2023 in Review: Life Sciences Tools & Services
The Tools and Services market is projected to grow at a CAGR of 10.8% in the next 6 years and reach approximately $330 Billion in revenue. This growth is attributed to a rise in government funding for life science technologies, demand for cell and gene therapies and an increase in the adoption of biopharmaceuticals and growing competition among prominent companies in the market. There will also be an increase in government funding for the advancement of research and technologies in the LS industry.
Not out of the woods yet
There is a strong opinion from leaders in the industry that 2024 will remain challenging in terms of finding funding and opportunities for growth due to wider economic challenges. Greg Lucier, CEO of Corza Health, remarked that “so many companies that benefited from the explosion of demand for diagnostic testing or vaccine production, or just medical supplies in general, had to navigate a precipitous drop in demand. That almost overnight shift from ‘go, go, go’ to ‘slow, slow, cut!’ was extremely difficult to manage operationally.” This drop in demand occurred at the same time as a withdrawal of venture capital from the tools and services space. Lucier continued, “Venture capitalists across the globe immediately went into hunker down mode, probably out of caution from the COVID demand profile changing so fast. Consequently, early-stage companies found it incredibly difficult to access capital to keep their businesses operating.” The key to weathering the storm, specifically in the tools and services space, is to have strong relationships with customers and long-standing contracts that can help guarantee annual income.
Moving into 2024, Lucier sees a continued challenge with funds, even for more established companies. This is a common theme among the leaders we spoke to: money is more expensive now. The time may be right, however, for creative thinking. Lucier intends to enter 2024 in a forward-thinking mode, telling us “now is the time to be bold in your thinking! What new idea can be hatched, what mergers should happen to reduce costs, where are assets relatively inexpensive that can be purchased due to the tough capital markets?”
Sitting on dry powder
There has been a substantial increase in investment for analytics technologies to enhance talent attraction and engagement, predictive analytics and external market intelligence, analytics dashboard, artificial intelligence, and digital technology professionals to support HR. CEO of Life Science Group David Nelson sees brighter lights ahead in overall investment trends, telling us “I think the VCs and private equity investors will actually pick up their investing as they have been remained somewhat cautious since the outbreak of Covid in March 2020.” He added, “as a result, they now have a substantial amount of dry powder, and they need to put that capital to work given the finite nature of their funds.”
Nearly every leader we spoke with mentioned that financial markets are creating near-term headwinds for the sector. Vinent Carrere, CEO at NH TherAguix, notes that as “access to capital is also more challenging for VCs which, in turn, tend to apply more stringent criteria for new ventures.” While headwinds may be challenging, Carrere is still optimistic, noting “I’m firmly convinced that innovations backed by strong science/data and developed by the right teams will keep successfully raising funds from VCs.” He adds “as healthcare is more protected from economic cycles than other sectors or activities, we continue to have many great collaboration opportunities with leading university hospitals worldwide.”
Driven by the challenging macroeconomic environment, the CEO of Singular Genomics, Drew Spaventa, sees further headwinds in the first half of 2024. He notes, however, that “those able to weather the storm will emerge strong on the other side.”
Geopolitical instability evident in the Russia/Ukraine and Israel/Hamas wars, coupled with inflationary pressure, have Sean Davis, CEO of Server Life Sciences concerned for the start of 2024. Despite these hurdles, he sees the possibility of future success in the “rapidly evolving developments of scientific and medical knowledge including the use of AI and gene related technology.”
As a result of these and other challenges, many companies in the sector are focusing on controlling cash burns and driving toward profitability. The rapid development and innovation in tools capabilities will continue to drive novel application development in the R&D, bioprocess testing and clinical diagnostic lab setting. Despite the near-term economic challenges, the core investment thesis for diagnostics and research tools remains strong. Development of advanced tools will continue, driven by needs underpinning megatrends in healthcare, such as precision medicine and advanced therapeutic modalities. Moving forward, we may see continued consolidation as many players still have significant cash reserves on the balance sheet to effect strategic M&A.
Tools and services talent outlook
As the Tools and Services market continues to grow, it will be important that companies upskill their current workforce to make the most out of technological advancements. The pace and urgency of digital transformations in the industry has increased rapidly in the past two years. The Covid-19 pandemic has forced the tools and service life science organizations to rethink their commercial models. Organizations with traditional approaches to hiring, upskilling, and reskilling are struggling to keep up, as they often fail to identify the talent, they need to fully understand their expectations and requirements. Other key challenges are the Great Resignation is real and competition for tech talent in the industry is fierce and increasing, location agnostic.
As the industry continues to evolve it will be important for companies to transform their organizational structures, operating models, and HR processes. It is important to establish skill-based, strategic workforce planning, have an authentic, digitally focused value proposition, take a candidate-centric approach to hiring, embrace agile ways of working and build growth-oriented career ladders.