Roche’s $2.1billion acquisition of Flatiron Health — Good and Bad
I’m super excited about Roche acquiring Flatiron Health, the NYC-based oncology data company. Congratulations to Nat, Zach and their team.
For me, here are the good and bad coming out of this acquisition.
Good
At $2.1billion, it is the largest exit for a VC-backed startup in NYC. It will be a great boost for the evolution and growth of the NYC startup ecosystem, ranked second in the world behind Silicon Valley.
It is the largest exit via M&A in digital health. Fitbit and Veeva exits were bigger, but they exited via IPOs (though their market values are currently down in post-IPO public markets). This is a big boost for digital health, and also for New York City’s position as a hub for this sector.
The digital health sector badly needed a large exit to maintain the excitement and hope for venture investors who have poured over $25billion in this space in the U.S. since 2010 when the major healthcare reforms were passed, without great performance from those investments thus far.
Flatiron’s acquisition at this stage by a big pharma firm may have resulted from early signs Roche may have seen from Flatiron’s data-driven approach showing promise for developing new and effective cancer therapies. Roche may start new cancer drug development as a result. This is a great sign both for the data-driven drug development model and new cancer therapies coming into the market.
Bad
These are early days for digital health, but I’m still wondering about the potential for a small, scrappy startup growing into a very large independent business and becoming the transformative force in the multi-trillion-dollar healthcare industry. Will there ever be a “Facebook of healthcare?”
A $2.1billion exit is an impressive exit for Flatiron Health, or for any startup. However, in the context of the ~$1trillion global pharmaceutical market ($446billion in the U.S.), this exit cannot be characterized as earth-shattering. Flatiron was arguably the best positioned unicorn going after the big-data driven drug development opportunity, which experts believe could fundamentally transform the traditional drug development process.
In 2006, during the early days of Facebook, Yahoo! offered to buy the company for $1billion. The total U.S. advertising market (traditional + digital) in 2006 was $148billion. But Mark Zuckerberg, though tempted, declined Yahoo!’s offer. He ended up building an independent business over 500 times bigger!
Presumably, the Flatiron Health founders and investors agreed to sell the business to Roche because they thought that was the best financial outcome for their shareholders.
Startups like Uber, AirBnB and WeWork have been able to build very large, independent businesses and shake up their respective industries, transportation, hospitality and real estate. Is this not possible in healthcare?
Will the “Amazon of healthcare” be Amazon?
Will the “Apple of healthcare” be Apple?
Does the fragmented nature of the healthcare industry makes it impossible for a startup to make a huge play as an independent company?
Will large healthcare incumbents use their existing grip in the market to continue to buy and bury startups that threaten their turf?
Is the lifecycle for a startup to grow very big in the slow-moving and highly regulated healthcare industry too long for investors, forcing their hand to instead opt for premature exits?
I hope visionary founders looking to fundamentally transform the healthcare industry and achieve better quality of care and lowered cost do not think so.
