The pharmaceutical industry is a dynamic and complex sector that plays a vital role in healthcare.
While there are many factors at play, recently experts have been have been looking toward groundbreaking advances in areas like cell and gene therapies, as well as the increasing use of artificial intelligence (AI).
These trends have the potential to transform the way doctors treat disease and improve patient outcomes, but they come with challenges and risks to consider as well. Read on for a look at how these technologies could impact the pharmaceutical industry, plus key factors investors should be aware of when evaluating opportunities in this space.
AI driving advances in drug discovery and development
The rapid uptake in AI technology in 2023 was felt across many industries, including the healthcare sector. Market participants believe the use of AI in drug discovery and development will accelerate the process of identifying new drug candidates, reduce the hefty cost of drug development and improve the success rate of drug trials.
AI has also proven to be a potential game changer in the field of data analytics. By applying machine-learning algorithms, researchers can gain useful insights into disease mechanics and identify potential drug targets.
Furthermore, AI may be able to help the healthcare sector meet growing demand for personalized medicine and precision therapies by analyzing patient responses to treatments. According to projections from Allied Market Research, the global personalized medicine market will increase at a compound annual growth rate of 11.2 percent between 2022 and 2031, reaching a valuation of US$869.5 billion by the end of the forecast period.
A PWC report affirms the idea that AI and analytics will be significant drivers of growth in the pharmaceutical sector in the coming year. The firm suggests that embracing AI and generative AI will allow companies to expedite drug delivery to the market while saving at least 30 percent on operational costs thanks to automation and high-quality data.
Analysts for Allied Market Research have identified oncology as a large segment of the personalized medicine industry. And based on IQVIA’s Global Use of Medicines 2023 Outlook to 2027 report, demand for innovative drugs for cancer treatment is expected to rise during the forecast period. Oncology is the largest therapeutic market for drugs, and companies are set to double their spending on these medicines to around US$370 billion during that time.
IQVIA also highlights several other therapeutic areas that are expected to drive growth in healthcare spending. Spending on treatments for autoimmune disorders is projected to reach US$177 billion globally by 2027; meanwhile, the neurology sector is seeing increased investment in migraine therapies and research into potential cures or treatments for rare neurological diseases, as well as for more common conditions like Parkinson’s and Alzheimer’s.
Despite the growth potential of new treatments, the pharmaceutical sector will have some challenges to address. In its World Preview 2022 Outlook to 2028, Evaluate Pharma points to the growing number of patents that are set to expire in the next 10 years. Although that’s likely to create new opportunities for generics and biosimilar products, the original creators will need to seek new forms of revenue. It’s possible that pharmaceutical companies will turn to AI to help identify new drug targets and optimize the development process in order to maintain or establish a competitive edge.
Pharmaceutical industry M&A to stay steady in 2024
As the home of many leading pharmaceutical companies and a major center for research and development, the US plays a significant role in the pharmaceutical sector, and it’s important to hone in on trends in the country.
In 2024, as states continue to redetermine eligibility for Medicaid and disenroll those who no longer qualify, pharmaceutical companies are bracing for anticipated changes in spending, which will likely impact their revenue and pricing strategies. On that note, a report by the Kaiser Family Foundation highlights a potential decrease in prescription drug spending in the US due to the loss of Medicaid coverage for individuals.
On a different note, M&A activity will continue to shape the pharmaceutical industry in 2024, according to PWC’s Pharmaceutical and Life Sciences: US Deals 2024 Outlook report.
The authors project that M&A activity in the pharmaceutical and life science markets will remain steady in 2024, with deal values and volumes similar to those seen in 2023. They expect that the total value of M&A transactions across all subsectors of those industries to total roughly US$225 billion to US$275 billion this coming year. Regulatory challenges and fierce competition for assets will continue to be a factor in drafting M&A deals, and PwC suggests that companies adopt a strategic approach that combines internal innovation with external acquisition.
For his part, EY’s Subin Baral suggests in an article that life science businesses with a strategic focus on therapeutic areas where they can add value will be poised for success in the coming year.
Investor takeaway
The pharmaceutical industry is set to face both opportunities and hurdles in the coming year as growth in certain therapeutic areas is tempered by the impact of changing regulatory and market dynamics.
However, companies have the potential to mitigate challenges and continue to drive innovation by embracing AI-driven solutions and leveraging technology to optimize their drug-discovery and development processes. Furthermore, companies that can adopt M&A strategies that focus on profitability and growth in an increasingly competitive environment will be well positioned to build on pharmacology’s legacy of success.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
