Bold capacity investments lag despite urgent need for decentralised pharma supply chains, Roland Berger

“What we’re witnessing is a fundamental shift from globalized to decentralized pharma supply chains, yet many companies are hesitant to make the bold capacity investments needed despite recognizing the risks.” – Stephan Fath, Director at Roland Berger

Stephan Fath is a Director at Roland Berger where he specialises in advising global pharmaceutical, MedTech, and chemical industries. With a dual degree in Business Administration and Chemistry from the University of Dusseldorf, Stephan brings a valuable interdisciplinary perspective to network strategy challenges.

In the latest PharmaSource podcast episode, Stephan shares critical insights into how pharmaceutical manufacturing networks are evolving in 2025, highlighting the delicate balance companies must strike between cost efficiency, supply chain resilience, and technological innovation in an increasingly uncertain global landscape.

The Evolution from Global to Local Manufacturing Networks

The pharmaceutical industry has experienced significant changes in its manufacturing approach, moving from a heavily globalised model to a more resilient, decentralised structure. According to Stephan, pharmaceutical companies historically built global footprints to access local markets and leverage cost efficiencies, with API production concentrated in China and India, while keeping finished dosage forms closer to end markets in the US and Europe.

“What happened historically is that there was a strong trend towards globalisation, but also diversification, and that has really been the driving force behind how network designs have evolved. Pharma companies have increasingly tried to globalise their supply chains… to get access to local markets, but also to mitigate their risks globally and take advantage of cost efficiencies.”

However, the COVID-19 pandemic and recent geopolitical tensions have caused a dramatic rethink. “Since COVID, also supported by the recent geopolitical tensions, we see there is now a strong trend to build more decentralised supply chains, more flexible supply chains, and try to make them more resilient against external shocks.”

The GLP-1 Capacity Crisis and Its Industry-Wide Impact

One of the most significant developments in pharmaceutical manufacturing has been the surge in demand for GLP-1 products, creating intense competition for manufacturing capacity, particularly in peptide production and sterile fill-finish capabilities.

“The outlook for GLP-1s has led to a complete fight for capacities, especially for peptide production and sterile fill and finish capacities. This has caused Novo Nordisk to acquire Catalent to get access to fill and finish capacities.”

Stephan notes that both Novo Nordisk and Eli Lilly continue to invest heavily in their own capacities, while CDMOs like Bachem, Corden Pharma and Fareva are also making significant investments. The implications extend beyond GLP-1 products:

“We expect that in this GLP-1 space, there will be significant implications for non-GLP-1 related products. Everyone that has to deal with peptide capacities, with excipients, with fill and finish capacities in other disease areas will face shortages of their capacities as well.”

Cell and Gene Therapy: The Shifting Outsourcing Balance

The cell and gene therapy market presents a fascinating case study in evolving manufacturing strategies. Stephan reveals that “40-50% of all cell therapy production is now outsourced, with a tendency to increase further” as the sector matures.

“Initially pharma companies considered the manufacturing know-how to be a key asset, but nowadays they start to focus much more on R&D because they can rely on capable external supply partners.”

For gene therapy, the outsourcing rate is even higher: “70-80% of gene therapy manufacturing, especially viral vectors, is currently outsourced.” However, recent market conditions have created challenges in this space.

“Due to the increased interest rates, there was a funding issue that heavily affected the biotech space over the past two or three years. Now this has led to a significant delay, prolongation of clinical trials, and therefore, at the same time where people were investing in capacity, the demand was going down.”

The result has been significant overcapacity, price pressure, and strategic exits, including Rentschler Biopharma’s recent announcement to withdraw entirely from the cell and gene therapy sector. Despite this, Stephan is optimistic about the medium-term outlook: “I do think we have seen the bottom. I do expect that the market will go up over the next one or two years.”

The Antibiotics Dilemma: Shortages vs. Investment Case

The antibiotics market offers a contrasting case study, where health economics and reimbursement challenges make investment decisions difficult. Despite recent supply shortages in Europe, Stephan explains that “it’s still rather impossible to justify any further capacity investments in Europe. There’s very low reimbursement rates, low pricing, and that is simply not enough for justifying the capex needed for additional antibiotics production.”

He notes that European antibiotics production has largely consolidated to a single site in Kundl, Austria. This situation has prompted regulatory intervention: “The European Commission has recognised that, and they have launched a major program taking actions to secure the supply of antibiotics in Europe in the future.”

AI Implementation: Starting Small for Strategic Impact

Artificial intelligence is becoming increasingly important in pharmaceutical manufacturing, though Stephan observes that the use cases are similar to other industries, with adaptations for GMP requirements. These applications include process improvement, quality control monitoring, predictive maintenance, and supply chain forecasting.

For manufacturers just beginning their AI journey, Stephan recommends starting small:

“The ultimate goal in the first step cannot be that you digitalise your entire supply chain end-to-end. Start with a long list of use cases across your core process. Prioritise them in terms of what impact you expect, but also how your current capabilities can deliver on those use cases.”

He cites examples from industry leaders: “Roche successfully employed advanced analytics and AI in demand forecasting, which had a huge impact on forecast accuracy. GSK was quite successful in implementing AI-driven predictive maintenance systems to monitor manufacturing equipment in sterile fills, resulting in a substantial reduction of unplanned downtime and maintenance costs.”

The Evolving CDMO Landscape: Consolidation vs. Specialisation

The CDMO landscape continues to evolve, with two parallel trends emerging. On one hand, consolidation has been driven by both strategic players and private equity, with large players building one-stop-shop portfolios across different technologies and services. Simultaneously, highly specialised players are emerging in niche technologies.

Europe hosts approximately 60 % of global CDMOs (>500 n the consolidation game globally), offering ample opportunities for consolidation and the emergence of pan-European industry leaders. The market is heavily fragmented, with over half (54%) with revenues under €25m , while large generalist players are sparse, as this graph highlights:

“For quite some time, we have seen that consolidation was happening in the CDMO space. Most recently, we see the large players such as Lonza, Catalent, Patheon – they all built a one-stop shop portfolio across different technologies and different services. But at the same time, there was also a strong trend that highly specialised players were emerging.”

A concerning development is CDMOs expanding into commercialisation of their own products, raising IP protection concerns for pharma companies. “When you think about CDMOs starting to investigate own commercialisation opportunities, obviously a highly critical topic will be, how can you secure your IP? How can you secure your technological and process know-how?”

Tariff Risks and Trade Protectionism

The interview highlights growing concerns about potential trade barriers affecting pharmaceutical supply chains. “The concentration of API supply in India and China means that implementing tariffs could lead to substantial shortages of critical medicines,” Stephan warns.

While uncertainties remain, he advises companies to take a proactive approach: “I truly believe that pharma companies need to act now and evaluate their footprint options in various scenarios.”

Three Critical Network Strategy Principles for 2025

For companies reviewing their network strategy in 2025, Stephan offers three critical pieces of advice:

1. Think in scenarios: “No one knows the future, and you need to somehow prepare for any kind of internal, external dynamics that will have an impact on your future supply organisation.”
2. Build strategic partnerships: “The technological wealth in the pharma industry is heavily expanding, and companies cannot manage all of them. Therefore you need to have strategic suppliers and CDMO partnerships which can help you to achieve best-in-class technologies and secure sufficient capacities.”
3. Involve operations in R&D: “Operations and manufacturing need to be more involved in R&D. R&D has an undeniable impact on the future manufacturing setup, because in early clinical stages you typically decide what kind of production processes you would use.”

By applying these principles, pharmaceutical companies can develop more resilient, adaptable manufacturing networks capable of navigating the uncertainties ahead while maintaining cost efficiency and technological innovation.