What impact with the 2024 election have on the Life Sciences industry?

There will be a multi-layered impact of the elections starting with tariffs. Currently at 3%, tariffs could rise to 26% or more. These rates could go higher for China, Mexico and Canada. This would directly impact costs of goods sold for life sciences companies and at a macro level will contribute to inflation in the US. Each company will need to reevaluate the supply chain network. These routes were shaped and de-risked post-COVID so this will be another wave. We are already seeing shifts from China to Latin America and India, both in manufacturing and services. On the regulatory side, the bipartisan BIOSECURE ACT may soon be approved by the Senate with potential modifications in early 2025. This act will increase risks when working with sanctioned companies. While pharma has until 2032 to adjust, this will complicate relationships with CROs and CDMOs, requiring pivots to compliant partners. 

The election will also affect the M&A landscape with the FTC returning to historical trends. A new administration could revamp the FTC, potentially easing regulatory oversight. This would benefit M&A activity. Deregulation, in general, will be welcomed by industries like pharma. While a Republican administration is typically more pro-industry, this rule no longer applies across the board. Key decisions made by the appointees of HHS, FDA and CMS will be watched closely. 

The vaccine industry already felt the impact, with an US$8 billion fluctuation in operating market capitalization on the day of announcements. IRA list of products to be announced in February 2025 will be a first indication.

How will macroeconomic trends impact IPO activity and valuations in 2025?

If Fed rates continue to decline throughout 2025, historical patterns suggest a rebound in the IPO activity. A typical benchmark for IPOs is around 50 per year, but 2024 has seen only 26 in the first three quarters of the year. The outlook for IPOs in 2025 seems positive. 

The Biotech and Pharma ETF indexes reflect pent-up valuation potential influenced by election outcomes and anticipated Fed rate cuts. A sustained high-valuation environment will likely attract more IPOs. The macro picture includes tailwinds such as declining rates, a peaceful transition of power, and evolving FTC policies.

How will artificial intelligence help the industry overcome the patent cliff?

The loss of exclusivity (LOE) wave will remain a critical industry topic through 2028 when the impact of the LOE is expected to reach 6.7% of revenue and an estimated US$300 billion lost. Starting in 2023, the balance between top-line revenue and pipeline strength shifted negative, a trend projected to continue until 2028. Niche therapeutics, aside from GLP-1s, dominate, but no clear solution emerged to resolve current pipeline challenges. 

Artificial intelligence (AI) and machine learning could be the industry's next breakthrough opportunity. R&D expenses rose from 11.8% of revenue 20 years ago to 18% today, eating into margins. SG&A expenses have remained stagnant at 28% over the past decade, highlighting inefficiencies. AI offers opportunities to reduce costs and enhance productivity through AI-enabled drug discovery and development, potentially driving both top-line growth and bottom-line efficiency. Whether AI can fully address the pipeline imbalance remains to be seen, but it represents the industry's best shot at innovation and recovery.

How are advancements in oncology shaping the future of therapeutic innovation?

Over the past five years, oncology dominated funding, attracting US$250 billion—more than the combined investments in immunology, rare diseases, CNS, and neurology. Oncology benefits from easier reimbursement pathways and its life-saving therapeutic impact, making it a clear priority. 

What indicators should the industry watch in early 2025 to gauge recovery and momentum?

The start of the year will be crucial in determining how regulatory changes, appointments and resulting policies take shape. While we are not entirely out of the woods, the shift from "unknown unknowns" to "known unknowns" is significant. The uncertainty on the capital markets over the last two years created a narrative of cautious optimism, which ultimately led to optimism fatigue. Heading to 2025, the outlook is much better, particularly with US$1.3 trillion of capital available for dealmaking. This positions the industry to pursue external growth aggressively if internal pipelines fall short. The outlook is decidedly more positive for 2025, with the potential for significant momentum ahead.