Life sciences – what to expect in 2024

2023 was marked by some real success stories in the life sciences and healthcare space, including ground-breaking new weight loss medicines, optimism surrounding potential novel oncology treatment modalities – such as antibody-drug conjugates and radioligand pharmaceuticals – and the most serious effects of COVID-19 being kept largely at bay. 2023 will also be acknowledged as a significant year for AI, with genuine recognition of its transformative potential, with a particular impact predicted for life sciences. 

At the same time, the industry faced – and continues to face – unprecedented challenges. Financing, whether through the public capital markets or venture capital was largely unavailable to all but those with late-stage assets in areas seen as the most attractive by the markets. This caused significant pain for many, resulting in biotech shut-downs, the shelving of once-promising pipeline programs and widespread layoffs. These challenges and other headwinds were largely driven by uncertainties impacting the world more generally, including geopolitical uncertainty, increasing regulatory scrutiny, pricing pressures and interest rate hikes. However, to some degree, many view these ongoing challenges as ‘priced in’ to the market, leading to cautious optimism for a more favourable outlook in 2024. 

1. What to expect in… biopharma transactions

Despite an overall challenging macroeconomic and M&A environment in 2023, life sciences stood out as one of the few bright spots for M&A, with deal volumes increasing from their 2022 lows. In particular, the fourth quarter saw a significant uptick in M&A and licensing deals, with a flurry of deals leading up to the J.P. Morgan Healthcare Conference in January, which itself bought a significant number of deal announcements (see here for our conference analysis). This was driven by pharma and biotechs converging on valuation as a result of the settling of the markets following the dramatic downturn in valuations from the highs of 2021. Additionally, big pharma has been taking a closer look at opportunities for clinical-stage programs to fortify portfolios in light of the looming loss of market exclusivity for ‘blockbusters’. This trend was further accentuated by pressure from pricing negotiations under the US Inflation Reduction Act (IRA). The capital markets were largely closed for pre-revenue biotechs in 2023, but there seems to be renewed enthusiasm for improvement, particularly in the IPO market, although few expect gains in the early part of 2024. A continuation of these upward trends, together with buyers having large cash reserves (particularly big pharma and private equity), means we are optimistic that 2024 will see an increase in life sciences transactional activity. 

Some highlights from our trendspotting: 

1. We expect the momentum in M&A and licensing deals to continue.
2. Biotechs may more seriously consider M&A exit opportunities offering reasonable returns. That said, the capital markets and VCs opening their coffers may present a viable alternative to M&A for the first time in 12-18 months. 
3. We expect private equity to flex its muscle in the transactional space, both for service providers (CROs/CDMOs) and in the biopharma space. Buyers with capital to spend are looking closely at pre- and commercial stage opportunities – both to bolster current platforms through add-ons and to acquire rights to specific products. 
4. Collaborations and acquisitions of AI-driven and related digital solutions will remain a key driver for deal activity. We expect ongoing focus on oncology, immunology, and cardiovascular assets, particularly for gene therapies and other precision technologies, as well as continued interest in GLP-1s and obesity-related assets. 
5. Finally, despite regulatory hurdles, we expect both strategics and financial sponsors to be active in China, with significant innovation and opportunity starting to outweigh some of the historic headwinds faced by foreign investors.

2. What to expect in… MedTech

The MedTech industry remained resilient throughout 2023, driven by increasing innovation in, and consumer demand for, healthcare technology. M&A activity in 2023 did not match expectations, although we expect the pace of MedTech acquisitions to pick up in 2024, and for funding and activity to continue to trend towards digital health products and services which support value-based care in 2024. The spotlight will be on AI and data-driven offerings with the potential to revolutionise healthcare delivery.

In parallel, MedTech companies must continue to navigate a growing patchwork of global rules as lawmakers scrutinise the sector’s data privacy, AI compliance and other practices. In particular, we are tracking the impact of the increased regulatory attention to sensitive health data, and the recent political agreement on the EU AI Act on MedTech companies’ data use and sharing practices (see further here). For more on our predictions for MedTech in 2024 see here.

3. What to expect in… antitrust

Antitrust continues to play an expanding global role, and consumer-facing sectors such as life sciences are increasingly under the spotlight. We have seen a renewed focus on traditional conduct-based theories of harm relating to pricing and distribution strategies, as well as an increased regulatory appetite to pursue novel abuses and theories of harm. This trend is likely to continue against the backdrop of continued political focus on affordable access to medicines, budget pressures on health services and a desire to enable innovative biotech and generics to compete head-on with established pharma.

In the EU, UK and US, we have seen regulatory interest in exploitative and exclusionary conduct, including traditional patent settlement cases (‘pay for delay’) and pricing abuses (including excessive pricing, price fixing and bundling discount practices), as well as novel patent misuse concerns and denigration/disparagement cases. Antitrust regulators have also raised behavioural antitrust considerations in the context of merger reviews. For example, US agencies have made clear they will take into account merging parties’ prior established/alleged antitrust violations, including conduct such as bundling, across the parties’ portfolios (see further analysis here). See here for an in-depth review of our key global antitrust themes for 2024. 

4. What to expect in… IP

Following its launch on 1 June 2023, the Unified Patent Court (UPC) has not, as many predicted, been shunned by pharmaceuticals and biotechs. In fact, in the initial seven months of the UPC’s operation, a significant proportion of the cases filed relate to the life sciences sector. In 2024, we will see whether this trend continues and start to discern trends in the decision-making of the UPC judges. We will also see the first decisions of the UPC Court of Appeal, which will play a crucial role in determining whether the UPC is going to be a pharma-friendly venue.

The interface of IP protections and AI will continue to be a hot button issue. Against a backdrop of ongoing interest in the application of AI and other next generation technology across the life sciences industry, we expect continued interest in collaborations and acquisitions that leverage AI, particularly for drug discovery, diagnosis, manufacturing, clinical trials, radiology and precision medicine and marketing. At the same time, the first wave of IP disputes around the use of generative AI for content creation will reach the courts in the US and Europe. The issues raised by those cases, especially on the use of training data and the complex IP ownership issues raised by large language models and other AI which rely on third party material, will be relevant to all AI users, but may pose particular questions for life sciences companies which rely on strong IP ownership as a foundation of their business model.

5. What to expect in… the regulatory space

In the US, we expect to see activity on a number of fronts:

1. Drug pricing negotiations are expected throughout 2024 on the first 10 drugs already selected under the IRA, with further selections anticipated. We expect continued litigation challenging the constitutionality of the IRA.
2. The FTC will continue to explore the extent of its oversight powers, following its late-2023 challenge to more than 100 drug-device patents listed in the ‘Orange Book’ with warning letters alleging a chilling effect on generic competition. While several biopharma companies withdrew patents in response, others did not. It remains to be seen how the FTC will respond.
3. Several US agencies are expected to issue guidelines and best practices for the use of AI, covering a range of topics including its impact on patent inventorship determinations, the dissemination of misinformation and the interface between biological and cyber warfare.
4. The 2024 Presidential election will continue to dominate the political landscape, with Democrats continuing to emphasise drug pricing reform as a critical part of their platform. 

In Europe, ahead of the June EU Parliamentary elections, legislative activity is running at full speed and there are significant developments on the horizon. In addition to the AI developments already noted, highlights include: 

1. Renewed momentum for legislation designed to facilitate the use of health data, including for secondary purposes such as research or innovation (see here for more on last year’s developments). It remains to be seen whether agreement can be reached before the elections.
2. The sector will be closely monitoring significant reforms proposed to EU pharmaceutical legislation last year. Key proposals include: limitations to data protection and market exclusivity periods, incentives for developing new antimicrobials, stricter transparency and disclosure requirements concerning financial support and more comprehensive environmental risk assessment requirements with Marketing Authorisation (MA) applications. 
3. Significant developments in the product safety and liability landscape: A new, more consumer-friendly EU product liability regime remains on track (see here for further analysis), with indications of possible future reform in the UK (though at a much earlier stage – see further here).

In Asia we expect more cooperation between regulatory authorities toward mutual recognition in the MA process. For example, the Japanese regulator (PMDA) is planning to open a representative office in Bangkok by March 2025 to facilitate cooperation with SEA countries. The goal is to introduce expedited ‘PMDA-certified’ medicines to SEA markets. We also expect a regulatory focus on medical devices and further accelerated approval processes. For example, the Chinese government has listed the new medical device law on its legislation agenda for 2024. The Thai Food and Drug Administration has also discussed measures designed to streamline medical device registration applications, including expedited review. 

6. What to expect in… ESG

ESG will remain a hot topic across the sector; some trends to watch in 2024 include:  

1. A focus on tackling antimicrobial resistance (AMR) with incentives such as subscription-based and other alternative models for new development at varying stages of consideration in the US and Europe, and with signs of potential investor agitation in the AMR space. Other measures of more general application will also be relevant, including continued political and regulatory focus on the impact of pharmaceuticals in the environment. For example, recent EU proposals include a requirement to assess APIs discharged into the environment, including antimicrobials, as part of the Environmental Risk Assessment Process. 
2. Reducing greenhouse gas emissions will remain a global priority. Despite significant progress, there are particular challenges with advanced biologics and gene therapies, which are typically more carbon intensive than traditional medicines. We also expect focus on the decarbonisation of clinical trials and on developing next generation metered dose inhalers and anesthetic gases in light of ongoing legislative discussions around F-gas quotas.
3. The developing discourse around biodiversity and nature reporting, as well as new deforestation obligations, will be closely monitored by the sector (see further analysis here). In the 2024 financial year, companies will face the inaugural application of EU sustainability laws, requiring assessment of their impact on people, the environment and sustainability issues. In December 2023, European lawmakers reached agreement on the Corporate Sustainability Due Diligence Directive, a significant instrument requiring large companies to conduct environmental and human rights due diligence across their entire value chains (see further here). While this will not take effect during 2024, companies will need to prepare and assess the adequacy of their existing measures as a priority. 

7. What to expect in… employment matters

There is a growing global focus by competition regulators on labour market practices, particularly in areas such as no-poaching, wage fixing and information sharing agreements, the regulatory and enforcement backdrop to which is increasingly complex. In the EU and UK in particular, we have seen investigations and dawn raids in connection with wage fixing and alleged no-poaching cartels, as well as an increasing willingness to aggressively pursue individuals. Multinationals should take particular care when conducting remuneration benchmarking exercises and resolving restrictive covenant disputes with competitors.

The trend is continuing for authorities to seek to limit the use of restrictive covenants (and non-competes in particular), which may cause concern in an industry where the protection of confidential information is critical. The FTC has proposed bans designed to make it easier for employees to move between competitors, and the UK government has proposed to restrict non-competes in employment contracts to three months. 

Whistleblowing and the promotion of a strong internal speak-up culture remains a global hot topic. According to our 2023 whistleblowing survey, which gathered the views of over 2,500 managers across five jurisdictions and thirteen industries, including life sciences, respondents were less likely to use internal reporting procedures to blow the whistle than in 2020. There was also a notable increase in those who said they would raise concerns on social media, indicating a potential disconnect from employers. This emphasises the importance of policies and training to encourage internal reporting and a strong speak-up culture, as external whistleblowing can involve a loss of control in the process, and disclosures of confidential or sensitive data. 

8. What to expect in… tax

In 2024, key international tax reforms will start to bear fruit. The OECD’s Pillar Two rules – providing for a minimum 15% tax rate for larger multinationals – are due to come into effect in the EU (and other jurisdictions including the UK and Australia). Associated measures such as domestic top-up taxes will also start to bite.  Assuming the US does not implement Pillar Two, this may have a more limited impact on US-headed groups. Other elements of Pillar Two due to follow in 2025 in many jurisdictions (most notably the undertaxed payments rule) are likely to cause more challenges. We expect that multinationals will already be considering the impact of the rules and will face an increased compliance burden and uncertainty as they bed in.

Progress has been slower on Pillar One ‘Amount A’ proposals to reattribute taxable profit to market jurisdictions. However, the OECD published a Multilateral Convention to implement these proposals in October 2023, with a view to them potentially entering into force in 2025. Multinationals within scope (broadly, those above a €20bn revenue threshold and 10% margin) will need to model the likely impact and consider any required restructuring.

We also anticipate continued global scrutiny of the tax treatment of royalty payments and transfer pricing arrangements. Multinationals with cross-border royalty flows should consider whether profits taxable in different jurisdictions are commensurate with the value added by the local activities taking place. We expect tax authorities will also increasingly seek to apply royalty withholding taxes having regard to the substance in relevant jurisdictions, which is likely to lead to more challenges.

9. What to expect in… disputes, investigations and enforcement 

We have continued to see a healthy appetite for disputes across the sector, including M&A-related disputes tracking recent trends for spin offs, licensing and collaborations. Particular themes to watch include:  

1. As challenging market conditions persist, we expect continued high levels of commercial disputes in the sector. High capital costs and ongoing material and labour inflation continue to put pressure on the economics of products that have not yet reached commercialisation or for which increased costs cannot be passed on. We have seen a marked increase in companies seeking to exit or renegotiate collaborations, supply agreements and other contractual relationships, with a resulting focus on contractual disputes around termination and performance. 
2. Compliance and enforcement risk remains high. In the white-collar space, we have seen significant use by prosecutors of corporate resolutions in place of prosecutions, demonstrating the benefits of early identification, reporting and remedying of wrongdoing, alongside close cooperation with authorities. Prosecutors have also continued to underline the importance of addressing white-collar risks in an M&A context, both during pre-acquisition due diligence and in post-closing integration. In October 2023, the DOJ announced a new ‘Safe Harbor Policy’, establishing a presumption that the DOJ will decline to prosecute a purchaser if they report misconduct by the acquired business within six months of closing, provided that issues are remediated within one year of acquisition.
3. Alongside bribery and corruption, tackling fraud has been a priority objective for global authorities, with a particular interest in looking back to actions taken during the pandemic. Last year, the UK government passed a new and significant ‘failure to prevent fraud’ offence, which is expected to be implemented in 2024. The legislation will provide criminal enforcement agencies with additional avenues to pursue corporate fraud investigations. Guidance on reasonable fraud prevention measures, potentially serving as a defence, is expected to be issued this year (see further here).
4. We expect the boom in consumer litigation to continue. This has been tracking upwards – in Europe in particular – with significant data privacy litigation on the rise, a trend for claimants using competition law to achieve non-competition goals, and with EU member states bedding in legislation designed to facilitate representative actions (the RAD). The claimant bar and funders will be watching the EU product liability reforms referenced above closely, which could lead to an uptick in consumer litigation in the sector (if passed in their current form). 

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Thanks also to the following additional contributors to the blog: Tom Walsh, Laura Onken, Caroline Doherty De Novoa, Sora Park, Amy Rentell, Alexandra Forrest, Jake Bullock, Dominic Brind, Vinzent Will and Umber Sohail.