The pharmaceutical industry has faced significant margin pressures due to rising energy costs, inflation, and geopolitical disruptions. Companies have implemented various performance improvement programs to stabilize or boost margins. Moving forward, a more sophisticated approach is necessary to address these ongoing challenges.
Authors: Daniel Wothe, PolarixPartner; Michael Baur and Stephan Fath, Roland Berger
Margin Pressures and Contributing Factors
Margin pressures are expected to persist, driven by factors like restricted access to capital, localization of supply chains, complex network setups, new tariffs, price pressure in the US market, and intensified regulation. Biotech and small molecule companies have faced these challenges since 2019, while CDMOs saw similar impacts only recently. To navigate these challenges, companies must restructure value chains, optimize key processes, and ensure effective business alignments.
Historically, firms have pursued top-line growth initiatives; now, their focus is shifting to bottom-line improvements. Progress has been made in cutting SG&A expenses, yet further reductions are limited. R&D cuts have occurred due to funding restrictions, particularly in cell and gene therapy, but major companies are cautious not to undermine future growth.
Supply reliability remains a priority, leading to increased inventory levels to buffer against supply chain disruptions. Over eight years, days inventory outstanding (DIO) has risen by nearly 30 percent, despite recent improvements. Ensuring a harmonized and integrated value chain from R&D to global drug supply, with a focus on digitalization and transparency, is crucial.
content:
- Margin Pressures and Contributing Factors
- Operational Improvements in Pharmaceuticals
- Strategic Levers for Sustainable Cost Savings
- Network and Value Chain Optimization
- Daniel Wothe
- OPEX 2.0: Operational Excellence through Digitalization
- AI—A Key Differentiator
- Michael Baur
- Adapted Organizational and Governance Frameworks
- The Future of Pharmaceuticals Operations
- Stephan Fath
Operational Improvements in Pharmaceuticals
Companies therefore increasignly focus on bottom-line improvements, cuts to SG&A expenses and R&D investments. However, they must balance cost savings with maintaining future growth potential. Supply reliability remains a priority, leading to increased inventory levels as a buffer against disruptions.
Strategic Levers for Sustainable Cost Savings
To achieve lasting cost reductions, four principal strategies are recommended:
Network and Value Chain Optimization
Pharma companies must redesign networks by defining clear roles for launch, core, and specialty sites, and by reducing redundant technologies. For instance, a major pharmaceutical company recently streamlined its operations by consolidating production sites and focusing each site on specific stages of the drug development process. Strategic partnerships with CDMOs (Contract Development and Manufacturing Organizations) can further enhance efficiency by leveraging external expertise. For example, the biotech firm Viking Therapeutics partnered with Corden Pharma to expedite the scale-up of its vaccine production, resulting in a substantial reduction in time-to-market. Simplifying operations and balancing risk mitigation with cost optimization are crucial to maintaining competitive advantage.
Daniel Wothe
Partner for Pharma and MedTech, PolarixPartner
“Historically, firms have pursued top-line growth initiatives; now, their focus is shifting to bottom-line improvements.”
© PolarixPartner
OPEX 2.0: Operational Excellence through Digitalization
Increasing overall equipment effectiveness (OEE) and enhancing end-to-end processes are crucial. Automation, quality assurance, and reducing manual steps significantly improve efficiency. For example, Swiss multinational Roche increased forecast accuracy by implementing machine-learning algorithms.
Adopting technologies like virtual digital twins, which simulate process changes and support training, and smart machine learning can further optimize operations. The pharma industry must embrace digitalization to achieve process excellence. Digital tools enhance operational efficiency, reduce errors, and boost productivity. MSD exemplifies this by using data analytics, generative AI, 3D printing, and digital twins at its new vaccine facility in Durham, USA.
AI—A Key Differentiator
Artificial intelligence (AI) drives efficiency by enabling predictive analysis, optimizing production, and developing strong supply chain strategies for a competitive edge. Machine-level data transparency is crucial in manufacturing. Using AI in supply chain management enhances efficiency and responsiveness, supporting compliance in regulatory affairs.
For example, GSK is investing up to $800 million to upgrade its Pennsylvania site with advanced digital and AI technologies, improving operational agility, supply chain resilience, and speeding up the production of medicines and vaccines. Roche uses AI for visual quality control and inspection, improving yield, reducing costs by 50%, and establishing real-time monitoring processes.
Michael Baur
Partner Health – Life Science Transformation, Roland Berger
“Creating an agile organization that responds to market demands through established processes is vital.”
© Roland Berger
Adapted Organizational and Governance Frameworks
Adapting organizational structures and governance frameworks to dynamic markets is crucial. This involves fostering a culture of agility, improvement, and responsiveness to market changes. Clear roles and responsibilities between Operations and adjacent functions prevent conflicting steering models, streamline operations, and ensure accountability. Strengthening connections between Operations and R&D helps optimize Chemistry, Manufacturing, and Controls (CMC) issues and address upscaling early, especially in Cell and Gene Therapy (CGT), Biopharma, and peptide manufacturing.
Creating an agile organization that responds to market demands through established processes is vital. Continuous improvement and a responsive culture are essential for adapting to changes. Organizations implementing these priorities navigate pharmaceutical complexities effectively, ensuring performance and compliance.
Sanofi exemplifies successful implementation by integrating AI across its global operations. The launch of an internal app supports functions from Manufacturing to Development, Engineering, and Finance. This digital assistant leverages generative AI (GenAI) to streamline workflows, enable faster decisions, and improve efficiency, reducing product development to production time from three months to just 12 days.
The Future of Pharmaceuticals Operations
Operations will play a crucial role in ensuring industry resilience and success. Embedding Operations in R&D discussions and portfolio planning can drive innovation and efficiency. Strategic planning and operational expertise are essential for upscaling processes and ensuring supply reliability. Collaborating with policymakers and institutional bodies can establish supply security mechanisms for critical medicines.
Addressing strategic imperatives in operational efficiency and cost optimization is vital for the pharmaceutical industry. Through network optimization, process excellence, AI innovations, and adaptive governance, companies can achieve sustainable cost savings and maintain a competitive edge. These priorities will be instrumental in driving performance improvement and ensuring long-term success.
Stephan Fath
Director Health - Life Science Operations, Roland Berger
“Through network optimization, process excellence, AI innovations, and adaptive governance, companies can achieve sustainable cost savings and maintain a competitive edge.”
© Roland Berger
This article was published in CHEManager International 3/2025
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