2024 Outlook for Life Sciences GenAI, drug prices, economy likely to influence strategy

Watch our 2024 Life Sciences and Health Care Outlook Dbriefs webcast on-demand.

By Pete Lyons, National Life Sciences sector leader, Deloitte Consulting LLP, and Leena Gupta, senior manager, Deloitte Center for Health Solutions, Deloitte Services LP

Digital transformation, generative artificial intelligence (AI), and the adoption of virtual health/digital tools are the three trends most likely to impact medical device manufacturers in 2024, according to a survey of C-suite executives conducted by the Deloitte Center for Health Solutions. Overall, biopharmaceutical executives expect that drug pricing, regulatory changes, and out-of-pocket costs for consumers to have the most significant impact on their companies next year (click here to see complete results of our survey).

Deloitte’s 2024 Health Care and Life Sciences Outlook is based on responses from 121 C-suite executives representing U.S. biopharmaceutical companies, medical device manufacturers, health systems, and health plans. Overall, representatives from the medical technology (medtech) industry were more optimistic about the year ahead than were biopharmaceutical executives. However, both groups were more optimistic about 2024 than were executives from health systems and health plans (click here to see my colleague Tina Wheeler’s 2024 Outlook for the health care sector).

Drug pricing is top concern for biopharma

Every pharmaceutical executive who participated in this year’s Outlook survey expects drug pricing to have either a “great impact” (58%) or a “moderate impact” (43%) on their organization. We’re not surprised by the responses. In August, the Centers for Medicare and Medicaid (CMS) identified the first high-cost drugs that will be subject to price negotiation under the Inflation Reduction Act (IRA). (See How might IRA’s drug-pricing provisions affect stakeholders.) In addition to that federal law, a growing number of states are adopting Prescription Drug Affordability Boards (PDABs) to manage drug costs. PDABs seek to cap and control what drug manufacturers can charge for their products. In addition, more than 20 states have passed drug-pricing transparency laws.

While the IRA was signed into law more than a year ago, some drug manufacturers might have been surprised by the drugs that were picked for negotiation and have begun to understand the impact the law could potentially have on their pipelines. The increased focus on drug prices this year seems to have caused some trepidation across the industry and there are questions about what it might mean for research and development (R&D) prioritization. There are also concerns about the impact new laws and regulations could have on products already on the market, according to survey results. Over the next year, we expect that biopharma companies will focus on cell and gene therapies, new oncology regimens, and therapies to treat rare diseases. These products are associated with comparatively high per-patient pricing.

6 more factors likely to influence biopharma and medtech in ’24

Based on our survey findings, and conversations with our life sciences clients, here’s what may have the most profound impact on biopharmaceutical companies and medtech manufacturers in 2024:

1. Generative AI: Last year, we suggested that the rise of AI was a trend to watch (see 2023 Outlook for Life Sciences). More than 90% of biopharma and medtech respondents said they expect generative AI to have an impact on their organizations next year. A year ago, it seemed like few people had even heard of generative AI. It now dominates many of the conversations we have with leaders from life sciences companies. A majority of life sciences companies surveyed (66%) said they are experimenting with generative AI to test ideas and to build use-cases. They are exploring ways the technology could automate repetitive back-office functions, reimagine supply chains, or support compliance and regulatory affairs (see Can Life Sciences companies unlock the full value of GenAI?). Twenty-five percent of biopharma executives said their companies have established governance and an oversight structure for generative AI and another 50% expect to have something in place within the next 12 months. Nearly 70% of biopharma respondents said using generative AI for research and discovery is a top priority. Medtech executives appear to be slightly behind with 20% having governance and an oversight structure in place, and 57% expecting to get there in 2024. About half of our medtech respondents said research and discovery is a priority for generative AI next year. About 25% of medtech executives, and 18% of biopharma executives, said they are waiting for more evidence before they invest in generative AI. According to results from our Medtech Digital Innovation survey, more than 80% of medtech leaders said their organization’s largest digital investments were going toward AI.
   
2. The economy and inflation: Last year, half of all life sciences respondents expected that inflation would have a profound impact on their organizations as consumers put off purchasing prescription drugs or medical devices. Inflation appears to have stabilized, falling from 4.9% in 2022 to 3.6% this year.¹ And the economy hasn’t fallen into a recession as some economists had predicted.² However, 36% of this year’s life sciences respondents expect the economy and inflation will continue to influence their strategy in 2024. Among medtech manufacturers, 43% said the economy and inflation would have a “great impact” on their 2024 strategy, and 57% thought it would have a “moderate impact.” Respondents from the biopharma side were a bit more optimistic, with 33% expecting a “great impact” and 60% predicting a “moderate impact.”
   
3. Investment in innovations: Last year, 95% of biopharma executives said the development of next-generation therapies and other innovative products was a top priority for 2023. This year, 20% biopharma respondents said investing in innovative products was a top priority for 2024, and 23% said it was not important. However, about 30% of biopharma respondents pointed to R&D productivity as a key priority. Nearly half of medtech executives (48%) said the development of innovative products was a top priority for the year ahead. That percentage is down from 80% a year ago. And while 38% of this year’s medtech executives said R&D productivity was a top strategy, that percentage is down from 75% a year ago. The drop this year is a bit surprising given that innovation is generally at the heart of the life sciences. Despite the decline from 2023, it seems likely that investing in innovation and improving R&D productively will remain priorities.
   
4. Workforce and talent: The workforce shortages that continue to affect hospitals and health systems have not had the same impact on life sciences companies. In our meetings with life sciences leaders, the topic of talent and workforce challenges typically doesn't come up as often as it did a year ago. A year ago, the sector was still feeling aftershocks from the COVID-19 pandemic, and medtech and biopharma executives predicted talent challenges and shortages would have an impact on their 2023 strategy. There appears to be less concern about workforce heading into 2024. But that doesn't mean talent is not important. What seems to matter is the type of talent. The battle for scientific talent in life sciences tends to be an important topic because it can drive competitive advantage.
   
5. Health equity: Sixty percent of biopharma executives, and 57% of medtech executives, said addressing health equity would influence their strategies in 2024. The percentages are down a little from a year ago, which might be a reflection of recent regulations. An omnibus spending bill enacted in late 2022 (Public Law 117-328) requires diversity strategies for clinical trials used by the Food and Drug Administration (FDA) to decide whether drugs are safe and effective. Nearly 80% of patients who participate in clinical trials are white, according to a multi-year FDA study. Moreover, less than 20% of approved drugs have data that evaluated the treatment benefits or side-effects on Black patients.³ In the aftermath of the COVID-19 pandemic, there was an increased focus on making clinical trials more diverse and inclusive.⁴ Ensuring drugs and medical devices will be effective for everyone, regardless of race, ethnicity, or gender is important. Conducting clinical trials in areas that are more accessible to underserved communities could help to improve diversity. With their commitment to patient-centered care across diverse patient populations, community health centers could represent an untapped potential for driving equitable participation in clinical research. According to recent data conducted by the Deloitte Center for Health Solutions and the National Association of Community Health Centers (NACHC), 43% of community health centers are conducting and/or are interested in conducting clinical trials in the future (see Broadening research participation through community engagement). With a companywide approach to health equity, life sciences companies can develop more equitable products and services—and see better health outcomes and tangible business benefits (see Health equity in life sciences).
   
6. Supply chains: There are certainly some concerns about conflicts around the world, and how they could impact global economies, markets, and customers. Nearly 60% of biopharma executives said geopolitical tensions could have an impact on their 2024 strategies. Life sciences companies have an opportunity to future proof their supply chains by using generative AI and other digital technologies to become more flexible and resilient to changing market conditions. However, only a third of the biopharma supply chain leaders we surveyed said that their organizations are attempting to transform their supply chains through digitalization. In addition, the supply chain activities required to make and move drugs can have a considerable impact on the environment. More than 70% of the emissions produced by life sciences companies originate in their supply chains (see Making biopharma's supply chains more environmentally sustainable). Over the past few years, some biopharma companies have set ambitious sustainability goals and launched efforts to reduce their environmental footprint.
   

Most life sciences executives surveyed have a cautiously positive outlook for their organizations in 2024. Many of them had some concerns about geopolitical tension and how they could impact global economies, markets, customers, and supply chains next year. While there may be challenges to overcome in 2024, the life sciences sector is likely to continue to drive great innovation and positively impact human lives.

Acknowledgments

Thank you to the teams from the Deloitte Center for Health Solutions, including Wendy Gerhardt, Maulesh Shukla, Hemnabh Varia, Wendell Miranda, and Gargi Khandelwal for their work in research management, design, analysis, and interpretation of our survey results. We would also like to thank Steve Davis for his writing and editorial support.

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Endnotes:

^{1_{Is inflation on the way out or here to stay?, Federal Reserve Bank of St. Louis, October 19, 2023}}

^{2_{Fed, economists make course correction on US recession predictions, Reuters, August 17, 2023}}

^{3_{Despite FDA’s five-year plan, Black patients remain inadequately represented In clinical trials, Health Affairs, March 2022}}

^{4_{After COVID, a continued push for drug trial diversity, U.S. News, July 18, 2023}}

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