February 03, 2023 | Procurement Strategy
2023 promises to be another year shaped by inflation and its effects.
While supply constraints drove inflation in 2022, high interest rates, rising energy prices due to the ongoing Russia-Ukraine conflict, COVID-19 lockdowns in China and pricing pressures resulting from laws like the Inflation Reduction Act will pose challenges this year.
Expectations for the U.S. point to either slow growth or a minor recession this year, with inflation gradually reducing as interest rate increases take hold and slow the economy. What does that mean for the life sciences industry?
For the life sciences industry in the U.S., the rollout of drug pricing reform and regulatory tightening may threaten growth. Questions remain on how drug prices will be negotiated as the implementation of the Inflation Reduction Act begins.
Rising supplier prices are expected to slow down from mid-2023 as growth and revenue concerns overtake inflation. The cost of variables such as raw material, labor and leasing will stabilize.
Higher interest costs and volatile stock markets could lead to a lower appetite for moonshot bets on new drugs.
Due to higher financing costs and recent expansion projects, firms may slow their capex projects for this year, which could impact future innovation if the cost of financing makes long-term products less attractive areas for investment.
With inflation looking likely to drive higher costs for drug manufacturers and biotech firms, procurement has a significant role to play in controlling spend.
Now is a great time to lock in long-term pricing agreements, given the excess capacity and potential for recession.
In addition, procurement should seek to leverage digital tools such as artificial intelligence and machine learning to maximize their marketing ROI.
In a year when budgets are set to shrink, utilizing data can help reveal the most promising opportunities.
Procurement can also help companies gain visibility into cost drivers with the next-generation procurement software tools available. Having more accurate should-cost estimates can improve negotiations with suppliers and help companies blunt the effects of inflation.
While inflation will have an impact on the life sciences industry, it’s not the only key trend to watch.
Want to know more about how to navigate the uncertainties, as well as identify and capitalize on the opportunities this year?
Download GEP’s white paper, Outlook 2023: Life Sciences, available on our Knowledge Bank.