SAN FRANCISCO—On Monday at the J.P. Morgan Healthcare Conference, Johnson & Johnson waxed poetic about the impact Silicon Valley is having on the biopharma industry.
“Going forward we won’t be classifying ourselves as just a healthcare or biopharmaceutical industry, but we’ll be a healthcare biopharmaceutical technology industry,” he told investors.
The way a pair of EY’s experts see it, though, that time is still very far off. “No one can see it at the moment,” Pamela Spence, EY’s global life sciences industry leader, said. And in their view, it’s more likely that pharma will get caught with its tail between its legs when a true tech player comes in to disrupt the market.
Several pharma companies have dipped their toes in in terms of tech partnerships, sure. Sanofi and Verily teamed up more than a year ago on diabetes venture Onduo, while the likes of GlaxoSmithKline, Boehringer Ingelheim and Novartis boast smart inhaler pacts with Qualcomm or Propeller Health. But so far it’s all been dabbling for pharma, and it’s not hard to see why, the analysts said.
For Big Pharma companies, “there’s no big sense of urgency, for the most part, to change dramatically, to really change their business model in order to become a true tech company,” EY’s global transactions leader for life sciences, Jeff Greene, said. If your innovative drugs are doing well and your pipeline looks strong, “why would you completely reinvent your company?”
And even if a company did want to, it would be challenging for large drugmakers to pull off. “It’s hard for them to pull the trigger and scale up; ... how do we reallocate capital and say, ‘this is what we’re going to put our bet on in a big way?” Green said, with Spence adding that “if your capital base is demanding performance, you’ve got to really make sure that when you diverge,” it’s for the right technology.
Then there’s the cultural divide that makes it difficult for pharma and tech companies to even work together in the first place. “The life sciences industry typically moves very slowly and, I would say, is very respectful—arguably almost fearful—of regulation. But on the flip side, tech companies move much faster and are almost, to use the comparative, fearless,” Spence said.
“Why would somebody who has a lot of tech skills, likes a fast-changing, fail-fast culture, be attracted to working with a very traditionally slow-to-make decisions type culture?” she added.
With these factors in mind, the industry will “probably” wait until a sizable tech player enters pharma territory and “does something really quite radical” before it makes any major shifts, Spence predicted.
But that’s not to say 2018 won’t bring more investment in tech overall, especially with tax reform freeing up extra dealmaking funds. “We’ll see a lot of it, but it’ll be at small scale,” at the “dabbling end, the incubation end,” Spence said.