As regulatory, pricing and policy dynamics whipsaw in the United States, healthcare and life sciences firms are facing enormous pressures to keep profits rising, with those challenges now “becoming more acute by the quarter,” according to an inaugural industry distress survey from consulting firm AlixPartners.
In the industry poll, which queried 200 U.S.-based healthcare and life sciences operators, investors and advisors, regulatory and policy uncertainty was rated by respondents as the leading challenge for companies of all stripes. While many of those companies, investors and advisors believe it’s possible to grow beyond present hurdles, that mindset “could prove costly,” per the report.
Overall, 75% of the respondents in AlixPartners’ survey rated the industry’s distress level as seven or higher on a scale of 10, with 10 indicating extreme distress. Meanwhile, less than 40% of the operators polled—representing healthcare and biopharma companies—reported being “significantly prepared for a wide range of potential changes” in the operating landscape.
For life sciences firms—including pharmaceutical, biotech and medical device companies—global pricing dynamics and competitive pressures present the most pressing threat, as issues like drug pricing initiatives under the Inflation Reduction Act and President Trump’s most favored nation agenda dovetail with a swiftly evolving FDA landscape, not to mention import tariffs and other U.S. policy fluctuations.
Those pricing pressures could eventually challenge drugmakers’ ability to internally fund their R&D efforts via high margin sales of branded products, Randall Eisenberg, Americas co-leader of healthcare and life sciences at AlixPartners, said in an interview with Fierce Pharma.
“There may not be as much capital there to invest in the new product portfolio,” Eisenberg said, “and that’s going to cause pharmaceutical companies to rethink where they’re going to invest their R&D dollars, given they may find the dollars available to be less.”
Additionally, AlixPartners is urging biopharma and medtech firms to steel themselves for “delayed supply chain disruption stemming from geopolitical conflict,” arguing that conflict in the Middle East may carry on and could lead to a “COVID-like supply chain whiplash.”
Conversely, in terms of healthcare operators like health systems, hospitals and clinical networks, high labor costs, declining reimbursement rates and, once again, regulatory and policy uncertainty, represent the greatest sources of turbulence for the industry at this time.
In spite of those challenges, the appetite for major deals and adoption of emerging technology like artificial intelligence (AI) remains high, according to the survey. However, how companies actually execute will determine winners rather than “just bold bets,” AlixPartners argued in its report.
“Organizations that act now to improve core operations—through smarter revenue and product lifecycle management, more disciplined tech deployment, and service-line profitability standards—will be better positioned to stabilize margins and create value in what is anticipated to be a difficult market,” the consulting firm explained.
With AI and M&A two top priorities for the industry, AlixPartners sought to dig into those areas specifically, noting from the responses gleaned that while appetite for dealmaking remains strong, few companies feel ready to execute on major transactions. And when it comes to artificial intelligence, companies are struggling to see a clear return on their investment despite widespread adoption of the tech.
Taking a look at M&A specifically, 95% of respondents said their outfits were prioritizing strategic M&A, but just 27% of those polled said they were prepared to act on such a deal on an “accelerated timeline.”
And despite a 70% reported AI investment rate across the operations of respondents, less than 30% said they were getting a clear sense of the fruits of those efforts, according to AlixPartners’ survey.
“A lot of organizations are implementing AI, but they’re also finding it challenging to see the real and measurable results—the real return,” Eisenberg told Fierce.
He chalked up that trend in responses to the fact that the technology is “still relatively new, very much evolving.” Still, he flagged the overwhelming sense that all organizations must wed artificial intelligence into their operations in some capacity, despite current difficulties in measuring the tech’s impact.
As operators are forced to make boots-on-the-ground decisions about how to navigate their businesses through policy and regulatory uncertainty, the investors and advisors polled by AlixPartners were more bullish, which the consulting firm argues “should prompt organizations to pursue better governance, prioritization, and realistic planning,” arguing that boards and management teams need to build a “common fact base grounded in what is executable.”
With the survey, AlixPartners was “very much thinking about it from an operator’s and a value-creation perspective,” Eisenberg explained.
“We wanted to get the differing perspectives,” Eisenberg said of the survey’s response makeup. “Those that are actually operating businesses and then overlay that from those that are either advisors or owners of businesses in the healthcare and life sciences.”
Regarding the apparent perception gap, Eisenberg noted that operator respondents “were a little more circumspect in terms of the ability for the businesses to react to the challenges that are ahead.
“I think this is because operators are the ones that need to effectuate,” he added.
Taking the lay of the land, AlixPartners stressed at the end of its report that opportunity exists in moments of disruption, and that healthcare and life sciences in the U.S. is “heading into a vast field of opportunity.”
That said, companies must drill down on revenue cycle management at all times, and while leveraging tools like AI is important, firms also need to be aware of the technology’s present limitations, especially in regulatory and structurally constrained industries like healthcare and lifesci.
Lastly, M&A, while still a vital lever, should only be pursued after companies’ core business operations are addressed, AlixPartners suggested.
