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Healthcare Trends Shaping 2023, and What They Mean for Leadership

January 2023

At a glance

  • Deal volumes and values are down, and high interest rates will keep some dealmakers on the sidelines. Companies will look to performance optimization and partnerships to boost results in lieu of full-fledged deals.
  • Home health continues to grow, due to an increased emphasis from payers, changing reimbursement models, and new technologies that enable at-home services, including dialysis, infusions and more.
  • After years of favorable market conditions, biotech faces a tough environment. That said, one thing remains true: If you’ve got great science, a great story or great leadership talent, at any stage, you will find funding.
  • Digitization continues to transform healthcare. In particular, investments in technology and data to streamline processes, reduce costs and leverage data will continue.

J.P. Morgan recently held its annual Healthcare Conference in San Francisco, its first in-person since 2020. The energy was palpable and in more than 300 conversations with industry board members, CEOs and C-suite leaders, we explored many key trends playing out in healthcare this year — all with clear implications for leadership, especially at senior levels.

Below we look at the major themes from the week and how they will impact leadership, talent and organizational dynamics in 2023.

After reaching record levels in recent years, deal volume and value declined significantly in 2022, and higher interest rates and macroeconomic uncertainty will likely keep some dealmakers on the sidelines in 2023 as well. As a result, organizations are likely to focus on integrating the business units and companies that they’ve already acquired and finding ways to improve financial performance through organic growth. Companies will also focus on partnering with organizations rather than making full-fledged acquisitions or large-scale deals. For example, pharma companies may structure partnerships in which they provide much-needed cash to promising smaller firms in exchange for board seats, giving them the option to acquire in coming years.

To be clear, deals aren’t stopping. Private equity firms still have dry powder to invest, and the demand for healthcare innovation remains massive, especially in the US. If and when signs appear that interest rates are stabilizing, we’ll see more capital deployment. One participant described the current market as “dumbbell-shaped”: Private, preclinical companies with sufficient cash can ride out the current environment, and companies with products in late-stage development, such as drugs in Phase III clinical trials, will draw interest from pharma incumbents. Companies in the middle, however, will struggle to find funding. In this context, we expect to see a big uptick in venture debt deployment, as companies need cash to bridge to their equity investment.

For companies with products in the US market, the recently passed Inflation Reduction Act (IRA) is a bit of an X-factor. Although the law doesn’t take effect until 2026, one leader we spoke with expects to see an impact in the medium and long term, specifically in oncology and immunology. This will impact deal strategy in 2023 and push companies to rethink certain clinical development strategies. The 10 Medicare Part D high-spend brand list, due for publication on September 1, 2023, will be a closely watched event.

Leadership implications

  • Partnership skills will be in demand. Collaboration and influencing are crucial — particularly across organizations of different sizes, such as a small biotech firm working with a large pharma company. Appreciating differing viewpoints and understanding the priorities of different partners will be important for a successful partnership.
  • Integration and organic growth are the twin focuses for 2023. Organizations will be looking for proven growth leaders in the c-suite with deep strategic and commercial capability balanced with the need for core operating skills to drive efficiencies. Now is the time to integrate acquisitions, align cultures and return to operational basics. As one attendee told us, “When you want to buy a house but can’t in the current market, you refinish the floors of the home you’re in.” That means developing the right strategy and commercial model, refining the portfolio of products and services, doubling down on sales and marketing, and communicating a story of value creation to investors.

As the pace of acquisitions slows, large incumbents are reorganizing. In some cases, they are spinning off slower-growth businesses. In others, they’re reconfiguring the organization into standalone business units with their own profit-and-loss structures. In both cases, the goal is to be more operationally and financially efficient. The challenge is that the reorganization process itself can be complex, expensive and time-consuming.

Leadership implications

  • CFOs will need a more strategic lens. As our research on the path to CEO success shows, organizations are seeking CFOs who go beyond measuring and monitoring financial health. CFOs who can proactively help reshape the business will be critical, particularly for companies going through a major reorganization or spin-off.
  • Experience with spin-offs or reorganizations will matter. Top leaders who have executed these programs in the past will be more attractive candidates. Modeling the financial implications of a reorganization, anticipating challenges and communicating a clear story to Wall Street will all be core skills for C-level leaders.

Home health continues to grow, due to an increased emphasis from payers, changing reimbursement models, and new technologies that allow more “hospital at home” services and procedures to be provided at home, including dialysis, infusions and more. In the past, home-health companies have focused on human capital, deploying nurses and other certified staff. But the future of home health will require a different type of organization, grounded in technology and data. Home-health leaders will need to drive the creation of intuitive user interfaces for technology, market directly to patients, capture and leverage data in new ways, and sell to government payers.

Leadership implications

  • A scarcity of sector-specific talent will require a rethinking of key capabilities. Traditionally, home health has been a slower-growth segment with a smaller pool of senior talent, so finding a leader with direct sector experience won’t be easy. Candidates from adjacent sectors such as digital health and biopharma could have the skills outlined above and ably fill the talent gap in home health.
  • Hiring and developing will be based on potential more than experience. Companies will need to assess more for overall leadership potential and rely less on segment subject-matter expertise. This will not only uncover “hidden gems,” but will also help identify overlooked talent from underrepresented groups and communities. Identifying and developing internal candidates is important, as is seeking external candidates with relevant backgrounds like technology.

After years of favorable market conditions, biotech companies now face a much tougher environment — a new experience for some management teams and younger organizations. Valuations are down, many firms are underwater (or close), the IPO market is essentially dormant, and financing is harder to find.

For preclinical biotech CEOs at companies that need cash, the long timeline before having commercially available products means a lower valuation for their businesses and a reduction in their equity. Even companies that are well financed for the next two years may be only “kicking the can” down the road, as one investor put it. And the FDA’s insistence for confirmatory trials as a condition for accelerated approval may mean that biotech companies need more cash than originally budgeted to get their products to market, one biotech board member pointed out.

That said, one thing remains true: If you’ve got great science, a great story or great leadership talent, at any stage, you will find funding. Similarly, companies with strong management teams and strong boards will remain the best at attracting and retaining senior leaders.

Leadership implications

  • The pharma-to-biotech executive pipeline is slowing. Risk-averse candidates may opt to ride out the current storm in the stability of a large organization, and biotechs seeking to hire from pharma may need to rethink compensation to make those roles more attractive.
  • Strong leaders and strong science will survive. Biotech leaders will need to skillfully navigate the current market — identifying and securing the pockets of funding still available and investigating partnerships and other structures. They’ll also need to ensure the strength of their science is clear to potential investors. For biotech boards, now is the time to focus on supporting your CEOs and their leadership teams, many of whom may be looking to cut losses if their equity is underwater.

Digitization continues to transform the industry, both in patient-facing and enterprise applications across all internal functions. And in particular, investments in technology and data to streamline processes, reduce costs and leverage data will continue. In our conversations with leaders about data in San Francisco, three areas stood out.

One is payments between health insurers and providers, a notoriously high-friction process requiring information flows across multiple stakeholders. Technology such as Blockchain that simplifies the flow of information and gives all stakeholders access to the real-time payment data will continue to be a hot area for investment. The second is behavioral health, where data can offer payers and providers insights on the correlation between mental health issues and physical illness. The third is in clinical trials, especially for remote participants and underrepresented populations. The common theme across all three is collecting data efficiently while complying with privacy regulations.

Leadership implications

  • Clinical trial experience will be in high demand. Leaders who know how to design, recruit for and run complex clinical trials will remain in high demand as trial sponsors balance in-person and remote elements and the complexity that comes with hybrid trials.
  • Proven product and data leaders are needed. An optimized product and service portfolio that meets specific market needs will be key to expanding a company’s value proposition. We’ve seen a significant increase in demand for chief product officers, even in healthcare services, to help organizations streamline the solutions that make them distinctive.

Lastly, one more element of the J.P. Morgan conference is worth noting. Despite the current uncertainty — in healthcare and across most of the global economy — attendees were almost uniformly optimistic about the industry’s future, and believe that it’s an exciting time for the industry. The fundamental principles still apply: Strong companies rise, the best ideas get funded, and people will continue to develop new ways to improve patients’ lives.

If an uncertain market validates one thing, it’s this: Inspirational leaders who can communicate a clear vision and build inclusive environments will thrive despite the challenges ahead.

For support navigating these talent and leadership issues, please reach out.