Power

Why coronavirus lockdowns are an existential threat to biotech startups

"Even 9/11 didn't cause business disruption in this way."

Scientist in biotech lab

Investors, trade groups and CEOs agree that when this crisis ends, the world will likely have fewer biotech startups in it

Photo: Reptile8488 via Getty Images

Biotech sits at the blurred boundary between technology and science: an industry at the cutting edge of innovation, supercharged by venture capital funding, and utterly reliant on real, physical experiments — unlike much of the rest of the tech industry. In the parlance of biologists everywhere: biotech is an in-vivo business. Biotechs may be in Silicon Valley, but their work can't happen in silico.

"In my biotech lifetime, I've not seen something of this magnitude. Even 9/11 didn't cause business disruption in this way," said Venrock Ventures partner Racquel Bracken, who is also the CEO of seed-stage microbiome biotech Federation Bio, based in South San Francisco. She has 15 employees, all of whom must go into the lab to run their experiments on living cells as well as animals.

As it became clear that strict social distancing measures were needed in order to slow the spread of coronavirus, Bracken and biotech leaders across the globe began scrambling to come up with plans to protect their employees and communities while managing to keep their science going, hit their funding deadlines — which are reliant on the delivery of data that can only be generated in laboratories — and keep the lights on.

Not all will. Investors, trade groups and CEOs Protocol spoke with over the past few weeks all agree that when this crisis ends, the world will likely have fewer biotech startups in it, even as the COVID-19 pandemic itself reminds us of why innovative health companies are so important.

The newest companies, those at the seed-stage, may be the worst hit. Many are managing to keep the essential science going, but they will all have to deal with the repercussions of interrupted experiments, potentially missed deadlines, lost data and the looming reality that crucial fund-raising rounds may not go as planned.

"The guys we're hearing from the most are the small, early-stage biotechs," said Oliver Rocroi, vice president of the California Life Sciences Association, a trade group that represents big pharma, academic research institutions, and between 300 and 400 small emerging biotech companies in the state.

They're calling because they are worried and confused, and so is Rocroi. Under California's sweeping state-wide shelter in place orders, it's unclear if research and development stage companies are allowed to operate as normal. Bay Area-specific shelter in place orders exempted biotech companies, but the state order is much less clear. Rocroi spent the past week lobbying the California government to clarify whether companies like Federation Bio, which is not working on anything related to COVID-19, are allowed to be operating.

"The argument that we have tried to make with the governor's office is to consider the economic downstream effect," Rocroi said last week. "If you don't allow research and development across the board, what does that do to venture capital, to intellectual property? What does that do to the economy two, six months from now, or two years from now?" Innovation could grind to a halt, as the smallest, riskiest companies are often the most cutting edge.

Across the world, the U.K.'s biotech community is having all the same worries. "These are companies that are living on small sums of money up to that next funding round, which is usually less than a year," said Alan Barge, a biotech investor with Delin Ventures in the U.K., which only does seed-round investing. "It is a pretty hand-to-mouth environment where unless you generate the next piece of data against which you're going to raise funds, the whole survival of the company is in question."

One of Barge's promising portfolio companies, Turbine, a cancer therapeutics startup that uses AI modeling, had been preparing to raise a Series A round later this year. Now Turbine's founders can't get meetings on the books with the big investors. Barge is preparing for the reality that his fund may need to extend seed-funding until after the crisis to buy companies like Turbine more time. "It depends on how much money they need," he said, "but obviously we're not going to just pull the plug and just allow them to die for the want of a few hundred thousand dollars."

Bracken, who is in the position of running a seed-stage biotech and also being an investor in others, said that experienced health care investors will not drop a company just because it misses a single deadline because of coronavirus. Investors will look "at the totality," she said. "Is this a company and team that has been delivering? If yes, then I think funders will be amenable to cutting some teams some slack."

Johannes Fruehauf, who runs Lab Central, a large lab incubator space in the biotech hub of Cambridge, Massachusetts, that has 100 early-level companies in his space, certainly hopes so. "But I wouldn't really count on that," he said, especially if this goes on for months.

"These are of course business decisions that [VCs] have to make," he said. "Yeah, on a personal level everyone does understand that these companies are facing adversity that's not predicted and not caused by themselves, and that the team is as good as it was when we invested and the science is as good as it was when we invested, so hopefully that'll sway investors to be somewhat forgiving. But the reality of timelines are also harsh and real."

When COVID-19 first began traveling through Boston and Cambridge, it hit the close-knit biotech community there particularly hard after a single meeting of biopharma executives became the source of community transmission. That led Fruehauf to act fast, limiting the numbers of people allowed in labs at the same time, closing down common eating areas, removing once-normal perks like bowls of fruit. As the crisis has escalated, Fruehauf has continued to update best practices and stayed in constant contact with the scientists in Lab Central who are trying to navigate the crisis.

So much depends on the luck of timing for these companies. Any teams caught in the middle of expensive clinical trials, or who are running long-term animal experiments, will be hard hit if those studies are interrupted. As will those transitioning to clinical work. "When you go from preclinical to clinical, everybody is within a year of a major inflection point," said Comet Therapeutics CEO David De Graaf, whose company is headquartered in Lab Central. Those are the companies he's worried about most if work is unable to proceed for a long time.

Comet is in a better position than some to weather location-specific work stoppages, thanks to built-in resiliency in its model. The company, which works on drugs for metabolic diseases, falls into a growing trend of biotechs that outsource some of the wet-lab bench science to contract research organizations, or CROs, in other locations. Comet does some of its critical science in house, and the rest is contracted to labs all over the world.

Some of those were in China, so De Graaf's team actually felt the disruption of COVID-19 long before it came to the U.S. When labs they'd contracted with for experiments in China shut down, De Graaf scrambled to find other CROs to deliver the data. Some of those are in Europe and the U.S. Where is safe in a global pandemic? Nowhere, but at least for Comet and companies like it, when one location is shut down, there are others that can remain operational. And as with everything, it's all about timing. Labs in China are now opening back up while the U.S. is locking down further.

This kind of model is partially why people like Boston-based Atlas Ventures partner Jason Rhodes isn't worried that COVID-19 may threaten the whole industry. "We take this very seriously, but I don't think it makes us in any way, I want to say, kind of pessimistic about the future," he said.

But not all startups are as distributed, or can be. Much highly technical, experimental work can't be outsourced; the whole point is that no one but the scientists at the company know how to do it. That's the value of the company. "For some companies, it's the kind of situation where you can't go to a CRO even if you wanted to. The CROs don't have the expertise to run the models," Bracken said.

This applies to pure academic research, too. As shelter-in-place orders extend, much pure research is on hold. Harvard ordered all labs to shut down normal operations and maintain just skeleton crews, with the exception of groups working directly on COVID-19. Universities across the country did that same thing. The UC system advised laboratories not working on coronavirus directly to wind down active experiments.

A San Francisco-based biotech executive who spoke on the condition of anonymity because he was not authorized to speak to the press said his company is virtually shut down. Of the hundred or so employees the company has, the only scientists working in labs are those caring for the animals (a necessity facing any biotech that has research animals). Experiments are not continuing, and though the therapeutics company isn't in the seed stage, its next funding round depends on data that should be coming in right now.

All biotechs now are facing hard questions about what work can continue. The answer is easier, in a way, for companies that are working directly on COVID-19. And their sense of mission is incredibly strong, but they, too, have had to adjust their operations.

At 10xGenomics, in the Bay Area, work continues manufacturing crucial tools that government, private and academic labs use to study the disease. Now is not the time for CEO Serge Saxonov to ramp down; what's needed is a ramping up. "Internally, we've had to adjust our production and prioritization," Saxonov said, to focus his team on making the tools that labs need most to understand COVID-19, like their immunity profiling solution, which can help speed up research into which antibodies best fight the virus.

"It is imperative for us to keep the business going, and even in many ways to accelerate and do things faster than you might have done before, because this is an increasing emergency around the world," Saxonov said.


Get in touch with us: Share information securely with Protocol via encrypted Signal or WhatsApp message, at 415-214-4715 or through our anonymous SecureDrop.


To do that safely, 10XGenomics, which went public last year, has moved to shifted schedules at the factory, limited how many people can be inside at a time, adjusted customer support people in the field to be largely remote, and added even more protective gear and cleaning than was standard before.

In Cambridge, Fruehauf has instituted similar policies at Lab Central. "We are laser focused on providing mission critical business continuity for our companies," he said, including ones like HelixNano, which is working on a novel vaccine approach for COVID-19. "The solution for this crisis will likely come in the form of rapid testing, vaccine development, antiviral therapies from one of these nimble and innovative biotech companies."

Theranos’ investor pitches go on trial

Prosecutors in the Elizabeth Holmes fraud case are now highlighting allegations the company sought to mislead investors.

The fresh details of unproven claims made about the viability of Theranos' blood tests and efforts to conceal errors when demonstrating testing equipment added to the evidence against Holmes, who is accused of fraud in her role leading the company.

Photo: David Paul Morris/Bloomberg via Getty Images

The Theranos trial continued this week with testimony from Daniel Edlin, a former product manager at the blood-testing startup, and Shane Weber, a scientist from Pfizer. Their testimonies appeared to bolster the government's argument that Holmes intentionally defrauded investors and patients.

The fresh details about audacious and unproven claims made about the viability of Theranos' blood tests and efforts to conceal errors when demonstrating testing equipment added to the evidence against Holmes, who is accused of fraud in her role leading the company.

Keep Reading Show less
Aisha Counts

Aisha Counts (@aishacounts) is a reporting fellow at Protocol, based out of Los Angeles. Previously, she worked for Ernst & Young, where she researched and wrote about the future of work, emerging technologies and startups. She is a graduate of the University of Southern California, where she studied business and philosophy. She can be reached at acounts@protocol.com.

The way we work has fundamentally changed. COVID-19 upended business dealings and office work processes, putting into hyperdrive a move towards digital collaboration platforms that allow teams to streamline processes and communicate from anywhere. According to the International Data Corporation, the revenue for worldwide collaboration applications increased 32.9 percent from 2019 to 2020, reaching $22.6 billion; it's expected to become a $50.7 billion industry by 2025.

"While consumers and early adopter businesses had widely embraced collaborative applications prior to the pandemic, the market saw five years' worth of new users in the first six months of 2020," said Wayne Kurtzman, research director of social and collaboration at IDC. "This has cemented collaboration, at least to some extent, for every business, large and small."

Keep Reading Show less
Kate Silver

Kate Silver is an award-winning reporter and editor with 15-plus years of journalism experience. Based in Chicago, she specializes in feature and business reporting. Kate's reporting has appeared in the Washington Post, The Chicago Tribune, The Atlantic's CityLab, Atlas Obscura, The Telegraph and many other outlets.

Protocol | Policy

8 takeaways from states’ new filing against Google

New details have been unsealed in the states' antitrust suit against Google for anticompetitive behavior in the ads market.

Google is facing complaints by government competition enforcers on several fronts.

Photo: Drew Angerer/Getty Images

Up to 22%: That's the fee Google charges publishers for sales on its online ad exchanges, according to newly unredacted details in a complaint by several state attorneys general.

The figure is just one of the many details that a court allowed the states to unveil Friday. Many had more or less remained secrets inside Google and the online publishing industry, even through prior legal complaints and eager public interest.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

Protocol | Workplace

This tech founder uses a converted Sprinter van as an office on wheels

The CEO of productivity startup Rock likes to work on the road. Here's how he does it — starting with three different WiFi hotspots.

Kenzo Fong, founder and CEO of the 20-person productivity software startup Rock, has been working out of his converted Mercedes-Benz Sprinter van since the pandemic began.

Photo: Kenzo Fong/Rock

Plenty of techies have started companies in garages. Try running a startup from a van.

In San Francisco, one software company founder has been using a converted Mercedes-Benz Sprinter van — picture an Amazon delivery vehicle — as a mobile office.

Keep Reading Show less
Allison Levitsky
Allison Levitsky is a reporter at Protocol covering workplace issues in tech. She previously covered big tech companies and the tech workforce for the Silicon Valley Business Journal. Allison grew up in the Bay Area and graduated from UC Berkeley.
Protocol | Policy

Most Americans want AI regulation — and they want it yesterday

In a poll, people said they wanted to see artificial intelligence technologies develop in the U.S. — alongside rules governing their use.

U.S. lawmakers have only just begun the long process of regulating the use of AI.

Photo: Louis Velazquez/Unsplash

Nearly two-thirds of Americans want the U.S to regulate the development and use of artificial intelligence in the next year or sooner — with half saying that regulation should have begun yesterday, according to a Morning Consult poll. Another 13% say that regulation should start in the next year.

"You can thread this together," Austin Carson, founder of new nonprofit group SeedAI and former government relations lead for Nvidia, said in an email. "Half or more Americans want to address all of these things, split pretty evenly along ideological lines."

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

ai
Latest Stories