Pharmaceuticals

The global pharmaceutical industry rebounded in 2024, with prescription drug sales rising 7.7%, driven by innovation, demographic shifts and improved healthcare access in emerging markets. Growth is being increasingly fuelled by biologics and biosimilars, supported by expanding cold-chain infrastructure and a rising share of novel drug launches. Key therapeutic areas such as oncology, immunology, endocrinology and GLP-1-based treatments continue to lead, with strong demand in both developed and emerging markets such as India. Meanwhile, emerging technologies like digital health, personalised medicine, cell and gene therapies, and mRNA platforms are opening new avenues for long-term industry expansion.

However, the sector faces a major patent precipice: over USD 350 billion in branded drug sales are at risk between 2025 and 2030, primarily among blockbuster therapies. The top 20 firms account for roughly 80% of this exposure. While this opens opportunities for generics and biosimilars, it also pressures companies to replenish pipelines—prompting acquisitions of late-stage biotech firms and partnerships with Chinese biotechs, supported by strong cash reserves.

US tariffs pose a significant threat across the industry. The US imports a large share of its pharmaceuticals, resulting in a USD 118 billion trade deficit (HS03, 2024), or 9% of the total. Tariffs would squeeze margins for generics and distributors, who rely heavily on low-cost APIs from China and India. Rising costs could lead to market exits and drug shortages.

Big pharma has dodged tariffs by pledging US plant investments and lower prices on selected medicaments, but exposure remains. If fully applied, tariffs will hurt margins as they target transfer prices, not production costs, forcing a choice between steeper duties or higher US tax liability, pushing for a potential tax strategy shift.

Additionally, pricing scrutiny and regulations such as the IRA and potential Most Favoured Nation (MFN) policies will restrict future price increases. The IRA allows Medicare to negotiate prices nine years post-approval for small molecules and 13 years for biologics, targeting peak profitability. MFN policies could further reduce US prices by pegging them to lower international benchmarks. This scrutiny, and the rise of Direct-To-Consumer platforms, may threaten Pharmacy Benefit Managers (PBMs), but could ultimately lower consumer drug costs.

Sector returns to rapid growth

After two years of sluggish activity, the global pharmaceutical industry has returned to growth, supported by sustained innovation, demographic shifts and improved healthcare access in emerging markets. This rebound 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 7.7% in 2024 (Evaluate) and are expected to maintain this momentum in the coming years. This recovery is not only broad-based but is also being increasingly shaped by high-growth segments. Biologics continue to gain ground over small molecules, accounting for 42% of novel active substance launches over the past five years (up from 39% in the previous period, IQVIA). The expansion of cold-chain infrastructure in developing economies is accelerating the use of biosimilars, which is further fuelling growth. 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, India being a notable example due to a growing population living with diabetes.

mRNA technology, initially propelled by Covid-19 vaccines, is now being explored for a broader range of applications – cancer immunotherapy, rare diseases, and infectious disease prevention to name three – 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.

Patent precipice on the horizon

Nevertheless, the industry is facing a major patent precipice, with over USD 350 billion in branded drug sales at risk between 2025 and 2030 (Evaluate). 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 (BCG). 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 LoE strategies.

Big pharmaceutical companies have already started replenishing their pipelines. J&J, Merck, Pfizer, BMS held an estimated USD 67 billion in cash at the end of 2024 and are already deploying it (e.g., Merck acquired Verona and Cidara, J&J acquired Caplyta and Halda, Pfizer acquired Seagen and Metsera, BMS acquired Karuna and Orbital). The acquisitions took place amid lacklustre M&A activity since 2019 and a rather attractive biotech market, with many firms trading at half their 2021 value. Moreover, Chinese biotech firms are also emerging 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 in year-to-date in 2025 currently stands at 40%, which is a sharp rise from a mere 5% in 2020 (Evaluate).

US tariffs pose a significant risk for the sector

Irrespective of their size, US tariffs will pose a significant challenge for the sector, from big pharmaceutical companies to distributors. The US imports a large share of its pharmaceutical products from abroad, generating a trade deficit of USD 118 billion in this sector alone (HS03, 2024), or roughly 9% of the total trade deficit. The main contributors to the deficit were: (A) Packaged medicines: constituting around USD 95 billion in imports, mostly small-molecule medicaments — both branded and generic, from the EU, Switzerland, and India (especially for generics, which are lower in value but higher in volume) and (B) Serums and vaccines: constituting around USD 110 billion in imports and increasing rapidly. These are primarily biologics and biosimilars, sourced from the EU, Switzerland and Singapore. Key manufacturing ingredients, such as hormones, genetic materials, and ring compounds also add to this deficit, largely imported from Ireland and Singapore.

If applied, tariffs will squeeze the margins of generic manufacturers and distributors. US generics manufacturers already operate on razor-thin margins in a highly competitive market. They depend highly on importing low-cost raw materials and active pharmaceutical ingredients (APIs) from countries such as China and India. Any increase in those costs will result in lower margins, prompting companies to exit such markets (resulting in drug shortages). Importers of finished products, on the other hand, will fight to pass these higher costs onto the end client, which will either push drug prices up or their profits down.

Tariffs on generic medicaments could also have a pronounced ripple effect on domestic pharmaceutical distributors. Unlike branded medicaments, which offer a very limited mark-up for distributors, generics are typically purchased in bulk at low unit prices, allowing distributors to generate meaningful margins through volume-based sales. Consequently, any tariff-induced increase in procurement costs would significantly erode these margins.

Large drugmakers have been spared the worst of America’s new trade barriers. On October 1st, a 100% tariff on branded medicines took effect. But most big pharmaceutical firms escaped, thanks to $350bn in promised investments in US factories. Those expanding local production were exempt. Companies without US plants will have to bear the blunt, but trade deals with the EU, Japan and others soften the blow.

If tariffs were to be fully applied, big branded pharmaceutical companies would take a hit despite their strong margins. The 2017 Tax Cuts and Jobs Act lowered the US corporate tax rate from 35% to 21% and introduced a preferential 10.5% rate on foreign intangible income, such as drug patents. This pushed firms like Pfizer, AbbVie, and BMS to offshore production to low-tax jurisdictions like Ireland and Singapore, book profits abroad, and use high transfer prices to reduce US tax liabilities—sometimes even reporting domestic losses. Now, these inflated transfer prices could be subject to tariffs, which are calculated on the transfer price rather than manufacturing cost. This creates a trade-off: maintain high transfer prices and absorb higher tariffs or lower them and increase US tax exposure. Adjusting transfer prices is far from simple, as it risks IRS audits or may be impossible without repatriating intellectual property and production.

Increased regulation will limit passthrough

US pharmaceutical pricing is at an inflection point. 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 nine years after approval for small molecules and 13 for biologics—precisely when medicaments are most lucrative— the IRA curtails margins at their peak. MFN, if implemented, would tether US prices to lower international benchmarks, amplifying the squeeze. Faced with these headwinds, drugmakers are front-loading revenues, tilting portfolios toward biologics with longer protection, and accelerating R&D for therapies with high unmet need or shorter development cycles. These shifts underscore a structural recalibration rather than a passing storm.

To offset these potential revenue losses, Big Pharma’s is turning to Europe. It is today the second biggest market for branded medicaments, offering both scale and profitability. And the shift has already started. In the UK, branded drug prices are rising as the government agrees to pay more for medicines, reversing years of tight controls and low spending on pharmaceuticals. Companies like AstraZeneca and Novo Nordisk are already adjusting prices, making the region a key target to offset US pricing pressure and looming patent cliffs.

However, this shift risks exacerbating fiscal and political tensions across the continent. European health systems, already strained by aging 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, forcing difficult trade-offs between healthcare spending and other social priorities.

Les conséquences de la surveillance des prix aux États-Unis dépassent les fabricants. Les « Pharmacy Benefit Managers » (PBM) comme CVS Caremark, Express Scripts et OptumRx (représentant 80 % du marché) négocient des ristournes confidentielles avec les fabricants de médicaments en échange d'une position favorable sur les formulaires de remboursement des assurances. Ces remises sont souvent basées sur les prix bruts (avant toute négociation) plutôt que sur les prix nets, ce qui incite les fabricants à augmenter les prix bruts pour rester compétitifs lors des négociations de remises. Ces préoccupations ont attiré une attention accrue de la part des régulateurs. En réponse, les entreprises pharmaceutiques proposent des réductions sur les plateformes Direct-To-Consumer, telles que « Cost Plus Drugs », voire même leurs propres plateformes. Cela permet aux fabricants de médicaments de vendre directement des au consommateur final, contournant tous les intermédiaires. Ce modèle propose des prix inférieurs aux niveaux des prix bruts (avant négociation), mais les achats ne sont pas couverts par l'assurance. Ce changement a pris de l'ampleur avec l'accord historique de Pfizer pour rejoindre TrumpRx — une plateforme fédérale lancée en 2026 — où il proposera des médicaments à prix réduit.

Rédacteurs et experts

Joe DOUAIHY