Medical tech startup Lazarus 3D usually sells organs. Not the human kind, but fake squishy hearts, life-sized arms and coral-pink esophaguses eerily similar to the real things.
When there isn’t a pandemic, its warehouse on Houston’s South Side, a short drive to the Texas Medical Center, fills up with 3D-printed orders for surgeons who use the soft-tissue replicas to practice procedures. But when March rolled around and coronavirus infections jumped, those surgeons became much less concerned about getting the practice devices.
What they really wanted, really needed, was personal protective equipment such as masks and face shields. The company pitched a business shift to PPE to investors, who responded in two days with $700,000 in loans to jumpstart production.
“We’ve been laser-focused because so many doctors are desperate,” said Jacques Zaneveld, who founded Lazarus with his wife, Smriti.
Across the globe, medical and health tech startups like Lazarus are pivoting to face masks and other COVID-19- related products such as testing kits as the new coronavirus puts a spotlight on health care innovation. Unlike startups in other sectors, those startups are not strapped for cash and investors and clients haven’t shied away yet.
Digital health startups reported $2.9 billion in funding deals during the first quarter of 2020, doubling the amount raised during the same period in 2019, according to research by MobiHealthNews, which tracks trends in health care. By focusing on a niche like COVID-19, companies can draw both public and private sources of funding as both government and investors look for an end to the pandemic that has ravaged the global economy, said Yadin David, the former director of the biomedical innovations department at Texas Children’s Hospital.
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“As long as we have headlines like we see now,” David said, “there’s going to be market pressure to fund (coronavirus-related products).”
Money for innovation
Overwhelmed by demand for hospital beds and equipment, medical providers are looking for innovations that fix troubled health care systems. Medical and health tech startups are in a particularly good spot to capitalize on the problems caused by the pandemic.
Many were already working on products that could be deployed quickly in the case of a pandemic, such as telehealth software. Others are focused on vaccines or drugs that have a longer horizon.
Emily Reiser, a senior manager for innovation community engagement at the TMCx accelerator program, said investors who fund medical and health technology are still “pretty bullish” because of their confidence in growth opportunities from the COVID-19 response.
The most successful startups attract investors by identifying something that needs to be fixed, devising solutions quickly and moving those solutions into commercial production, said Jon Nordby, managing director for another Houston accelerator program, MassChallenge Texas.
“Hard to find a bigger problem than a global pandemic, right?” Nordby said.
Health care startups are adapting business models, strategies and products to fill needs created by COVID-19.
Basic science laboratories went from looking at virus mutations to conducting research for finding COVID-19 treatments. Startups selling vitamin deficiency and food sensitivity tests are now focusing on packaging test kits for at-home coronavirus testing. Taking advantage of a new demand for telehealth, virtual urgent care and video conferencing providers are rolling out products faster than before.
Lazarus is another example. Up until the last week of March, the company had raised just $500,000 in the six years since it was founded by the Zanevelds, who came up with the idea of making model organs on which doctors could practice while studying at the Baylor College of Medicine.
But on March 25, its hospital clients were calling about using their 3D printers to manufacture personal protective equipment. But to tap into that that demand — some hospitals were seeking well over 100,000 masks — Lazarus needed more capital to fulfill the massive orders.
They began prototyping the first of their face masks and shields, delivering models to local hospitals overnight to get feedback on comfort. The first batches were printed on a row of eight white 3D printers in their 1,500-square-foot space, but demand quickly outstripped production. At most, they could produce 125 face masks a day; their customers needed thousands.
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They moved their production to factories in China, which had the expertise and capacity to manufacture the personal protective equipment on a mass scale. As of the first week of May, their suppliers had produced 1.6 million masks and 120,000 face shields, much of which has been shipped to local hospital buyers like the Harris Health System.
By March 28, they had pulled together $700,000 in loans. In three days, they had raised more than they’d been able to do in five years, demonstrating the demand for health tech that quickly gets to market.
What makes good investments
Companies dealing in telehealth, patient communication and remote monitoring spaces are likely to benefit from investors looking to capitalize on the pandemic. In addition, the coronavirus also has spotlighted long-term health care issues need of solutions that present opportunities for medical tech startups and investors.
“When you pressure test a system like this,” Nordby said, “those needs become very obvious.”
Chief among those long-term needs is finding ways to reduce costs while increasing hospital revenue and improving patient care, analysts said, making startups that can improve efficiency and quickly deliver products, such as personal protective equipment, sought after by investors.
That is why telehealth companies are attracting new investment, as are startups, such as Lazarus 3D, which can show they can pivot quickly to meet market demands.
“Startups that respond to COVID are likely build new relationships with key decision makers,” said Reiser, “and demonstrate their ability to provide value to a new partner.”
The clock’s ticking for companies providing tests, PPE and COVID-19 related treatments. Researchers could take 18 to 24 months to develop a working vaccine. Much of this pandemic could be manageable by the end of the year.
Startups are already seeing a shift in demand toward the products they were creating before COVID-19. Just last week, Smriti Zaneveld got a call from a client asking if they were still manufacturing organ models, and she rushed to print out 40 model colons.
The tools that made surviving a pandemic easier will still have use in the future. Doctors and nurses will still need face masks and shields; patients will find telehealth convenient when their schedules fill up again.
Rather than throw its mask prototypes in the trash, Lazarus 3D is exploring the development of face masks that can be sanitized and reused in addition to going back to its training organs.
Analysts and startups are hopeful investors infusing cash into COVID-19 related products will stick around. If young companies can show they can quickly turn around a product under pressure, and turn a profit, investors will feel encouraged to back them.
Houston medical startups, meanwhile, are well positioned to grow because they have access to both investors hungry for the next big thing and a built-in client base: the world’s largest medical center, experts said.
“There is zero doubt in my mind that Houston will absolutely be the innovation hub for health tech in the future,” Nordby said.