Health Technology Merck’s Big Deal with Big Data

In an attempt to increase digitization and find new forms of revenue, German pharma giant Merck Group is partnering up with Palantir Technologies, best known for its work with security agencies, including the CIA.
Silicon Valley is currently seeing a boom in courtship between the health and tech industries. Photo: Getty Images

Stefan Oschmann, chief executive of German pharmaceutical and chemistry giant Merck Group, looks relaxed as he stands on the stage at The Pearl, a renovated industrial building in San Francisco. “There is nowhere on earth where curiosity, science, and economic growth are so bound up together as in the Bay Area,” he tells some 200 guests from around Silicon Valley. The CEO is surrounded by flowers in Erlenmeyer flasks while attendees are eating their desert from lab beakers. A man in a white lab coat can be seen shimmying to the music in the corner.

Mr. Oschmann and a host of other top Merck executives are in San Francisco to find partners in the tech industry who can help the company digitize. Part of their pitch is to cast the family-owned business in a new light, one more fitting to Silicon Valley: bright, trendy and unabashedly nerdy.

“We were a startup once. Back in 1668!” jokes Mr. Oschmann, alluding to the year his company was founded. Merck Group is the world’s oldest operating pharmaceutical and chemical company and once owned the American firm of the same name. But the two have been entirely separate for more than a century.

We were a startup once. Back in 1668! Stefan Oschmann, chief executive, Merck Group

Now Merck is keen to be part of contemporary startup culture, and Mr. Oschmann can already proudly point to a partnership with Palantir Technologies. The contract will see the Palo Alto-based Big Data analysts trawl through Merck’s data stockpile – including patient information and scientific research – in order to guide the development new drugs and therapies. The financial aspects of the deal have not been made public.

The new initiative comes as a surprise for many, because until now, Palantir and its founder Alex Karp are best known for their secretive work with government agencies, including the CIA. Mr. Karp is also alleged to have been involved in tracking down Osama bin Laden. True or not, the clandestine aura surrounding Palantir is undoubtedly a perfect marketing tool. The company claims to have numerous European clients, though Mr. Karp refuses to name them. Valued at over $20 billion – not far behind giants like Uber and Airbnb – Palantir is now making a decisive move into the growing medical and health sector.

These days, an increasing number of traditional pharmaceutical companies seem to be cosying up to Silicon Valley software specialists, with doctors, hospitals, and research laboratories linked by large flows of information. Drug manufacturers hope that this data will help identify new revenue streams, particularly in the form of new therapies. In this regard, the future looks bright. According to one study conducted by consulting firm Roland Berger Strategy, the digital health market will more than double by the year 2020, to $200 billion. In 2016, it was $80 billion.

Moves made by the pharmaceutical industry towards technology also seem to have a domino effect. After Swiss-based Novartis announced its first big digital health project in 2014—a smart contact lens co-developed with Google’s parent company Alphabet— almost all big pharmaceutical companies have announced similar cooperation deals. Sanofi, for example, is researching diabetes treatments with Verily Life Science, another Alphabet company. These include instruments to measure blood sugar and automatically administer the correct dose of insulin.

Elsewhere, British pharmaceutical giant GlaxoSmithKline (GSK) has launched a bioelectronics joint venture with Verily worth an estimated €640 million, or $680 million. GSK hopes to improve treatments for arthritis, diabetes, and asthma with the help of tiny implants which send signals through the body.

For Merck CEO Mr. Oschmann, the sky is the limit on what collaborations between tech and drug companies can achieve. “Treatment of patients has become so complex that future treatment decisions will be software-assisted,” he said. “We want to build up our competence in this area.”

This is where Palantir steps in. The company can supply technology to analyze large volumes of data drawn from a wide variety of sources. This is known as “unstructured data” – data that cannot be easily read and evaluated by a normal computer and requires sophisticated software tools in order to achieve successful pattern recognition. This kind of analysis could help determine why some patients respond better to one cancer medication than another.

Since Novartis announced its co-development of a smart contact lens with Google's parent company in 2014, most big pharma companies have announced similar deals.

For Mr. Karp, his heavyweight German client comes at just the right time. Silicon Valley is expecting an imminent IPO from Palantin, which was founded in 2004. For this, the 49-year-old chief executive must be able to point to big-budget clients, especially from industries where future revenue growth is expected. This has become all the more crucial since Palantin co-founder Peter Thiel has come under pressure for his political activities. Over the past year, the German-born investor has become close associate U.S. president-elect Donald Trump. During his election campaign, Mr. Trump called for an online registry of Muslims in the United States. This brought Palantir attention from far beyond Silicon Valley because the firm was in a position to supply that technology.

Mr. Karp has said that his company has not been asked to build a registry of Muslims and that Mr. Thiel’s good relations with the president-elect has had no bearing on Palantir. “He is an advisor,” the Palantin chief executive said of Mr. Thiel. “Peter and I have been friends for twenty-seven years. And we have had a long history of disagreeing on political issues.”

 

Alexander Karp ico-founded Palantir together with longtime friend of Peter Thiel. Photo: Reuters

Merck CEO Stefan Oschmann does not regard Palantir’s political connections as a problem. “When it comes to the people we work with, it's the values that matter. Political views are something different,” he said. Mr. Oschmann also added that any collaboration would be in accordance with data-protection laws. Nevertheless, Mr. Oschmann does not intend to work with Palantir alone and currently, the Merck Group is also in exploratory talks with Alphabet-owned Verily.

 

Britta Weddeling lives in Silicon Valley, reporting on the internet and technology industry for Handelsblatt. Maike Telgheder is an editor for Handelsblatt’s companies and markets coverage. To contact the authors: [email protected], [email protected].