Life sciences companies pour more investment capital into digital and technology
With empowered patients expecting anytime, anywhere health services, life sciences companies continue to invest in digital and technology. Sixty-seven percent of life sciences executives say that their companies plan to focus 25% or more of their total annual investment capital on digital and technology; 40% say they will devote 25% or more of that digitally focused investment capital on new growth opportunities.
Life sciences companies are feeling the impacts of digital transformation on several fronts, but most especially as it reduces barriers to entry, allowing new players to enter the market, thereby increasing competitive pressures. Meanwhile, with technology giants investing in health — as seen in the recent announcement by Google, which has moved to acquire Fitbit through a reported US$2.1 billion deal — they are blurring the boundaries between life sciences and other industries.
At the same time, even as life sciences companies seek to ramp up their digital capabilities, particularly around artificial intelligence (AI) and machine learning, as well as analytics, almost two-thirds of life sciences executives expressed challenges in attracting and retaining talent. Of this proportion, 70% say the challenge is hiring the specific technical skills their core business requires or digital and technology specialists. Given that half of life sciences executives say their digital capabilities are infused throughout the business, unless companies throughout the industry find ways to attract and retain talent with the right skill sets, this gap is anticipated to increase, slowing life sciences companies’ ability to compete in an area that is vital for their future. It is of little surprise, therefore, that life sciences companies cite acquiring talent and acquiring technology as their top two strategic drivers for M&A.
Expect the M&A party to continue into 2020
As we look ahead, we expect the M&A party that has propelled dealmaking to historic highs to continue into the new year. The regulatory and geopolitical uncertainty that softened dealmaking in 2018 has been a non-issue in 2019. Yet even if the global economy were to enter into a recession tomorrow, most of the health and life sciences industry would be largely insulated from the impact due to the industry’s limited demand and price elasticity. In fact, in some areas, life sciences companies will see growth from a downturn.
This may explain the confidence life sciences companies have in their sector’s economy, with 71% saying it is growing (versus 49% a year ago) — a sentiment 37% say has improved over the last six months. This, combined with their expectations for increases in pipeline activity and deal closures, suggests that dealmaking will keep driving growth across the industry in 2020.