Persistent disruptive forces in life sciences now threaten traditional business models over the medium to long term. While high rates of return and strong performance may have masked these forces in the past, today they must be recognized and addressed. Organizations need new ways to continue to thrive despite such hurdles. This latest research study by IBM Instritute of Business Value in collaboration with the University of California, San Diego and Oxford Economics, led to a target innovation model that can guide organizations to discover operational efficiencies, nurture new growth and get positioned more strategically in the new life sciences and healthcare ecosystem.

1. © 2015 IBM CorporationIBM Institute for Business Value1
How emerging ecosystems fuel innovation
Reinventing life sciences
© 2015 IBM CorporationMay 31st, 2015

2. © 2015 IBM CorporationIBM Institute for Business Value2
Untamable development cost growth, disruptive technologies, and
shifting expectations are among the issues facing life sciences today
Cost to develop new products the traditional
way has risen to levels that inhibit innovation
Emergence of personalized medicine, enabled
by new technologies, forces a convergence of
industry players
Increased focus on treatment outcomes pushes
organizations to prove efficacy of their
products
Pricing pressure from payers and regulatory
reform drives the use of generic products and
biosimilars
Demand from new geographic markets
creates new opportunities and creates new
unique challenges
Drug development costs have risen at a rate
2.43 times the inflation rate since the 1970s
Over last decade, cost to generate a human
genome sequence has fallen from $1 billion to
$3-5 thousand
46% of life sciences executives say that
increased pressure to prove efficacy has a
strong impact on their organizations
Generic drug prescriptions capture 84% of
market share within first year of branded drug
patent expiration
Only 59% of life sciences organizations are
currently working in emerging markets or
planning to in the coming year

3. © 2015 IBM CorporationIBM Institute for Business Value3
A recent survey showed that the life sciences industry, once notably
innovative, struggles with the speed and effectiveness of innovation
Innovation is…
Innovation: a new idea (product, service or
process) that creates value and can become
a major source of strategic advantage,
economic or personal benefit while
improving treatments for patients
in•no•va•tion ˌi-nə-ˈvā-shən Noun
Origin: Latin, 1548
Derives from the Latin word innovatus,
past participle of innovare, ”to make
changes; do something in a new way,”
from in- + novus—"new“
Innovation = Invention + Execution
“I think that innovation is hampered in the
pharmaceutical sector and we need to do
something about it” - Executive Vice President of
pharmaceutical company
Only 25% of executives in the industry
believes their organization is effective at
generating successful innovations

4. © 2015 IBM CorporationIBM Institute for Business Value4
New technologies are driving radical disruption - value chains are
fragmenting, industries are converging, and ecosystems emerging
An ecosystem is a complex web of
interdependent enterprises and relationships
aimed to create and allocate business value.
The life sciences ecosystem will span multiple
activities, geographies and industries, including
public and private institutions as well as patients.
Traditional value chains in the life sciences industry
are fragmenting
New entrants from other industries are blurring the
traditional definition of life sciences, for example:
 Healthcare: Cleveland Clinic develops medical
devices1
 Information technology: Google Ventures investing
heavily in life sciences2
 Consumer electronics: Apple develops iWatch and
health apps3
Wearables
Social media
Life
Sciences
Healthcare
Information
Technology
Consumer
Electronics
Generics/
biosimilars
Personalized
Medicine

5. © 2015 IBM CorporationIBM Institute for Business Value5
Life sciences ecosystems will be collaborative, open and transcend
traditional boundaries
The life sciences ecosystem will be characterized by…
1. Boundary transcendence - the life science ecosystem will be
able to work across traditional industry borders, expand into
new geographic locations, provide novel solutions
2. Openness - organizations will benefit from sharing information,
knowledge and data with other ecosystem participants
3. Collaboration - ecosystem participants will form partnerships
as part of ongoing relationships to discover new treatments and
combination therapies

6. © 2015 IBM CorporationIBM Institute for Business Value6
Contract Research
Organization
Organizations will need to develop an operating model which
provides the vision for innovation in this new ecosystem
Healthcare
Providers
Pharmaceuticals
Research
Patients
Payers
Academia
Medical Technology
Retailers
Regulators
Target
Innovation
Model
Strategy
Collaboration
&
Connectivity
Tools
&
Assets
Skills
&
Capabilities
Culture
Performance
Metrics
Organization
&
Governance
Processes

7. © 2015 IBM CorporationIBM Institute for Business Value7
Heather Fraser
Global Life Sciences & Healthcare Lead
IBM Institute for Business Value
hfraser@uk.ibm.com
Anthony Marshall
Strategy Leader
IBM Institute for Business Value
anthony2@us.ibm.com
Teri Melese
Assistant Vice Chancellor, Industry Research Alliances
Associate Professor, Medicine and Rady School of Management
UC San Diego
tmelese@ucsd.edu
For more information about innovation in life sciences and the target
innovation model, please contact:
Download the paper at
http://www-935.ibm.com/services/us/gbs/thoughtleadership/reinventingls/