Success drivers for digital health partnerships. Learnings from R2G’s new global study and recent failures of Sandoz, Otsuka, and Sanofi

In the last quarter of 2019, three major pharma companies pulled out of their seemingly promising partnerships within digital health. Following the announcements regarding partnerships withdrawal between Sandoz and Pear, Otsuka Pharmaceutical and Proteus, and Sanofi and Onduo (a joint venture with Verily), R2G reviews reasons behind these developments, compares them to the results of the new “Partnerships in Digital Health” Whitepaper and discusses the success drivers for digital health partnerships.

Corporates and startups are still trying to figure out how to efficiently work together and to jointly drive the digital health agenda. This is a trial and error process – according to the new R2G’s study, only every fourth partnership is considered to be successful. New digital health-focused partnerships between healthcare industry giants and young innovative companies regularly make the headlines – dozens of high-class collaborations are formed every year. Corporates devote billions of dollars to the partnering activities and rely on them to achieve their strategic goals. However, the second half of 2019 has brought to light several interesting cases of the discontinuance of seemingly promising corporate-startup partnerships. What can we learn from those ‘unsuccess’ stories and how do they compare to the partnership breaking points outlined in the R2G Whitepaper “Partnerships In Digital Health – Breaking Points And Success Factors”?

DISCONTINUED COLLABORATIONS

The sudden deep crisis of Proteus Health – digital pill startup whose evaluation has once risen as high $1.5 billion – became one of the biggest surprises of December 2019. Allegedly, the companies’ troubles might have started with the dissatisfactory clinical results and low patients’ engagement. As a result, the company failed to close the funding round of $100 million and now has to restructure the business while struggling to keep the hesitating partners onboard. Japanese pharma company Otsuka has already paused the 5-year commitment made in November last year that involved $88 million. Apparently, Otsuka and other partners would need more comprehensive efficacy evidence, and Proteus’s multi-million investment rounds only raise the bar on partners’ expectations.

The case of Sanofi and its decision to significantly cut its participation in Onduo – diabetes management solution developed in a joint venture with Verily – is very different. It is connected to the recent change in Sanofi’s roadmap: one of the top three insulin manufacturers has decided to step out of diabetes and cardiovascular research altogether and re-prioritize more promising areas. Therefore, reducing the engagement to exclusively financial support in the Onduo project was a logical step for Sanofi. Despite this, Verily still has a strong partner ecosystem and the large-scale collaborations with other companies are unlikely to be affected.

The reasons behind the discontinuance of joint prescription digital therapeutics commercialization agreement between Novartis’s Sandoz and Pear Therapeutics are less transparent. According to Sandoz, the decision was linked to the shift of the company’s focus on the core business and the leadership change. However, the actual reasons could as well be linked to the miscommunication between the companies and the inability to negotiate the financial terms behind the deal. Other Novartis’s joint projects with Pear Therapeutics remain active, the companies will continue the collaboration within multiple sclerosis and schizophrenia fields.

BREAKING POINTS

These three cases were widely covered in the press since they involve both pharma companies and rather large and well-known digital health organizations. At the same time, most of the canceled partnerships, discontinued joint ventures or terminated pilots are not making it to the news, especially if they are smaller-scale projects.

According to the new R2G study, only around 25% of startup-corporate collaborations are successful – this is one of the key findings of the global survey of digital health startups, established healthcare companies, partnership facilitators and investors regarding their partnering experience. Such an insignificant success rate indicates that most healthcare market players do not have a clear understanding of how to make these partnerships work and bring tangible results. Numerous relationships between startups and corporates end with both parties’ disappointment and in many of those cases, the reasons behind the failure are extremely similar.

Although two of the three reviewed partnership withdrawals are associated with pharma companies’ roadmap changes (Sandoz-Pear Therapeutics and Sanofi-Onduo), most typical partnership failure reasons are linked to lack of strategic planning and poor partnership execution, including communication.

The key breaking points in corporate-startups partnerships are:

• Failure to formulate a comprehensive strategy for working together and expanding the partnership further.
• Unrealistic/mismatched expectations of the parties is another important breaking point – it looks like it is very relevant for the case of Proteus and its partners, including Otsuka, who set the expectations too high.
• Lack of a well-functioning operational model for partnership management, which is directly connected to cumbersome decision-making processes and poor communication between the partners.

WHAT CAN WE LEARN: KEY SUCCESS FACTORS

Driving a company’s innovation activities with the help of partnerships with startups has become a standard tool that is extremely popular among healthcare incumbents today. Although there are only a few truly success stories, healthcare companies continue betting on the collaborations with digital health providers and try to integrate them into their business strategy. To make these partnerships work and bring tangible results, both corporates and startups should calibrate their approaches to the partnering process. There are several key learnings from R2G’s study and the reviewed cases that companies can start applying already today.

Learnings for corporates:

1. Think big: innovation management via partnerships should be organized like a big-gauge fishing net – with this kind of filter with standardized efficient processes companies can rule out irrelevant offerings, spot potential partners and incorporate successful deals into the organization; corporates should plan for multiple pilots and projects to have one successful partnership.
2. Thrive for operational excellence: frequently, partnerships between startups and incumbents fail because they are not being well-managed as a project; it is critical to develop a clear operational model outlining the responsibilities of everybody involved with startup partnerships, equipping them with enough decision-making power and defining handover processes between a pilot and an integration phase.
3. Concentrate on what really matters: the real impact of corporate-startup partnerships comes from the integration of the innovative solutions into companies’ products and services on a large scale; corporates should shift their focus and resources to the later stages of the partnering process and partially outsource processes like screening, scouting, contracting to a third party.

Learnings for startups:

1. Be prepared and flexible: startups should be taking an active role in partnership management and sometimes even educate the corporates about the specificities of operating as a startup; also, they have to be prepared for delays resulting from long, sometimes politically driven corporate decision-making rules and processes.
2. Know whom you want to partner with: startups should concentrate on building relationships only in cases when a partnership’s value for the company is clear and it is in line with the company’s roadmap; the partner segmentation approach makes sense given that any partnership requires a lot of key resources, and digital health startups simply cannot afford to waste any of them.
3. Aim at upscaling, not just piloting: startups should always think ahead and prepare for integration and upscaling right from the partnerships’ initiation since the true partnership impact comes with usage.

There is a strong trend in the healthcare market indicating that we will see more collaborations between incumbents and digital health startups in the upcoming years. It is a learning curve for both sides, companies should consider the negative experience and discontinued partnerships of other market players to avoid the most common breaking points and maximize the value created by their collaborations. If companies want to truly benefit from their partnerships, they should move away an opportunistic and inattentive approach to the partnering processes and develop a comprehensive framework for partnerships’ management and upscaling.

If you want to learn more, please check Research2Guidance’s recently published report “Partnerships in Digital Health” covering the full results of the study. The report details healthcare market players’ view on their partnerships in digital health, analyzes the main reasons behind startup-corporate partnerships’ failure and provides recommendations on how to be more successful in building relationships with partners.