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Replies to post #217323 on Biotech Values
By Travis May and Eric Perakslis. Eric Perakslis is the former Chief Information Officer of the FDA, and Chief Scientific Officer of Datavant. Travis May is Founder and President of Datavant, and Former CEO of LiveRamp.
Last week, Roche (the world’s second largest pharma company) announced a $1.9 billion acquisition of Flatiron Health (an oncology data company that captures data from hospitals and health centers about how drugs impact patients’ cancer treatments).
In the world of startup tech acquisitions, any deal this size is notable. But this particular deal is more than notable: the announcement foreshadows a disruption in how drugs are discovered, tested, and delivered to patients—changing the fundamental business model of healthcare and the pace of medical innovation.
Let’s walk through the implications.
Implication #1: Roche is now a data company that happens to manufacture drugs. With the Flatiron acquisition, Roche now owns a rich, proprietary dataset about how oncology drugs impact patients over time in the real world, providing thousands of times the data that most pharma companies would collect in a clinical trial context. Access to this dataset will impact every part of Roche’s business, from the way it discovers drugs, to the way it designs clinical trials, to the way it markets approved medicines to patients. This data will become Roche’s proprietary edge against other pharma companies.
Put another way: Roche is now a data business. It is building a large enough data asset to begin wielding that as its primary differentiator. Its strategy will be to glean more and more data over time, ensure that the data remains proprietary, ensure that it is used in a way that advantages its entire business, and continue building a data edge over its competitors.
Implication #2: Pharma is now a network-effect driven industry. Welcome to the biggest platform war yet. Data businesses are inherently network-effect driven: as Roche develops more drugs, it will collect more proprietary data, making it even more effective at developing additional drugs in the future. This virtuous cycle creates a structural advantage and a moat for a business.
These winner-take-all dynamics invite a war between healthcare companies to gain the dominant data edge. Platform wars have shaken most other industries, as every business Amazon has touched can attest to. Healthcare, given its size and importance to the economy, will be the largest platform war yet. Roche has taken an early lead in this war, but expect it to be long and bloody, as other pharma companies seek to respond.
Implication #3: Expect the lines to blur between insurer, provider, and pharma. The platform war isn’t limited to just pharma. The healthcare industry is traditionally split into the three major constituencies, with significant tension between the players, but these lines are blurring. Flatiron’s software is used by providers—the physicians and hospitals that actually deliver care to patients—and Roche will need to maintain close relationships with providers for the acquisition to be successful. Moreover, the data Flatiron has is valuable to all three of those constituencies, meaning a future Roche-affiliated provider could potentially deliver better care based on Flatiron’s data.
As pharma companies, insurers, and providers all become data companies, the three categories will blur and become more competitive, with each vying to become the dominant platform.
Implication #4: Patient privacy is about to take center stage. The core of Flatiron’s model is collecting large amounts of de-identified information about patients, and as data becomes more central to pharma strategies, a dialog around patient privacy will take center stage. Patient data, initially and ultimately, should always belong to the patients, and it will be critical that uses of data are always centered around improving patient outcomes. Beyond Flatiron, physician society initiatives are collecting and aggregating data from oncology practices to support greater outcomes and to guide and ensure quality standards are met. Many hospitals and medical systems are seeking to monetize patient data to offset the significant costs of health IT infrastructure. Indeed, the time has come for a robust patient-centric data economy, but individual patients must benefit first and foremost and their privacy and security must be upheld. It’s time for a robust dialog that has happened too late in many other industries.
Implication #5: We’re going to see an inflection point in patient outcomes, survival rates, and life expectancy. This is the most exciting news. All of our cumulative scientific discovery as a society has led us to still understanding only a small fraction of how the human body works. While there is so much we don’t know, understanding medical outcomes is as much a problem of data as it is a problem of biology.
Sadly, while technology has driven dramatic productivity gains in most other sectors, overall drug development productivity has declined over the last 60 years: more than 90% of drugs fail clinical trials, and the drug development process costs billions of dollars per successful drug. A data-driven process promises to reverse this trend, as data can be used to more effectively discover drugs, understand who those drugs will be effective for, optimize the clinical trial process, and help those drugs reach the right consumer; all of these effects have the potential to slash the costs of drug development and increase the odds of success.
Roche’s acquisition of Flatiron is the first move in a process that will fundamentally change the healthcare industry—as pharma companies shift from molecule-driven to data-driven. The next five years will be an exciting time for patients, and a transformational time for the industry.
