Wealth Outlook 2024 - Slow then grow

95 Wealth Outlook 2024 | Unstoppable trends For investors, healthcare innovation is on sale A perfect cyclical storm A key headwind to drug development over the past two years has been higher interest rates. The trend has been especially tough on early-stage biopharma companies that rely on external funding to fuel their R&D efforts. Now, even large biopharma companies are reprioritizing their drug development pipelines and slowing the pace of mergers and acquisitions. Concurrently, as the world has moved from a pandemic to endemic stage of COVID-19, the demand for vaccines and therapeutics has plummeted. While the diminishing impact of COVID is tremendously positive for the world, the glut of vaccine inventories and manufacturing capacity is negatively impacting the vaccine developers and the life sciences tools (LST) companies that supported them. A resurgence in healthcare procedures post-COVID has been positive for medical device companies but negative for health insurance companies that are having to pay out more in benefits. Regulatory uncertainties Combatting high drug prices may be the one issue in the US Congress that Democrats and Republicans can agree on, and in the past two years they have taken a serious run at drug price reform. The 2022 Inflation Reduction Act (IRA) has empowered Medicare, for the first time, to negotiate directly with pharma companies on pricing for a certain focused set of high-priced drugs. How significant is that? Significant enough for the pharma industry to file a barrage of lawsuits in 2023 seeking to strike down the measure before the first price reductions can take effect in 2026. The impact of the new IRA framework may not be universally terrible for drug company profits. Drugs are only eligible for the negotiations after they have been on the market for seven years. So, as established high- priced drugs get added, some analysts have noted that Medicare could use the savings to expand coverage for other, newer medications. The new regulations could potentially impact how pharmaceutical companies direct their R&D resources. The bill provides more runway for biologics than for less complex, small-molecule drugs. So, some biopharma leaders are contemplating a shift in their pipeline focus away from small molecule drugs towards an emphasis on biologics. In addition, a pharmacy benefit manager (PBM) reform bill is nowmoving through Congress as well. PBMs are pharmacy middlemen that administer prescription drug benefits for payers and negotiate drug prices with manufacturers. As written, the legislation would bring greater transparency to their business, a first step perhaps toward lowering retail drug prices and middlemen profits. While the debate continues, the overhang for PBMs and their parent companies – which include the insurer, pharmacy and provider network conglomerates that comprise some of healthcare’s largest names – remains.