Overview
In November, McDermott Will & Emery was pleased to host our annual European Health & Life Sciences Symposium in Paris. Welcoming a large crowd of healthcare professionals, investors and dealmakers for a programme of insightful panel discussions on various topics, it was a wonderful opportunity to capture the views of market participants on where investment might focus in the year ahead.
After a challenging 2023 for many in the industry, the overwhelming mood was a positive one as we approached the new year. There was broad agreement that 2024 is likely to see a surge in deals, albeit with some choppiness remaining, with more activity likely around those assets that relate to manufacturing capacity at a time when approvals of new drugs will create a need for additional capacity.
In Depth
In 2022, a lot of the deals that got done had a focus on manufacturing but that activity slowed in the past year, creating something of a backlog on both the demand and supply side. At the same time, a strong pipeline of new advanced therapy medicinal products coming through approval is driving demand for manufacturing capacity and shining a spotlight on opportunities for pan-European consolidation.
From a geographical perspective, many of our attendees spoke of the ongoing opportunity for consolidation in healthcare services across Europe, particularly in areas such as clinical care, radiology, dental practices and veterinary surgeries. Several observers talked about those opportunities being evident across the DACH region, while others flagged an expectation that we will see more cross-border deals in the medtech space as US players look to acquire European assets.
There are also signs of an opportunity emerging for distressed investors. Grégoire Andrieux, partner with McDermott Will & Emery in Paris, says: “We do see distressed becoming very interesting to certain investors right now. There are situations where you have great companies with strong value in them and good IP assets, but because of market circumstances their immediate cash needs are creating distress. Investors with strong insights into the sector will be able to seize opportunities to add some of those assets to their portfolios.”
Elsewhere, some investors are focusing on new delivery models, including prioritising value-based care where efficiencies might be created through the use of technology and data analytics. There are currently two bottlenecks holding back progress on that score: the availability of good, standardised data sets; and the availability of human resources in healthcare authorities to evaluate and service new models, our panellists said.
Advances in Data, AI and Health IT
Despite the challenges, the year ahead will undoubtedly see investors focusing much more heavily on assets underpinned by innovation or addressing the need to increase efficiencies in the system. These will include digital health startups, innovative care delivery models and businesses harnessing the power of big data or embracing cutting-edge AI algorithms.
Technological integration is becoming increasingly important when assessing healthcare investment opportunities. Holger Ebersberger, partner with McDermott in Munich, says: “There was some discussion on our panel about the different ways tech can factor into deals. Broadly those fall into three categories: the applications where digital is improving processes in clinics and the way operations are planned, for example; those where the use of data is accelerating diagnostics; and then digital therapeutics where digital is a key element of treatment for conditions like mental health. The latter is still very much developing, whereas adoption is already high for digital in clinical processes. In all these situations though, it is integration of the technology that is key.”
One of our speakers said that “technology moves at the speed of trust”, pointing out that adoption can be slower in the health and life sciences industry because of the critical concerns about patient safety. The era of personalised medicine and the increased adoption and integration of technology into drug discovery, diagnostics and therapeutics will require investors to think carefully about risk mitigation as valuations and cost of capital remain challenging.
Looking in more depth at the current trends in digital health, several themes emerged. Anne France Moreau, partner with McDermott in Paris, says: “Clearly there has been some troubles in the digital health sector over the past year or two. But our speakers told us that they still see a lot of origination in the digital health space around AI, data analytics and tools to improve patient care.”
She adds: “Probably the biggest trend for our panellists was around pharma tech, with personalized medicine involving diagnosis, genomics, drug discovery, and treatment tools. A lot of companies are seizing opportunities there.”
One of the biggest challenges around adoption of new technologies in the healthcare space relates to regulatory scrutiny, particularly in relation to the development and deployment of AI.
Daniel Gottlieb, McDermott partner in Chicago, says: “Everyone is very focused on the risks around invasion of privacy that come with artificial intelligence solutions, and that is key when applied to digital health solutions. Another key concern is bias or discrimination in the way that AI tools are developed and deployed, which can put businesses at risk of inaccurate and discriminatory outcomes.”
He adds: “Then of course in health and life sciences patient safety is always front of mind. Unfortunately we do not yet have a common global approach to AI governance. We have seen the AI Act pass in the EU, which reflects a focus on risk assessment and the acceptance of a common set of guiding principles. We are waiting for US regulation, which is more likely on the US state level and is likely to reflect many of the principles reflected in the AI Act in the EU.”
There is a hope that the regulatory backdrop will become clearer over the coming year, opening up the potential for much more deployment of AI tools in a safe and compliant way so that the industry can start reaping the many possible rewards.
