Life Science
Our Life Science business sector is a global leader in the approximately € 230 billion life sciences industry. We continue to consistently deliver long-term profitable growth despite near-term headwinds, including a decline in Covid-19-pandemic-related demand, destocking by key customers and softening of funding for early-stage biotech companies. Our long-term market growth outlook remains unchanged at approximately 5% to 7% C AGR, fueled by increasing demand for commercial medicines and the essential nature of R&D across customer segments. We are well-positioned to weather challenging market conditions and emerge as an even more integral partner to our customers.
Our strategy builds on the transformation we began last year, with a sharpened focus on differentiating both our core and high-growth portfolios and capitalizing on the unique capabilities of our company. We are doing this by leveraging our distinctive breadth of offerings to customers in academia, the biopharmaceutical industry and the industrial sector, including food & beverage, to advance leading edge science. We aspire to comprehensively address customers’ scientific needs and serve as a partner across products and services with a focus on enabling novel modalities. We amplify customer value by proactively addressing future customer needs to create lasting differentiation beyond the breadth and performance of our offerings. Our multichannel commercial approach, e-commerce platform and focus on sustainability set us apart. We enhance competitiveness by pursuing operational and commercial excellence and building future-oriented capabilities and ways of working.
This course we have set directs our focus and resources to pursuing opportunities that financially and technologically “move the needle” while deprioritizing those that may distract from our focused ambition to continue to be a global science & technology leader. For example, our Process Solutions business unit is optimizing its go-to-market approaches to address shifting customer behaviors, including expanding access to Process Solutions products via sigmaaldrich.com, our e-commerce platform. Our growing Life Science Services Contract Testing and Development Manufacturing Organization (CTDMO) business is building an end-to-end offering for novel modalities with a focus on anti-drug conjugates (ADCs), mRNA and viral vectors, where customers are seeking greater technical expertise and collaboration.
The diverse customer and portfolio base of our Science and Lab Solutions business provides a stable foundation while continuing to build positions in higher-growth segments. Our Integrated Supply Chain Organization’s evolution to become more agile, resilient, and customer-centric is an essential foundation for continued profitable growth. To this end, we have implemented new processes to more closely connect our sales and production plans, using digital tools to align with customers on lead times and other supply expectations, standardizing operations across sites and regionalizing our network – especially in Asia-Pacific (APAC) – to meet local needs and balance risk. We have also embedded sustainability criteria in R&D and operations, providing customers with an expanded range of greener alternatives and data, such as product carbon footprints, to help reach their sustainability goals.
Our strategy reflects our purpose – to impact life and health with science – and allows us to deliver customer and shareholder value now and into the future. We are prepared to address short-term challenges and emerge from the post-Covid-19-pandemic era with deeper customer relationships, high-value innovations and a more resilient and cost-effective operating network.
Healthcare
Despite external volatility in recent years, the pharmaceutical industry has proven its resilience and remains attractive with solid growth expectations. Global megatrends such as growing and aging populations as well as better access to healthcare continue to drive the need for our products. At the same time, the macroeconomic and geopolitical environment has become more uncertain. Our mixed portfolio and our diverse geographic footprint build a resilient foundation to meet these demands and respond appropriately to the dynamics of our markets, paving the way for the future success of our Healthcare business.
Following our successes over the past years, we continue to drive pipeline projects with the aim of bringing groundbreaking medicines to patients, maximizing our existing portfolio and continuing our expansion in growth markets. We are resolute in our ambition to become a global specialty innovator with a high-growth future in oncology as well as neurology and immunology. This ambition is built on a firm foundation and continues to foster sustainable and profitable growth in the Cardiovascular, Metabolism & Endocrinology franchise while further strengthening our leadership position in fertility. We pursue this ambition with a focused leadership approach, concentrating investments on decorrelated opportunities in our pipeline and across therapeutic areas, regions and payer types.
The first pillar of our strategy is to reinforce and expand our global footprint, bringing the innovation of our pipeline to patients and growing our presence in the United States and in China, for example. Driven by well-known demographic trends, the expected absolute global pharma market growth contribution will remain highest in established markets, while the emerging markets are expected to grow faster than developed markets in relative terms as a result of rapidly developing pharma infrastructure. With our diversified portfolio of specialty and mature product businesses, we are benefiting from these trends. While our solid base within established markets (France, Germany, Italy, Japan, Spain, the United Kingdom, and the United States) enables us to achieve growth with our specialty portfolio, the emerging markets will be a large growth driver for many of our established products in the future. Managing the balance between delivering innovative new medicines with first-in-class and/or best-in class potential while leveraging our strengths in other markets and ensuring the profitable growth of the existing business will be one of the strategic imperatives.
The second pillar of our strategy is the focus on specialty medicine franchises. Here, we expect the oncology, neurology and immunology markets to remain highly attractive in terms of size, growth prospects and profitability. Within each specialty franchise, our approach is to develop deep internal expertise and insight, from internal research to commercialization, through external talent searches and strategic partnerships. In order to optimize the holistic value and focus of our pipeline, we continuously monitor and assess the potential of our pipeline candidates, based on clinical data, strategic fit and financial criteria, to determine the best way forward.
The third strategic pillar is innovation. We aim to develop potential first-in-class and best-in-class therapies. We have streamlined our pipeline and expanded our innovation capabilities with strong investigational drug candidates and technologies. In order to maximize the output of our R&D investments and to ensure long-term sustainability, we are focusing our expertise on specific franchises. Further, we increase our intake of external innovation, in line with industry practice, to meet our ambition of launching a new product every 18 months. We are investing in assets with the most promising value generation outlook as well as digital technologies and novel modalities such as antibody-drug conjugates to drive pipeline growth.
Electronics
We are an innovation leader within the electronics industry, targeting the most critical materials segments of the semiconductor wafer processing as well as OLED and LC display panels. Our diversified portfolio proves to be resilient in a dynamic market environment. We partner with leading experts around the world to enable the next generation of electronic devices, innovating with leading-edge customers and being a local partner for their global presence.
The long-term growth prospects of the industry remain very attractive, despite the current downcycle. We believe in the long-term growth drivers of digitalization and its visualization, fueled by an exponential increase in data volumes. Semiconductors will thus continue to be a critical component in many industries. The main accelerator in the industry is and will remain AI. Although the number of AI chips is still small, the high growth rates and the high value of these chips as well as the required materials will fuel the growth of the semiconductor industry. This trend will be supported by technologies such as 5G networks, autonomous driving, electric vehicles, and IoT. We will benefit from the high material requirements of these AI chips in terms of value and volume.
In the short term, AI alone cannot offset the current market decline in the electronics industry, which results from weak demand after the Covid-19 pandemic and associated excess inventory along the value chain. However, in the medium and long term, the fundamental growth drivers, such as AI, are expected to accelerate the market development through the next decade. To produce ever more powerful and energy-efficient chips, innovation in novel materials will be even more essential.
To benefit from the strong electronics industry growth, we are continuously expanding our capacities and our capabilities. We are continuing to invest significantly more than € 3 billion in innovation and capacities, which are aligned with the customers and regions we serve. These investments are an essential part of our ongoing Level Up growth program, which we kicked off at the end of 2021. The investments are made in lockstep with the capacity expansions of our customers in order to support their growth and new fabs with a reliable supply of innovative materials and systems. We will continue to invest in our geographic proximity to our customers while boosting R&D and innovation. Electronics also seeks to exploit attractive external growth opportunities through acquisitions.
Our ability to systematically use data and digital methods across the entire value chain differentiates in the market, enabling us to meet and exceed the increasing requirements regarding quality, speed and reliability. Furthermore, we are accelerating important initiatives to transform the industry towards sustainability and investing even further in safety.
After substantial investments in improving our processes and expanding our production capacities in Surface Solutions, we remain confident of successfully implementing our strategic transformation within that business.
* The contents of this chapter or section are voluntary and therefore not audited. However, our auditor has read the text critically.