Access to capital, evolving business models, and sustaining innovation were all hot topics that emerged at the 8th LSX World Congress last month in London. The conference, which runs parallel sessions on biotech, healthtech, and medtech, was an opportunity for leaders from across the industry, as well as venture capitalists and financial advisors, to examine ways the industry is moving forward.
A team from Oliver Wyman’s Health and Life Sciences practice was there to engage with peers and lead panel discussions. Below are a few themes we identified from the meeting:
Investing in biotech: Raising capital during these challenging times was top of mind for many leaders gathered in London. Biotech saw its record-setting pace for initial public offerings cool off at the end of 2021 and that has continued in 2022. The downturn is driven by clinical and regulatory setbacks, macro-economic forces, and an increasingly negative investor outlook. In fact, the value of one of the most widely followed stock indexes was cut in half, wiping out years of gains and sending shockwaves throughout the biotech ecosystem.
We are seeing a shift to developing a more rigorous approach for maximizing valuations, especially at an earlier stage for investors. Despite facing some stiff headwinds, the biotech sector remains a strong engine for innovation. It’s estimated that small and emerging companies account for more than 50% of the current research and development pipeline.
New business models: Companies that effectively move multiple platforms faster will be more successful at differentiating themselves. Emerging biotechs may also be more willing to partner with mid-to-large pharmaceutical companies earlier, although there is a recognition that commercial risk — rather than technical risk — of partnerships is becoming a greater decision-making factor for the latter. From a biotech perspective, such partnerships often involve mortgaging away part of their future, but they can be an important source of validation and cash for young companies, giving them resources and time to bring products to market.
One area where we saw particular interest at the conference was in cell and gene therapies. Two themes emerged: business model considerations — during a panel moderated by Maya Khurana, who has also written about the topic — as well as future readiness. From a business model perspective, the value created for patients and systems from CGT is increasingly well recognized with multiple treatments on the market and the imminent launch of allogeneic therapies will add to this evidence base.
Delivering this value in a sustainable manner requires further considerations. While biotechs hold the expertise, the cost of bringing such therapies — especially complexity of manufacturing — to market requires emerging pharma to seek synergies with mid-to-large pharma. Finally, contracting for such therapies have seen new payment models that will be critical for sustainable future financing, that rewards innovation while managing the cost for systems with the increased volume of launches ahead.
To make this innovation work at scale, the industry needs to work towards industrialization of manufacturing, addressing regulatory framework considerations and bottlenecks, as well as building the workforce to meet the demand.
Opportunities to innovate: How the industry continues to reshape itself as the result of COVID-19 was another major theme in London. There were conversations around supply chain, especially relating to the availability of test kits and personal protective equipment. We also heard a lot about the impact COVID-19 had on utilization, including cancelation of elective and non-emergency procedures. Oliver Wyman’s Tobias Handschuh crunched the numbers last month, looking at how lockdowns impacted pharmaceutical sales and when we might expect them to rebound.
A lasting impact of the pandemic is sure to be the acceleration of care from outside the four walls of the hospital. The shift in site of care to closer to home poses challenges on both the regulatory and reimbursement fronts. It’s also forced executives to evaluate not only how their business and commercial models are being impacted, but what it will take to build more end-to-end solutions and partnerships across the patient journey to optimize revenue-generating opportunities. Consequently, many medtech and healthtech organizations are looking for ways to maximize the value of patient data using artificial intelligence and machine learning. Some of that is resulting in more predictive diagnostic tools entering the market, which can feed into value-based healthcare solutions.
Although digital health tools have been transformative in some aspects of patient care, translation of their value in terms of reimbursement and revenue remains challenging since the industry is still largely reliant on fee-for-service models that don’t recognize add-on incremental value for digital interventions. Still, time to market is a critical rate-limiting step for innovative medical technologies and will be potentially further challenged by updated medical device regulation and in-vitro diagnostic device regulation requirements. There has been some movement at the system level such as the digital health applications pathway in Germany and the evidence standards framework in the UK, but translation into value recognition is still not being fully realized.
Despite some of the above headwinds and system challenges, participants in the medtech track maintained their enthusiasm for M&A deals to drive innovation and investment in start-ups. There was also a focus on growing and innovating organically, partnering/investing with early-stage companies and mega-deals and tuck-in acquisitions. As consequence, we expect funding levels to remain robust in the short-medium term.
Several people from our practice will be in Boston for the LSX USA Congress & CEO Forums, June 21-22. We’ll report on key themes from that conference and see how they line up with what we heard in London.
Sarabvijay Singh Principal, Health and Life Sciences, Oliver Wyman
Arun Mishra Director, Health and Life Sciences, Oliver Wyman
Maya Khurana Principal, Health and Life Sciences, Oliver Wyman
Santanu Das Partner, Health and Life Sciences, Oliver Wyman
Kaushik Patel Partner, Health and Life Sciences, Oliver Wyman