Life sciences industry outlook
INSIGHT ARTICLE |
Key takeaways from the winter 2020 life sciences industry outlook
- Consumer demand for personalization and a willingness to trade information for convenience will increase.
- The industry must address an aging population with greater access to health care, and new generations demanding longevity and quality of life
- Organizations will continue to see advances in computing power, artificial intelligence, machine learning and data analytics.
- There will be increased pressure on companies to produce results, even as competition increases; at the same time, skilled talent will be harder to find, and the scientific, social and political challenges become more complex.
In an ecosystem as complex as life sciences, there are many trends affecting the future, as well as social, political and technological developments that will affect the industry in unanticipated ways. And while drugpricing reform, the expiration of patents, growth of global competition, and the development of novel drugs are significant factors, they will not set the course for the ecosystem. There is, however, one overarching trend that has the potential to shape the entire life sciences ecosystem over the next decade and beyond— the personalization of medicine.
This shift toward highly customized products and services will not only serve as a growth catalyst for life sciences, but it will also significantly alter global ethics, culture, and potentially, the course of evolution. To put this into perspective for life sciences, we need to consider each of the major sectors—from biotechnology to pharmaceuticals to medical equipment—and how they will be affected by the personalization of medicine.
MEASUREMENT OF EVERYTHING
In the past five years, the number of connected devices has doubled to approximately 30 billion worldwide. By 2025, that number is predicted to climb to more than 75 billion. This growth is made possible by increased processing power and the decreased size of electronics, and is fueled by a shift in consumer demand to always be connected.
Pair this technology with changing social norms and consumer habits, and what has been created is a “measure everything” mindset or a “quantified self” movement. As a result, an astronomical amount of data is collected and analyzed every day, including health and medical data. This data was originally collected and used for targeted marketing and consumption strategies, but there is a growing trend among scientists, physicians and data analysts to use this information to better monitor and treat patients, develop and evaluate therapies, and increase the efficiency of research and development.
From a practical perspective, something as ubiquitous as an Apple Watch (cleared by the Food and Drug Administration in 2018 as a Class II medical device) and an application like the Research Kit allows users to anonymously sign up and to participate in clinical trials. Stanford University reported that one of its cardiovascular trials attracted more volunteers in one day by releasing an app than it normally would have acquired in a year. While the scope and reliability of this data still have a long way to go, major life sciences corporations and the FDA are already discussing how such information can be used to support or serve as real-world evidence and accelerate the pace of FDA approval.
Dealing with a labor shortage
The shortage of skilled employees has been a recurring theme in life sciences and health care for years. The problem has been exacerbated by historically low unemployment, tighter controls on visas for skilled workers, and a fundamental shift in the skill sets needed by life scientists. The concern is not that there will be a lack of production, but a missed opportunity for innovation. Within the last decade, the industry has moved from needing scientists with a chemistry or biology core, to those who also understand data analytics, engineering and process development. This happens to be the same skill set sought by Silicon Valley, financial institutions and any other sector that has embraced its digital future.
It also happens that many of these skilled individuals are finding their way to life sciences startups and boutique development centers. Biotech and pharma have been underperforming in relation to their contract research and life sciences service peers. This is driven by a need to outsource portions of the research and development and clinical trial process to third parties that have a leaner and more agile workforce. In other words, the risk and effort of innovation can be outsourced while the companies focus on their core science. This model is becoming ever more present in the broader economy; a challenge in 2020 will be to find reliable outsourced partners and to establish quality controls to manage the development of products and the efficiency of the quote-to-cash process.
MIDDLE MARKET INSIGHT As more companies contract out research and development, and clinical trials, a challenge in 2020 will be to find reliable partners and to establish quality controls to manage the development of products and therapies.
An aging population
Populations, especially in developed countries, are aging. These populations are generally more affluent, have greater access to medical care and are interested in increasing or prolonging the quality of their lives. This, in turn, is driving up the number of medical procedures, many of which require implants, prosthetics and other medical devices. When aging is seen as a disease to be cured and technological advances can increase the quality and longevity of life, it presents an opportunity for the medical device sector, so long as the political focus remains on drug pricing reform.
MIDDLE MARKET INSIGHT When aging is looked at as a disease to be cured and technological advances can increase the quality and longevity of life, it presents an opportunity for the medical device sector to reach a significantly larger patient base with a wider portfolio of products.
With smaller, faster and smarter devices, and a social acceptance of data measurement, we are entering a decade that will see an exponential increase in the amount of information captured about our lives and our health. This "measurement of everything" movement will be the foundation on which personalized medicine is built.
Sectors poised for growth in the near-term:
- Biometrics and wearables
- Smart prosthetics
- Medical devices
- Virtual physical and mental health
- Contract research
- Contract manufacturing
EVOLUTION OF PHARMACEUTICALS
In addition to basic medical, health and physiological data being collected, there is also a staggering amount of highly personal and valuable data being generated; this is genetic data. With these digital assets, scientists will be able to analyze and model data in ways that allow for new drugs and therapies to come to market at a faster rate, and focus on indications affecting smaller portions of the population. This will be critical for the pharmaceutical industry which has seen a decreasing return on investment of research and development dollars as costs increase, and the target indications are more narrowly prevalent in the population. Put in simple terms, the low-hanging fruit of pharmacology and biological science has been picked.
Realistically, part of the problem is that scientists can explore only a small portion of what is possible. The number of potential drug-like molecules is almost infinite, and understanding how any one of them could interact with our DNA in an intended way is a seemingly impossible task for human researchers. But running through trillions and trillions of possibilities is exactly what machine learning is good at. Trained on large databases of existing molecules and their properties, advanced artificial intelligence and machine learning can explore all possible related molecules. This has led to breakthroughs in therapy development and treatments that were science fiction only a few years ago. New technologies and market entrants (including big tech) will disrupt the ecosystem as boutique labs focus on novel and orphan therapies in lieu of blockbuster drugs.
The right therapy, not just the best available
From a practical perspective, think of a movement from penicillin as a treatment of bacterial infections for the masses, to the development of cystic fibrosis combination therapy (Trikafta) for a small number of affected children, or a gene therapy that can treat blindness brought on by retinal dystrophy (Luxturna). The midterm impact of personalized medicine will mean that patients can receive treatment with a much higher precision and efficacy because of a broader inventory of therapies, and a better understanding of how that drug will interact with their genetics and specific biome.
Currently, the resources required to develop and administer these orphan and novel therapies are significant and the insurance and health systems have not been able to keep pace. As has been highlighted in RSM’s Health Care Outlook contained in this report, drug pricing reform and pricing transparency will present major regulatory challenges in the coming years and the uncertainty of the outcome will continue to put negative market pressure on the pharmaceutical sector.
New competition and partnerships
The pharmaceutical sector is poised for significant growth but will most likely look very different as the science increases in complexity and operations decentralize. Outsourcing of critical functions will become the norm as companies seek to remain nimble in the face of quickly advancing technology and relevantly skilled labor becomes harder to find.
We have seen Microsoft partner with Novartis to develop tech for specific research and development applications. Google acquired DeepMind and its branch DeepMind Health, which received approval to use five years of patient records (in England) for a health app development and artificial intelligence research. And Duke released a paper outlining how it is leveraging artificial intelligence and machine learning to look at complex data sets and run experiments thousands of times faster than with traditional models. While big tech companies may have enhanced capabilities from a data perspective, they lack experience in the regulated health care realm and in dealing with clinical trials. The coming years will most likely see a greater partnership between the life sciences and technology ecosystems as opposed to direct competition. By leveraging the combined skill set there will be amazing new breakthroughs in the efficiency and efficacy of health care.
MIDDLE MARKET INSIGHT The coming years will most likely see a greater partnership between the life sciences and technology ecosystems as opposed to direct competition.
HUMAN GENOME, DECODED
In 1990, Congress established funding for the human genome project which set out to decode a high-quality version of the human DNA sequence, among other goals. The project was completed in 2003 at a cost of $2.7 billion, and all of the research was made public. The insight it provided had an exponential impact on the cost and effort to decode individual genomes. Now scientists have been able to make major advances in science and health care, and have opened up previously unanticipated markets like the commercial genetics tests through companies such as 23andMe, AncestryDNA and others.
Sectors poised for growth in the midterm:
- Artificial intelligence and machine learning centers
- Contract research
- Contract manufacturing
Emergence of biotech
It’s important to note how biotechnology, pharmaceuticals and biopharma interrelate. The term biotechnology can be applied to any science or product that results from biological matter. This is different from pure pharmaceuticals, the companies that produce medicines based upon chemical compounds. With breakthroughs in genetics and the ability to leverage large amounts of data to identify how compounds will interact with our DNA, there is a blending of biotech and pharma to create what is referred to as biopharma. While many companies are classified as pharmaceutical or biotech, the reality is that most large drug companies have a pipeline of biological and chemical therapies, and most research and development efforts use biotechnology data and techniques.
The move into truly personalized treatment
In one of the first examples of truly personalized medicine, in 2019, a 6-yearold girl was found to have Batten’s disease, a fatal neurological disorder. Using advanced techniques, scientists in Boston were able to decode and analyze her genome, find the genetic cause and use a third party to develop and manufacture a drug just for her, all in 11 months. This new development model is the epitome of personalized medicine, and it’s what the FDA refers to as N-of-1 trials because they apply only to a single individual. Most drugs take a decade or more to reach the market and cost hundreds of millions if not billions of dollars to develop; but they can end up reaching thousands or even millions of patients. Personalized medicine, by contrast, focuses on diseases so rare that they have been abandoned or ignored by drug companies. While biotech companies continue to refine these techniques so they can be more broadly and economically applied, the current issue will be with pricing and deciding who actually receives the treatment.
Even with the high cost of development and potentially limited reach, the rise of biotech companies and specifically those that focus on genetics will be the future of the life sciences sector. The market appears to agree with this hypothesis; indices and exchange-traded funds focused on genomics are far outperforming the biotech and pharma cohorts.
WHERE DO WE GO FROM HERE?
Biotechnology has been used to genetically modify agriculture and livestock for years, but we are now at a point where recent advances and changing societal norms will fundamentally disrupt the very evolutionary process that has made us who we are as a species. We all know that there have been rapid advancements in reproductive science, but to actually think of what has happened in the past 40 years is astonishing.
In 1978, Louise Brown was the first baby born from in vitro fertilization; the first successful gestational surrogate pregnancy occurred in 1986; in 2013, scientists used CRISPR-Cas9 technique to edit the human genome; in 2017, Josiah Zayner (who sells genetic-engineering supplies to amateurs online) injected CRISPR into himself at a biohacking conference; and in October 2018, twin girls born in China had their DNA edited using CRISPR to make them more resistant to HIV.
While natural selection and selective breeding have long been culturally accepted, the ability to see the genetic makeup of embryos before deciding to carry a baby to term is the source of significant debate, and editing the germline of humans so that those traits are passed on to further generations has seen almost unanimous resistance and a call for a moratorium on the practice until international laws have a chance to catch up to the science.
Advances in biotechnology and the ability to affordably decode the genome of every person will allow for truly personalized therapies in biopharma that not only treat a specific disease for a specific person, but also edit patients’ DNA so that they never get sick in the first place. In the long term, all indicators point toward a gene-editing revolution. This prompts a series of difficult questions: Where will the economic opportunities lie? How do we adjust equitably and socially? Do we understand the implications, and are we ready?
Sectors poised for growth in the long term:
- Artificial intelligence and machine learning
- Genetic testing
OUTLOOK AT A GLANCE
- Consumer preference for the “quantified self” will drive the collection of massive amounts of data.
- Advances in technology and data science will create a better understanding of biology, physiology, chemistry and physics.
- Medical devices and life sciences equipment will become more integrated and ergonomic.
- An aging and affluent population with greater access to health care will drive demand.
- Focus will remain on treating the symptoms with available technology and therapies.
- Data will be leveraged in every aspect of life sciences and health care to drastically increase the pace of research and development.
- New technologies and market entrants (including big tech) will disrupt the ecosystem as boutique labs focus on novel and orphan therapies in lieu of blockbuster drugs.
- The pharmaceutical sector is poised for significant growth, but will most likely look very different as the science becomes more complex and operations decentralize. Outsourcing of critical functions will become the norm as companies need to remain nimble in the face of quickly advancing technology.
- Treatment will be tailored to the individual’s specific makeup, and there will be more orphan therapies available to treat unique needs. The previous necessity of using the best available drug will be replaced with using the right drug.
- Gene editing and genetic therapies will become commonplace.
- The need for medical devices and the pharmaceutical treatment of symptoms will be largely eliminated as treatments are applied to prevention or correction of the underlying anomaly before it has the opportunity to become a health issue.
- Biotechnology will dominate the life sciences space, and will influence other ecosystems such as technology, agriculture, industrial materials and consumer product markets. Think DNA as a data storage media, labgrown meat and plentiful biofuels supportive of a green economy.
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