Across just about every industry, digital transformation is reshaping the landscape. It has happened in manufacturing, insurance, retail––and it is happening within biopharma with ever-increasing impact. While in some cases change is easily identified and therefore easier to adapt to, in the case of life sciences, and biopharma even more specifically, it can be tricky to spot.

In our recent research report, “New Science: Biopharma’s new growth machine,“ we identified a key component of transformation that biopharma companies should keep look for to avoid the risks of transformation: compressive disruption. It is not an explosive shift, but rather a slow but steady transformation that erodes the status quo, leaving companies adverse to change to suffer losses. It generally occurs when executives believe high barriers to entry and conventional business models will assure industry stability.

Three Signals of Compressive Disruption

Signal #1 – Declining Future Value
Compression often hides in the details but if you look closely, a decline in projected value is one of the key indicators. Within biopharma, this is already happening. As a percentage of enterprise value, the biopharma future value dropped for three years in a row. It slipped from 42% in 2015 to 28% in 2018.

Signal #2 – Diminishing Tenure for Treatments in Leading Market Positions
In what is perhaps the most frightening indication from a revenue perspective, the average tenure for a market-leading treatment in a therapeutic area dropped by over half (51 percent) between 2000 and 2017. In 2000, the average tenure was 10.5 years––in 2017, it was 5.1 years.

Signal #3 – A Growing Struggle to Compensate for Lost Revenue Due to Patent Expiry
While more treatments are coming to market than in recent years, many of these medicines are highly specialized and treat smaller patient populations. This condensing of patient group size translates to smaller revenues for the company––putting pressure on pipeline ratios.

Defining New Science

But within this transformation there is an emerging category that presents a tremendous opportunity. We call this emerging category “New Science”.

New Science involves treatments that have a new mechanism, modality, indication or emerging health technology––all of which can combine to deliver innovative and more effective therapies and solutions. Our research estimates that New Science will drive more than fifty percent of the biopharmaceutical industry’s sales between 2017 and 2022. It will shape the treatments and solutions life sciences companies develop, determine with whom they collaborate and how they manage costs and risks.

Three key factors that define New Science:

    1. It solves a clear unmet need through a new mechanism, modality, or health technology, as documented or approved by a regulatory agency.
    2. It often requires a new technology device or diagnostics for development or as a companion to treatment.
    3. It could just be the technology alone (a small but rapidly growing segment).

Like many emerging categories within biopharma, New Science often carries a higher price tag––sometimes as much as three to five times more than traditional medicines. Conventional thinking suggests that these more innovative treatments are therefore more risky to develop, but we found something unconventional: by applying new science, biopharma companies are more likely to reach the market––and in many cases, to get there faster.

Another exciting trend is that those companies who are leaders in New Science are investing a great deal more in data, digital and genomics than their peers. They are redefining the value chain with more investment in non-traditional areas. They are reaching beyond the pharma market and into others in order to help drive the digital innovation within the industry. Traditional mergers and acquisitions will still happen, but the playing field on which they do is transforming as well.

With biotech companies being an important driver of New Science, their market share is expected to grow from 19 percent in 2017 to 25 percent in 2022. This growth will be driven almost entirely by smaller biotech companies with less than $1 billion in revenue.

The business case and impact of New Science is clear. For biopharma companies hoping to avoid compressive disruption and capitalize on transformation, a shift in thinking and approach are advised. The future is bright for Life Sciences and New Science will help illuminate the path ahead.

Stuart Henderson

Client Account Lead – North America

Sanskriti Thakur​

Senior Principal

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