By Karen Taylor, Director of the UK Centre for Health Solutions

With ‘the global pandemic firmly in the rearview mirror’, Deloitte’s 2024 Global Life Sciences Sector Outlook report, published on 31 May 2024, identifies a broad number of trends with wide ranging global impact that are likely to influence the future growth of life sciences companies. This week’s blog provides a summary of three of the six most disruptive trends that life sciences enterprises should consider paying particular attention to and next week we will cover the remaining three disruptive trends.

Value creation: M&A, partnerships, collaborations, new sources of capital and shifting priorities

Uncertainty across the economic and geopolitical landscape is likely to continue to impact decision-making in 2024. Life sciences and medical technology (medtech) companies have spent the past year managing inflation, rising interest rates, and slower economic growth. While inflation now seems to be lessening and interest rates appear to be stabilising, growth is likely to be moderate. Although valuations grew for life sciences companies over the past year, for the rest of 2024, companies will be finetuning their strategies to create top-line value with strategic acquisitions, while planning for longer-term bottom-line improvements, including divestitures and cost reductions.

Over the next year, pharma companies will continue to look to M&A to plug portfolio gaps in response to the loss of exclusivity (LoE) across various therapeutic areas. Private equity will continue its interest in life sciences suppliers, particularly contract development and manufacturing organisations; venture capital (VC) funding is likely to remain active and resilient; and public-private funding also offer promising avenues for advancing innovation. In 2024, the growing focus on precision medicine and personalised therapies leveraging advanced technologies like AI, is expected to drive additional new collaborations and partnerships.

Key takeaways:

• VC funding likely to be selective - venture capital investment in life sciences is expected to stabilise, favouring companies with strong data and proven potential. The IPO market remains tepid.
• Value creation takes centre stage ­- companies will prioritise strategies that drive top-line and bottom-line growth through targeted acquisitions and divestitures.
• Collaborations gain traction as alternatives - biotech companies increasingly turn to partnership models with larger players to access resources, expertise, and new markets, especially as funding tightens.

Extracting value from GenAI and emerging technologies

Generative AI (GenAI)’s is rapidly evolving and its potential to transform life sciences has quickly excited and challenged most companies. In the year ahead, extracting GenAI’s value and managing its risks, while maintaining trusted enterprise status, are likely to be at the forefront of most leaders’ strategic priorities.

Life sciences vast datasets when combined with the advanced AI capabilities of tech giants, offer powerful synergies and opportunities to revolutionise all parts of the pharma value chain, by automating tasks, improving workflows, and optimising processes. This is in turn could deliver significant cost savings and efficiency gains. For example, a top 10 biopharma company with an average revenue of US$65-75 billion could capture between US$5-7 billion of peak value accretion by scaling the use of AI across the value chain over five years. This varies depending on an organisation’s size with 35 per cent of opportunities expected to be from R&D, 20 per cent from supply chain, 30 per cent from commercial and 15 percent from enabling areas.

The ability to integrate audio, code, images, text, simulations, and videos with GenAI is already changing the way content is generated and delivered, and is likely to transform consumers, businesses, and health care experiences. While each individual GenAI use case may generate some improvements, stringing together multiple use cases, along with other digital tools like machine learning (ML) and Internet of Things (IoT), could transform entire processes and unlock substantial value.

Ultimately, all decision-makers will need to harmonise their existing AI enterprise strategy with GenAI, including considering GenAI’s capabilities and limitations. While there are risks in deploying GenAI models across the enterprise, particularly large language models (LLMs), there are several ways they can be deployed. For example, using a service provider, as a SaaS model and deploying an organisation’s private cloud or network ‘on-prem’.

For the rest of 2024, some life sciences companies are likely to look to private LLMs for a ‘walled garden’ to protect their data and control costs. More generally, society expects guardrails to be in place to engender trust in AI. Keeping ‘humans in the loop’ will be critical to check and validate the accuracy of AI use and address problems as they arise. Moreover, frameworks like Deloitte’s Trustworthy AI Framework, can help organisations manage risks and adhere to emerging regulations. While a global regulations may not be feasible, the changing regulatory landscape and speed of GenAI innovation presents challenges for all stakeholders who would like more clarity and collaboration between regulators.

Key takeaways: 

• String-of-Pearls approach for transformation - implementing multiple GenAI use cases linked together can transform entire processes across research, development, and patient care.
• Personalised patient experiences - GenAI can create personalised experiences for patients, such as AI-powered chatbots for mental health support or customised treatment plans.
• Focus on trust and governance - managing hallucinations, addressing concerns about AI model bias, ensuring transparency and explainability, and ethical use is crucial for building trust and scaling GenAI adoption.
• Multimodal functionality - LLMs are incorporating text, audio, images, and video, enabling more natural human-like interactions and broader applications.

Accelerating speed of time to value in R&D

As the US and UK Centres for Health Solutions identified in their 2023 annual report, Measuring the return from pharmaceutical innovation, R&D spend increased 4.5 per cent from 2022 to 2023 while the average R&D cost to progress an asset from discovery to launch remained flat at US$2.284 billion per asset. Although the internal rate of return (IRR) rose to 4.1 per cent in 2023, from the record low of 1.2 per cent in 2022, concerns remain that drug development is slow and expensive.

For the rest of 2024, ongoing regulatory changes and the loss of exclusivity of a large number of high value assets are expected to challenge the existing biopharma operating model. Pricing pressures from the Inflation Reduction Act’s (IRA’s) health provisions, are already impacting R&D decision-making and portfolio strategies. Indeed, ten R&D leaders that Deloitte interviewed for the above R&D report expressed more concern about changing regulations than cycle times or R&D costs.

Speed to market has long been a leading priority for drug developers to accelerate patient access to life-saving therapies. However, there are still only about one in ten of the assets that enter human trials, obtaining regulatory approval. Despite many advances in science and technology, this remains one of the leading challenges for the biopharma industry. New technologies like AI are being explored to speed up the process and get treatments to patients faster. This includes better data management, use of AI for drug discovery and design, and improved collaboration between stakeholders.

Speed to market, however, is only part of a success formula; companies also need to look at ways to accelerate time to value. Leading biopharma companies are adopting new GenAI/AI technologies and other data innovations across the value chain, forming new partnerships, and outsourcing for cost and time savings. By adopting strategies to accelerate time to value in an agile manner, companies can start to realise potential cost savings and competitive advantage. Given the acceleration in pace and development of AI-enabled digital solutions. Ultimately, transforming clinical trials will require companies to work in very different ways, drawing on change management skills, developing highly skilled interdisciplinary leadership, engaging with AI experts and having AI-friendly CEOs and board members pushing for adoption.

Key takeaways:

• GenAI adoption for speed and efficiency - AI technologies hold much promise to accelerate drug discovery, clinical trials, and regulatory approval.
• Data management and talent development - organising data and building a future-proof workforce are crucial for AI integration.
• Focus on time-to-value - prioritising speed to market access for life-saving treatments, especially for rare diseases.
• Strategic collaborations - collaboration between pharma, biotech, and research institutions, and early engagement with regulators, can accelerate R&D progress

Conclusion

Given the ongoing degree of uncertainty across the geopolitical, economic, and regulatory landscapes, life sciences companies are likely to continue relying on innovation, agility, and collaboration as they build on their commitment to bettering the lives of patients. Value creation through M&A partnerships and collaboration together with the transformative power of advances in AI and analytics, and more focus on reducing speed and time to value in R&D suggest that a resilient and sustainable life sciences industry is achievable. Next week we will explore the other three disruptive trends to complete our assessment of the outlook for the life sciences industry.

Karen Taylor - Director, UK Centre for Health Solutions

Karen is the Research Director of the Centre for Health Solutions. She supports the Healthcare and Life Sciences practice by driving independent and objective business research and analysis into key industry challenges and associated solutions; generating evidence based insights and points of view on issues from pharmaceuticals and technology innovation to healthcare management and reform.

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