How is the Life Sciences Industry Overcoming the 2023 Downturn?

As multiple macroeconomic challenges converge and a global downturn is imminent, where does this leave the industry?

Resilience has been a key differentiator for life sciences compared to other industries, yet as more organisations are looking to reduce R&D spending and slow down and financial pressures mount, many people will be asking…

How is the life sciences industry overcoming the 2023 downturn?

What do we mean by the 2023 downturn?

Before getting into how the life sciences industry and organisations within it are overcoming the 2023 downturn, it’s important to explain the factors that are spearheading the downturn.

After a period of stabilisation following the pandemic in which many organisations thrived, there is now a complex set of macroeconomic challenges impacting the industry:

• A looming recession
• High inflation
• Rising energy costs
• Staffing shortages
• Fragile supply chains
• Pandemic-related resignations/burnout
• The war in Ukraine

These are just a few of the factors that are proving challenging to the life sciences industry, and each factor is likely to have a knock-on effect on the industry’s financial performance to some degree.

What makes the 2023 downturn so significant is that many in the industry assumed that the resilience displayed by the industry and the successes meant it was, particularly when compared to other industries, ‘recession proof’.

However, it is now clear that these challenges do present a significant barrier for life sciences organizations, with less than 25% of life sciences company executives feeling confident that their organisation is well prepared to meet these challenges.

Re-evaluating R&D

A report by Deloitte Touche Tohmatsu into the aftermath of the 2009 global recession for life sciences organisations found the following trends:

• Research and development activity was cut, even though organisations recognised that R&D was critical to their longer-term success.
• Organisations recognised that downsizing their R&D activity was an attempt to cut costs as a critical measure at the time to be able to address R&D problems in the future (in other words, it was easier to cut costs at the peak of the crisis to be able to continue operating).
• R&D was the one area that respondents indicated would determine long-term success post-recession.

There’s a lot to learn from this case, particularly given the fact that the current downturn is a combination of factors rather than solely a recession.

Firstly, it indicates that the immediate response to a downturn is often to cut costs and immediately anticipate a reduction in R&D activities for biotech and pharmaceutical businesses.

However, the report also shows that respondents were aware that R&D was critical to long-term success.

This means that businesses should look to cost-effectiveness as opposed to cost-cutting – a steep decline in R&D spending is only likely to have severe repercussions for organisations.

Secondly, whilst new product research might not be a high priority during tumultuous periods, there is undoubtedly a belief that those who sustain their innovation will successfully survive the downturn.

For life sciences organisations, this will likely result in a re-evaluation of R&D spend and activity to strike a balance between costs and continuing innovation for the purposes of resilience – previous downturns are a critical learning component for organisations and should be the basis of a strategy to overcome the 2023 downturn.

Improving supply chain resilience

Supply chain disruptions were rampant during the pandemic, and the current downturn is contributing significantly to this continuing trend.

According to McKinsey’s Life Sciences Resilience Survey, 50% of respondents highlighted the operational dimension as the element most affected by such disruptions in the previous 24 months.

Many organisations are looking for greater transparency as a solution to supply chain disruptions by developing end-to-end supply chain visibility to detect weaknesses before they cause disruption as a more proactive method.

Leveraging real-time data is also another important element when it comes to checking for vulnerabilities – digitalisation will only improve an organisation’s ability to perform stress testing.

Swiss healthcare company Novartis developed a business continuity and supply risk framework before the Covid-19 pandemic, which helped it to maintain operations steadily throughout the pandemic.

It can be expected that the more cutting-edge businesses will begin to consider AI and predictive analytics to generate forecasts to assist with supply chain issues.

Relying on talent

As with many other industries during a global downturn, there has been a rise in resignations because of several factors:

• A post-pandemic shift to a candidate-driven market, with priority given to flexibility and work-life balance from candidates when seeking roles.
• High competition between life sciences organisations for specific roles and skills, meaning candidates can leave one role and start another with relative ease.
• Greater cross-industry competition has meant that life sciences organisations are no longer competing only with each other, but instead, with businesses across other industries due to high demand for digital and analytics talent.

Consequently, organisations are more reliant on talent than ever before – candidates are driving demand and change in the industry, and to overcome the downturn, organisations are having to listen.

But how?

Primarily, organisations are having to split their focus between cultivating a strong company culture and improving their ability to attract and retain talent.

In the short-term, this could mean a re-evaluation of current employee benefits (e.g., having a greater emphasis on flexibility and work-life balance, including benefits such as flexi-time or hybrid working) and a clearer approach to highlighting the benefits of working in the life sciences industry (e.g., the ‘greater good’ impact of careers in the industry).

In the long-term, it will be essential for organisations to prioritise the roles that are critical to their resilience and success, whether this is managerial roles to keep teams accountable and working towards company goals or roles with critical skillsets.

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