Healthcare and life sciences companies face tremendous pressure to remain profitable amid turbulent regulatory, pricing and policy dynamics in the U.S., and the challenges are now “getting more acute with every quarter,” according to the first industry distress study conducted by consulting firm AlixPartners.
In an industry poll of 200 U.S.-based healthcare and life sciences businesses, investors and advisors, respondents rated regulatory and policy uncertainty as the biggest challenge for companies across all sectors. Many of these companies, investors and advisors believe it is possible to grow beyond current hurdles, but the idea “could be costly,” the report said.
Overall, 75% of respondents in the AlixPartners survey rated the industry’s distress level as 7 or higher on a 10-point scale, with 10 indicating extreme distress. Meanwhile, less than 40% of surveyed operators representing healthcare and biopharmaceutical companies reported that they were “well prepared for a wide range of potential changes” in the business environment.
For life sciences companies, including pharmaceutical, biotech, and medical device companies, global price volatility and competitive pressures are the most pressing threats, as issues such as the Anti-Inflation Act’s drug pricing efforts and President Trump’s Most Favored Nation policy are closely tied to the rapidly evolving FDA landscape, not to mention changes in import tariffs and other U.S. policies.
Randall Eisenberg, co-leader of the Americas for healthcare and life sciences at AlixPartners, said in an interview with Fierce Pharma that these pricing pressures could ultimately challenge the ability of drug companies to internally fund their research and development efforts through high-margin sales of branded products.
“There may not be as much capital available to invest in new product portfolios, so drug companies may be reconsidering where they invest their R&D dollars given that they may have less capital available,” Eisenberg said.
Additionally, AlixPartners is urging biopharmaceutical and medical technology companies to brace themselves for “delayed supply chain disruptions due to geopolitical conflicts,” arguing that continued conflict in the Middle East could lead to “supply chain whiplash similar to the coronavirus.”
Conversely, for healthcare providers such as health systems, hospitals, and clinical networks, high labor costs, low reimbursement rates, and once again regulatory and policy uncertainty are the biggest sources of disruption for the industry at this time.
Despite these challenges, research shows that appetite for big deals and adoption of emerging technologies such as artificial intelligence (AI) remains high. However, AlixPartners argued in its report that the winners will be determined by how companies actually execute, rather than “just a bold bet.”
“Organizations that act now to improve core operations through smarter revenue and product lifecycle management, more disciplined technology adoption, and service line profitability standards will be well-positioned to stabilize profits and create value in a potentially challenging market,” the consulting firm explained.
With AI and M&A being two of the industry’s top priorities, AlixPartners sought to delve specifically into these areas, noting from the responses it collected that while the appetite for deals remains strong, few companies feel prepared to execute large-scale deals. And when it comes to artificial intelligence, despite the widespread adoption of this technology, companies struggle to see a clear return on investment.
Looking specifically at M&A, 95% of respondents said they prioritized strategic M&A, but only 27% said they were prepared to act on an “accelerated timeline” on such deals.
Additionally, the AlixPartners survey found that despite respondents reporting a 70% investment in AI across their operations, fewer than 30% said they were seeing tangible results from their efforts.
“Many organizations are implementing AI, but also finding it difficult to see real, measurable results – real benefits,” Eisenberg told Fierce.
He emphasized that trend in response to the fact that the technology is “still relatively new and very evolving.” Still, he cautioned against the overwhelming sense that all organizations need to incorporate artificial intelligence into their operations in some capacity, despite current difficulties in measuring the technology’s impact.
As businesses face on-the-ground decisions about how to proceed amid policy and regulatory uncertainty, investors and advisors surveyed by AlixPartners are more bullish, with the consulting firm arguing that “this should encourage organizations to pursue better governance, prioritization, and realistic planning,” and that boards and executives need to build “a common fact base based on what is doable.”
Regarding this research, AlixPartners “looked very much at it from an operator and value creation perspective,” Eisenberg said.
“We wanted to see different perspectives,” Eisenberg said of the survey’s response structure. “It brings together companies that actually operate businesses and companies that are advisors or owners of businesses in the healthcare and life sciences space.”
Regarding the apparent perception gap, Eisenberg said carrier respondents were “a little more cautious about whether their companies are ready to meet the challenges ahead.”
“I think this is because operators need to be effective,” he added.
Given the situation, AlixPartners concluded the report by highlighting that opportunities exist in moments of disruption, and that U.S. healthcare and life sciences are “heading toward a vast field of opportunity.”
That said, companies should always dig into revenue cycle management, and while leveraging tools like AI is important, they also need to be aware of the technology’s current limitations, especially in regulated and structurally constrained industries like healthcare and life sciences.
Finally, AlixPartners suggested that while M&A remains an important tool, it should only be pursued after addressing a company’s core business.
