Navigating geopolitical risks: Practical and legal mitigations for the pharmaceutical industry

Geopolitical instability is shaking the operating foundations of the pharmaceutical industry. Wars and regional conflicts are disrupting supply chains and increasing energy prices, while tariffs, protectionist regulation, and policy changes are fragmenting established trading relationships. The relative stability and global connectivity that supported the industry’s growth over the past two decades is gone.

Geopolitical risk is now front of mind for many pharmaceutical leaders. Deloitte’s 2026 Life Sciences Outlook report noted that concern had risen sharply, with 39% of respondents identifying geopolitical risk as a top issue.

Ultimately, some aspects of geopolitical risk are beyond the control of even Big Pharma. This article explores some of the risks we can mitigate and how we can do that.

Blockers

Geopolitical changes have led to new laws and regulatory regimes, some of which may restrict or prevent transactions. These include foreign investment controls, such as the UK National Security and Investments Act and the EU’s new Foreign Direct Investment Screening Regulation, as well as export controls and sanctions.

Companies affected by these rules should not try to circumvent them. Instead, the key is to spot the risk early and plan accordingly. Regulatory screening should be one of the first diligence checks done before agreeing a cross-border deal – including for research and licensing deals, not just M&A.

In the UK, this diligence is facilitated by a voluntary disclosure scheme, allowing companies to check with the UK Government in advance whether their deal is permissible. In the US, the equivalent would be the Committee on Foreign Investment in the United States, while in the EU foreign direct investment screening is done at a national level.

Cost of business

Costs are another impact of geopolitical pressures. In particular, the cost of energy and raw materials. Costs for raw materials such as glycerine have increased by over 60% in the past year. The cost of money has also increased, through increased interest rates and exchange rate fluctuations.

Commercial and legal mitigations can help to manage these pressures and their impact. Businesses may hedge costs and lock in pricing, particularly for energy costs. Legally, supply chain contracts are key. Supply agreements determine how changes in cost are allocated: pricing may be fixed for a defined period, increases may be passed through in full, or adjustments may be capped by reference to a measure such as the consumer price index. The appropriate approach will depend on each party’s position, but a particular exposure arises where suppliers can increase their prices, but customer pricing remains fixed, meaning supplier cost increases cannot be passed on to the customer.

Delivery and implementation

The pharma supply chain is famously globalised. Manufacture to sale can take goods on a voyage though several countries. This chain is reliant on geopolitical stability and can be broken by geopolitical events; a recent example being closures of the Straits of Hormuz. These issues cause delay, increase travel costs, and can increase the cost of raw materials. In some cases, production can be stopped entirely, as with the conflicts in Israel impacting its manufacturers and Iranian drone strikes forcing the closure of Qatar’s helium production facility, which supplied more than a third of the global demand.

These factors together have led to an increase in shortages and stock-outs, impacting patients and profits.

In some cases, the standard clauses in contracts will provide some relief. A common “force majeure” clause excuses non-performance caused by something beyond reasonable control – for example, a drone strike or new export controls. However, these clauses only excuse non-performance where performance is impossible; not where it has become more expensive or inconvenient.

Instead, pharma companies must anticipate the risks specific to their products and supply chains and use their contracts to mitigate or share risk. For example, a supplier might carry the risk of increases in raw material or transport costs, but where those costs increase beyond a certain threshold, say 5%, the customer and supplier might agree to share the cost of those increases.

Contractual solutions

It is neither practical nor proportionate to draft contract clauses for every possible geopolitical risk. However, there are three key areas that pharma companies can use to mitigate much of the risk. These are performance, price and – ultimately – termination.

1. Performance may need to be flexed as geopolitical events impact operations. Clauses such as force majeure and change control governance help provide that flexibility.
2. Price may need to be adjusted to reflect spikes in costs and maintain the viability of a project. If there is no flexibility on price, global shocks may make a project loss-making and unsustainable. Price adjustment clauses provide a framework to manage that risk.
3. Termination is the last resort for many companies. Companies that properly map out who can terminate, as well as why and when, and address transitional arrangements, will better weather this worst-case scenario. Clauses covering termination – and consequences of termination – help to manage the risk of those worst case scenarios.

Geopolitical risk is likely to challenge the pharma industry for the foreseeable future. The companies that best mitigate those risks will be better placed to respond when disruption occurs.

Mitigation starts with diligence; checking for regulatory barriers, such as export controls, sanctions, or tariffs, but also understanding the deal at hand. Are there single points of failure in the supply chain? Will products transit through unstable regions? What is on the regulatory horizon?

Once relevant exposures are understood, businesses can mitigate those risks. Mitigations can be legal, commercial and – crucially – practical solutions, such as stockpiling products or diversifying your supply chain. Legal solutions are usually quicker than practical solutions. If done well, they can form the basis of a deal that successfully survives the geopolitical risks. 

Finally, risk management should continue throughout the life of the arrangement. Businesses should review whether agreed mitigations are operating as intended, whether changing circumstances require the parties to adapt their relationship, and whether an unforeseen event affects the assumptions on which the arrangement was based.

Not every geopolitical risk can be controlled, but many exposures can be anticipated and managed. With the right approach, the pharmaceutical industry can continue to thrive and support patients through periods of geopolitical turbulence.

About the author

David Dennis is a partner at international law firm CMS. He advises life sciences clients on research, development and commercialisation, helping organisations ranging from universities and start-ups to listed companies transform scientific breakthroughs into real-world products and services.