Funding, partnerships key for life-science firms ahead of recession, experts say (2022)

New York’s life science firms are not immune to the impact of an economic downturn. They might be better insulated, however, against a possible recession than the broader health care space—if they have enough capital to outlast the slump, industry experts say.

Leaders in health care and the life sciences were more likely to say a recession will be short, compared to leaders in other sectors, according to a KPMG survey of 400 business leaders in July. By “short” they meant the recession might last seven months to a year.

Life science firms that raise enough funding from investors have a cushion during a downturn, experts said, unlike health care companies that rely solely on people to come in the door or buy their product.

But life science companies—and the firms that invest in them—still face challenges, said Ashraf Shehata, the national sector leader for health care and life sciences at KPMG.

While drugs are critical products, a recession could hinder consumers’ abilities to afford expensive drugs, especially those not covered by insurance, which Shehata said could hurt biopharma companies. Patient volumes are rebounding from the pandemic, he said, which bodes well for medical device companies, unless a recession reverses the trend.

One of the main hurdles the life sciences sector faces is with supply-chain issues and shortages, including for medication production, which Covid-19 exposed and exacerbated, Shehata said. Shipping costs and oil and gas prices, which affect manufacturing costs, have also ballooned and shocked the industry, he said.

“Finally, the fourth wave came, which is what I call ‘settling in of inflation,’” Shehata said. “That drove consumer prices [up] across the board, drawing out the supply shortage of resources. Those four shocks are where the industry right now is trying to sort out how we’re going to get ourselves through this.”

There are ways that life sciences firms can cushion themselves against this, Shehata said. Firms that make consumer products can negotiate payment and rebate options for consumers who aren’t on Medicare or Medicaid, he said, and they can create value-based programs for insurers and make sure their products, such as medications, are high quality.

“That’s something I always think is beneficial and will help justify the research-and-development costs and the quality of the drugs and therapies,” he said. In addition, life science firms can work with the government on the regulations around their distribution models, products and pricing to boost transparency for customers—especially for prices, he said.

Maria Gotsch, president of the Partnership Fund for New York City, added that early stage life science firms are also dealing with reluctant venture capitalists as a recession creeps closer.

Early stage firms rely on venture capital investors for enough money to survive until they go public, which they typically do when their product has been approved by the Food and Drug Administration or passed enough regulatory milestones to lower the financial risk, Gotsch explained.

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But because the public markets have dipped recently, venture capitalists are more reluctant to make big investments they might not get a satisfactory return on—a trend reflected in New York’s overall digital health fundingfor the second quarter. If a life science firm can’t sustain its research or production through the recession, it might be hung out to dry, Gotsch said.

Such firms must make sure they have “enough financial wherewithal to get through the difficult time,” she said.

For early stage companies, financial wherewithal looks like executives taking stock of the cash they have left and how quickly they’re burning through it, Gotsch said.

“If you have a year or 18 months left of cash and you haven’t started raising money for the next round, the prudent thing to do is to cut back on expenses to give yourself a little more time,” she said. “If you’re making good scientific progress, you should eventually be able to raise money. It just might take longer than you want it to take. So making sure you have enough cash to get to that level is important. You might focus on one or two projects instead of three or four–work gets deferred. Instead of hiring 20 people you hire 10.”

New York City is a “teenager” in the life sciences sector compared to more established cities, such as Boston, she said. If firms go out of business, she explained, it might take longer for their employees to get jobs at similar companies, because there are fewer employers.

That being said, this is offset by the city’s growingreal estate housing life science companies, Gotsch added.

The KPMG report found that 60% of life science and health care business leaders expect to see a 1% to 10% change in their revenue for the year. James Flynn, managing partner at Midtown health care investment firm Deerfield, said partnerships might be critical to surviving a downturn.

“We believe the life sciences industry and the health care industry in general remain a bright spot in the face of a potential economic downturn across many industries,” Flynn said. “The push toward innovation in how disease is diagnosed and treated and the insights driving new therapeutic discovery have never been greater.

“At the same time,” he continued, “depressed equity values in the public and private market are requiring that companies and the firms that invest in them enforce greater spending discipline to help ensure that the most important advances receive adequate funding and make it to patients. Some may also find that strategic partnerships are more necessary to reach their goals.”

KPMG found that most health care and life science leaders surveyed believe the recession will last from seven months to a year. This is because, Covid aside, the sectors have been pretty resilient against recessions in the past, Shehata said.

“I would say what makes this one [recession] a little bit unique is, like I said, we're coming off of a pandemic, which created a lot of uncertainty in the normally certain world for the industry. And then we're also adding to it those supply shocks,” he said. “But I think because of the strong demand for the products and services … you're seeing a very optimistic tone from leaders.”

KPMG, whose offices are in Midtown, is a global professional services firm performing audits, tax and legal consulting, and financial advisory. The company took in about $32 billion in revenue in 2021. —Jacqueline Neber

Hospital for Special Surgery, Transcarent partner to cover orthopedic care

Self-insured employers will be able to provide their workers with access to Hospital for Special Surgery’s specialists under a new partnership with digital health startup Transcarent, both firms announced Thursday.

Transcarent will handle all referrals, coordinate travel and help cover the cost of certain orthopedic surgeries. Employees will face “limited or no out-of-pocket responsibility” for care from HSS’ orthopedic and musculoskeletal specialists, the company said in a release.

It is in the process of rolling out the HSS partnership to employers nationwide.

Transcarent, which is led by Livongo founder Glen Tullman and valued at $1.6 billion, primarily works with self-insured employers to connect their workforce to health care providers and solutions. That includes risk-based arrangements under which Transcarent pays upfront for the cost of members’ medical care and shares in the estimated savings.

The Silicon Valley startup’s million-plus members all will have access to the partnership, although travel perks and financial incentives will depend on their employer’s benefit design, a company spokeswoman said. The partnership will encompass total hip and total knee surgeries, among other procedures.

Transcarent launched publicly in 2021 and has raised $298 million. Hospital for Special Surgery is an orthopedic hospital based on the Upper East Side that operates a network of outpatient clinics in the metropolitan region. —Maya Kaufman

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Staten Island University Hospital to open $17.5M cardiovascular unit

Staten Island University Hospital in Dongan Hills is preparing to open a $17.5 million cardiovascular care unit Northwell Health announced Wednesday.

The 14,000-square-foot facility, which houses 19 beds, is located on the fourth floor of the hospital’s Heart Tower. The space is for patients who need advanced care and need to stay overnight.

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All of the medical professionals staffing the unit–which include nurses, physician assistants, case managers and social workers outside of cardiologists–will specialize in cardiovascular care, said Dr. Mitchell Weinberg, the hospital’s chair of cardiology. ,Staff will be split into teams that deal with specific patient needs such as prevention, vascular medicine and imaging services.

Patients will use the space before and after cardiovascular procedures; although diagnostic testing can be performed and medical devices such as pacemakers can be inspected in the unit, procedures are not performed there.

Opening the facility is a continuation of the hospital’s cardiovascular care restructuring, Weinberg said. In the past two years, the hospital has hired 15 cardiologists, moved to a team-based model of care and upgraded its technology and the types of procedures it can provide, he said. The new unit will start seeing patients in October.

“In the past one might’ve said there was greater [cardiovascular] expertise elsewhere,” Weinberg said. “Now all the expertise that cardiology patients need is here.”

The hospital handles about 50,000 outpatient cardiology visits each year, performs about 1,200 coronary interventions annually and sees 15 to 20 people who need heart failure services each day.

Staten Island University Hospital is part of Northwell Health, the state’s largest health care system, which operates 21 hospitals and more than 850 outpatient facilities. —J.N.

Services for the UnderServedgets $11M for supportive housing units in New Lots

The city Department of Health and Mental Hygiene has awarded Midtown nonprofit Services for the UnderServed just over $11 million to open a 43-unit supportive housing building on Alabama Avenue in New Lots, a subsection of East New York.

The units will be part of the city’s 15/15 Supportive Housing Initiative, which will expand the number of New Yorkers who qualify for the housing, said Nadjete Natchaba, S:US’s chief of operations for behavioral health and homeless services.

In 2015 the 15/15 initiative committed to developing 15,000 units of supportive housing in 15 years. As of 2018, approximately 2,700 units had been developed, according to figures from the Supportive Housing Network of New York.

Traditionally, supportive housing units are allocated to New Yorkers with a history of diagnosed mental health conditions or those experiencing homelessness. The waiver expands eligibility to people who have a primary diagnosis of substance use disorder, HIV or AIDS and to those who have been homeless for a year or who are undocumented and have a mental health diagnosis or who are experiencing homelessness, Natchaba said.

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All 43 units will be reserved for single adults who qualify for the waiver. Background checks will not be performed on prospective tenants, another aspect of expanding access.

People looking for housing need to 2010E application completed by a staff member in a shelteror outpatient programs, Natchaba said, adding that prospective residents can reach out to S:US directly for more guidance.

S:US said it would perform inspections of each unit throughout residents’ stay. For residents who have income, 30% of their income, whatever it is, will go toward their unit. S:US will offer supportive services, such as helping people get jobs, primary care physicians and therapy, Natchaba explained.

S:US has provided supportive housing for years, but it is new to the 15/15 waiver program, Natchaba said, adding the nonprofit already operates a 15/15 building in the Bronx.

The organization serves approximately 3,300 New Yorkers with housing, some of which is permanent housing, and will be able to serve close to 4,000 people next year with expansions, she said.

Services for the UnderServed, founded in 1978, works with more than 37,000 New Yorkers every year. Its budget this year is just over $244 million and includes nearly $85 million for helping people with developmental disabilities and nearly $50 million for supportive housing services. —J.N.

AT A GLANCE

JUST HOME: NYC Health + Hospitals and the city Department of Housing Preservation and Development on Friday announced a new project to house medically complex New Yorkers after they leave jail. Patients who have congestive heart failure, stage 4 cancer or end-stage renal disease who cannot live in a shelter will be eligible for the Just Home program, which will create 70 studio apartments in a vacant building on the H + H/Jacobi campus. Residents will access social services while living in the apartments and can get medical care at the hospital. H + H estimates the building will be open in about three years.

NEW PARTNERSHIP: The state Office of Mental Health is partnering with the Association of Black Psychologists to help Black New Yorkers heal after the mass shooting in Buffalo earlier this year through virtual support groups, the office announced Friday. The Sawubona Healing Circles will aim to address racial and other forms of trauma in a culturally competent way.

GEARING UP: Home health care providers across the nation are preparing to wage a legal battle against the Centers for Medicare and Medicaid Services if it finalizes a proposal to cut Medicare reimbursements for home health by 4.2% next year, Modern Healthcare reportedFriday. Although CMS argues that the cut is necessary to counteract the new payment model introduced in 2020 that led to about $2 billion in excess payments to home health agencies, home health groups and their attorneys argue the proposed cut would slash patients’ access to care.

WHO'S NEWS:The "Who's News" portion of "At a Glance" is available online atthis linkand in the Health Pulse newsletter. "Who's News" is a daily update of career transitions in the local health care industry. For more information on submitting a listing, reach out to Debora Stein:[emailprotected].

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CONTACT US: Have a tip about news happening in the local health care industry? Want to provide feedback about our coverage? Contact the Health Pulse team at [emailprotected]

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