2023 in Review (and a Look Ahead to 2024)
It’s time to look back on a challenging 2023 and to look around the corner at what is coming in 2024. The last few years within the life sciences industry have ranged from eventful, to challenging, to unprecedented. While the day-to-day restrictions and negative health outcomes have eased, the COVID-19 pandemic and its impact continue to cast a shadow. 2023 added more familiar but no less worrisome geopolitical and financial challenges. Join us as we take the first of several looks back, and forward, in Life Sciences.
After record investment through 2020 and 2021, when venture capital backed biotech investment peaked at 120 funds involved and $29.6 billion raised from VC alone, declined in 2023 yet remains consistent with levels seen in the 2014-19 period. VC investing remains a significant part of the investment landscape. While the data we've compliled for 2023 indicates a comparatively down year, we remain optimistic about the future of the industry.
IPO activity continued to decline after the $15 billion COVID-induced peak in 2021. There were only 5 IPOs that raised more than $250 million in 2023, compared to 14 at that level in 2021. If one zooms out to a longer horizon, however, things are not particularly bleak. It feels much slower compared to 2020-2021, but the industry overall is “healthy” and capital exists to invest at comparable levels to the 2015-19 period.
Nearly every leader ZRG spoke with throughout 2023 mentioned that financial markets are creating near-term headwinds for the sector. Vincent Carrère, CEO at NH TherAguix, notes that [in 2023] “access to capital is also more challenging for VCs which, in turn, tends to apply more stringent criteria for new ventures.”
While headwinds may be challenging, Carrère 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.”
External Forces Present Challenges
The Inflation Reduction Act of 2022 has added additional complications in the form of regulatory concerns, and the geopolitical realm has been volatile. Rising interest rates have further cooled investment activity. Combined, these factors have increased uncertainty and risk leading to lower investment activity and a dramatic slowdown in new company formation.
Geopolitical instability evident in the Russia/Ukraine 2022-2023 and Israel/Hamas 2023 wars, coupled with inflationary pressure, have Sean Davis, CEO of Sever 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.”
McKinsey analysts recently suggested that large-scale mergers could be the answer in the MedTech sector specifically. Such mergers have not always succeeded, but their analysts believe that the time is right for a reinvention of the industry. While large merger failures are headline news, when they work, they have the potential to substantially improve margins and consolidate IP.
Artificial Intelligence and Machine Learning (AI/ML)
The industry continued to innovate with great promise around AI/ML and its potential contribution across drug development, diagnostics, and medical devices leading to significant attention and investment. AI enabled medical devices have received much attention, with MPO Magazine ranking them the number one application for AI in the industry; however, connected medical devices remain one of the industry’s largest cybersecurity risks.
Overall, efficiency gains from AI continue to emerge. The additive potential of AI here is immense, with some estimates arguing that a single AI reader can save radiologists 100,000 reads. Freed from repetitive tasks, radiologists can complete more procedures or have more time for consultation.
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.
The emergence and potential multi-billion-dollar market of weight-loss benefits from diabetes drugs developed by Eli Lilly and Novo Nordisk has driven each company’s respective market cap to record highs. Late in the summer, Lilly and Novo received study data showing Wegovy® has significant benefit in preventing cardiac disease and stroke, likely increasing pressure on regulators to amend the prescribing label. More recently, Lilly received approval to market tirzepatide as Zepbound® for treatment of obesity; the drug is already an approved diabetes treatment, Mounjaro®. Global obesity rates have continued to rise, and the NIH predicts one billion people will be categorized as obese by 2025. The need for treatment options will only continue to increase.
Cell and gene therapies continue to evolve and hold great promise, while the industry looks to address drug shortage issues for older, genericized, but still critical medicines. Making those drugs both remains a critical need and continues to drive job growth. Drug manufacturers have seen growth in headcount, especially among mid-sized firms, totaling up to 73% growth as a sector.
Overall, the life sciences industry workforce continues to grow despite the headlines of company closures and layoffs that increased substantially in 2023 especially within the biotech sector. The industry continues to shift to a more diverse but connected ecosystem with partners and key vendors leveraged more heavily as companies focus on their core expertise. The tools and service sector, for example, is projected to grow at double-digit rates and double in size over the next 8 years.
While the outlook for 2024 is uncertain, the global Life Sciences industry will continue to innovate and adapt as it pursues its mission to enable better health outcomes. Underutilized stores of capital resources, along with exciting recent scientific discoveries and inventions, give reason for optimism as we begin 2024.