Headline-grabbing stories in medical innovation often feature the latest breakthrough drugs or exciting medical devices.  But clinical and bioanalytical labs – and the rapidly evolving methods, biological sciences, and technologies behind these key services – actually provide the backbone for a lot of the medical advancements we enjoy.  And for the rapidly growing companies in this space, the future has never been brighter.

Despite a notable 2022 biotech market downturn, clinical and bioanalytical labs are projected to grow at a healthy pace — estimated between 6% and 15% a year — for at least the next decade.  What makes these labs so important?  In one word: precision.  As life sciences research and healthcare delivery become increasingly tailored to the specific issues and risks of individual patients, labs offer the critical insights related to pharmaceutical and biotech R&D, patient diagnostics, therapy performance (e.g., safety, efficacy), and disease monitoring.  If “precision” medicine is the future, labs provide the “rulers” to understand how medical products, diseases, and individual patients intersect.

Market Trends

2023 will undoubtedly be an exciting growth year for companies in this sector.  Here are five forces that characterize how the segment will progress.

1. Medical innovation continues to accelerate. 

Cell and gene therapies.  CRISPR-mediated therapies.  Genetic biomarkers, proteomics, epigenomics, and disease expression.  Novel immunoassays.  Advancements in liquid chromatography, mass spectroscopy, nuclear magnetic resonance, and other technologies.  Organs-and patients-on-a-chip.  Biosimilars.  The inventory of diagnostic and therapeutic innovations is constantly growing, and the increasing precision of these advances will drive ongoing demand for clinical and bioanalytical lab services. COVID-19 has served to draw global attention to the critical role labs play with infectious diseases, but many other therapeutic areas such as oncology and metabolic disorders are also benefiting from innovations in laboratory sciences. For leaders in this space, keeping up-to-date on all of the advancements can be daunting, especially given their interdependencies with evolving regulatory expectations and obligations (for example, the FDA recently adopted ICH guidelines on bioanalytical method validation for both clinical and nonclinical studies).

2. Strong growth drives increased competitiveness. 

Given the pace of industry growth, organizations are being challenged to make sure their corporate strategies are well-tuned to capture market share.  In the face of increasing competition in both domestic and foreign markets, three imperatives are driving clinical and bioanalytical labs through their emerging growth inflection points:

  1. Grow operational capacity to deliver on the rising demand for clinical and bioanalytical services. Though process improvements can help improve available capacity, addressing the increasingly competitive labor market for skilled, revenue-generating lab workers has emerged as a high priority for many companies in the sector.
  2. Expand the geographic coverage for available services in order to drive volume and global delivery capability. This is especially true for labs supporting clinical research and submissions in emerging markets.
  3. Expand the service and client experience to accommodate the latest medical and technological innovations. Whether through novel assays, new lab technologies, or compelling ways of engaging their clients throughout the customer journey, companies increasingly want to differentiate themselves on the quality and breadth of service offerings they can provide.

Not surprisingly, these labs are turning to a combination of organic and inorganic growth strategies to support their growth goals. Successfully navigating all of these concerns requires well-framed business strategies and a disciplined cadence of aligned execution by leadership teams.

3. Downward pressure on pricing and reimbursement continues. 

The industry is gradually developing more visible justifications for why laboratory testing – which is estimated to support more than half of all medical decisions – should play a more prominent role across a wider variety of research, therapy, and care processes.  But rising healthcare costs, especially in the US, will continue to challenge the accrual of costs that do not provide differential treatment plans (i.e., we would do something different based on the result) and a demonstrably lower total cost of care (i.e., the different thing either lowers healthcare consumption or lowers treatment costs).  Legislative battles in a deeply divided US Congress – including proposed lab testing cuts for Medicare recipients – will create funding uncertainty across both research and healthcare delivery.

4. Clinical and bioanalytical labs get more serious about process automation and enterprise architecture. 

With limited capacity and long facility build-out timelines, labs will continue to pursue operational efficiencies that can enhance both service capacity and quality.  Investments in laboratory systems (e.g., LIS, LIMS, digital pathology) and data integration solutions are helping to improve information flow and collaboration through a more consistent and functional enterprise architecture.  But larger opportunities exist in implementing electronic workflows that autonomously or semi-autonomously fulfill routine lab tasks.  In addition to improving throughput and capacity, these solutions drive greater process standardization – a key requirement for labs seeking to leverage available capacity across disparate lab facilities. 

Cloud-based solutions play an important role in this enterprise architecture, offering a more extensible platform for scalable operations (e.g., sample tracking / management, emerging partnerships, flexible computing capacity, geographically distributed research sites, centralized authorization / access management, operational resiliency). Having a strong technology blueprint also serves to help labs pursue changes in the analysis and delivery space, including lab-on-a-chip and other diverse technology solutions. As such, effective enterprise architecture planning has become a key differentiator of market leaders in this space.

5. Clinical and bioanalytical labs get more insights from artificial intelligence. 

Precision-oriented medical innovations in both diagnostics and therapies are being accelerated through artificial intelligence. Though 2023 will undoubtedly be remembered for mainstreaming generative AI in many industry sectors, clinical and bioanalytical labs will continue to pursue opportunities to leverage AI techniques that can make their operations more efficient, agile, and patient centric.  For example, digital pathology solutions not only enable a more distributed workforce, they also create the opportunity to leverage AI algorithms for image recognition.  And for genetic medicine and pharmacogenomics applications, AI may be the most pragmatic way of consolidating the oceans of data into actionable intelligence regarding clinical risks, personalized diagnoses, and tailored treatment plans.

It will be interesting to see how the market segment continues to evolve as both research programs and care delivery settings further normalize in a post-COVID world. Trends such as decentralized workforces, supply chain risks, and inflationary pressures may continue to define tactical priorities for many companies. But the long-term trajectory towards precision medicine — where both diagnoses and treatments are aligned to the unique attributes of each patient — will continue to implicate laboratory-related insights as critical enablers of smarter medicine.