The Role of AI, Diversity, and Government in Medtech and Pharma Investments

In May, McDermott Will & Emery hosted senior private equity professionals, investment bankers, and other industry leaders for the inaugural Pharma and MedTech Services Investment Summit in San Francisco. Panels discussed investment opportunities and emerging trends shaping pharmaceutical and medtech services investments. While many perspectives were raised, the salient points regarding investment in this space focused mostly on artificial intelligence (AI), diversity, government, geopolitics, and other economic factors.

Artificial Intelligence

AI presents the medtech and pharma services industries an opportunity to transform working methods across the value chain. While AI’s long-term effect in both sectors is unknown, many experiments and pilot programs are already underway. AI and machine learning are transforming the utility and value of data in nearly all industries. Those pioneering the use of AI in pharma and medtech services will be better situated to achieve success as this emerging technology advances.

Contract research organizations (CROs) are already using AI in pharmacovigilance, literature searches, first drafts of investigational new drug (IND) updates, and first drafts of statistical and clinical monitoring plans (among others). The path forward indicates that people should “think” and AI should “do.” However, the challenge lies in helping individuals transition from being “word processors” to being so-called “thinkers.”

Data is at the core of AI applications in the pharma and medtech services industries. Without access to the right data, it is difficult, if not impossible, to get the desired outcome. This starts with proper data access and permissions, including electronic medical records (EMR) and physician notes, which can be the most important sources of insight. Companies also need to look at technology that will help incorporate the underlying data. They should be thinking about clinical research technology as part of data governance, which will help improve the overall process of obtaining proper data.

Access to data—including EMR, pathology reports, physician notes, and unstructured content—allows sponsors, CROs, and site management organizations (SMOs) to find patients who are eligible for trials. There are ample opportunities for AI to make this consistent and less costly. Furthermore, AI can improve the process of informed consent (e.g., by synthesizing lengthy informed consent documents to make them more accessible and increase the likelihood they are read by the participant). AI has already propagated in the radiology space, where 90% of healthcare data consists of images.

AI also has the potential to streamline processes in the medical communications sector. For example, AI can generate compelling storyboards and pitches, with writer and artist input, in a fraction of the time it would take humans. Instead of doctors of medicine and philosophy reviewing basic information, they can use AI-driven tools to conduct initial screenings and simplify processes, thereby improving productivity. Companies that successfully integrate AI will not make existing human roles obsolete, but rather, will help increase job gratification and efficacy. While inevitable, this will not be an immediate shift.

Evolution, however, moves more slowly in the healthcare industry. And AI, even in the most advanced sectors, is still in its early stages.

The BIOSECURE Act

Congress is considering legislation that aims to disrupt American ties with leading Chinese biotechnology companies. On March 6, 2024, an amended version of S.3558, introduced late last year, was referred for a vote on the Senate floor. A similar bill, H.R. 7085 (the BIOSECURE Act), was introduced in the U.S. House of Representatives in January this year but has yet to be considered by the House Committee on Oversight and Accountability. For convenience, the bills will hereafter be referred collectively as the BIOSECURE Act.

The BIOSECURE Act explicitly targets the BGI Group (BGI), China’s largest genome research organization, and WuXi AppTec (WuXi), a Shanghai-based contract research and manufacturing organization (CDMO) whose American clients include pharmaceutical giants and biotechnology startups. The legislation not only would prohibit federal agencies from contracting with these companies or funding them through loans or grants, but also would restrict federal dealings with any third parties that persist in contracting for these companies’ technology or services. Organizations would need to sacrifice their connections with these companies to avoid forfeiting future U.S. federal contracts and funding, which would include the ability to have products reimbursed by the U.S. Medicare program.

The BIOSECURE Act would have a dramatic impact on U.S. manufacturing. And though it has not yet passed, companies are preemptively changing some relationships to domestic partnerships. If the BIOSECURE Act does not pass, companies still should have a plan in place that is not entirely reliant on international support.

Whether it be CROs, SMOs, or CDMOs, domestic companies are often more costly and possibly slower than their international counterparts. It is unclear how companies seeking U.S. Food and Drug Administration (FDA) approval or Medicare reimbursement will make an effective switch away from international support. This geopolitical uncertainty, however, may provide opportunities for adaptable U.S. and European-based pharma and medtech services companies.

Diversity

There has been a push toward decentralized trials, diversity in clinical trials, and predictive biomarkers for patient matching, including revised draft diversity guidance by the FDA that is expected to be finalized this year. One simple way to achieve diversity goals is to partner with the healthcare systems where patients are actually seen and receive care. Collecting real-world data that reflects a diverse set of patients is critical to success in the pharma and medtech services industries.

While challenges such as trust concerns with clinical trials and clinical care continue to inhibit diverse patient sets in clinical trials, there are some mitigating factors. These include fostering community outreach or using mobile sites to educate communities about specific trials and clinical trials in general, as well as ensuring informed consent is properly translated on a trial’s front end.

When FDA guidance is eventually finalized, the industry will still need to take significant steps to enact true change in diverse patient enrollment.

Factors Affecting Investor Interest

Investor interest in pharma and medtech services is growing due to a rebound in biopharma funding, medtech innovations, increasing R&D activity from large pharmaceutical and biotechnology companies, and more clinical trial and supply chain complexity.

As the market settles after its 2021 peak, challenges include vendor cutting and consolidation among larger life sciences companies. However, this could also be viewed as an opportunity for vendors to add value through additional services. As large pharma and medtech firms face cutbacks, vendors should consider establishing relationships with small and mid-sized companies.

In the coming years, pharma and medtech services companies’ success will likely depend on whether they can continue to adapt by using AI or adapting to geopolitical concerns and improving the diversity of patient populations. 

Kristian (Krist) Werling represents biopharmaceutical manufacturers and healthcare service providers in a wide variety of transactional matters. He also represents private equity and venture capital investors in investments in the life sciences and healthcare industries. In this capacity, he works with cross-disciplinary teams to conduct legal due diligence and execute acquisitions, add-on acquisitions and divestitures, as well as provide ongoing legal services to portfolio companies. In the healthcare services arena, Werling has particular experience with transactions and joint ventures involving ambulatory surgical centers, specialty hospitals, dermatology, pain management and anesthesia physician practices and dental practice management companies. He is a co-head of the McDermott Will & Emery’s Private Equity Practice Group and serves as an elected member of its Management Committee.

Joel Rush has a national practice that focuses on transactional and healthcare regulatory matters affecting healthcare companies, including mergers and acquisitions, strategic affiliations, and joint ventures. Rush serves principally as counsel to private equity funds, public and private companies, physician practices, hospitals, and strategic investors in connection with a wide range of transactional, regulatory and corporate structure and governance matters. Rush leverages his transactional background and deep health regulatory experience to provide seamless legal counsel about the complex strategic and operational issues facing healthcare providers and investors. Joel is a practice area leader for McDermott Will & Emery’s PPM practice.

Marissa Hill Daley focuses her practice on healthcare and FDA matters, including advising clients on regulatory compliance, government and internal investigations, and FDA marketing requirements. Daley also defends clients against whistleblower qui tam suits that involve the False Claims Act and the Anti-Kickback Statute.