Life Sciences’ Growing Demand for AI Assets

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Digital health deal values in biopharma jumped to USD 6.4 billion in 2019, largely thanks to software company Dassault Systemes Americas Corp.’s USD 5.9 billion acquisition of health tech company Medidata Solutions, according to analysis by S&P Global Market Intelligence. “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 as well,” observes Anand Sanwal, founder of CB Insights.

 

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. With this level of interest, it is perhaps not surprising that the AI life sciences start-up segment already can lay claim to a least eight unicorns with a combined value exceeding USD 15 billion.

 

Big Pharma’s Scramble for Digital Capabilities

Big Pharma, which has the deepest pockets amongst drug makers, is naturally positioned right at the forefront of the stampede for machine learning capabilities: All, without exception, of the largest 10 pharmaceutical companies (by revenue) have either partnered with or acquired AI companies to leverage the opportunities the technology presents. In December 2018, Bayer and MSD were even granted Breakthrough Device Designation from the FDA for artificial intelligence software that aims to support clinical decision making of chronic thromboembolic pulmonary hypertension.[1]

From an initial position of wariness and scepticism, it would appear that the pharma companies’ perspective of digital players is gradually shifting towards a much more favourable 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.

 

The Tech Giants: Friend or Foe?

Big Pharma is not getting everything its way, however. This is because an entirely new breed of actors are making incursions into the life science space – namely the digital tech & software giants. “In recent years, tech firms like Amazon, Google and Microsoft all have identified healthcare as focus areas and AI is one of the primary channels through which they are managing to make this entry,” observes BMS’ chief data officer, Krishna Cheriath. Tencent Holdings, for example, has started to build artificial intelligence algorithms capable of remotely monitoring patients with Parkinson’s disease, while Amazon’s Alexa, is launching AI-backed voice assistance to help answer consumer’s questions about their health insurance plans.

“There is clear evidence that they are beginning to turn their attention to drug discovery and development as well,” argues Professor Jackie Hunter, chief executive of clinical and strategic partnerships at BenevolentAI. She points to the fact that Google’s DeepMind has developed AlphaFold which uses vast amounts of genomic data to predict protein structure solely from its genetic sequence. “Their AI-derived 3D predictions are already far more accurate than anything that had been previously developed and it is quickly becoming clear that the pharmaceutical companies will either have to build these capabilities and platforms internally or develop partnerships and acquisitions to access them,” elaborates Hunter. IBM Watson meanwhile has started deploying algorithms to help speed up the clinical trials process and identify eligible patients.

The interesting common element to all these developments is that conventional drug makers look to be coming under threat from this new species player that (arguably) understands the new world of digitalized healthcare and machine-learning derived drug discovery better than them. “We could be witnessing a power-shift because these newcomers not only control, but often own the data that artificial intelligence programs run on,” muses Ritchie Etwaru, founder and CEO of Hu-manity.co.

 

Value Pool Shifts

Many are predicting that the introduction of AI technology could trigger substantial value pool movements. AI-driven efficiency improvements in the health care system should theoretically unlock value for payers some of which one would expect to be transferred on to consumers in the form of cheaper treatment. AI should simultaneously improve overall drug development efficiency unlocking value that the pharma industry retains. On the downside, technology companies will increasingly offer products and solutions that impede on the traditional domain of pharma and medtech, in the process diverting a slice of the profits.

“There’s absolutely no doubt that the landscape that we used to inhabit is becoming radically recreated and we see global technology players making their entry into what was traditionally our exclusive space,” confirms Janssen’s EMEA chairman, Kris Sterkens. “When someone like Jeff Bezos proclaims that our margins are his opportunity it is not surprising the Big Pharma gets the jitters, however, my reading of the way things are going is a bit different. Unlike some of my peers, I am optimistic that these developments will produce new synergies.”

“Sitting on vast mountains of data, the new entrants bring to the table completely new capabilities such as the access to and ownership of data combined with the interpretation and translation of that data into insights. Conventional drug developers, meanwhile, deliver the understanding and knowledge of the progress of science which is something that is exceedingly hard for an outsider to master. Clearly, neither side can go the full distance alone, and that is why I am confident that the future will be more about collaborating with these entities in win-win partnership than competing with them,” he explains. Certainly there are signs of a new interplay between the tech and pharma worlds with the CEO of GSK, Emma Walmsley, recently joining the Board of Microsoft.[2]

“Companies within both sectors must transform to be part of the conversation and relevant or risk being left behind. The winners of tomorrow will be those that are most outward looking, versatile and bold enough to engage in collaborations with non-traditional value chain partners,” concludes David Crean, managing director of Objective Capital Partners.

 

[1] https://media.bayer.com/baynews/baynews.nsf/id/FDA-grants-breakthrough-device-designation-artificial-intelligence-software-CTEPH-pattern

[2] According to Microsoft’s own website she joined the board as independent director in December: https://news.microsoft.com/exec/emma-walmsley/

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