Targeting transformation: What the annual reports of the world’s largest life science companies tell
The world’s largest life sciences companies have released their 2023 annual reports.
5 minutes to read
These documents are more than just numbers on a page; they’re a goldmine of insight into the strategic priorities of the most dominant players. These priorities are blueprints for seismic shifts and transformational activities that will surely have knock-on effects for real estate.
Our analysis reveals five transformative themes at work in the sector:
1. Strategic acquisitions and collaborations.
Mergers and acquisitions (M&A) are a principal strategy for life sciences companies, evidenced by a flurry of activity in this arena. At the back end of last year, there was a notable uptick in acquisitions, with six of the top ten largest global biopharma deals occurring in the final quarter and four finalised in the last five weeks of 2023. This deal flow made 2023 the most active year for biopharma M&A since the pandemic, with significant players like GSK, AbbVie, Bristol Myers Squibb, Johnson & Johnson, and Novartis among the acquirers.
According to the latest Firepower Report by EY, the top 25 biopharma companies currently hold a near-record $1.37 trillion available for deal-making. With looming patent expirations and the forecasted improvement in economic conditions in 2024, the momentum for M&A activity will continue to build. Furthermore, the report highlighted that big pharma was responsible for 69% of all life sciences M&A deals in 2023, a significant increase from 38% in 2022, with oncology continuing to be the primary focus of these transactions.
In addition to mergers and acquisitions, top life sciences companies continue to adopt open innovation strategies by establishing research and development partnerships with startups, academic institutions, research bodies, and contract organisations. Bayer, for example, keeps a public record of its scientific partnerships, which number more than 700.
Elsewhere, leading contract organisations are planning for growth opportunities that this trend will generate. For example, IQVIA is expanding its client value proposition to address a broader market, estimated to be worth more than $330 billion in 2023.
2. Investing in AI and other technologies.
Life sciences companies are investing in artificial intelligence (AI) and other technology platforms and tools to revolutionise drug discovery and development and streamline research and operational processes for improved efficiency. Measures include investment in internal teams, pursuing acquisitions and establishing partnerships. For instance, Sanofi has launched various initiatives in a bid to become the first pharma company powered by AI at scale. Examples include a collaboration with BioMap to develop AI modules that hasten the drug development cycle and a partnership with Barts to use data to speed up the diagnosis and treatment of rare diseases. They have also partnered with Ally Labs to deploy “‘plai,’’’ an AI-based tool, to more than 23,000 team members. The app aggregates available company internal data across functions and uses AI to provide insights. In Manufacturing & Supply, they have introduced a proprietary AI-enhanced system for optimising yields, which analyses data from past and current batches to achieve higher yield rates consistently.
3. Business transformation.
Beyond digital transformation, partnerships, and mergers and acquisitions, companies are reshaping their organisational structure to prioritise areas with high growth potential while enhancing operational effectiveness and fostering more agile decision-making. For instance, Novartis is transitioning from a multifaceted healthcare company to one intensely focused on innovative medications. They have separated their generics and biosimilars division, Sandoz, into an independent company through a 100% spin-off. The firm is now directing investments to innovative medicines. This includes investing in new facilities. Throughout 2023, they launched a new radioligand therapy (RLT) facility in the United States. They opened a similar, additional RLT facility in Spain. They have also disclosed plans to set up new facilities in China and Japan.
4. Acting with purpose.
Companies are intensifying their efforts to address climate change and enhance their social impact. For instance, GSK is investing significantly in equitable STEM education programs within the UK. This project aims to offer STEM mentoring to around 4,000 young individuals aged 11-25 from underrepresented backgrounds over the upcoming three years. Moreover, GSK conducts a ‘Science in the Summer’ initiative, providing free, hands-on STEM education to students from historically underrepresented groups. To support these efforts, GSK collaborates with various organisations, including STEM Learning and the Association for Black and Minority Ethnic Engineers.
Regarding environmental commitments, the leading life sciences companies are certainly stepping up to the plate. Currently, 46% of the life sciences industry by revenue (up from 31% last year) have pledged to the UN Race to Net Zero initiative. AstraZeneca is at the forefront of this effort, having partnered with Future Biogas for the UK’s first substantial unsubsidised supply of biomethane gas. This biomethane supply will power AstraZeneca’s facilities in Macclesfield, Cambridge, Luton, and Speke. Furthermore, AstraZeneca is investing in enhancing operational efficiencies, including a significant upgrade to the combined heat and power plant at their Macclesfield site. It is expected to reduce CO2e emissions by an additional 16,000 tonnes annually. Additionally, they are building upgrades and improvements to their medicine production and packaging processes to reduce greenhouse gases further.
5. Investing in R&D
There is a distinct trend of growing R&D investment across the industry, especially among major pharmaceutical companies. Our analysis of the top 30 firms shows that 22 have reported an increase in R&D spending year-over-year. On average, leading pharma companies allocate between 14% and 30% of their revenues to R&D. Some companies are investing even more significantly; for example, Merck & Co dedicated 50.79% of its revenue to R&D in 2023, a figure that is notably high in part because an acquisition was categorised as R&D spending.
The most prominent life sciences companies are navigating a challenging and changing landscape. Having the right real estate is critical to achieving strategic ambitions and operational goals. Workplaces facilitate business transformation and innovation, offering the physical spaces necessary for research, development, and collaboration. Moreover, real estate supports growth, productivity, and operational efficiency, providing adaptable environments that nurture talent and productivity. Ultimately, real estate isn’t just a cost or a liability but a strategic asset enabling the sector to achieve its objectives in an increasingly complex and transformative operational terrain.