Every week, Roula Khalaf, the Editor of the Financial Times, handpicks her favorite stories for the Editor’s Digest newsletter. This week, Roche, a Swiss pharmaceutical giant, is considering selling off a cancer data specialist, Flatiron Health, that it acquired in 2018 for $1.9 billion. The potential divestment sheds light on the challenges big pharma faces when acquiring startups in the healthcare technology sector.
Here are some key points to consider:
- Flatiron Health manages electronic patient records for a vast network of cancer clinics in the US, giving it access to a significant amount of data on the disease. This data is then analyzed and sold to pharmaceutical companies for their research and development efforts.
- Despite Roche maintaining Flatiron as a separate legal entity, its ownership has led to some reluctance from rival drugmakers to collaborate with the startup, impacting its sales.
- The executives at Roche who initially supported the acquisition of Flatiron have since left the company, leaving the startup with fewer advocates within Roche.
- Roche is currently working with Citigroup to explore different options for Flatiron, which may include divesting the business or partnering with another company to help manage operations.
- Similar businesses like Modernizing Medicine, backed by Warburg Pincus, have proven to be profitable investments for private equity groups, despite Flatiron’s financial struggles.
- One positive outcome of Roche’s acquisition of Flatiron is the contribution of data to improve cancer drug development within the company, with approximately 60 oncology drugs currently in clinical trials.
Roche’s diagnostics division, which accounts for about a quarter of the company’s sales, has heavily invested in health tech businesses. In the past, Roche also acquired Foundation Medicine for $2.4 billion, further expanding its presence in the cancer-focused healthcare sector.
As Roche continues to evaluate its options regarding Flatiron Health, it remains to be seen whether the business will change ownership. Investors have shown increased confidence in Roche this year, with shares rising by 7%, largely due to the anticipation surrounding a weight loss pill currently in development.
In conclusion, the potential divestment of Flatiron Health by Roche highlights the complexities of integrating healthcare startups into large pharmaceutical corporations. It underscores the importance of strategic planning and alignment to ensure the success of such acquisitions in the ever-evolving healthcare technology landscape.
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