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Bold reinvention for the second half of the decade
With many CEOs doubting their business model can survive another decade, it’s time to change the game. Your choices today can position you for success amid the new realities of tomorrow’s pharmaceutical sector. We outline four strategic bets and a suite of capabilities to help you determine how your company can create value in the future.
Seismic changes are underway across the economy in areas such as energy, agriculture, mobility and construction. Transformative technologies, a shifting US policy and regulatory agenda and changing societal expectations are reshaping how value is created. The pharma sector is not immune to the forces of disruption. Once again, the sector delivered lagging shareholder returns in 2024. The often-heard refrain of “we just need to execute” falls short of this moment’s demands.
A look at pharma’s recent performance underscores the need for bold action. Our PwC equal-weight index of 50 pharma companies analyzes the sector’s total shareholder returns performance relative to the S&P 500 Equal Weighted Index. From 2018 through November 2024, the PwC pharma index returned 7.6% to shareholders, compared with more than 15% for the S&P 500. Over the last year, this dynamic became even more pronounced with the PwC pharma index returning 13.9% compared to 28.7% for the S&P through November 2024.
Further, since 2018, an increasingly limited set of companies have influenced positive returns in the pharmaceuticals sector. Within the S&P 500, the so-called “Magnificent 7” accounted for 40% of the increase in value since 2018. In the pharma industry, this dynamic is even more stark with just two companies accounting for nearly 60% of the increase in value growth among the 50 pharma companies analyzed by PwC. For those outside of this group, 2025 is the year to consider what changes could finally disrupt this dynamic.
Macro and micro forces are driving a surge in scientific breakthroughs, while innovations and the pace of business is accelerating. Amid these disruptive forces and the ongoing value creation challenges facing the sector, it’s no wonder CEOs are questioning whether their business models are built to last.
Curing disease will continue to be highly valued. Major advances in our understanding of biology, combined with the explosion of emerging technology, means there are exciting new possibilities as health risks are detected, interventions are personalized and care is delivered. Transformative medicines are making strides in once-challenging areas like obesity, and new approvals in categories like Alzheimer’s disease are bringing hope to patients. However, ongoing affordability challenges and persistent disparity in outcomes can drive the system toward new approaches.
Across the health ecosystem, value creation is moving in the direction of prevention, with more focus on addressing the risk factors of health decline; personalization, with data-driven, customized treatments based on factors like genetics and behavior; prediction, with active analysis of well-being and early intervention to improve health outcomes and point of care, with more accessible and convenient settings for delivery of care.
Industry practitioners largely agree on the key trends shaping the future of pharma. As shifts in the broader health ecosystem unfold, five immediate dynamics stand out in determining the pharma business model of the future:
These trends will happen amid a changing policy landscape in 2025, shaped by the new administration. Given the size and profitability of the US market, strategic planners will be well-served by analyzing the policy positions of the incoming Trump administration for the potential of health policies, tariffs, taxes and M&A oversight to accelerate change.
The five trends above will force fundamental changes in the pharmaceutical market, along with expected policy and regulatory changes instituted by newly elected governments around the world. Leading innovative pharmaceutical companies can expect the future market to include:
We already see capital markets casting doubt on whether pharma’s strategies will hold through these trends as the median enterprise-value-to-EBITDA multiple for our index of pharma companies has declined since 2018 (from 13.6X to 11.5X). This decline in outlook has appeared during a time of multiple expansion for the broader S&P index. Investors seem to recognize that many pharmaceutical business models are wearing thin.
Given the size and profitability of the US market, strategic planners will be well-served by analyzing the policy positions of the incoming Trump Administration and the potential of those policies to accelerate change
Faced with ongoing pricing pressure, continued cost increases and growing head-to-head competition, something needs to give. While there are exceptions, 2025 should be a year for serious review of the value creation model for many pharma companies. We see four options that could help reshape where and how a company invests to drive economic returns. C-suites should consider which of these four strategic bets can help shape their business model for the future and what they stand to gain from each model:
While virtually every company is working to improve R&D productivity, companies in this model can fundamentally reinvent how drugs are discovered and developed. These companies can make investments necessary to onboard new talent and create new platforms to use AI and other emerging technologies to change how we connect biological targets and new molecules to disease outcomes. They should be relentless in harnessing digital agents to greatly reduce work, increase precision and accelerate timelines throughout the drug development process. They should adopt strong venture-capital-like disciplines in portfolio management to confirm their R&D dollars are focused on products that can move the needle for both patients and investors. As a result, they can help change fundamentally the cost and timeline for bringing new drugs to market while expanding the possibilities to address unmet medical needs. Companies that make the investments and do the work to reinvent R&D will be shaping a fundamentally new outlook for the company and its investors.
In a world of declining market economics, competitive advantages become even more important. The way to drive outsized returns shifts from showing up in the right markets to truly being better than competitors within those markets. “As the tide goes out, the rocks are exposed” in this context means tougher economic realities may reveal parts of the company that are diluting returns. Companies in this model make bold decisions to exit markets, functions and categories where they don’t have differentiators that provide an economic advantage. They will win through capital allocation linked to competitive advantage and are relentless about scaling in those selected spots. Other areas are deprioritized, exited or outsourced. They drive continuous process improvement, excel at sourcing and partnership management and build in-house functions that are core to their differentiators. This could lead to increased margins and ROI, and partnership opportunities leveraging their true advantages.
Companies in this model can succeed by changing the relationship with the patient. They go long on patient experience, disintermediating channels to play a more direct role in the patient journey. They make big investments in consumer-oriented assets and capabilities, such as personalized content, direct omnichannel engagement platforms, behavioral economics and cutting-edge experience design. These investments mean increased ability to drive volume via patient acquisition and retention, while also decreasing reliance on intermediaries (and related costs with those channels). The result is a company that is better positioned to win market share by winning over patients, while helping reduce the costs of complexity associated with the traditional model.
These companies are likely leaders already. They could extend that leadership position by leveraging scientific strengths and deep market knowledge to help deliver an expanded set of products and services to support the patient. These solutions could include scientifically based, connected health solutions that help to detect disease or companion diagnostics that help monitor treatment success. While there are many potential monetization paths (prevention, diagnosis, treatment, monitoring), what’s essential is leveraging the pharma company’s true advantages (for example, scientific knowledge, patient journey expertise) to truly impact health outcomes in the category. In addition to opening new revenue streams, success with this model could open the door to new pricing arrangements in those markets where value-based arrangements are compelling.
Some executive teams may decide to go long on one of the bets above, while others may place multiple bets or perhaps none at all. Those decisions are impacted by factors such as the company’s unique starting point, its own view of the future and its differentiated strengths. Regardless of which path you choose, we see four important capabilities to consider for any scenario and model:
Today’s pipelines are chasing too many of the same things and are likely missing the reality of tomorrow’s commercial markets. Anticipating more head-to-head competition, portfolio management should reassess the value of pivoting to more white spaces. Industry leading data and analytics are needed to bring an investor’s view to stage gate decisions and simulations of portfolio value.
Improve your understanding of AI and how it can reshape the costs of doing business. Leading companies in the future can be world class at adopting a digital-first approach to reimagine the big processes that help drive company operations such as procure-to-pay, hire-to-retire and order-to-cash. They can be excellent at extending use of this digital-first approach into shaping a leaner, more efficient operating model (e.g., AI agents, fewer human resources involved in processes that are digitized).
As science advances and value pools shift, the ability to find assets and secure partners faster will become even more valuable. Ecosystem plays are likely to expand beyond scientific collaborations and product partnerships to include closer connections with technology hyperscalers, AI disruptors, value-chain solution providers and patient-focused innovators. Capabilities to identify relevant ecosystem plays and structure new types of partnerships will be relevant in any of the strategic bets described above.
The ability to pursue new strategic bets and invest behind new capabilities while also managing global volatility and an increasing threat environment means companies need an integrated picture of risks. While excelling in the traditional risk domains –– such as cyber, financial controls, healthcare compliance and quality –– remains important, industry leading companies can look across these silos to help create an integrated understanding of risks across the enterprise. This means connecting data, enhancing analytics and leveraging global risk technologies in new ways.
There are a number of wild cards for executives and strategic planners to consider in 2025. These surprises could create large-scale disruptions, but the likelihood and magnitude remain uncertain. They need to be understood, followed and analyzed as a serious endeavor within ongoing strategic planning processes:
Now is the time to position your organization for success in 2025 and beyond. Four actions can help pharma leaders and their teams accelerate change:
Analyze strategic bets for your portfolio, align on where to place bets, create reinvention roadmap, including scale-up plans for new businesses.
The time for incremental change has passed. While the sector continues to deliver innovative medicines to patients, the sustained underperformance for investors calls for a new approach. The end of the decade is already in sight and the leaders of 2030 will take bold actions to position themselves for success.
By accelerating capability-building initiatives, making new strategic bets and preparing for industry wild cards, pharmaceutical companies can not only survive but thrive in 2025 and beyond. The future demands bold leadership, strategic foresight and a commitment to transformation — those who rise to meet these challenges can shape the next era of healthcare innovation.