself but the point is just that critical)- qualification of potential clients, and qualification of your internal champion. Be wary of people with extremely flashy titles (especially those filled with qualifiers, buzzwords or adjectives), as that can be a sign of someone who’s job is to scout, but not to scale- those people have their place in the ecosystem for sure, but may not have the organizational clout to champion your solution for a scalable deployment. I like to say that the less flashy a person’s title is, the more effective of an internal champion they will probably be. The flashier the title, the less impactful- in other words, if the answer to “What exactly is this person’s job? How exactly do they fit with the business, and how does their role impact the top/bottom line of their organization? Why are they relevant to me?” is any longer than a couple of short sentences at most, I’d be wary of relying them alone to champion your solution. Ask yourself- do you want a prospective client conversation to provide you with an additional logo on the “Client Roster”/”Social Proof” slide in your pitch deck, or do you want a scalable business opportunity? In my experience, the two don’t commonly overlap.
The idea of qualifying opportunities (and identifying which ones are truly viable) is a pretty conventional thing in sales, and is nothing new- but now are even more essential during COVID as companies are forced to focus on execution, and be even more focused on opportunities that have a higher probability of leading to something commercially viable. There’s less of an appetite for an exploratory initiative. Customer success and client relationships is also a huge piece to this answer- the reality is, you may very well mess up when executing- and you want your relationship with your partner to be good enough that they’ll be patient with you (and in the really exemplary cases, actually help you figure out how to avoid that from happening again). There are pharma companies (both big and small) that are absolutely fabulous when it comes to partnering- they are out there, and if you do a bit of homework when you prospect, you will quickly figure out what bucket a prospective partner falls in. It’s hard to turn away a potential partner- especially if they’re a large pharma- but sometimes, the best deals are the ones you walk away from.
What strategies would you suggest to help startups pitch and qualify their solution to a time-strapped pharma company?
First, you have to do your research and know how much the company has already looked into this problem. Is it a real problem, or something where we’re going to have to do some market development? Ideally, you want them to have a commercialization plan before you do a deal with them. That does two things. It helps you gauge how excited a core business is going to be about a given use case. If they’re willing to do the work of going into that level of analysis, it means it’s probably a real problem for them. The second part is that you can find existential issues that you wouldn’t have found otherwise. Your potential partner may have a massive problem and just not realize it yet. My personal view is that if a partner doesn’t know enough about a commercial opportunity (or potential partnership) to build an objective, quantitative business case yet, it’s likely too early to be doing a deal. The other thing to consider is whether you’re competing with an in-house team trying to build the same thing.
I have found a good progression to follow, is use case, business case, deal. With any potential deal, a startup should see that a prospective client has enough clarity to arrive at a preliminary business case at least. If they’re not there yet, it’s probably a little early to get into a deal. Fairly early on, you want to see the core business get involved in some way — there can be a disconnect between the innovation teams and the core business, so a collaboration with an innovation team rarely leads to a scalable deal with the core business. That’s often why these digital health partnerships fall through. It’s not because the technology doesn’t work or the need isn’t there. It’s because there’s a crack or chasm between the innovation team and the core business.
Let’s talk about actual investment deals and trends during this time. Are deals on hold? Should startups be looking more internationally for funding?
It really runs the gamut. The VCs that are deploying capital now raised their funds six months to a year ago, back when the environment for raising capital was much more favorable (i.e. a time when all it took to get a check from someone or the other, was a pulse and the word “AI” in your pitch deck). That dry powder is still being deployed. So companies that are in the later stages of raising, those deals are still happening. Where it’s going to start to get tough is six to twelve months from now. The big firms (especially those able to demonstrate strong returns, and portfolio companies that are capable of surviving/thriving in this situation) will still be able to raise capital, though they’ll likely be even more selective in how they deploy it (think fewer, but bigger deals- essentially continuing the trend we were seeing) . The newer folks on the block (and 2nd tier firms) will have a tougher time raising. This is in large part driven by the impact of COVID on the public markets- and the resultant shift in the risk appetite of the LPs, such as pension funds, family offices, sovereign wealth funds and endowments, that typically invest in these funds. This is the tough thing- genuinely talented investors and entrepreneurs will have a tougher time raising capital merely because they haven’t built the big name for themselves yet.
The terms are also going to get a lot less friendly. In some cases, you’ll see VCs slip predatory terms into their term sheets and see if they can pull one over. On the flip side, some of these tier 2 funds will realize they have to work a lot harder for deals and so may offer more appealing terms (and more compelling value propositions for entrepreneurs) to win those deals. It goes both ways.
The other thing to think about is that venture capitalist money isn’t right for everyone, and that in some cases, the less traditional sources of funding can carry a lot of value. For example, if you have revenue, venture debt isn’t a bad thing to consider (though it has its own risks that should be carefully considered) as a way to supplement a venture round without necessarily giving up more equity.
The other often-neglected source is government funding- several companies I know of have gotten commercial stage without raising a single dilutive dollar and thus, having a squeaky clean cap table. This is one area of funding that I see increasing significantly, particularly in the light of the current situation as governments ramp up their investments into the startup ecosystem…both, to stimulate ecosystem innovation and job creation. Government contracts are also a phenomenal source of revenue- government agencies get a rep for being slow and bureaucratic, but they can be phenomenal partners if you engage with the right one…many companies have built highly successful businesses starting out with government-based customers.
I’ll conclude with a bit of positivity…the situation is definitely unprecedented, but I’d like borrow a quote from Henry Kissinger- “A diamond is a chunk of coal that did well under pressure”. I am optimistic that coming out of this situation, we’ll see the health tech community rise to challenge, and lead to some truly game-changing solutions emerging at scale!
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