62 Business
The Economist September 17th 2016
Cell fusion
Autonomous cars
Global pharmaceutical and biotechnology companies, M&A, $bn
Pitt stop 350
PITTSBURGH
300
Uber launches its first self-driving cars
250
S
ITTING in the back seat of the selfdriving Uber as it navigates narrow streets in Pittsburgh’s old industrial heart, the Strip District, is surreal. The global ride-sharing firm chose the area as the spot to develop and test driverless cars, and picked up its first customers on September14th. Your correspondent got a ride the day before. The vehicle moves smoothly down busy Penn Avenue, stopping at four-way stop signs and traffic lights, slowing to allow other cars to parallel park. It navigates around doubleparked delivery vans. It even stops to allow jaywalking pedestrians to cross. The cars are not truly driverless yet. During the trial an Uber employee sits behind the wheel, ready to take over should something go wrong. A second employee, a sort of co-pilot, sits in the front passenger seat, monitoring a screen, alerting the pilot to what the car “sees”, including other cars, upcoming traffic, potential obstacles and elevation—Pittsburgh is very hilly. Another monitor in the back seat allows passengers to see what the car is seeing. By the end of the year, 100 Volvos will be on the road, but in the meantime a fleet of Ford Fusions are picking up passengers. A large rotating laser (that strongly echoes the flux-capacitor from the film “Back to the Future”) is mounted on the roof. The car is also fitted with 20 external cameras, measurement devices for acceleration and orientation, 360-degree radar sensors and separate antennae for GPS positioning and wireless data. Pittsburgh is ideal for the tests. It has the talent, because Uber poached Carnegie Mellon University’s robotics department last year. Raffi Krikorian, who heads up the company’s research centre in Pittsburgh, calls the city the “doubleblack diamond of driving”. It has a winding road system, extreme weather conditions and lots of traffic. Drivers there are used to odd quirks like the “Pittsburgh
left”, as it is known, where oncoming traffic yields to cars making left-hand turns. If Uber can master autonomous driving in Pittsburgh, Mr Krikorian says, it can make it almost anywhere. Having City Hall’s support for the urban lab helps. Even before Uber came to Pittsburgh, Bill Peduto, the mayor, was fighting state lawmakers to allow ridesharing. Local government must take risks and behave like a startup, he says. “Regulation will never be ahead of innovation. If you sit and wait, the innovation will happen, but somewhere else.” The city is small enough that it can get things done, but large enough that the world should notice. Put in the actual driver’s seat, for a short spell, your correspondent did need to intervene when midway through a turn, the traffic light turned red and the car suddenly stopped. But The Economist felt very safe. Not all Pittsburghers are convinced. “I’d want to know that it’s 100% foolproof before I’d get in,” says Shelby Rocco, a student. Mike Taylor, a banker, who uses Uber all the time, has no reservations. He feels bad for the drivers, who he suspects may lose their jobs, but “it’ll be nice not to have to keep up any more awkward conversations.”
Hillary Clinton sharply criticised the industry’s decisions on pricing. Advocates of diversification were boosted by GSK’s strong performance in the second quarter of this year. It handily beat expectations thanks to those boring, low-margin areas like consumer health and vaccines. Even firms that publicly profess a desire to slim down are likely to buy others. Cash is piling up on the balance-sheets of many companies in the industry. Japan’s Takeda is the latest to indicate that it is on the prowl
for acquisitions. Firms may be looking for new drugs to sell, or different geographical regions to operate in. In specific areas such as cancer, points out Matthias Evers, a partner at McKinsey, a consultancy, scale and the depth of drug pipelines matter enormously. Pfizer’s purchase of Medivation, for example, allows the bigger firm to bolster its oncology portfolio. However much pharma bosses and investors debate the merits of focus versus diversification, they will keep doing deals. 7
200 150 100 50 2005
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Source: Dealogic
09
11
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15 16*
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2 should break themselves up into more spe-
cialised units. Diversified firms are those that typically have consumer-health divisions offering low-margin products such as plasters and talcum powder. Meanwhile, “pure-play” drug companies focus on innovative medicines—for example, a full cure for Hepatitis C—that command high margins. Companies such as Johnson & Johnson (J&J), GSK and Novartis fall into the first camp, and have all recently wrestled with the question of splitting themselves up. Investors and analysts tell them that they may be worth more broken into their parts than as a whole, and ask whether capital is being allocated efficiently across their divisions. These sort of questions inspired Pfizer to sell its consumer-products division to J&J in 2006, and Merck, an American drug firm, to divest its consumer unit to Bayer in 2014. Neil Woodford, an influential shareholder in many pharma companies, including the British drug firm GSK, accused it in January of being four FTSE 100 companies bolted together. GSK includes its core medicines and vaccines outfit, a consumer-healthcare division, a dermatology unit and a specialist HIV business. Andrew Witty, its boss, explains that some time ago he took a long-term view of his company, anticipating greater pressure on drug prices. The firm wanted to offset lower drug prices with higher sales of low-margin, high-volume products. The aim was to invest in businesses that were less exposed to a “pricing dynamic”. Other diversified pharma companies make the same case. Consumer divisions smooth out the bumpy revenue that comes with the uncertain business of inventing drugs—which may fail to win approval, and eventually come off patent. In recent months the argument has gone their way. There has been heavy pressure on drug pricing in America after a series of firms, most recently Mylan, were pilloried for stratospheric rises. The NASDAQ biotech index, comprising mostly small firms pursuing innovative drug research, fell by 3.6% on a single day in August when