A case can be made that metabolic medicine was the theme of the life sciences industry in 2024. Insatiable market demand fueled rocketing revenue growth for Novo Nordisk, which makes Wegovy, and Eli Lilly, maker of Zepbound. This commercial success is paving the way for metabolic drug research more broadly, as would-be contenders aim to develop new and better products for weight loss.
While this space has become active and crowded, not so long ago, obesity drugs were a research desert. Omar Khalil, managing director of Sante Ventures, remembers those days.
“Five years ago, you couldn’t get a meeting with a [venture capitalist] if you said you were developing a drug for weight loss,” he said. “It was a space that investors did not want to touch, given the failures and the challenges with getting drugs approved. With the success of Novo and Lily getting their drugs approved, that’s obviously changed drastically.”
Not surprisingly, there’s enough momentum in metabolic medicines to carry over into 2025. The class of expensive GLP-1 drugs touches on broader themes that will affect the life sciences in the coming year, such as drug pricing and regulation.
Deloitte’s survey of 150 C-suite executives for its 2025 Life Sciences Outlook report shows that pricing and access to drugs and medical devices is the most significant issue: 47% expect pricing and access to significantly affect their strategies while 49% expect a moderate impact.
What’s Ahead in Drug Pricing
The Centers for Medicare and Medicaid Services has already selected the first 10 drugs for the negotiation program established by the Inflation Reduction Act (IRA). Those prices won’t take effect until 2026. In 2025, up to 15 more drugs under Medicare Part D will be selected for the negotiation program. Novo Nordisk’s Wegovy and Lilly’s Zepbound won’t be covered by these negotiations. But they could still come under CMS’s purview under a policy change proposed by the Biden administration.
Federal law does not permit Medicare to cover obesity drugs. But the Biden administration has proposed reinterpreting the law, classifying GLP-1s as chronic disease medicines rather than obesity drugs. It’s unclear what the Trump administration will do. Robert F. Kennedy Jr., Trump’s pick to lead the Department of Health and Human Services, opposes such drugs. But Elon Musk, who is leading the Department of Government Efficiency, has expressed support for obesity drugs as a way to lower healthcare costs.
In a Dec. 5 online media briefing after the Citi Global Healthcare Conference, Citi analyst Geoff Meacham said one looming drug price question is whether Trump adopts most favored nation pricing, a policy proposed in his first term that would cap Medicare drug prices at the levels paid by other countries. He added that he does not think a repeal of the IRA is in the cards.
As for Trump’s unconventional nominees, Meacham didn’t think that Mehmet Oz leading the Centers for Medicare and Medicaid Services and Martin Markary at the FDA would be very controversial or unsettling. But the selection of RFK for HHS raises uncertainty, he noted. Despite all the handwringing and fear, Meacham does not see radical changes brewing.
“We’re not of the view from a policy perspective that drugs are going to be pulled from the market,” he said. “We’re not of the view that the drug review process will be changed.”
Regulatory Outlook
Deloitte said most some industry executives are bracing for business volatility. Some of that volatility could come from changes to how the FDA and CMS interpret laws due to the U.S. Supreme Court’s overturning of the Chevron doctrine, Deloitte said. Under this decades-old doctrine, in matters where a law was ambiguous, courts deferred to the expertise of federal agencies. Deloitte said it’s unclear whether courts will continue to defer to government agencies for their statutory, scientific, and technical interpretations of laws.
To Khalil, the biggest regulatory concern to investors is anything that leads to less stability or predictability within the FDA.
“It’s not so much whether it’s less onerous or more onerous,” Khalil said of regulation. “It’s, is it less predictable? Is the path to approval something we can understand and underwrite? If it’s less predictable, or if there’s an exodus of FDA employees, or if review times are extended, those dynamics could certainly impact the biotech market and certainly reduce inflows into the market if people don’t see a predictable path or a regulatory process that’s well understood.”
To the extent that there is political or regulatory uncertainty, it hasn’t tamped down interest in metabolic disorder drugs. According to the Deloitte report, the success of GLP-1 obesity drugs have revitalized interest in general medicines — small molecule drugs that treat common conditions (Currently available GLP-1 medications are injectable peptides, not oral small molecules, but there are small molecules in various stages of development for obesity).
Deloitte notes that many companies are trying to capture a share of the $200 billion GLP-1 drug market. Beyond obesity, potential indications for these drugs include sleep apnea, addiction, Alzheimer’s disease, and metabolic dysfunction-associated steatohepatitis (MASH). New medications for these disorders could have far-reaching effects by reducing demand for medical devices and surgical procedures related to diabetes and obesity, Deloitte said in its report.
Digital Transformation Led by AI
Artificial intelligence is a big part of the digital transformation underway in the life sciences industry, according to Deloitte. Survey respondents said technologies employing generative AI are enhancing products, services, operations, and strategic decision making. About 60% of executives said they plan to increase investments in generative AI and/or digital transformation. This suggests that companies are moving beyond initial pilot projects and beginning to realize substantial value from adopting these technologies at scale, according to Deloitte. The firm adds that generative AI in particular is seen as having more transformational potential than previous digital innovations because it can reduce R&D costs and streamline back-office operations, among other benefits.
The clinical trials sector is one area realizing the benefits of AI-driven technologies. By the end of 2025, AI will go from being used in certain situations to being a main component of clinical trial operations, contends Jeff Sidell, chief technology officer of Advarra, a clinical trials services and technology company. Generative AI already enables automation of labor-intensive tasks but there is also promise in predictive analytics to forecast outcomes, optimize allocation of resources, and streamline timelines, he said. These technologies can also be used to extract key information from documents, reducing manual entry errors.
“Additional use cases that will become more common this year include using AI to analyze past trials and recommend improvements based on data patterns,” Sidwell said. “Site selection will also benefit from AI by identifying optimal sites with a greatest likelihood for patient recruitment success, considering factors like demographics, past performance, and patient availability.”
The Investment Outlook for 2025
2024 was a rebuilding year for the IPO market, according to Renaissance Capital. The IPO research firm counted 146 companies that went public across a range of industries. Those companies raised $29.6 billion, which was 50% more compared to the prior year. Even so, deal flow was slow as companies repeatedly pushed back IPO timelines amid uncertainty about interest rate cuts and other signs of economic volatility. Renaissance expects 2025 will be a better year for IPOs.
“While some may be skeptical that a pickup is once again ‘right around the corner,’ the IPO market has a stronger foundation now than at any point since the Covid bubble burst in 2022,” the firm said in its 2024 annual review. “High returns, renewed optimism, and a steady flow of private company news point to more deals on the horizon, and while we don’t expect a blowout year, IPO activity should finally normalize fully in 2025.”
Sante Ventures’ Khalil noted key differences in the kind of biotech company that can go public now versus a few years ago. Many companies that went public during the IPO boom were early stage or even preclinical. Some had what amounted to an interesting science project or scientific thesis that was not well supported by clinical data, he said. Investors welcomed these newly public companies in part because extremely low interest rates made it easy to invest.
The capital available to biotech companies has since become more constrained, Khalil said. Consequently, biotechs are more amenable to striking deals with big pharma. The fundamentals of investing in biotech are not revenue and profitability, but rather clinical data, he said. The companies best positioned to go public have one or more assets in late-stage clinical development. Companies that achieve clinical proof of concept against a well-validated target are able to raise capital to fund their research to late-stage development, Khalil said. But earlier-stage companies are still struggling to raise financing.
Macroeconomic factors could be key to shaping investment trends in the new year. Deloitte said 36% of survey respondents were evaluating the potential impact of inflation, economic recession, and supply chain and manufacturing disruption. According to Khalil, improving macroeconomic conditions could improve the investment climate.
“As inflation has gotten more under control and interest rates have started to come down, that’s started to loosen some of the capital that’s been stuck on the sidelines for some time,” he said.
In Conclusion…
There’s optimism for the life sciences in the coming year. Deloitte said 75% of survey respondents expressed that sentiment, based on their expectations for strong growth and margin expansion in 2025. The outlook for scientific advances is also positive. Oncology once dominated drug pipelines, and unmet medical needs means there is still research interest in this space. But research and investor interest is also expanding to immunology, which has emerged as another hot therapeutic area.
Meanwhile, metabolic disease drugs are already demonstrating growth potential beyond obesity and type 2 diabetes. As 2024 drew to a close, the FDA approved Lilly’s Zepbound for obstructive sleep apnea, making the product the first drug therapy approved for the chronic disorder. Lilly and others are working furiously to expand metabolic medicines to more indications. That could very well become a key theme of 2025.
Photo: Stuart Ritchie, Getty Images
