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Roche is considering divesting a cancer data specialist that was once backed by Alphabet, according to people familiar with the matter, highlighting the hazards big pharma can face when buying start-ups.
The Swiss company paid $1.9bn for New-York based Flatiron Health in 2018, one of a series of bets that the world’s biggest developer of cancer drugs made on early-stage health technology companies.
Flatiron manages electronic patient records for a sprawling network of cancer clinics in the US, giving the start-up access to one of the biggest repositories of data on the disease. Founded by two former Google executives, Flatiron then mines the data and sells it to pharmaceutical groups, which use it to inform their research and development efforts.
Although Roche has kept Flatiron as a separate legal entity, its ownership has deterred some rival drugmakers from doing business with the start-up and hurt sales, according to two people familiar with the matter. Flatiron generates about two-thirds of its revenues selling data to pharmaceutical companies.
The Roche executives who originally championed the deal have largely departed, leaving Flatiron with fewer advocates at the Swiss company, according to another person familiar with the matter.
Roche is now working with Citigroup to assess options for Flatiron, including divesting the business or selling part of the company to a partner that could help to run the business. Roche and Citigroup declined to comment.
Companies with a similar business model, such as Warburg Pincus-backed Modernizing Medicine, which operates patient record systems for surgery centres and other clinics, have proved profitable investments for private equity groups.
Despite Flatiron struggling to make money, one benefit of the acquisition is that its data has helped to improve cancer drug development at Roche, which is currently testing about 60 oncology drugs in clinical trials. It is possible the strategic review may not lead to the business changing hands, the people added.
Roche’s diagnostics division, which generated about a quarter of the drugmaker’s nearly SFr30bn of sales in the first half of the year, has invested extensively in health tech businesses. Under previous management, Roche also bought cancer-focused genomic profiling company Foundation Medicine for $2.4bn.
Shares in Roche have risen 7 per cent this year, giving the drugmaker a market value of SFr253bn, as investors have grown more enthusiastic about a weight loss pill the company is developing.
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