Innovations slowed

In addition to these industry-specific trends, pharma has also been affected by broader global trends, such as supply chain pressures. While the pharma industry is considered somewhat protected by its high inventory levels and long-standing dual sourcing, over a given ten-year period, the likelihood of supply chain disruptions still represents a potential loss of 25 percent of EBITA. Inflation has risen in recent months to levels not seen for decades, leading to increasing costs for labor, raw materials, and transportation. This is over and above the persistent price pressures pharma is already facing, particularly in generics. Since pharma customers are not expected to fully absorb these cost increases, profit margins are under pressure.

Meanwhile, increased state interventions and protectionist trade policies are creating new pressures on manufacturing networks and could drive increased regionalization. This would be a capital-intensive exercise: to regionalize just 10 percent of current vaccine trade in one particular geographical region, governments would need to invest an estimated $100 million.

The pharma industry is also facing talent shortages linked to wider labor market trends, including the 20 percent increase in demand for STEM-related roles across the life sciences industry in the United States. The current pool of pharma digital talent is at least 14 percent lower than demand, and many companies are finding it challenging to recruit technical talent. Compounding this challenge is the rise of remote working, which has increased employee expectations for flexibility. In response, nearly all pharmacos are experimenting with hybrid working models.

A few major trends point to an industry tailwind; one of them is the advancement of digital and analytics tools. Digital tools, robots, and sensors are becoming cheaper and easier to access, and they can be used to capture all manner of raw data. In addition, edge computing and cloud analytics are providing real-time optimization and transparency. Pharmacos are working to leverage the power of data to become more agile and resilient. However, to date, no pharmaco has emerged as a true global leader in this field.