The Life Sciences Innovation Challenge

Navigating Digital Disruption (Part 1)

The life sciences industry—encompassing biotechnology and pharmaceuticals—has long been a cornerstone of innovation, transforming how we understand and treat disease. From the scientific roots in chemistry during the 19th century to the emergence of biotechnology in the 1970s, life sciences have always been synonymous with progress. However, this industry now faces a crossroads. Despite the advancements of the past, today’s life sciences sector is grappling with diminishing returns on innovation and the disruptive power of digital technologies.

At The Delta, we understand the need for life sciences companies to evolve in the face of these challenges. In this two-part series, we explore how the sector can overcome key innovation hurdles. In Part 1, we focus on how digital innovation is both a challenge and an opportunity for life sciences. Understanding these dynamics is crucial for companies looking to adapt and thrive in the modern world.

The Diminishing Efficiency of Life Sciences R&D

Over the past few decades, the life sciences industry has poured vast amounts of capital into research and development (R&D). By 2019, annual R&D spending in the biotech and pharmaceutical sectors had reached $177 billion. However, despite these enormous investments, the return on innovation is shrinking. Companies are finding it increasingly difficult to discover new breakthrough drugs and treatments.

This phenomenon is best explained by Eroom’s Law—the inverse of the well-known Moore’s Law in technology. While Moore’s Law predicts increasing efficiency in computing power, Eroom’s Law highlights how drug development has become progressively slower and more expensive over time. Regulatory barriers and rising costs have led to fewer innovations, with companies focusing more on incremental product improvements rather than bold, transformative breakthroughs.

The Threat of Digital Disruption

Compounding this issue is the rapid advance of digitalisation, which threatens the traditional approaches of life sciences companies. While digital innovation accelerates across most industries, life sciences have been slower to embrace its full potential. This presents both a threat and an opportunity. Companies must learn to harness the power of digitalisation to stay competitive, or risk being overtaken by new entrants who are better at leveraging digital tools.

Digitalisation affects life sciences across all three horizons of innovation:

1. Horizon 1: Incremental Innovation

Focused on short-term improvements to existing products and processes, Horizon 1 innovation is essential but limited. While it helps maintain current business models, it doesn’t prepare companies for the future.

1. Horizon 2: Expanding Core Capabilities

In this horizon, companies explore new markets or adapt their business models, often incorporating digital technologies that have succeeded in other industries. These innovations target medium-term growth, typically over a 3–5 year period.

1. Horizon 3: Disruptive Opportunities

Horizon 3 involves creating entirely new capabilities and business models. Digitalisation is central here, as it drives disruptive innovations that can reshape entire industries. Life sciences companies must embrace Horizon 3 thinking to remain relevant in the next 5–10 years.

To succeed, life sciences companies need to balance their investments across all three horizons, especially as digital innovations shorten the lifecycle of major technological revolutions.

New Digital Players Are Shaking Up the Market

A growing number of digital startups are already threatening traditional life sciences companies. These emerging businesses offer new ways to address customer pain points—often faster and more affordably than their established counterparts. One clear example is in the field of mental health. Traditionally dominated by pharmaceutical companies producing antidepressants, this market is now being disrupted by digital health solutions.

For instance, Selfapy offers digital prescription services for mental health treatment via online courses, fully covered by German health insurance. Another player, MindDoc, provides digital tools for mental health tracking and early intervention, serving over one million users globally. These digital-first solutions not only compete with traditional medications but also offer a new, more accessible way for people to manage their mental health.

The rise of such digital business models, particularly those leveraging artificial intelligence (AI) and other advanced technologies, presents a direct challenge to the life sciences industry's reliance on product innovation. As these startups grow, they threaten to erode the market share of established players, further highlighting the need for life sciences companies to adopt digital business models of their own.

Why Life Sciences Companies Struggle with Digital Innovation

So, why are life sciences companies slow to embrace digital transformation? The answer lies in the industry’s deeply ingrained culture:

1. Protectionist "Shut-Out" Strategies

Life sciences companies have traditionally relied on patents and proprietary research to protect their innovations. In contrast, the tech industry, which thrives on digital innovation, often embraces open collaboration. This mindset of protectionism makes it harder for life sciences companies to adopt the fast-paced, collaborative approach required for digital business models.

1. Stigma Around Failure

In life sciences, mistakes are heavily scrutinised, especially in the realm of academic research, where reputations are at stake. This has led to a cautious, risk-averse culture that slows down innovation. Meanwhile, the digital world thrives on the "fail fast, learn faster" mentality that allows for rapid iterations and continuous improvement.

1. Overly Holistic Customer Approaches

Traditional life sciences companies often take an all-encompassing approach to serve broad customer bases. However, this can lead to a lack of focus, leaving customer needs unmet. Digital players, on the other hand, start with niche solutions and iterate quickly, which allows them to serve their customers more effectively in the short term and disrupt larger markets in the long term.

Embracing Digital Innovation for Future Success

The life sciences sector stands at a pivotal moment. Companies that fail to adapt to the realities of digital disruption risk being left behind, as new, agile startups address customer needs in more efficient and innovative ways. To stay competitive, life sciences companies must embrace digitalisation across all three horizons of innovation.

In Part 2 of this series, we’ll explore a structured approach that life sciences companies can use to overcome these challenges, blending their core competencies with digital opportunities to drive sustainable growth and innovation.

This piece builds upon The Delta’s thought leadership series, with Kilian, COO of The Delta, offering his expertise on how companies can strategically navigate the world of innovation