2024 outlook for Life Sciences & Pharmaceuticals

How have the life sciences, healthcare and MedTech sectors fared in 2023, what have been some of the key trends for Life Sciences & Pharmaceuticals and how are things shaping up for 2024?

Yogan Patel, Life Sciences and MedTech Lead Partner discusses some of the trends we have witnessed across the UK life sciences, healthcare and MedTech sectors in 2023 and what the future might hold for 2024.

Overall, the life science, healthcare and MedTech sectors have stood out as a beacon of light in an otherwise sluggish post-COVID economy and we have seen significant growth and innovation across all three areas.

The UK life sciences sector is one of the largest and most innovative in the world, with a strong history of developing new drugs, therapies and medical devices. In 2023, the sector has continued to grow, with several noteworthy developments, including:

1. The UK government announcement of a new £1 billion investment in the life sciences sector, aimed at boosting innovation and commercialization.
2. Several UK life sciences companies have continued to raise significant funding carried forward from 2022 like Oxford Nanopore Technologies, the DNA sequencing business that has raised more than £1Bn with a recent £70m investment from French diagnostics firm BioMérieuxand. Other companies secured more than £380 million in venture and public financing during the Q2 2023 calendar year, up 29% from the previous quarter's £295 million. This growth was largely driven by venture capital investment.
3. The UK has also been a leader in the global response to the COVID-19 pandemic, with UK companies among the leaders in the field.

The context to all the development continues to be the National Health Service, one of the largest and most complex publicly funded health systems in the world. In 2023, the UK healthcare sector faced several challenges, including the hangover from the COVID-19 pandemic, staffing shortages and rising costs. However, the sector also saw several positive developments, including:

1. New initiatives designed to improve patient care, including the NHS Long Term Plan and the NHS Transformation Fund.
2. The UK government also announced a new £1.6 billion investment in the NHS, aimed at reducing waiting times and improving access to care.
3. Digital transformation in the healthcare sector continues apace, with the NHS adopting new technologies such as telemedicine and electronic patient records that will be essential in improving productivity.

What about MedTech?

The UK MedTech sector has also continued to grow, with several notable developments, including:

1. An announcement by the UK government of a new £200 million investment in the MedTech sector specifically around data digitisation, aimed at boosting innovation and commercialization.
2. Several UK MedTech companies raised significant funding rounds in the period up to 2023, including Huma with a £100 million fundraising and CMR Surgical, the UK robotics specialist that raised £160 million in 2023.
3. The UK has also been a leader in the global development of new COVID-19 diagnostic tests and treatments.

What have been some of the key trends that have emerged?

Artificial intelligence (AI) has had a growing and significant impact on life sciences and MedTech in the UK in 2023. AI is being used to develop new drugs and treatments, improve clinical trials and personalize healthcare. Many examples of the application of AI have emerged, too numerous to mention here, but these are some examples:

1. AI is being used to identify new drug targets like proteins and genes, design new drugs and predict how drugs will interact with the human body. This is helping to speed up the drug discovery process and bring new drugs to market more quickly.
2. AI is being used to analyse clinical trial data more efficiently and effectively and to identify promising drugs and treatments more quickly and reduce the risk of adverse events.
3. AI is being used to develop personalised treatment plans for patients based on their individual genetic makeup and medical history helping to improve patient outcomes and reduce the cost of healthcare.
4. The NHS has recently been experimenting with AI for the automation of operational tasks such as the evaluation of imaging like X-Rays to support Radiologists, managing patient scheduling and for the selection of examination protocols.

The overall focus of AI has been around helping to improve productivity, acting like a sort of AI assistant to physicians and other specialists. It is also notable that its development is bringing into the healthcare sector companies that are new to the sector or who are part of the new type of highly complex MedTech business operating at the intersection of AI and life science. These are some examples of UK companies using AI in life sciences and MedTech that we have recently observed:

1. DeepMind, a UK artificial intelligence company that was acquired by Google in 2014 is developing several AI applications for life sciences, including AI systems that can predict the structure of proteins and design new drugs.
2. BenevolentAI is another UK company that is using AI to accelerate drug discovery. They have a database of over two billion biomedical data points, which are being used to identify new drug targets and design new drugs, in effect acting as a drug discovery platform.
3. Babylon Health has been another pioneer in the use of AI for healthcare that despite its recent financial challenges has helped to promote the acceptance of AI in principle to help diagnose diseases and provide treatment recommendations, for example through its GP at Hand app.

On a more negative front, 2023 has continued to see staff shortages having a significant impact on the development of new therapeutic drugs and MedTech in the UK. As we reported in 2022, a shortage of experienced research and operational staff continues to be a major constraint on growth - Skills shortage strains UK life science sector - Baker Tilly

We estimate that more than 70% of life science companies in the UK are experiencing staff shortages*. We believe there are several factors contributing to the shortages in the life sciences sector, including:

1. The after effect of the COVID-19 pandemic which has led to an increase in demand for life science products and services.
2. BREXIT and the UK's decision to leave the European Union which has made it more difficult to recruit staff from EU countries, not helped by the UK falling out of the EU Horizon funding programme for two years.
3. The life sciences sector is global and as a highly competitive sector, companies will pay to attract the best staff with the right skills and experience they need.

The consequences for the development of life science drugs and MedTech in the UK will also mean a slowing down of the drug discovery and development process and it will make it more difficult to run clinical trials. Such delays will also affect the launch of new products and services and increase the cost of developing new drugs and MedTech products which in the case of the UK’s NHS system and the VPASS scheme, could mean more cost pressures in 2024.

One hopefully positive longer-term solution to the current staff shortages is that the UK government is aware of the challenges and since 2021, they have been pursuing a 10-year plan to support the growth of the life sciences sector with measures such as:

1. Providing funding for skills training and development.
2. Making it easier for overseas workers to come to the UK to work in the life sciences sector.
3. Supporting the development of innovative technologies that can help to automate tasks and reduce the need for human labour as we have seen with the introduction of AI discussed earlier.

However, it is still too early to say whether the UK government's measures will be successful in addressing the issues and in the meantime, staff shortages are likely to continue to have a negative impact on the development of life science drugs and MedTech in the UK through to 2025.

How is 2024 shaping up?

Despite some negatives, the overall outlook for the Life Sciences, Healthcare and MedTech sectors in the UK in 2024 is incredibly positive. The sector is expected to continue to grow, with significant innovation and investment across all three areas.

Some of the likely key developments in 2024 will include:

1. Continued growth across the UK life sciences sector, but potentially at a slower rate depending on interest rates with a focus on new drugs, therapies and medical devices.
2. Further investment in the UK healthcare system, with a focus on improving patient care and reducing waiting times which have been a significant negative trend in the post-COVID phase.
3. The continued adoption of new technologies in the healthcare sector, such as telemedicine and artificial intelligence, especially if such technologies can improve physician productivity and waiting times that have been an ongoing issue in the NHS.
4. The continued growth of the MedTech sector, with a focus on developing new medical devices and technologies that improve patient outcomes and ‘surgical operation efficiency’.

What else might affect developments and growth in 2024?

The UK NHS VPASS scheme has come under fire from various quarters. This voluntary agreement between the Department of Health and Social Care (DHSC), NHS England, and the Association of the British Pharmaceutical Industry (ABPI) has in part controlled the growth of NHS expenditure on branded medicines but might stifle future new product development.

The current VPASS scheme is due to end in 2023 and under the scheme, pharmaceutical companies have agreed to pay rebates to the NHS on sales of branded medicines above a certain limit. The limit is set to increase by 2% in 2024 but several large pharma groups have voiced concerns. In 2023, the DHSC announced that it is considering changes to the VPASS scheme for 2024 and beyond. The government is proposing to increase the allowed growth rate for branded medicine sales to 2% per year, from the current 1.1%. The government is also proposing to review the exemptions to the scheme.

The Association of British HealthTech Industries (ABHI) has broadly welcomed the government's proposal to increase the allowed growth rate to encourage future innovation. Either way, the DHSC is expected to announce its final decision on the VPASS scheme for 2024 and beyond in early 2024.

Returning to the investment outlook, the UK government has committed to a £1 billion investment in the Life Sciences sector and they are also providing support for the development of new medical technologies through the National Institute for Health Research (NIHR) and the NHS Innovation Accelerator. Some of the key areas of investment in the UK Life Sciences and MedTech sectors in 2024 are likely to include the following which build on the trends we have already mentioned in 2023:

1. New drug and therapy development, particularly in areas such as cancer, Alzheimer's disease and infectious diseases.
2. Medical devices, such as new surgical robots, diagnostic tools and wearable devices.
3. Digital health technologies, such as telemedicine, electronic patient records, and artificial intelligence-powered diagnostics.

In conclusion, the investment outlook for the UK Life Sciences and MedTech sectors in 2024 remains positive and the investment will support the development of new and innovative products and services that will improve the lives of patients not just in the UK but globally.

*Based on The Association of the British Pharmaceutical 2022 survey where 60% to 86% of respondents depending on job specialism mentioned that the quantity of specialist staff available for vacancies was an issue.