Political and regulatory risks and opportunities
As a global corporate group, we face political and regulatory changes in a large number of countries and markets.
Risk of more restrictive regulatory requirements regarding drug pricing and reimbursement as well as pricing-related opportunities
Our business is affected by numerous regulations that are continuously changing – and could even become more stringent. For example, in the Healthcare business sector, the known trend towards increasingly restrictive requirements in terms of drug pricing, reimbursement and the expansion of rebate groups is continuing. With globally rising healthcare expenditures, both in absolute amounts and relative to GDP, healthcare budgets around the world face increasing pressure. These developments can negatively influence the profitability of our products, as can market referencing between countries, and the success of market launches. Foreseeable effects are considered as far as possible in the business sector’s plans. Close communication with health and regulatory authorities serves as a preventive measure to avert such risks. The remaining risks beyond the current plans resulting from restrictive regulatory requirements are possible to likely with an up to significant impact. Additionally, an event with moderate impact could occur more likely than not. While we consider the possibility of resulting price cuts in our forecasts, there is also an opportunity in the case that price pressure from healthcare systems worldwide is less pronounced than expected or materializes at a later point in time versus the base assumption. Additionally, as a global specialty innovator that pursues a focused leadership approach in attractive therapeutic areas, we are positioned to benefit from attractive pricing schemes for demonstrated major therapeutic improvements.
Risk of stricter regulations for the manufacturing, testing and marketing of products
We must adhere to a multitude of regulatory requirements regarding the manufacturing, testing and marketing of many of our products. Specifically, in the European Union, we are subject to the EU chemicals regulation REACH. Similar regulations are emerging globally in relevant markets, particularly in Asia. These regulations demand comprehensive tests for chemicals. Moreover, the use of chemicals, such as per- and polyfluorinated alkyl substances (PFAS), in production and final products could be restricted, which would negatively impact the ability to manufacture and market certain products. With the EU Chemicals Strategy for Sustainability, an initiative of the European Green Deal, we expect increasing demands concerning the substitution of specific hazardous substances. We are constantly pursuing research and development (R&D) in substance characterization and the possible substitution of critical substances so as to mitigate this risk. Further, additional regulatory requirements could potentially lead to additional efforts and/or costs. Nevertheless, risks of stricter regulations are classified as possible to likely with moderate impacts.
Risk of negative political and macroeconomic developments
The Group operates in an increasingly fragmented global landscape, shaped by protectionist trade policies, regional competition and shifting alliances among major players such as the United States, the EU, China, and emerging economies including Mexico as well as Brazil, India and other countries from the BRICS organization. The EU’s 2024-2025 work program, the U.S. administration’s domestic priorities, China’s push for economic self-sufficiency, and the rising influence of BRICS nations will fundamentally redefine global supply chains and trade flows in the years to come.
In this complex environment, escalating geopolitical tensions add layers of uncertainty and risk. The Russia-Ukraine war has disrupted European supply chains and raised energy costs, influencing regional stability and complicating business operations industry-wide. The Middle East conflict has intensified concerns around stability in a key region for trade and innovation, raising the risk of wider regional spillovers that could impact global trade. Meanwhile, rising tensions between mainland China and Taiwan add further complexity, as potential disruptions to the East Asian tech and manufacturing hubs could pose challenges for our supply chain and require heightened risk management efforts.
The U.S. administration’s “Made in America” agenda, coupled with tightened export controls in biopharma and electronics in particular, is reshaping our strategic positioning in North America. In parallel, Europe is pushing for “technological sovereignty” under the European Commission’s latest initiatives. For instance, in the Electronics business sector, a strong local presence in China enables us to remain competitive in the country while our global footprint could provide opportunities to capture the demand shifting from Asia to other regions such as the United States and Europe. Although individual industry players are delaying ongoing expansions in the United States and Europe, the general trend toward a geographical shift remains, especially with regard to capacities for the production of advanced microchips.
China’s pursuit of economic self-reliance in sectors such as pharmaceuticals, biotechnology and advanced electronics remains a challenge. The country’s dual circulation strategy emphasizes local innovation and domestic demand, potentially raising regulatory barriers for foreign companies. Meanwhile, other major markets, including Mexico alongside Brazil, India and other countries from the BRICS organization, are taking on increasingly influential roles in global trade and industry standards. India’s focus on becoming a manufacturing and pharmaceutical powerhouse has led to significant investments in healthcare and tech infrastructure.
In addition to individual market dynamics, the BRICS organization is advocating for multipolar trade frameworks that aim to reduce dependency on Western-centric systems and foster stronger South-South cooperation. As BRICS expands its influence on global trade policies, we are closely monitoring these developments to ensure that our supply chains and regulatory strategies remain flexible and aligned with this emerging trade ecosystem.
The evolving regional focus across these markets is likely to lead to higher operational costs and inflationary pressures, particularly for companies dependent on global logistics and high-tech manufacturing. Our response involves a dual approach: enhancing cost efficiency while making targeted investments in critical regions to align with local regulatory landscapes and market demands.
Our robust risk management framework continuously monitors geopolitical and economic indicators across all major regions, enabling us to adapt swiftly to new developments. This real-time monitoring capability supports a proactive approach, enabling us to align with diverse regulatory priorities and mitigate disruptions across our core sectors.
Looking forward, our strategy emphasizes resilience through regional diversification, regulatory alignment and tailored investments in key regions. Besides ensuring operational continuity, this approach puts us in an ideal position for long-term stability and growth across a globally interconnected and increasingly multipolar economic landscape.
The net risks of negative geopolitical and macroeconomic developments are seen as possible and might have significant to critical effects. However, our assumptions on geopolitical developments exclude scenarios with severe escalation of tension. The materialization of such scenarios would jeopardize entire industries and the balance of political and economic structures, posing a substantial challenge for us, as for any other company.
Further details on the macroeconomic development can be found under “Macroeconomic and Sector-Specific Environment”.
Market risks and opportunities
Risks and opportunities in life science
Our Science & Lab Solutions business unit serves customers in various sectors including the biotech and pharmaceutical industries in the areas of production, testing and research, as well as public authorities and research institutions. Despite current headwinds – a complex macroeconomic environment and softer market demand, especially in the United States and China – the business unit is well positioned to deliver long-term, profitable growth. We aim to offer our customers a streamlined experience and a comprehensive portfolio of offerings to facilitate their research and analytical processes. This includes several customer solutions in innovative digitalization and automation.
The Process Solutions business unit offers its comprehensive bioprocessing product portfolio to biotech and pharma customers that are focused on developing and manufacturing traditional and novel therapies. Our portfolio includes filtration devices, chromatography resins, single-use assemblies and systems, and excipients. We have strategically positioned ourselves to capture numerous opportunities from the industry’s shift towards biologics, coupled with the growing demand for bioproduction driven by numerous drug candidates and regulatory approvals. In addition, we are well prepared to benefit from our customers’ investments in expanding bioreactor capacity. Our commitment to innovation and our customer-focused approach positions us to advance the field of biomanufacturing.
The growing use of biologics is creating a need for more efficient and higher-yield manufacturing processes. This represents an opportunity for us to enable continuous and intensified processing through our ongoing innovation in single-use technologies and advancements in bioproduction. Acceleration of the pharmaceutical development process could lead to faster market growth and a more positive direction compared with our latest plan. Conversely, a deceleration of pharmaceutical R&D activities may result in slower than anticipated market development. Demand growth is expected to normalize as funding levels stabilize and the pipeline of drugs in development remains robust and diverse.
Our Life Science Services business unit fully integrates its services as a contract development and manufacturing organization (CDMO) to meet the evolving needs of our global customers across all stages of drug development, from preclinical to commercialization. Our CDMO services cover a wide range of modalities, including monoclonal antibodies (mAbs), high-potency active pharmaceutical ingredients (HP-APIs), antibody-drug conjugates (ADCs), viral and gene therapies (VGTs), and end-to-end mRNA offerings. We continually invest in expanding our portfolio and production capabilities to offer specialized solutions for both traditional and innovative therapies. This positions us to capitalize on the potential of the growing biopharmaceutical market by providing leading CTMO services to our customers. Through quicker establishment of novel modalities on the market in combination with our broad and integrated portfolio, we can increase the potential beyond the assumptions reflected in our plan. For emerging biotechnology companies, the timing and magnitude of a sustained return to growth of funding (venture capital and IPOs) will determine the pace of growth in R&D spending, presenting both a risk and an opportunity to life science suppliers.
The market risks for the Life Science Services business unit are assessed as likely with moderate to significant impact.
Further details on the industry, market developments and associated risks can be found under “Risks due to increased competition and customer technology changes as well as related opportunities” and “Macroeconomic and Sector-Specific Environment”.
Risks and opportunities in the semiconductor industry
Our Semiconductor Solutions business unit leverages a broad portfolio of independent technologies. This enables us to supply products for every key step in wafer processing, helping our customers to achieve their technology roadmaps.
The underlying semiconductor industry is cyclical by nature. The current downturn has been exacerbated by a recession in the wake of the Covid-19 pandemic. The economic slowdown has led to a temporary weakness of the traditional industry growth drivers such as PCs, smartphones and traditional data centers, while the new growth drivers, such as AI and automotive, are still too small to compensate for these effects. The multilayered macroeconomic effects and poor transparency throughout the supply chain cause a certain degree of uncertainty when estimating the timing and shape of the industry recovery. This uncertainty is reinforced by the current dynamic around the trade conflict between the United States and China. External and internal assumptions on the shape of the industry recovery and the future escalation of the trade conflict (e.g. further trade restrictions) can deviate either positively or negatively. Such deviations present both an inherent opportunity and a risk to our base plan.
Irrespective of the current turbulent macroeconomic situation, the positive medium- and long-term growth prospects of our markets remain unchanged. We see long-term growth opportunities in the semiconductor market due to the significantly accelerating global demand for innovative semiconductor materials with potential growth upside, driven by a faster market adaptation and penetration. This demand is driven by exponential data growth and highly impactful technology trends such as autonomous driving, electric vehicles, Internet of Things (IoT) and 5G. We will benefit from the high material requirement, particularly of chips powering AI applications, and are working with our customers on almost all of these groundbreaking technological innovations in the semiconductor sector. That is why we are investing in our highly attractive growth markets and purposefully expanding production capacities with a smart localization of our footprint to further boost customer proximity and ensure supply stability. Having the right capacity in the right place to bring new products and higher volumes to our customers enables us to stay flexible about the timing of the market upswing and can serve as a competitive advantage.
The aforementioned trends and the continued announcements of major capacity expansions in the industry in the coming years also benefit our DS&S business. With this portfolio of gas and chemical cabinets and the potential to provide our largest customers with turnkey solutions for the delivery of bulk gases in the manufacturing process, we are well positioned to capture upcoming opportunities.
The market risks for the Semiconductor Solutions business unit are likely with up to significant impact. Additionally, an event with minor impact could occur more likely than not.
Risks due to increased competition and customer technology changes as well as related opportunities
In the Healthcare business sector, both our biopharmaceutical products and classic pharmaceutical business are exposed to increased competition from other rival products, especially in the form of biosimilars and generics but also in innovative R&D. We compete with other pharmaceutical companies in various therapeutic indications and rely on high quality data to successfully market our products. For this reason, we closely observe our competitive landscape and make assumptions with regard to future competitor entries that pose competition to our products. Due to the uncertainty that is inherent to clinical trials, there is the possibility that competitor trials fail to meet primary endpoints in their studies or deliver inferior data than we initially anticipated. If there are no new competing products or if our competitors deliver less promising data, this could represent opportunities for us in therapeutic areas in which we are active.
In the Life Science and Electronics business sectors, risks are posed by not only cyclical business fluctuations but also changes in the technologies used or customer sourcing strategies. We use close customer relationships and in-house further developments as well as market proximity, including precise market analyses, as mitigating measures. Overall, the occurrence of these risks is possible to likely and could have a significant impact.
The risks due to increased competition and customer technology changes are assessed as possible to likely with up to significant impacts.
Further details on the industry and market development can be found under “Macroeconomic and Sector-Specific Environment”.
Risks and opportunities of research and development
Innovation driven by R&D is a major element of the Group strategy – including fostering innovation at the intersection of our business sectors – and is particularly important in the Healthcare business sector. In regular portfolio management reviews, we continually evaluate and, if necessary, realign research areas and R&D pipeline projects to focus our investments in areas where patient needs are served best. Nevertheless, R&D projects can experience delays, expected budgets can be exceeded, or targets can remain unmet. Sometimes, development projects are discontinued after high levels of investment at a late phase of clinical development. Decisions – such as those relating to the transition to the next clinical phase – are taken with a view to balance risks and opportunities.
In addition to in-house R&D efforts, strategic alliances with external partners and the in- and out-licensing of programs also form part of the catalog of measures to develop innovative medicine and ensure the efficient allocation of resources. Strategic alliances with partners as well as in- and out-licensing transactions always follow a stringent selection process along clear strategic and financial decision criteria. An example of such in-licensing deals is the partnership with Jiangsu Hengrui Pharmaceuticals Co. Ltd. for a next-generation selective PARP1 (poly (ADP-ribose) polymerase 1) inhibitor and ADC (antibody-drug conjugate), which was announced in early 2024. The partnership represents a strong strategic fit, leveraging our internal DNA damage response expertise and in-house ADC capabilities. This agreement provides the opportunity to advance more therapeutic options for patients with difficult-to-treat cancers. In general, however, forecasting the exact number of transactions per year is challenging, and furthermore, it is possible that we may not be able to identify a sufficient number of in-licensing assets on financially acceptable terms.
The aforementioned development opportunities are associated with different types of risks. There is the risk that regulatory authorities either do not grant or delay approval or grant only restricted approval. The risk that undesirable side effects of a pharmaceutical product could remain undetected until after approval or registration could result in a restriction of approval or withdrawal from the market. Furthermore, we cannot guarantee that all the assets we are currently developing will achieve the desired commercial success. The failure to meet targets in this area could have significant effects, for example due to lower net sales or the non-occurrence of milestone payments from collaboration agreements. These risks are evaluated with probabilities ranging from possible to likely.
Moreover, in Electronics, we will also continue to invest heavily in R&D in leading-edge material solutions. The aim is to seize growth opportunities arising from the increasing global demand for innovative semiconductors. Promising opportunities for innovation are constantly arising throughout our Semiconductor Solutions business. We work closely with our customers to exploit these. Technology inflection points bring opportunities to our material solutions and the chance to differentiate ourselves from the competition.
In addition, we see opportunities in organic light-emitting diode (OLED) materials in high-quality display applications. We have been conducting R&D in the area of OLED technology for more than 15 years and have grown into a well-positioned material supplier for OLEDs. Through our semiconductor and display knowledge, we will be able to contribute to the new display devices including foldable displays and Augmented Reality/ Virtual Reality applications, which require a broad set of materials. The increasing convergence of optical and semiconductor technologies allows us to leverage existing competencies in these fields and benefit from growing demands. With the acquisition of Unity-SC, we now master all key interactions of light and materials – generating, modulating, guiding, and analyzing light – within one unified group.
More detailed descriptions on our R&D activities worldwide can be found under “Research and Development” in “Fundamental Information about the Group”.
Risks and opportunities related to the quality and availability of products
Opportunities arising from capacity expansion
We make targeted investments worldwide to expand our regional capacities and drive sustainable growth in all three of our business sectors.
In fiscal 2024, we announced several new investments to expand capacity and product capabilities at facilities around the world. These include investments in new state-of-the-art research and quality control labs in Germany, a new bioprocessing manufacturing facility in Korea, new ADC manufacturing capabilities in St. Louis, Missouri, USA, and distribution centers in Brazil and Germany. Having the right capacity in the right place secures a more reliable and effective supply chain, helps meet customer demand and offers the opportunity for us to capture a higher market share and a competitive advantage. However, market dynamics naturally influence our expansion activities as well as utilization. We therefore review our expansion plans regularly and adapt them accordingly.
Risks arising from project execution
In today’s dynamic business environment, we prioritize innovation and growth. Projects are essential for achieving our strategic objectives, such as driving innovation or expansion and promoting sustainable development. To effectively support further business growth and enhance efficiency, we continuously invest in production facilities and equipment, IT systems, distribution centers, office buildings, and other projects. However, project execution involves significant capital expenditures, making effective project management critical to avoid delays and higher spending. Inadequate planning, execution errors and ineffective change management can lead to inefficiencies and disruptions, resulting in increased costs and lower sales.
In a rapidly evolving market, delaying or deferring investments poses a risk of missing out on market growth and development. To mitigate this risk, we actively monitor industry trends, conduct market research and maintain a flexible project portfolio. By aligning our investment decisions with market dynamics, we aim to capture opportunities and minimize the risk of being left behind. This is particularly important in industries like semiconductors, where market cycles present substantial risks. Overall, the risks are possible to likely and could have a moderate impact.
To proactively address project execution risks, we apply well-established project planning and internal control practices, collaborate closely with stakeholders and conduct regular project reviews through teams and steering committees. This approach enables us to detect risks early on and implement corrective actions or discontinue projects that are unlikely to succeed. Through comprehensive planning, accurate cost estimations and re-evaluations, we monitor costs and ensure efficient resource allocation. Effective project governance and prioritization further contribute to desired project outcomes.
Risk of a temporary ban on products/production facilities or of non-registration of products due to non-compliance with quality standards
We are required to comply with the highest standards of quality in the manufacturing of pharmaceutical products (Good Manufacturing Practice or official pharmacopoeia). In this regard, we are subject to the supervision of the regulatory authorities. Conditions imposed by national regulatory authorities could result in a temporary ban on products/production facilities and possibly affect new registrations with the respective authority. We make the utmost effort to ensure compliance with regulations, regularly perform own internal audits and carry out external inspections. Thanks to these quality assurance processes, the occurrence of a risk with a moderate impact is possible; however, a significant impact cannot be entirely ruled out and depends on the product concerned and the severity of the objection.
Risks of production availability
Further risks include operational failures due to fire or force majeure, for example natural disasters such as floods, droughts or earthquakes, which could lead to a substantial interruption or restriction of business activities. As far as possible and economically viable, the Group limits its damage risks with insurance coverage, the nature and extent of which is constantly adapted to current requirements. Likewise, we are exposed to risks of production outages and the related supply bottlenecks that can be triggered by technical problems in production facilities with very high-capacity utilization. Furthermore, there are risks of supply bottlenecks due to a lack or disappearance of capacity. We work towards continual mitigation of such risks by making regular investments, setting up alternative sourcing options and maintaining sufficient inventory levels.
The occurrence of these risks with a moderate impact is considered possible, while a highly improbable individual extreme event could have a critical negative effect.
Supply Chain Integrity
In 2024, we successfully navigated a complex landscape of challenges, including ongoing geopolitical tensions, supply chain disruptions due to natural disasters and evolving regulatory environments. Our commitment to building resilient supply chains has been pivotal in ensuring uninterrupted service across all business sectors.
In the Healthcare business sector, we have effectively managed the supply of our medicines, ensuring that patients have access to essential therapies even as competitors faced shortages. Through proactive measures such as diversifying sourcing options, building safety stocks and maintaining close relationships with suppliers, we have fortified our supply reliability.
In Life Science, our supply resilience activities have enabled us to monitor several potential impact events closely, ensuring that we remain responsive to challenges rooted in geopolitical challenges and regulatory changes. Our proactive engagement with suppliers has been crucial in maintaining service continuity and adapting to evolving circumstances.
In Electronics, events such as the earthquake in Taiwan early in the year and recent typhoons in the Pacific region have tested our supply chains. However, thanks to our strong supplier relationships and ongoing efforts to enhance resilience, we have avoided major disruptions. Our focus on diversifying sourcing and strengthening partnerships has positioned us to navigate these challenges effectively.
While we acknowledge that certain vulnerabilities persist, we are committed to investing in our supply chain resilience across all sectors. Overall, the likely risks could have a moderate to significant impact while single improbable events could have a critical negative effect.
Risks due to product-related crime
As a leading global science and technology company and manufacturer of innovative products, we face various security and crime-related risks due to the complexities of international trade and global supply chains. Our products are vulnerable to counterfeiting, theft, illegal diversion, and misuse. If unaddressed, these risks could lead to financial loss, reputational damage and business disruption and even compromise patient safety. To mitigate these threats, we have implemented technical, operational and procedural measures to protect our product integrity and supply chains while ensuring that emerging threats are managed effectively.
Overall, the threat resulting from product-related crime is likely with a moderate impact.
Risks from the use of social media
We and our employees are active on numerous social media platforms. The consistent and legally compliant use of such platforms and their content is important in terms of increasing awareness of our brand, among other things. We take all necessary precautions and have implemented processes to ensure awareness regarding the proper handling of social media as well as actively managing and controlling our publications and communication.
Nevertheless, reputational risks could result, for instance through public dialogues on social media. On the qualitative rating scale, we thus rate this risk as significant.