Signal: Wave of layoffs in medical start-ups exposes underlying vulnerability

On 7 August, artificial intelligence (AI)-powered digital health company Babylon Health announced it was shuttering operations in the US, with 94 staff to be laid off. The UK-based firm has faced a number of difficulties this year as losses have spiralled out of control.

The final blow to US operations was dealt when its planned merger with competitor MindMaze fell through. Once the darling of the predicted telehealth wave, the company has said it will focus on its home market, but even its future in the UK is uncertain.

Meanwhile, 11-year-old biopharma company Galera Therapeutics has also announced a staff cut of 70% after the FDA rejected its experimental treatment for avasopasem, used to treat radiotherapy-induced severe oral mucositis, which causes difficulties in eating and drinking.

Curebase, a San Francisco-based digital clinical trials (DCT) start-up that was named in the top 6% of Y Combinator’s Top Private Companies list for 2023, has also announced layoffs amid a “refocus” that involves it scrapping its DCT business in favour of further developing its software offering.

The list goes on. Start-ups have high failure rates at the best of times, and even large medical companies often spend millions only for a lack of FDA approval or another regulatory hurdle to kill a product before it sees the light of day. The combination of the two leaves medical start-ups highly vulnerable.

Investors, too, are feeling less confident in the market. Venture capital funding for pharmaceutical companies by the beginning of August was 39% lower than the same time last year globally. Asia-Pacific, the second-largest market for funding, had a drop of 56.3%. This seeming lack of trust may indicate that the problems are deeper than just a few would-be unicorns going bust.

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