Coronavirus – Learnings and Takeaways from Small Biotech

Egon Zehnder convened a number of biotech board directors from across Europe in a virtual meeting. The objective was to engage and share experiences from people on the frontline for COVID-19 R&D. Issues discussed included:

Clinical Trials

Keeping clinical trials and labs open, or, where they are closed, working out how to bring them back online as soon as possible.

• Different therapy areas and treatments are experiencing very different outcomes, with a concern to ensure the appropriate ethical approach, with due attention to the safety of patients and staff.

• The industry is relatively open to business in many areas, particularly where they are involved in Covid-19 response, but some quite binary experiences, with companies not involved in the response unable to progress most non-Covid trials.

• Companies working in areas such as IVF, which are elective and therefore can be postponed, have almost completely closed down for the moment.

• As they think of resuming activity, it is clear that different trials will present different opportunities. Some trials may be more amenable to social distancing, for example in areas like diabetes, where much may be done in the domestic setting with the right support. Other trials seem much more challenging, where closer contact is required.

• The sense is that there will be pent-up demand for specialist appointments and treatment in many non-Covid related areas once lockdown has started to end. This will provide some potential clinical trial opportunities that companies will need to be prepared for.

• As phase IIB trials complete, and plans for phase III begin, risk mitigation for future waves/new pandemics is now an active topic in the face of investor demand for more certainty around future trial milestones. Companies are engaging with CROs to factor in long-term possibilities to minimise human contact by changing trial designs. In some areas, such as immunosuppressive treatments, it is not clear how to build low-risk phase III trials, and this may influence investor appetite, and the relative risk premium required for investment. Will countries like Sweden, where there may be some degree of “herd immunity”, be popular choices for clinical trials as they might present a lower risk?

• It seems likely that a combination of digital technology, sensors, miniaturisation of devices plus mobile monitoring by CROs may be particularly helpful in reducing risk. Why shouldn’t there be a truck that moves around between patients’ homes, rather than a requirement that patients come in for treatment to a hospital, where there is a higher perceived risk of infection? Regulators seem likely to be much more amenable to such changes in the current environment than they would have been in the past.

• The sheer speed and focus of current efforts in Covid-19 trials present both huge opportunities and significant risks for those involved. On the one hand, the time taken to reach decisions and obtain approvals has plunged, which may present great opportunities for those involved to leap forward versus previous timelines. On the other hand, many governments have acted with very little regard to IP rights and this is a possible threat to the companies concerned.

• Some companies are converting offices into laboratories in order to increase capacity, while maintaining social distancing, given that “safe” working arrangements in existing premises allow for only 50 to 60% of the activity that was previously supported.

Keeping people safe and happy

Many chairs are spending significant time providing emotional and business support to their CEOs, many of whom are under unprecedented pressure and facing unfamiliar problems.

• There is particular focus and concern on the need to keep people engaged and key talent on board. Board members as a whole are feeling the need to be accessible to management teams who are facing unprecedented challenges, while also balancing the needs of other stakeholders: customers, suppliers and shareholders.

• At a time when many of life’s pleasures are unavailable, work has taken on a particularly prominent role in many people’s lives, and has emphasised the importance of mission-based work as a source of meaning. Being explicit about our mission, in an industry where public perceptions are often very poor, may point to this moment as one-off opportunity for the industry to make a difference to how it is seen both by employees and society at large. Initiatives by key players such as GSK and Sanofi to collaborate in the broader interest of humanity may be particularly important in shaping attitudes in this respect.

• There is a premium in many companies on closely keeping track of employee engagement. How safe do people feel? What new working methods have been adopted? How do we assess team resilience? Are the trends positive or negative over time? Which parts of the organisation are suffering more than others (e.g. clinical development)?

• Effective feedback and recognition are particularly important at the moment in retaining engagement. At a time when many team members are distracted by various worries, it is important to recognise all contributions to the team’s work. At the same time, some employers are wondering about monitoring the activity of their workers, given the difficulty of supervising individuals based at home.

• Factories are returning to work, with some of them anticipating an acceleration in demand. Problems are emerging as employees present safety concerns and sometimes vocal communities express forceful opinions on what is and is not acceptable. Some companies with the option of creating PCR capability in house have been able to roll out regular testing for all employees, as a way of maximising the numbers returning safely (and confidently) to work.

• There is a very high level of variability in how to handle operations when cases of Covid-19 occur. Some are closing whole sites when the contact of just one person is infected, others are trying to take a less dramatic approach. It is evident that employees need a clear policy to follow, even if that involves judgements on a case-by-case basis. Clarity makes it easier to manage motivation and allow people to feel a sense of control. Meanwhile training on social distancing and the emergence of shift systems have made social distancing in the workplace more professional.

• CEOs are struggling with how best to align emotional energy across companies present in multiple global locations at different stages of the pandemic, and subject to differing local strategies and practices. Even by usual standards, they’re being asked to invest highly in communication, when there are many other operational and strategic demands on their time.

• The cumulative impact of measures is being met by greater fatigue, and more demands from employees, some of which may not be practical. In some cases, policies are being rewritten every two weeks to reflect the latest status and thinking. This is a major drain on resources.

• The spread of workforces due to homeworking makes it challenging to maintain morale and focus. Most interaction is via Twitter and Facebook, “where there is tons of rubbish written about the current situation”. Meanwhile there is almost no physical contact with other employees, making it much harder to manage communication and alignment: “It is very difficult to keep people’s minds focused, as they drink from the firehose of low-quality news coverage, and potentially develop bad habits outside of the workplace.”

• Innovation feels harder at the moment because spontaneous physical meetings at the workplace are no longer possible.

• Innovating, creating culture, generating energy and alignment all benefit hugely from physical proximity. This is especially true for iterative and agile development: “I can pick up the phone, but it is not the same as a quick touchdown with somebody, often pulling in a third or fourth person, to brainstorm a challenge or an opportunity.” In the absence of colleagues with whom to share ideas, some employees will tend to freeze or find refuge in more mundane tasks. It was noted that Scandinavians tend to work more from home, and this may mean they are better adapted to the current situation than other cultures where homeworking is less of the norm.

• One of the good outcomes of the crisis is a tendency to introduce more discipline into meetings, with better adherence to timing and higher levels of participation. This would be a good thing to retain when the crisis is over.
   

Business development and funding

An intense need to stay abreast of developments in the capital markets, notably for capital intensive businesses.

• Those companies raising growth capital are having an easier time than the rest, as there are more near-term indicators of success for investors to focus on.

• For start-up private companies, there are challenges around the balance sheet and how to raise capital. For public companies, liquidity is key.

• A significant number of companies are still deeply involved in fundraising, despite all the current developments. For some Covid-related businesses, where demand has been multiplied several times over, there are difficult choices around how far to fund this demand, particularly if that demand suddenly diminishes.

• The sheer quantity and variety of funding in some areas, from grants to loans in order to advance projects, often accompanied by significant government pressure, requires a lot of active management to navigate appropriately.

• There is a perception that while a lot of due diligence is continuing, particularly for deals which already had built up some momentum prior to Covid-19, it is hard to close deals: “The pharmacokinetics of financing is no longer the same.”

• Big funds are still very active, but many mid-sized funds are erring on the side of caution and this is slowing things up.

• Investors are seeing a slowdown in revenues and are asking pointed questions about whether this is due to Covid-19 or poor management. There is a sense that weaker companies are very vulnerable in the current environment: “Financing is a valley of death for those companies on the edge right now: they need to go into hibernation mode as rapidly as possible to give themselves a bit more time to reassure investors.”

• Building resilience wherever possible is essential given the very rapid changes in the global economy that are being experienced at the moment. All strategies are having to be revisited, and in the face of extremes of uncertainty, management and board need to work hard on building in resilience.

• There is some debate about the wisdom of accepting government money, as the true cost of exercising that option may be higher than some think. There could be a “moral outrage” connected to the use of public funds by those companies giving their executives significant remuneration. This may not be obvious now but is likely to be a future risk in countries like the UK, where the press is very focused on these issues. Some of those facing a choice between taking government loans or closing down significant parts of the company feel faced with a “Russian roulette” choice, all the more difficult as they know that their employees’ future depends on them making the right choices.

Maintaining operational integrity through extreme variations in demand and preparing for the phased resumption of normal working

Challenges can be significant, and managers can feel overwhelmed at times.

•  It is important for leaders to emphasise that many factors are currently outside their direct control, and as such its helpful to focus on the smaller things that may be within their control, rather than worrying about those things they cannot influence.

• “The length of the cycle is very long according to Chinese evidence.” The Chinese experience illustrates that the return of children to school is a key element that will determine many companies’ ability to return to full capacity. As long as social distancing is retained in some shape or form, home childcare is not possible and parents aren’t able to go back to full-time work: China is currently working at around 70% of capacity as a result: “We can’t get customer and employee engagement until children are looked after.”

• There are significant regional variations depending on local governments’ approach, so in Beijing people are only allowed in the office every other day, whereas in Tianjin (which only had 1000 cases) life is already back to normal. However, whatever the local jurisdiction allows, people’s behaviours will not return to pre-Covid as long as there is a perceived health risk, even for a subset of the population. For example, in cultures where elderly parents often live in one household with their children and grandchildren, it is likely to take longer for a return to normal patterns of behaviour.

• In southern Europe, where physical contact is a more routine part of everyday business practice, individuals and companies are actively thinking through how their behaviours will need to change for at least the next 12 to 18 months.

• There is a question mark on how effective conferences will be in the short- to medium- term. For example, will people from a country like Sweden, where controls have been relatively relaxed and more people may still be carrying the disease, be unwelcome in person on flights or in conferences, and have to participate virtually?

• Many innovative companies in the UK look likely to fold or fail to grow owing to a lack of capital as a result of the uncertainty of Brexit, immediately followed by Covid-19. Options for funding have been significantly reduced and these companies are finding it really challenging.

• Biotechs have an opportunity now to reposition themselves “due to the crisis”, as a lot will be forgiven in the current context. Now is the time to be brutally honest and take the relevant actions. This window will close relatively soon.

• Companies aiming to launch products in markets where they cannot see the physician are wondering how best to do that.