Innovation and the vertical cloud model

15 October, 2014 / Articles

The life science industry is in the midst of massive transformation, and the vertical cloud model – as in other industries – is uniquely positioned to help stimulate innovation and shape how the market evolves.

For pharmaceutical companies, what’s at stake is the $100 billion spent on drug development and the estimated $45 billion spent on IT annually. Each new molecular entity costs at least $4 billion, according to the InnoThink Center for Research In Biomedical Innovation. These are substantial resources being deployed to generate new medicines, yet success rates are not high considering the number of new drug approvals by FDA.

R&D, Sales and the Vertical Cloud

As the industry evolves, there will be a demand for technology to keep pace with new science. A cloud company is able to bring on new technology rapidly and across a broad section of the industry’s functionality, almost as a horizontal approach for a vertical model.

Because of this, vertical companies can benefit from high R&D investment to drive innovation to differentiate a platform among its peers. Every company has its own reasons whether to drive innovation organically through internal R&D or to look externally through M&A. But all else equal, a vertically focused company can leverage R&D dollars efficiently in comparison to a horizontal company that needs to support customers with various needs across multiple industries. Medidata (life sciences) and vertical software companies Guidewire (property/casualty insurance software), Demandware (e-commerce) and Opower (utilities) all posted R&D expenditures above 18% of revenue in 2013.

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