The pharma, medtech, and high-tech industries bring life-changing products to market, and each must navigate many challenges impacting innovation. External socio-economic factors are forcing organizations to do more with less, and executives continue to prioritize innovation and digital transformation.
Challenges affecting innovation for each industry
Inflation, regulatory hurdles, geopolitical instability, rising R&D costs, and more will potentially hamper innovation in these three industries. As part of our 2023 State of Revenue Report (SORR), when asked which market factors had the most significant impact on innovation planning, 84% of executives identified inflation, followed by supply chain and logistics (46%).
While inflation remains the top concern of 88% of company executives, regulations are a worry, too. Stricter clinical trial regulations, safety reporting needs, ethical drug production norms, and extended approval timelines are lengthening development trajectories and increasing complexity. An upcoming election year may also result in new legislation as lawmakers campaign.
Over 40% of executives identified global instability as another factor impacting innovation. Navigating these headwinds to bring novel treatments and delivery systems requires agile strategies, precision targeting of niche indications, increased automation, secure data-sharing models, and higher R&D productivity over volume.
The rising cost of raw materials, manufacturing, and administration may keep straining profit margins in 2024 — a concern for 34% of executives. We’re seeing downward pricing pressure applied by healthcare providers as they, too, attempt to navigate higher staffing costs and other expenses.
Medtech products and services require extensive testing and clinical trials to gain approval from regulatory bodies like the Food and Drug Administration (FDA). Long timelines and costs of adhering to evolving regulations may delay innovations in digital health, medical devices, diagnostics, and more.
The highly regulated nature of healthcare means meeting patient needs with new inventions requires patience, research, secure systems engineering, user-centric design, and stakeholder alignment.
Over half (59%) of surveyed executives cited supply chain and manufacturing capacity — and customer demand (41%) — as significant factors impacting their approach to revenue management. High inflation and a possible global recession could see businesses reducing spending on new technology and tightening budgets for R&D, sales, and marketing.
Economic, geopolitical, and regulatory shifts present high-tech companies with new constraints requiring creative solutions to continue robust hardware and software innovation. This challenge will test adaptability in the year ahead.
Digital transformation is a top priority
What is the top focus for innovation across all three industries? Digital transformation. Nearly 30% of respondents prioritized it above compliance, cost reduction, process development, product development, and people and workforce. Despite economic turbulence, digital transformation — a broad category including compliance, cost reduction, people and workforce, product development, and technology — remains critical. Companies must embrace and drive innovation to keep growing and maintain relevancy.
Regulations put ESG front and center
In 2024, we predict environment, social, and governance (ESG) will drive far more significant changes in high-tech manufacturers’ supply chains and go-to-market strategies as states and the federal government enact widely-anticipated climate regulations. Companies sourcing and distributing products sustainably and ethically will elevate themselves above the competition.
While necessary, these environmentally friendly practices will raise production costs, forcing manufacturers to strategize their pricing and decide whether it’s better:
- To charge more to cover costs and highlight the value-add.
- To charge less to encourage green investments.
We expect this debate to play out in the marketplace next year, reshaping future industry pricing structures.
Increased demand expected
The medtech industry faces an uphill battle in anticipating demand, especially as buyer requirements evolve. Now that we’re several years removed from the COVID-19 pandemic, the overall number of medical procedures performed has rebounded, suggesting volumes are returning to pre-pandemic levels. The increasing utilization will boost medtech sales. However, continued inflation and semiconductor supply issues mean production costs will remain high, and provider settings will continue to apply pricing pressures, creating revenue optimization challenges.
More outpatient procedures are being performed in ambulatory surgery centers (ASCs). The proliferation of ASCs offers new market opportunities, but these providers often require different equipment financing options, such as renting or payment plans, rather than paying upfront. Medtech companies must develop strategies to sell to these entities while maintaining revenue streams.
Government regulations continue challenging businesses
The Inflation Reduction Act (IRA) will disrupt the pharma industry in 2024 as Medicare begins negotiating prescription drug prices. The initial negotiation list includes just ten drugs — and the negotiated prices go into effect in 2026 — but the market will see a ripple effect as therapeutic categories heat up. We could see broader price adjustments and increased commercial drug costs.
Maintaining revenues to fund R&D for new medications will require pharma manufacturers to navigate a complex new landscape of government-mandated price controls strategically. Avoiding profit pitfalls will require deft manufacturing and strategizing to address the IRA’s groundbreaking changes.
New trade regulations also affect chip export, with high-tech manufacturers facing growing compliance challenges. The Department of Commerce has levied new export rules, and to comply, chip suppliers must closely monitor the thousands of distributors along the supply chain between the manufacturer and end customer. Limited visibility into inventory routing and retailers creates a significant obstacle to ensuring semiconductors and other restricted technologies aren’t resold into embargoed regions.
Improving supply chain transparency and blocking diversions early will keep companies ahead of volatile trade regulations; however, anticipating and adapting to external policy changes will continue testing industry leaders. Accurate channel data on all distribution partners, pricing, and retail locations will enable high-tech companies to comply with legal requirements.
Increased focus on revenue and profit optimization
More findings from the SORR uncovered how revenue management remains a challenge for 99% of executives because they remain susceptible to:
- Fluctuations in the business and market landscape.
- Ongoing pressure from supply chain issues
- Evolving regulatory requirements
- Geopolitical instability
This year, 75% of executives agreed their industries would benefit from improved revenue management. Over half don’t completely trust their data for decision-making regarding compliance, channel relationships, pricing, and rebates. Because data drives these complex, critical functions, companies should invest in solutions now to address their current and future operational requirements.
It’s time to empower revenue teams with technology they can trust. As we approach 2024, companies will keep honing their existing tactics and strategies, working to create stability in an uncertain world. Businesses need partners boasting industry expertise and innovative tech to:
- Optimize revenue.
- Mitigate compliance risks.
- Grow share.
Model N helps high-tech, medtech, and life sciences companies implement best practices, empowering revenue teams with the right data capabilities to navigate the challenges ahead. Learn how Model N can help your company optimize its revenue.