Pharmaceuticals

The sector continues to grow steadily

The global pharmaceutical industry continues to grow steadily, supported by sustained innovation, demographic shifts and improved healthcare access in emerging markets. This growth builds on the sector’s inherent resilience, underpinned by its non-cyclical demand that acts as a hedge against economic fluctuations. Global prescription drug sales rose by 8% in 2025 (source: Evaluate) and are expected to maintain this momentum in the coming years. This level of growth is not only broad-based but is also being increasingly shaped by high-growth segments. Biologics and biosimilar continue to gain ground over small molecules, as the expansion of cold-chain infrastructure continues, particularly in emerging economies. Therapeutic areas such as oncology, immunology and endocrinology remain central to industry expansion, which are driven by rising global disease burdens and continued innovation.

GLP-1-based treatments remain a standout segment, with surging demand in both developed and emerging markets. Peptide-based therapeutics are also gaining momentum beyond GLP-1s, offering biologic-like efficacy with high target specificity and expanding opportunities across metabolic diseases, oncology, and other specialty care areas. mRNA technology, initially propelled by Covid-19 vaccines, is now being explored for a broader range of applications, including cancer immunotherapy, rare diseases and infectious disease prevention, positioning it as a promising platform for future drug development. At the same time, digital health integration, personalised medicine, and cell/gene therapies are opening up new frontiers for growth, especially in markets with supportive regulatory frameworks and reimbursement models.

Ongoing patent cliff

The industry continues to face a major patent precipice, with over USD 350 billion in branded drug sales at risk between 2025 and 2030. The wave of expirations is concentrated among blockbuster therapies, including biologics, with the top 20 pharmaceutical firms accounting for approximately 80% of the potential revenue exposure. The Loss of Exclusivity (LoE) cycle harbours both strategic opportunities and significant risks. On the one hand, it has opened the market up to generic and biosimilar manufacturers that are actively filing to enter markets previously dominated by branded medicaments. On the other, it has compelled companies to rapidly replenish their pipelines by acquiring biotech assets (late-stage assets for those seeking speed), intensifying in-licensing activity, and implementing Loss of Exclusivity strategies.

Big pharmaceutical companies are now aggressively replenishing their pipelines. Over the first half of 2026, around USD 100 bn was been spent on acquisition operations in the sector. The figure was the highest for the last decade and marked the very strong return of pharmaceutical M&A activity. In addition to the patent cliff, better financial conditions, particularly interest rates that have recently eased (compared with 2022 – 2024) are also a supporting factor for acquisitions.

In addition, Chinese biotech firms are continuing to strengthen their position as credible and competitive partners. They are gaining scientific credibility, securing regulatory approvals in global markets and are maintaining cost advantages. This is reflected in their expanding role in global drug licensing, where their share of deals continues to rise significantly. Since the start of the year, they made up around two-thirds of global licensing deals, up from 40% in 2025, and 5% in 2020.

The Middle East conflict has exposed structural vulnerability in the pharmaceutical value chain

Recent tensions in the Middle East have highlighted the pharmaceutical industry's continued dependence on a complex and highly concentrated global supply chain. The region is a major supplier of petrochemical feedstocks such as naphtha, methanol and other chemical derivatives that serve as essential building blocks for pharmaceutical intermediates, solvents, excipients and active pharmaceutical ingredients (APIs). Disruptions to the flow of these materials can therefore ripple across the entire pharmaceutical manufacturing ecosystem.

This risk is amplified by the industry's heavy reliance on Asian production hubs. China dominates global API manufacturing and remains a critical supplier of pharmaceutical raw materials, while India is the world's leading producer of generic medicines. As a result, any interruption in the supply of upstream chemical inputs can cascade through the value chain, affecting production costs, lead times and product availability worldwide.

The generics sector is particularly exposed. Unlike innovative pharmaceutical companies, generic manufacturers typically operate with very limited pricing power and thin operating margins. Consequently, sudden increases in the cost of chemical feedstocks, energy, transportation or APIs are difficult to absorb and cannot always be passed on to customers. Prolonged cost inflation or supply disruptions could therefore lead to manufacturing cutbacks, shortages of essential medicines, and increased financial pressure on smaller producers.

More broadly, the current situation has reinforced a key strategic concern for the industry, namely supply security. As geopolitical tensions persist, pharmaceutical companies and policymakers are likely to place greater emphasis on supply chain diversification, regional manufacturing capabilities and the resilience of critical medicine production networks.

India and China in the pharmaceutical supply chain

US tariffs are a structural vulnerability for the sector

The US remains heavily dependent on imported pharmaceuticals, particularly patented medicines from low-tax jurisdictions and generics from India. Its pharmaceutical trade deficit reached USD 118 billion in 2024, equivalent to roughly 9% of the total US trade deficit, with Ireland, Switzerland and other international manufacturing hubs playing an important role in supplying the market.

Although the US introduced a 100% tariff on branded medicines in 2025, its practical impact on large drugmakers has so far been limited. Most have obtained exemptions or preferential treatment in exchange for commitments to expanding manufacturing and investment in the US, while trade agreements with major partners (e.g., the EU) have further softened the measures. The tariffs therefore function primarily as leverage to accelerate pharmaceutical investment in the US rather than as a charge widely borne by the industry.

Recent announcements of 100% (later 200%) tariffs on generics from 2028 onwards pose a significant risk to foreign suppliers and to patients. Generics account for 90% of US prescription volumes but only 8% of spending. While the likelihood of significant policy changes, delays and exemptions before their introduction will be high, any substantial tariffs would most likely raise generic drug prices, as US generics are already among the cheapest of the OECD countries and manufacturers have limited ability to absorb additional costs. The greatest impact would fall on major foreign suppliers such as India, Israel, China and Mexico, which are heavily reliant on US demand. Given the industry's thin margins, tariffs could increase financial pressure, make some low-value generic products unprofitable and heighten the risk of drug shortages. Although reshoring production is a stated objective, this would require considerable investment, time and regulatory approval, while continued dependence on imported active pharmaceutical ingredients – particularly from China – would limit the effectiveness of a sovereign industrial policy.

Despite this, tariffs remain a structural vulnerability. The US continues to be by far the world’s most profitable market for pharmaceutical companies. The 2017 Tax Cuts and Jobs Act encouraged pharmaceutical companies to locate production and intellectual property in low-tax jurisdictions such as Ireland and Singapore and to allocate profits there through transfer pricing. Because tariffs are calculated on declared import values rather than production costs, these arrangements create a trade-off: maintaining high transfer prices increases tariff exposure, while lowering them may increase US taxable profits and trigger scrutiny from tax authorities. Repatriating intellectual property or production is equally complex and potentially costly. Ireland therefore remains particularly exposed to changes in both US trade and tax policy.

Increased US regulation could put a brake on rising prices

US pharmaceutical pricing continues to come under scrutiny. Reforms such as the Inflation Reduction Act (IRA) and the revival of the Most Favored Nation (MFN) model threaten the industry’s long-standing ability to set prices freely. By allowing Medicare to negotiate prices nine years after approval for small molecules and 13 years for biologics—precisely when drugs are most lucrative— the IRA is squeezing margins at their peak. MFN status, if implemented, would tether US prices to lower international benchmarks, which amplifies the pressure. To tackle these headwinds, drugmakers are tilting their portfolios toward biologics with longer protection and are accelerating R&D for therapies with high unmet need or shorter development cycles. These shifts point to a structural recalibration rather than a mere short-lived trend change.

To offset these potential revenue losses, Big Pharma is turning to Europe. It is currently the second-biggest market for branded medicaments, offering both scale and profitability. And the shift has already started. In the UK, the government agreed to pay more for medicines, reversing years of tight controls and low spending on pharmaceuticals. In Germany, fierce negotiations with the government are also currently playing out, although they are expected to yield minimal results.

However, this shift risks exacerbating fiscal and political tensions across the continent. European health systems, which are already under strain as a result of ageing populations and rising healthcare costs, have long relied on relatively affordable access to novel medicines as a cornerstone of their social welfare models. Significant price increases could place unsustainable burdens on public health budgets and force difficult trade-offs between healthcare spending and other social priorities.

Politically, higher drug costs may spark a backlash as citizens perceive price hikes as a threat to universal access, which is a core tenet of the European social contract. Populist movements could seize on public discontent to push for stricter price controls, compulsory licensing and even importation schemes, which could potentially destabilise the market environment for pharmaceutical firms.

The fallout of US pricing scrutiny extends beyond manufacturers. PBMs such as CVS Caremark, Express Scripts and OptumRx (which account for 80% of the market) negotiate confidential rebates with drug manufacturers in exchange for a favourable position on insurance reimbursement forms. These rebates are often based on list prices rather than net prices, which incentivises manufacturers to raise list prices to remain competitive in rebate negotiations. These concerns have sparked closer attention from regulators. In response, pharmaceutical companies are offering discounts on Direct-To-Consumer platforms, such as Cost Plus Drugs, or even on their own platforms. This enables drugmakers to sell their products directly for cash, bypassing all intermediaries. The model offers prices below traditional list levels (before negotiation), but purchases are not covered by insurance. This shift gained momentum with the launch of TrumpRx, a federal-level platform launched in 2026 that currently offers discounted drugs.