During this session, McDermott Partner Kristian Werling and Jeff Smith, a senior partner at McKinsey & Company, shared insights across the pharma and MedTech services industries, including key trends and opportunities shaping the markets, their impact on private investors and portfolio companies, and forward-looking considerations for players in the space.

IN DEPTH

Top takeaways included:

• Increased Market Complexity and a Newfound Focus on Research and Development (R&D) Cost Effectiveness Will Produce Diverging Results. Compared to a decade ago, today’s pharma and MedTech services markets are highly complex because of continuing outsourced provider penetration, policy changes such as the Inflation Reduction Act of 2022 and a recent focus on R&D cost effectiveness by pharmaceutical companies. Thus, industry players can expect strong but not universal winners. Additionally, challenges resulting from this complexity will lead to losses for others. Pharma and MedTech services groups, like contract research organizations (CROs), can take advantage of this complexity by specializing to secure a select portion of the market.
• Commercialization Is Key to Achieving the Full Potential of Recently Launched Assets. Pipelines are diversifying in modality and dosage, with fewer new small molecule assets and an increasing rollout of cutting-edge products (e.g., cell and gene therapy). At the same time, a revenue gap is emerging from the patent expirations of large blockbuster assets. Commercialization efforts, particularly medical communications and market access, will be critical to unlocking the potential of newer assets and closing said revenue gap. For example, as the power of pharmaceutical sales representatives declines, having conversations with physicians about clinical trial data is rising in importance.
• Artificial Intelligence (AI) Presents an Opportunity to Transform the Way of Working Across the Value Chain. Several experiments and pilots are underway to evaluate applications of AI throughout the pharma and MedTech services industries, including efforts to automate time-consuming tasks for highly-trained individuals. Despite these significant investments, AI’s utility in this space remains to be seen with no clear winners in sight. However, standing still is not an advisable option, especially for service providers. Those who do not invest are likely to be disappointed in the years ahead.
• Pharma and MedTech Services Remain Bullish in the Long Term. Despite relatively new market complexities and the resulting challenges, the sustainability of pharma and MedTech services are rooted in innovation, with significant recent scientific advancements propelling the market forward. Pipelines have expanded in a near-linear fashion in terms of spend (perhaps more emphatically in the number of pipeline assets) and biotech funding is stabilizing close to pre-pandemic levels, rendering the overall long-term market outlook positive.