Pharmaceuticals

Navigating innovation, pricing pressures and an evolving geopolitical landscape

LOW RISK FOR ENTERPRISES

Last Update: July 2026

Strengths & Weaknesses

Global, resilient market: Large, diversified industry with a broad product portfolio and global presence, supported by structural non-cyclical demand for healthcare.
High barriers to entry: Significant R&D investment, stringent regulatory requirements, intellectual property protection and specialized expertise limit new entrants.
Strong profitability and cash generation: Despite high R&D spending, leading pharmaceutical companies typically generate robust operating cash flows, supporting continued innovation, acquisitions and shareholder returns.
Favorable long-term demand drivers: Ageing populations, increasing prevalence of chronic diseases and expanding healthcare access in emerging markets underpin sustainable industry growth.
Pricing power through innovation: Patented therapies provide pricing power and higher margins, partially offsetting inflationary and cost pressures until patent expiry.
Innovation leadership: Continuous advances in biotechnology, precision medicine, gene and cell therapies and digital health strengthen the industry's long-term growth potential.
Established regulatory frameworks: Well-defined regulatory standards support product quality, patient safety and long-term confidence in the sector.

High regulatory burden: Strict and long approval processes and ongoing compliance requirements increase costs, extend development timelines and add operational complexity.
High R&D risk: Drug development requires substantial investment with long development cycles and high clinical failure rates, creating significant financial risk.
Patent dependency: Revenue can decline sharply following patent expirations ("patent cliffs"), increasing reliance on a strong and continuous innovation pipeline.
Pricing and reimbursement pressure: Governments and healthcare systems are increasingly focused on controlling drug costs, limiting pricing flexibility and pressuring margins.
Competition from generics and biosimilars: Loss of exclusivity exposes branded products to lower-cost alternatives, accelerating market share and revenue erosion.
Supply-chain complexity: Global manufacturing and sourcing networks increase exposure to geopolitical tensions, trade restrictions and supply disruptions.
Reputational and ESG risks: Public scrutiny over drug pricing, access to medicines, clinical transparency and ethical practices can affect reputation and lead to tighter regulation.

Sector Overview

What to watch ?

Aging populations and rising chronic diseases: Demographic trends remain one of the strongest long-term growth drivers for the pharmaceutical industry. A rising population (8.5bn people by 2030), together with increasing life expectancy and a higher prevalence of chronic conditions such as cardiovascular disease, diabetes, cancer and neurodegenerative disorders, is expected to sustain demand for innovative therapies over the coming decades.
GLP-1 therapies reshaping the market: Anti-obesity and diabetes drugs continue to transform the industry. Beyond treating obesity and type 2 diabetes, ongoing clinical trials are exploring their potential in cardiovascular disease, chronic kidney disease and other indications, significantly expanding their addressable market and creating one of the fastest-growing therapeutic segments.
Artificial Intelligence across the pharmaceutical value chain: AI is rapidly transforming drug discovery, clinical trial design, regulatory processes and commercial operations. By improving target identification, optimizing clinical trials and accelerating data analysis, AI has the potential to reduce development timelines, improve R&D productivity and lower costs.
Patent cliffs and pipeline execution: A growing number of blockbuster drugs are approaching patent expiration over the next few years, exposing pharmaceutical companies to increased generic and biosimilar competition. Sustaining growth will depend on the successful commercialization of innovative products, strategic acquisitions and strong late-stage development pipelines.
Expansion of biologics and precision medicine: Biologics, cell and gene therapies, RNA-based medicines and personalized treatments continue to reshape healthcare by targeting diseases with greater precision. At the same time, increasing biosimilar adoption will intensify competition while expanding patient access to advanced therapies.
Regulatory evolution and faster access to innovation: Regulators continue to modernize approval pathways for breakthrough therapies, rare diseases and unmet medical needs. While regulatory requirements remain rigorous, initiatives aimed at accelerating reviews and incorporating real-world evidence could shorten time-to-market for innovative medicines.
Supply-chain resilience and manufacturing diversification: Pharmaceutical companies are continuing to diversify manufacturing footprints and strengthen supply chains in response to geopolitical tensions, trade restrictions and lessons learned from recent disruptions. Securing critical raw materials and active pharmaceutical ingredients (APIs) has become an increasingly strategic priority.
Pricing and healthcare affordability: Governments and payers are placing greater emphasis on controlling healthcare expenditure through pricing negotiations, reimbursement reforms and increased use of generics and biosimilars. Companies will need to balance innovation with affordability while demonstrating the clinical and economic value of new therapies.

The pharmaceutical industry remains one of the most resilient and innovation-driven sectors globally, supported by structural demand stemming from aging populations, the rising prevalence of chronic diseases, expanding healthcare access and continuous scientific advances. While the sector continues to be dominated by large multinational companies headquartered in the US and Europe, innovation is increasingly supported by biotechnology firms, strategic partnerships and targeted acquisitions, reinforcing a highly dynamic research ecosystem.
Following several years of exceptional innovation, the industry has entered a new growth phase driven less by pandemic-related products and increasingly by breakthrough therapies addressing large unmet medical needs. Metabolic diseases, oncology, immunology, rare diseases and precision medicine remain the main pillars of pharmaceutical innovation, while artificial intelligence is progressively improving productivity across the entire value chain – from drug discovery and clinical trial design to manufacturing and commercialization. These advances are expected to improve R&D efficiency and support a stronger pipeline of high-value therapies over the medium term.

One of the industry's strongest growth engines continues to be obesity treatments. The rapid adoption of next-generation metabolic therapies has created one of the fastest-growing pharmaceutical markets in history, with global sales expected to multiply over the remainder of the decade as reimbursement expands, oral formulations become commercially available and patient access improves across developed markets. At the same time, continued investment in biologics, cell and gene therapies and RNA-based medicines is broadening treatment options for previously difficult-to-treat diseases, supporting long-term sector growth despite increasing biosimilar competition.

From a macroeconomic perspective, the sector is navigating a more complex operating environment. Geopolitical tensions and evolving trade policies are encouraging pharmaceutical companies to diversify manufacturing capacity and strengthen supply-chain resilience, particularly for active pharmaceutical ingredients and strategically important medicines. At the same time, discussions around tariffs, domestic manufacturing incentives and government procurement policies are prompting companies to reassess production footprints and capital expenditure plans, particularly in the US. Although the ultimate scope of these measures remains uncertain, they reinforce the ongoing trend toward greater regionalization of pharmaceutical manufacturing.

Drug pricing will remain one of the key issues shaping industry profitability. Governments and healthcare systems continue to seek greater affordability through price negotiations, reimbursement reforms and wider adoption of generics and biosimilars. Nevertheless, recent policy developments suggest that pricing pressure may prove less severe than initially anticipated, while broader reimbursement for innovative therapies is expected to support higher treatment volumes. Consequently, the industry's revenue outlook increasingly depends on expanding patient access and launching differentiated medicines rather than relying solely on price increases.

Patent expirations will continue to represent a structural challenge over the coming years, although the financial impact may be more gradual than previously expected. The increasing complexity of biologics, advanced formulations and drug-delivery technologies has made generic substitution more difficult and, in many cases, has effectively extended the commercial life of leading products. As a result, pipeline quality, regulatory execution and successful product launches are expected to become more important drivers of earnings than patent expirations alone.

Looking ahead, the sector's outlook for 2027 and beyond remains constructive. Demand fundamentals continue to strengthen, supported by favorable demographics, rising healthcare expenditure and sustained innovation. Artificial intelligence is expected to improve research productivity, while strategic acquisitions will likely remain an important mechanism for replenishing pipelines and accessing emerging technologies. Although geopolitical uncertainty, evolving regulation and pricing reforms will continue to generate volatility, the pharmaceutical industry appears well positioned to deliver resilient earnings growth over the medium term, underpinned by strong cash generation, high barriers to entry and one of the most attractive innovation pipelines across the global economy.

Subsectors

Drugs manufacturers:
a.   Active Pharmaceutical Ingredients (API): API is the part of any medication that produces the intended health effects. They are produced from raw materials with a specified strength and chemical concentration. Examples of APIs include: ibuprofen, loratadine, omeprazole and acetaminophen. All drugs are made up of two core components (APIs and excipients). The excipients are chemically inactive substances, such as lactose or mineral oil in the pill, which are used to help the medication remain stable and to control its absorption.
b.   Patented drugs (also known as branded or original drugs): Original drugs refers to drugs that have been approved for marketing after many tests and rigorous clinical trials (there are four phases before the post-market monitoring). This takes about 15 years of R&D and millions of dollars of investments. Only large multinational pharmaceutical firms are able to develop original drugs, which benefit from a patent period of 20 years. But once the patent expires, other manufacturers can start to produce generic versions of the drug.
c.   Generic drugs: Drugs that are not branded but that are very similar to a branded drug in terms of dosage, administration, safety and performance. Generic drugs tend to be cheaper and therefore more accessible, since their manufacturers did not have to invest in discovering/creating a new formula but only replicate an existing one.
d.   Biotechnology: This is the merging of biology and technology, refering to the branch of applied science that uses living organisms and molecular biology to produce healthcare-related products. Today, approximately 17% of total drug revenue is derived from biopharmaceuticals, which are mostly used in oncology, metabolic disorders and infectious diseases. The term biopharma describes companies that use both biotechnology and chemicals in their R&D.

Contract Research and Manufacturing Services (CRAMS): The field encompasses those services in the pharmaceutical and biotechnology industries that require extensive R&D and large-scale manufacturing facilities. It is a clinical term used for referring to outsourcing and it is one of the fastest-growing segments in the sector today.

Drug marketing: This refers to the marketing of drugs and medical devices by private and public organizations to doctors, clinicians and consumers as drugs/treatments need to adopt particular marketing strategies to be sold effectively.

Contacts

Maria Latorre

Sector Advisor

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Pharmaceuticals sector risk report