The results of the 6th annual AlixPartners Disruption Index are in. It is clear: no single industry is driving advancements in the quality of life for people around the world farther and faster than the life sciences. New technologies, drugs, and therapies are tackling some of humanity's most intractable diseases, from obesity to cancer to genetic disorders like sickle-cell anemia.
However, with these seismic changes come equally daunting challenges. Regulatory complexity and legislative uncertainty, data privacy and cyber threats, the application of new artificial intelligence (AI) and machine learning (ML) technologies, and a looming wall of patent expirations are among the most acute problems facing life sciences executives today.
Administrative and regulatory uncertainty
Navigating the increasingly complex and changing regulatory environment is an ever-growing challenge. Alongside cybersecurity concerns, regulation was cited as the top threat by life sciences executives in this year's AlixPartners Disruption Index.
The impact of the Inflation Reduction Act and potential changes to the Affordable Care Act due to the new Congress and administration is a moving target. Uncertainty around funding from Medicare and Medicaid block grants, academic research grants, and sourcing for global vaccine programs is bedeviling both planning and execution at pharmaceutical and biotech firms. The potential for new tariffs is impacting sourcing, manufacturing, and distribution strategies across the industry. Unless manufacturers have already pre-approved alternate suppliers in geographies with no or lower tariffs, they will be unable to make rapid, sweeping changes to their supply chain and manufacturing approach without significant delays or increased risks. And unless there are changes to the Inflation Reduction Act's introduction of direct price negotiations with manufacturers for higher-cost pharmaceutical products for Medicare recipients, Medicare will continue to apply pressure on pharma and biotech companies to deliver innovative therapies at a lower cost.
Organizations need to understand the longer-term structural shifts happening within the industry, while navigating near-term volatility. Cost improvement programs can provide more flexibility in the short-term, providing more runway and resilience. Indexing supply chain, manufacturing, and sourcing bases to macro trends around labor inflation, regulations, tariff postures, trade relations, and other geopolitical risks can begin to provide a longer-term view on managing through uncertainty.
Impact of AI and ML
New technologies are transforming the life sciences industry. AI and ML are accelerating drug discovery and development, in part by , streamlining clinical trials. Advanced analytics and cloud computing are enabling better data management and analysis, improving the quality of research, patient outcome data analysis, and ultimately enhancing patient care. Genomic technologies and AI are paving the way for more personalized medicine, where advanced treatments can be tailored to individual genetic profiles. And overall, new automation and digital tools are improving operational efficiency, leading to faster production times, reduced errors, and lower costs.
But where should companies be applying these technologies to greatest effect? 2025 will be a year of bridging the execution gap from piloting these technologies to creating value at scale. Large scale adoption and deployment will start with lower risk processes like translation services, labeling, etc., leading to lower costs in these areas. Generative AI will be used in facilitating trial design and simulation processes, which in turn is expected to shorten development times and improve clinical outcomes. For example, in orthopedics, AI-designed implants are being tailored to individual bone structures, improving surgical outcomes and recovery times.
Overall, for those life sciences companies that are applying these technologies to the right use cases, faster routes to market and better patient outcomes promise both potential cost savings and higher revenues.
Patent expirations
Near-term drug patent expirations will introduce new competition and pressure on R&D pipelines, while drug development processes are being reshaped by AI/ML and other advanced analytical capabilities.
By 2028, major pharmaceutical and biotech companies are facing patent expirations representing over $125B in revenues (based on most recent annual sales figures). In the absence of major new drug discoveries and patents, this represents a significant top-line threat across the industry.
Improved margin management, whether through better sourcing and procurement, better organizational design, or pricing/revenue optimization, is essential in order to position pharma and biotechs to better manage upcoming patent expirations.
Focus on what you can control
Unfortunately, uncertainty and volatility are the reality of today's business world. The best-performing companies are becoming more proactive, leaner, and more agile in the face of constant disruption. They are applying technology, including AI and ML, to unlock value within their organizations, starting with G&A and shared services functions. These best-in-class companies are reassessing their capital structures and are shedding non-core business segments that will not be driving growth and profitability in the years ahead. And they are carefully looking at customer and product profitability to frame pricing strategies and their go-to-market strategy.
The opportunities being unlocked in the life sciences industry are reshaping the future of public health. By focusing on the priorities over which you have the most control, you can make the most of these opportunities and enhance your leadership position amid ongoing disruptions.
For example, to address potential tariffs impacting your sourcing, manufacturing, and distribution strategies, take immediate action as detailed in our recent US webinar such as:
- Set up a "tariff war room" to map exposure across your product portfolio and supply chain and facilitate timely cross functional leadership decision making
- Focus on cash preservation by reducing discretionary spend, optimizing G&A, and closely controlling fixed costs
- Optimize existing supply chain through duty engineering, supplier price negotiations, and opportunistic location rebalancing
- Execute effective pricing strategy to determine whether to pass some or all of increased tariff burdens on to customers
The Path Ahead
Knowing that disruption will be a constant part of the equation in the life sciences space, savvy executives will plan accordingly. As illustrated above, their priority action items for confronting and adapting to disruptive forces include:
- Divest non-core products and services
- Look to optimize capital structure (and therefore the approach to M&A) with the right mix of cash, equity, and leverage
- Leverage emerging technologies such as AI and ML to identify and extract additional value within their organizations, starting with G&A and shared services
- Be willing to re-evaluate – or even re-write – their go-to-market and pricing approaches based on country and / or customer-level profitability signals; and
- Put adaptive measures in place to move with agility to changes in tariffs and global trade policy
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
