In the past year, the life sciences industry has struggled with high interest rates and a tight cash environment. The high-risk characteristics of the industry, combined with the state of the economy, have left many investors wary. Fortunately, it appears likely that headwinds will abate in 2024 leading to increased investment and an overall improvement in economic conditions.
Facing a new environment this year, life sciences leaders will need to focus on investing in innovation, securing supply chains, strengthening their workforce, and pursuing new financing opportunities in order to be successful. Here are six trends BDO expects to see in 2024 as life sciences companies pivot their strategies to meet a new business landscape:
- Large language models offer a simpler way to use AI for drug discovery
Advancements in AI are making it possible to solve long-standing issues in life sciences, particularly those that require complex calculations. Historically, building computational AI models has required specialized skills and significant computing power. While this remains the case for computational AI, with the evolution of accessible large language models, researchers can use AI for drug discovery in a way that’s simpler and more intuitive.
Large language models can facilitate literature-based discovery by analyzing hundreds of research papers to identify trends and match proteins with potential drug molecules, without having to calculate the protein structure. Using large language models to synthesize existing literature-based molecules and create a shortlist of molecules to test can greatly reduce the time, cost, and risks of drug development. We expect to see further developments and use cases for large language models in drug discovery in 2024.
- Regulations evolve to protect patient privacy in the age of AI
Training AI models with patient data can have significant benefits for both patients and drug and device developers.
However, using patient data to train AI models or produce outputs raises questions about patient data privacy and consent. Existing regulations, such as the Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH), have yet to take into consideration new technology like AI. An executive order from President Biden, issued in 2023, directs the Department of Health and Human Services (HHS) to create an AI Task Force to explore the impacts of AI on healthcare and drug development.
We expect this order to result in regulations governing the use of AI in life sciences and healthcare and expect HHS to issue further guidance on how to manage patient privacy and avoid AI bias.
- Supply chains become more secure
According to BDO’s 2024 Life Sciences CFO Survey, 41% of life sciences CFOs plan to reevaluate their sourcing strategy and vendor agreements in 2024, likely due to the lessons learned from the supply chain bottlenecks of the COVID-19 era. This indicates that CFOs are concerned about overreliance on overseas suppliers, outdated vendor agreements, and a lack of supplier diversity, which all present a risk to their supply chains.
Additionally, the Drug Supply Chain Security Act (DSCSA) outlines how pharmaceutical companies can achieve interoperable electronic tracing of products at the package level to identify and trace certain drugs. This tracing will help protect consumers from drugs that may be counterfeit, stolen, contaminated, or otherwise harmful, as well as help eliminate potentially dangerous drugs from the drug supply chain. Complying with this regulation will help life sciences companies achieve end-to-end supply chain visibility and improve patient safety and trust.
In 2024, we expect to see more life sciences companies evaluate their suppliers and manufacturers to identify potential changes to enhance supply safety and reliability and mitigate the risks of future shortages. We also expect them to implement new supply chain technologies, including advanced analytics, demand management, and predictive forecasting, to improve tracking and tracing.
- The life sciences workforce rebounds
The Federal Reserve is likely to slowly lower interest rates again in 2024. This could result in stronger capital markets and eager PE and VC investors resuming investments in life sciences, leading to a resurgence in demand for labor.
Looking beyond 2024, the life sciences industry may face a potential talent shortage. Demographic trends indicate the industry is approaching a wave of retirements, and there is a shortage of adequately trained scientists coming into the field to fill these vacancies.
However, reskilling can help fill some of these vacancies. As the use of AI in research and discovery becomes more widespread life sciences companies will seek to hire more talent with a background in programming, data science, large language models, and AI. AI also presents an opportunity to automate and augment back-office processes, which will allow finance and HR departments to run effectively with leaner teams, freeing up resources to focus on hiring research and development talent.
- Life sciences startups seek alternative strategies for infusing capital
We expect interest rates to begin declining in 2024, which could cause a rebound in the capital markets and make capital more accessible to life sciences companies. For life sciences companies thinking about going public later in 2024 or 2025, now is the time to prepare by making strategic investments in infrastructure and risk management.
Before the capital markets rebound, life sciences companies will continue to look for alternative strategies to infuse capital. In particular, we may see more companies turn to partnership agreements while interest rates remain relatively high.
Companies will also look to non-dilutive funding in the form of federal funding and grants to advance projects that align with biodefense goals. As the government looks to mitigate or prevent the next pandemic threat, it is providing funding to companies capable of rapidly developing and manufacturing vaccines, treatments, and diagnostic tests.
- Life sciences companies make progress on sustainability reporting
Both public and private organizations are now preparing to comply with sweeping state, federal, and international climate risk and emissions disclosure rules. Environmental, social, and governance (ESG) risks are becoming increasingly material to business resilience, as consumers, shareholders, regulators, and other stakeholders demand more transparency.
Compliance will entail meticulous data collection, organization, governance, attestation, and disclosure, and may require changes to existing climate risk and greenhouse gas (GHG) emissions disclosure practices. A new rule proposed by the SEC requires public companies to disclose their GHG emissions reduction targets and climate-related business risks. Organizations will need to take steps now to develop and outline goals, collect relevant data, and measure progress.
In tandem with new sustainability regulations and standards, we anticipate life sciences companies will invest in their talent and technology to comply and maintain a competitive edge. They will likely hire leaders who understand ESG reporting frameworks and standards and can navigate the nuances of robust data disclosure. The industry will also likely see investments in carbon footprint software to accurately measure and monitor companies’ unique carbon profiles. Some carbon footprint calculators can integrate with ERP systems to make calculating supply chain emissions easier, especially if suppliers use the same ERP system.
Interested in learning how BDO can help your business succeed in 2024? Contact our life sciences team.