A Real Economy publication

Life sciences industry outlook

Feb 27, 2024

Key takeaways

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Clinical trials are increasingly global, with China leading growth in clinical research participation.

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Extended FDA approval timelines are challenging medtech companies, but R&D spending remains robust despite these delays.

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Patent expirations could lead large biopharmas to invest in the middle market as they renew their patent pipelines.

Life sciences trend #1: CROs: Rekindling relationships with small to midsize biotechs

Life sciences stocks struggled due to inflation and increased lending rates until late 2023 when they rebounded slightly, though still lagging behind the S&P 500. The Federal Reserve's indication of potential rate cuts may signal a turnaround for life sciences equity valuations, with an expected increase of 15% to 20% through 2024, favoring companies with strong pipelines or proven success. Amid this, clinical research organizations (CROs) are advised to refocus on small to midsize biotechs for renewed opportunities in funding. Globally, clinical trials are increasingly distributed across countries, with Asia experiencing significant growth in clinical trial sites, while Europe has seen a decline, presenting challenges for middle-market CROs in navigating compliance, regulatory, and financial reporting requirements across diverse jurisdictions.


Life sciences trend #2: Medtech's market challenges continue, but sustained R&D and investment growth is on the horizon

Medtech companies are facing challenges in the market, but revenues are increasing overall, especially in diabetes management. Despite capital constraints and long FDA approval timelines, middle-market medtech firms are maintaining high levels of research and development (R&D) investment. Venture capital dynamics are shifting towards fewer but larger deals, with a focus on surgical devices, while premarket approval timelines exceed two years, necessitating cash runway management. Despite these challenges, the outlook for medtech companies remains optimistic, with strong R&D spending and promising diabetes management revenue trends indicating potential for continued growth and success.


Life sciences trend #3: Life sciences eyes give-and-take with IRA and upcoming ‘patent cliff’

The Inflation Reduction Act of 2022 (IRA) marks a significant shift in drug pricing, compelling negotiations between the U.S. government and makers of high-spending Medicare Part B and D drugs. While this may impact large pharmaceutical companies, the middle market in the life sciences industry faces uncertainties regarding indirect effects.

Simultaneously, the industry faces a patent cliff from 2023 to 2030. This presents opportunities for middle market companies to introduce generic or biosimilar drugs, potentially leading to increased licensing deals and acquisitions by large pharmaceuticals seeking to replenish pipelines post-expirations. 

RSM contributors

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