Digital Assets: The Next “Must-Have” Acquisition for Big Pharma | PharmaBoardroom

Digital Assets: The Next “Must-Have” Acquisition for Big Pharma

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Digital health startups raised over USD six billion in equity financing in 2016, representing a five-year compound annual growth rate of 32 percent and the fledgling industry segment already boasts at least eight unicorns with a combined value exceeding USD 15 billion. Most interesting of all, however, is the constellation of actors investing in them and the fact that, albeit belatedly, many of these startups are now beginning to show up on the radar of Big Pharma.

“Many large pharma companies are starting to realize the potential of harnessing AI and deploying it to improve efficiencies in drug research”

Andrew Hopkins, Exscientia

“Traditional investors in the digital health startup space have generally tended to be venture capitalists such as Rock Health and Khosla Ventures or corporate tech giants like Qualcomm and GE, however, these days we are witnessing a clear tendency for pharmaceutical corporates to also join the fray,” observes Anand Sanwal, founder of CB Insights. According to the trends analysis firm’s statistics, Merck’s Global Health Innovation Fund is out ahead leading the pack having placed no fewer than 24 digital health investments since 2009.

The styles of partnerships and acquisitions themselves appear to cover a wide range of bases signaling the sheer diversity, breadth and multifaceted composition of the digital health world. Some pharma firms, for instance, are seeking software-based solutions that can rationalize and accelerate the drug discovery process, while others are tending to turn more towards platforms that can facilitate tele-health, e-care and remote exchange of data. The Swiss giant Roche, for example, has recently purchased two digital health companies: namely a diabetes management outfit called MySugr and the oncology clinical decision support business, Flatiron Health, which together reflect both of these trends.

Artificial intelligence capabilities, meanwhile, seem to feature increasingly prominently on the wish list. “Many large pharma companies are starting to realize the potential of harnessing AI and deploying it to improve efficiencies in drug research,” notes Andrew Hopkins, chief executive of privately owned Exscientia, which has distinguished itself by successfully managing to establish tie-ups with household brand pharma heavyweights such as GSK and Sanofi. “The basic attraction is that our digital technologies can deliver drug candidates in roughly one-quarter of the time and at one-quarter of the cost of traditional approaches, so obviously this is causing a bit of a stir in the world of drug development” he exclaims.

From an initial position of wariness and skepticism, it would appear that the pharma companies’ perspective of digital players is gradually shifting towards a much more favorable orientation. “I think there has, indeed, been something of a clarification… in pharma’s eyes these AI specialists are increasingly regarded as digital biotechs that they can strike partnerships with and which help feed the pipeline… my prediction would be that, so long as these nascent technologies can actually deliver the potential they are promising, we might well start to see a flurry of M&A activity ending up with the closer integration of these AI engines into pharma R&D,” forecasts Nooman Haque, head of life sciences at Silicon Valley Bank in London.

“In 2016 alone, the top ten global pharmaceutical companies invested more than USD 70 billion in conventional R&D so digital forays are still a drop in the ocean”

Darren Spevick, Eventum Partners

Others commentators, however, point to the longstanding conservatism of the pharmaceutical sector when it comes to embracing digital disruption and consider forecasts of a gold rush towards digital assets somewhat premature. “Whilst we have certainly witnessed the fruition of a handful of high profile collaborations and tie ups – namely Novartis & Google, IBM Watson & Novo Nordisk, Otuska & Proteus, Sanofi & Verily – and a number of grandiose-titled incubators have been established with a view to snapping up and nurturing digital start-ups such as Bayer’s Grants4Apps, LEO Pharma’s Innovation Lab or MSD’s Innovation Factory, all of this pales onto insignificance when juxtaposed with the conventional R&D investments and acquisitions,” points out Darren Spevick, managing partner of Eventum Partners. “In 2016 alone, the top ten global pharmaceutical companies invested more than USD 70 billion in conventional R&D so the digital forays are, quite frankly, still a drop in the ocean,” he concludes.

Writer: Louis Haynes

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