2023 Global Life Sciences Outlook | Deloitte US has been saved
By Vicky Levy, Global Life Sciences sector leader, Deloitte Consulting, LLP
Now that the dust has settled from the first quarter of 2023, the outlook for the rest of the year is beginning to come into focus for life sciences companies. While the first three months might have been a bit erratic—due to rising interest rates1, an economic slowdown2, continued geopolitical uncertainty3, new rules outlined in the Inflation Reduction Act4, and on-going supply chain issues5—pharmaceutical, biotech, and medical device manufacturers seem to be finding their footing. Almost half of life sciences executives surveyed by Deloitte Global said they remain optimistic about the sector for 2023 (See Deloitte Global’s new 2023 Global Life Sciences Outlook). I suspect this is due to their continued confidence in the underlying demand for medicines, their belief in the value of big and small mergers and acquisitions (M&A), and their confidence in their ability to continue to transform themselves and create impact and value.
In Deloitte Global’s 2022 Outlook, I noted that the COVID-19 pandemic had pushed many companies to adapt to a world that was quickly becoming more digital and virtual. I asked if the effects of the pandemic would continue to push the sector forward. (See COVID changed life sciences companies…will they change back?). A year later, it is clear that there is no going back. The pandemic was somewhat of an industry-wide bomb cyclone. While it had a profound impact on the sector, and helped to accelerate change, it is not the only factor.
Big pharma could see some big deals
Some biotech and pharmaceutical companies benefited from and grew during COVID. A few companies that were involved in the development of vaccines and/or therapeutics to prevent and treat the disease gained a global customer base of unprecedented reach and scale. Some of their products touched billions of people. It is unlikely those companies want to return to their smaller, pre-pandemic customer base after getting a taste of what they can do at scale. These companies are likely looking to acquire organizations with complementary portfolios to help sustain their scale and growth. Conversely, companies who were negatively impacted by the pandemic might need to jettison less profitable lines of business and seek to deploy capital differently to accelerate growth.
The pandemic had a completely different effect on the medical technology sector. As patients put off non-emergency procedures, some device manufactures saw sales fall.6 In addition, supply chain disruptions led to worldwide shortages of some medical devices.7 In his 2023 Outlook for U.S. Life Sciences companies, my colleague Pete Lyons said that despite the challenges that emerged from COVID-19, he was bullish on the sector for 2023. About 80% of surveyed medtech executives said the development of innovative products would be a top priority in 2023, according to our U.S. life sciences industry outlook; and 75% intend to focus more on their research and development (R&D) investments. Respondents also indicated they intend to invest more in digital innovations in the year ahead and will try to build more resiliency into the supply chain. (Click here to see our complete survey results.)
Factors that could help shape life sciences this year
Pressure on margins and sales, declining access to capital for biotechnology companies, the Inflation Reduction Act, and continued focus on health equity could help drive behavior during the rest of 2023 and beyond. In response, I expect we will see increased attention on M&A, more aggressive focus on R&D, commercial, and supply chain, and a broader and rigorous approach to health equity. I also expect companies will continue to try to differentiate themselves by looking beyond the medicines and products they manufacture. I expect there will be an increased emphasis on patient experiences and health outcomes.
Here are five issues that could influence the global life sciences sector during the rest of 2023:
COVID-19 was an accelerator for the life sciences sector, and it changed the way some business is done. The pandemic helped to illustrate what this sector is capable of accomplishing, in terms of reach, scale, innovation, collaboration, and the ability to make decisions quickly.
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Latest news from @DeloitteHealth
1 The Fed raises rates a quarter point and signals more ahead, The New York Times, February 1, 2023
2 Global economy to slow further amid signs of resilience, International Monetary Fund Blog, January 30, 2023
3 Asia and the world face growing risks from economic fragmentation, International Monetary Fund Blog, October 27, 2022
4 Explaining the prescription drug provisions in the Inflation Reduction Act, Kaiser Family Foundation, January 24, 2023
5 Reimagining the pharma supply chain, The Hill, November 15, 2022
6 Medical devices market mostly stabilized after two years of COVID-19, Medical Device Network, December 14, 2021
7 Medical devices market-growth, trends, COVID-19 impact, and forecast, Yahoo! Finance, November 3, 2022
8 Investing in an era of higher interest rates and scarcer capital, The Economist, December 8, 2022
9 Pfizer agrees to buy Seagen for $43 billion, Wall Street Journal, March 13, 2023
10 Explaining the prescription drug provisions in the Inflation Reduction Act, Kaiser Family Foundation, January 24, 2023
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