Reuters Events | Pharma

Thought leadership and innovation for the Pharmaceutical Industry

Incubators are starting to prove their worth by enabling pharma to explore new tech and by challenging pharma’s internal culture

By Andrew Stone on Jul 7, 2021

Digital health startups are on fire right now as the big global trends create a following wind for the sector. 

The pandemic has accelerated the adoption of digital health as consumers increasingly adopt wearable tech, as the clinical impact of digital health became apparent during 2020, and as everyone looks to a future of high demand and stretched healthcare systems and budgets. 

Digital health’s scope to manage healthcare costs, to help keep people well and to support physicians in their work flows has become abundantly clear to investors, says Dominick Kennerson, Global Head G4A Digital Health at Bayer, one of the first biopharma accelerator programmes in Europe. “2020 was a record year for investing and financing.”

And 2021 is shaping up, arguably, to drive change faster than 2020. 

According to digital health venture fund Rock Health, the first quarter of 2021 was the most-funded quarter to date, with $6.7B in US digital health funding, more than doubling from Q1 2020. Average deal size ballooned to $45.9M (up from $31.7M in 2020) and the pace of deal making in the sector has accelerated too, it says. “The average age of startups at the time of their first mega deal raise has been cut in half over the past few years, from 12 years in 2017, to just six years among the Q1 2021 mega-deal companies.”

Early insights
All these records and landmarks underline the importance to pharma of building its understanding of the fast-emerging innovations and opportunities in digital health.

The sector is attractive owing to its potential to scale fast compared with traditional biopharma businesses with thousands of employees and years- or decade-long development timescales, says Kennerson. 

“Digital is where the big opportunities are. Digital health companies normally have a very attractive business without the traditional biopharma overhead. We’re looking at a future of healthcare being done much more efficiently and the industry has to figure out how to keep pace with that.”

Incubators are now a well-established means of discovering how to do this, says Mohanad Fors, Head of Commercial Digital Innovation, Digital Office at Almirall. “One big value of doing something like this is you are able to learn about new technologies and become an early player before it becomes expensive. Pharma has often been slow here and so entered late and at greater expense.”

Close contact with startups via Almirall’s dermatology digital health accelerator Digital Garden will help offer it deeper insights into the emerging technologies with commercial promise, says Fors. “It allows you to take the knowledge and organise it in ways that people in pharma can understand.”

G4A, meanwhile has built its strategy on integrated care and startups with strong leadership and good technology, typically AI-driven. It works with different parts of the Bayer business to establish a need, creates a challenge around it and then looks for startups and prospective partners capable of addressing the challenge. 

It invests on two tiers – early-stage growth businesses usually pre-series A and advanced, revenue positive ventures at any stage of their growth up to series e (and above) investment.

Its approach is very much backing ventures beyond the pill, with an emphasis on the people in the value chain and the potential to drive better outcomes by changing behaviour, says Kennerson. 

As well as the commercial aim of backing promising emerging technologies, an important goal of G4A is to offer the wider Bayer business new insights. “These early investments give us an opportunity to consider future business and partnership opportunities. Part of it is about thought leadership and market intelligence, market validation, and some is ecosystem engagement.”

Transforming from within
Incubators serve another important purpose for pharma beyond getting closer to new technologies or understanding the emerging commercial landscape, and that is in helping drive the digital transformation from within the owner of the incubator, says Fors. 

Incubators serve an important role in driving cultural change. Fors likens incubators as the forum for translating between the often-clashing cultures of big pharma and start-ups and for preventing the mutual incomprehension that hinders collaboration between the two of them. “There are two languages and ways of speaking; the corporate one and the start-up one,” says Fors.

“Before, a company would come to pharma and they would speak and not understand each other. The startup would sign the deal but could not handle the size of the corporation. Accelerators act as mediator and translator. They create a safe ecosystem for startups but also a safe warehouse where those ideas and technologies can be translated so that parma can understand them.”

The effect for pharma can be profound.

Almirall’s Digital Academy is already demonstrating success. “With the Digital Academy the idea is to see how we can create education between teams. Our top people work nine months with the start-ups and they learn from each other.”

Learning from creative chaos
The startups learn from the top talent in pharma and vice versa. Working in the bootstrapping environment of a startup has much to teach senior pharma leaders, says Fors. “Our teams started to feel uncomfortable and that is what we wanted. A lot of our teams when they started this, they would say ‘this start-up, they are not very organized' but then they would realise ‘you know what? This works’.” 

Their approach transformed from being a highly structured one that was content to allow a long time for results to emerge to a less formal one with a greater sense of urgency, says Fors. “They would come back with those learnings from the creative chaos of a start-up and we were surprised at the extent to which this has changed how people think. It is reflected the way they do their work.” 

It is a highly effective way to drive digital transformation with more measurable results and lower costs than consultancy-led, top-down transformation initiatives, adds Fors. “If we simply make people live this transformation, they become part of the action. This is the moment they start to believe you can do things differently, that we can live the change, we can see it is taking shape.”

Given the highly disruptive commercial and political landscape pharma finds itself in, there is a stronger argument than ever for using incubators to get to grips with better solutions earlier, says Fors. “Imagine if we had started like this with AI or data handling much earlier. The cost of lost opportunity is what we are avoiding.”
 

Stay tuned for the second part of our exploration of incubators in which we explore the future of incubators, look at emerging trends including the role for venture capital within incubators, the value of physical co-location, the scope to collaborate with the big tech accelerators and how industry consortia could help everyone innovate.