Transforming pharma

Authors: Kushan Biswas, Darren Olson, Emil Philip, Dushyant Mullur

In recent years, the S&P pharma index has lagged the wider S&P 500¹, suggesting that the pharmaceutical sector, which used to be viewed as a refuge during market slumps, is perhaps no longer the safe haven for investors it once was. While top companies faced share price erosion due to volatility in the capital markets, headwinds such as continued loss of patent exclusivity on key drugs and exposure to generics have also played a significant role in valuations falling. Yet, other companies have experienced sustained growth on the back of surging demand for diabetes and obesity drugs (GLP-1s) creating a significant gulf in growth and market performance between themselves and the rest of the market.

While the uncertainty triggered by recent changes in tariff policy and broader market volatility may have an impact in the near to medium term, pharma leaders should assess their commercial and operational footprint to determine whether they are well positioned structurally to successfully navigate the forces that are reshaping the market landscape.

This post explores the main trends affecting the pharma sector and describes a framework to identify the potential key paths to transform. It also highlights how a life sciences company leveraged the potential of a transformation program to streamline its labor cost profile by 15% and identify opportunities for expanding its earnings before interest, tax, depreciation, and amortization (EBITDA) margin by more than 3 percentage points.

Recent trends in the pharmaceutical industry

Innovation renaissance: Innovation in the pharmaceutical industry rebounded, with a rise in new drug approvals by the US Food and Drug Administration (FDA). 2023 and 2024 were standout years for approvals, with 55 and 50 new drugs receiving approval—a 35%+ increase from 2022.² Biotech sponsors accounted for almost two-thirds of FDA approvals in 2024—a significant shift from 2023.³

Increased drug pricing and gross-to-net distortions amid regulatory pressure: Strong federal and state regulations have exerted additional pressure on drug pricing and heightened gross-to-net distortions. Policies such as direct price negotiation, inflation-based rebates, and benefit redesign have significantly reshaped the market landscape.

Diversification and expansion in emerging markets and M&A activity: To maintain their growth trajectory, companies continue to pursue both organic and inorganic growth strategies. Leading pharma companies are increasingly turning their attention to emerging markets, with renewed interest in developing strategies for these fast-growing economies as growth in their core markets slows. On the inorganic front, M&A activity decelerated in 2024 as biopharma companies adopted a more cautious approach due to regulatory scrutiny, high valuations for de-risked assets, and ongoing geopolitical uncertainty. This led to a preference for earlier-stage, bolt-on acquisitions and licensing agreements.

Rising popularity of GLP-1s and their multisector impact: GLP-1 drugs, primarily used for treating obesity and type 2 diabetes, have gained popularity as an off-label weight-loss aid, leading to shortages and creating opportunities for new market entrants. The growth of GLP-1 drugs is expected to continue, potentially exceeding $100 billion in annual sales by 2029.⁴ This success is revolutionizing patient care and affecting industries such as pharmaceuticals, food and beverage, and medical devices while altering market dynamics and consumer behaviors and driving new investment trends.

Accelerating drug discovery with AI: Adoption of artificial intelligence (AI) in the biopharma sector is accelerating to improve drug discovery and development efficiency amid rising R&D costs. By 2028, AI could save more than $70 billion in drug discovery, potentially reducing time and costs by up to 70%.⁵ Leveraging AI-enabled approaches, such as machine learning, can analyze large data volumes—accelerating the identification and testing of novel molecules or biologics. Additionally, AI can function as an agentic partner to researchers, providing insights and predictions that enhance decision-making and innovation in pharmaceutical R&D.

Strategic options to adapt to the evolving landscape

As companies make sense of the ever-evolving market landscape and look to pursue profitable and sustainable growth, developing an individual response to each market trend can be challenging, onerous, and overly complex.

We have developed a framework that methodically assesses aspects relevant to your organization to both identify where you currently stand and, based on our experience in orchestrating transformations, provide options for your consideration for growth.

The two dimensions of this framework and their components are:

1. Growth aspirations: Identifying the near- to long-term appetite for growth.
   • Growth appetite – What is your ambition to increase revenue footprint in comparison to overall industry and comparable peers? Are you considering building new capabilities, acquiring companies, or partnering with distributors to achieve your growth targets?
   • Commercial footprint – Do you intend to expand across new markets and/or grow your product portfolio and the therapeutic areas (TAs) you support?
   • Talent and organizational strategy - Do you have the right talent in place to support your growth ambitions? Are your back-office functions enabling profitable growth by leveraging Global Capability Centers (GCCs)?
2. Financial resilience: Ability to address financial headwinds and dry powder to invest in the future. 
   • Debt-to-equity ratio – Is your debt-to-equity ratio reasonable in comparison to peers/industry?
   • EBITDA to interest expense – Are you comfortably positioned to address interest expense obligations in the near to medium term?
   • Sales, General & Administrative (SG&A) spend as a percentage of revenue – Do you have a SG&A cost structure that provides you operating leverage as you scale? 

The framework above yields four distinct strategic archetypes, each with specific transformation priorities to guide organizational development:

1. Bottom-line improvement: Prioritizing cost transformation measures (e.g., process streamlining, the use of AI and agentic capabilities to reduce labor-intensive processes) to reduce costs.
2. Growth uplift: Pulling long-term growth levers by investing in R&D for edge cases and research in early-stage discovery.
3. Top-line enhancement: Boosting top line by commercial transformation initiatives through expanding market footprint, product/service portfolio, and exposure to fast-growing TAs.
4. Total margin transformation: Focus on total margin improvement, with a dual focus on cost and commercial transformation strategies, targeted at enhancing overall profitability by streamlining the cost footprint and strengthening revenue.

Success story: Deploying total margin transformation for a life sciences company

We recently had an opportunity to put our approach to the test when one of our life sciences clients approached us for advisement on addressing persistent cost and top-line issues for a unit that was just spun off. With presence in more than 70 markets and a 3,000-strong employee base, the unit faced multiple challenges following the spin-off: underperforming segments, unprofitable markets, and a legacy cost structure that hindered its growth ambitions.

We were engaged to help our client enhance its bottom line and provided a two-pronged approach: commercial acceleration and enabling function simplification.

• Commercial acceleration: To optimize the commercial strategy, we focused on high-potential products, improved pricing, and reallocated investments to underserved markets. We also rationalized the product portfolio by retiring stagnating products, handed over underperforming markets to distributors, and exited declining markets to ensure resources were directed toward more promising opportunities, which resulted in:
  • A narrowed focus to about 35 priority markets (from 70) with the highest profitability/revenue potential.
  • The identification of commercial run-rate cost savings and expanded EBITDA margin by 300 basis points.
• Enabling function simplification: For enabling functions, we conducted benchmarking and operating model assessments; reallocated capabilities from BUs to Corporate; and standardized regional activities—streamlining transactional work, simplifying the legal entity structure, and refining the technology ecosystem. These steps led to:
  • Realizing labor cost savings of roughly 15% for enabling functions.
  • Exceeding the cost savings target for enabling functions (110% of target).

Throughout the engagement, our team used an approach that blended rigorous quantitative analysis with nuanced insights from stakeholder interviews while continually pressure-testing opportunities to zero in on clear and measurable transformation initiatives.

The results of our assessment helped our client with its growth decisions and opportunities for total margin transformations.

As companies look toward driving profitable and sustainable growth, adopting a proactive and strategic mindset that is focused on transformation can be crucial to long-term success.

The authors would like to thank the following people for their valuable contributions:
Varun Budhiraja, Louise Chang, Tyler Cole, Abhijit Chakraverty, Sydney Braddock and Jeffrey Augustine 

Endnotes
¹S&P US BMI; S&P 500 Pharmaceuticals Biotechnology & Life Sciences Industry Group Index.
²US Food and Drug Administration (FDA), “Novel drug approvals for 2024,” last updated January 15, 2025.
³Deloitte Life Sciences Knowledge Center (LSKC) – Biopharma Industry Trends & Outlook, Spring 2025.
⁴Andrea Park, “GLP-1s on track to take drug sales throne from PD-1 inhibitors in 2024: analyst,” Fierce Pharma, March 15, 2024.
⁵Bekryl, Global artificial intelligence in drug discovery market size analysis, 2018–2028, June 2018.