Adapting to volatility: TP approaches for life sciences multinationals amid global uncertainty

For the global life sciences and healthcare sector – and, in particular, pharmaceutical and medtech companies within the life sciences subsegment – a striking duality can currently be observed: sustained confidence in firm-level performance alongside heightened uncertainty in the broader economic and geopolitical environment.

While more than three-quarters of pharmaceutical and medtech executives express confidence in their organisations’ financial outlook, less than half share this optimism with respect to global economic conditions (“2026 Life Sciences Outlook”, Deloitte, 2025). This uncertainty is not merely cyclical but increasingly systemic.

Life sciences companies often face multiple pressures – including geopolitical tensions and economic uncertainty, pricing and portfolio pressures, and intensifying regulatory intervention – which are reshaping commercial strategies and profitability across jurisdictions.

At the same time, economic policy changes in some cases impact how life sciences companies structure their operations. For example, tariffs, export restrictions, and (tax) incentive schemes to localise critical manufacturing capacity – particularly in the life sciences sector for active pharmaceutical ingredients and strategic medical technologies – are in some cases leading to a reassessment of globally centralised supply chains. Rather than fully reshoring operations, some organisations are adopting hybrid models that balance global efficiency with local resilience (“Manufacturing, supply chain risks in 2026 will continue to weigh on life sciences”, PharmaManufacturing, 2025).

In the medtech sector in particular, the experience of recent disruptions has accelerated the move towards more integrated business models. Digital tools, including advanced analytics and AI, are increasingly deployed to enhance visibility, forecasting, and operational flexibility (“Digitally enabled supply chains make recovery speed a medtech differentiator”, Deloitte Insights, 2026).

These developments can have implications for the transfer pricing models of life sciences multinationals. First, the shift towards more regionally diversified operating models can impact allocations of functions, assets, and risks within a multinational group. Business restructurings – whether driven by supply chain realignment, regulatory requirements, or market access considerations – raise complex questions regarding the delineation of controlled transactions, exit charges, and the valuation of transferred intangibles. In this regard, as will be shown in the following, care needs to be taken to appropriately account for uncertainty – both macroeconomic volatility and company- or asset-specific uncertainty; e.g., stemming from regulatory risks – in the course of the transfer price determination.

This article explores two illustrative aspects of these developments.

First, in the medtech sector, the ongoing transformation of business models is described. Multinational companies are moving from traditional transactional sales to integrated, service-oriented models. The shift may require a re-evaluation of transfer pricing strategies. This is important to support compliance and sustainable growth in a dynamic environment.

Second, in the pharmaceutical segment, it will be shown how uncertainty can be reflected in business restructuring analyses and, in particular, in transfer pricing valuations. Both macroeconomic uncertainty and company- or asset-specific uncertainty must be considered carefully. This is particularly important in light of the OECD guidance on so-called hard-to-value intangibles (HTVI), which has been implemented in the tax laws of several jurisdictions.

The global healthcare industry is experiencing unprecedented volatility, driven by economic pressures, technological advancements, and a renewed focus on value-based care. Within this dynamic environment, the medtech sector is undergoing a profound transformation in its business models. This shift has significant implications for multinational enterprises, particularly concerning their transfer pricing strategies.

Traditionally, medtech companies have often operated on a capital expenditure (CapEx) model, where hospitals and healthcare providers purchased medical equipment outright, potentially also using financing options offered by medtech companies. Although there has been an interplay for certain medtech products (e.g., larger machinery needs corresponding services to maintain operability, and diagnostic products regularly need non-reusable reagents to operate) between product sales and associated services/consumables, transfer pricing policies revolved around the intercompany pricing of tangible goods, focusing on manufacturing costs, sales volumes, and distribution margins.

However, the escalating costs of healthcare, coupled with government and private payer demands for improved outcomes and cost control, are compelling a paradigm shift. Healthcare organisations are increasingly pressured to demonstrate value, improve clinical outcomes, and enhance patient experience while managing tight budgets. This has opened the door for medtech manufacturers to propose innovative forms of contracting and partnerships, including risk-sharing models.

The emerging business models fundamentally alter the relationship between medtech companies and their customers. Instead of outright purchases, healthcare providers are increasingly seeking arrangements where manufacturers – or their local sales units – operate equipment in hospitals, with payment structured on a pay-per-use or subscription basis.

Furthermore, outcome-based pricing, which ties the cost of devices and treatments to specific clinical outcomes or patient improvements, is gaining traction. These models are designed to reduce the significant upfront financing requirements for hospitals, spread costs over time, and align the interests of manufacturers with the achievement of better patient results. For instance, a supplier might introduce a pay-per-use model to make high-value equipment accessible to lower-volume accounts, thereby expanding its market.

Companies are also exploring innovative ways to market their products, including subscription models for equipment and services (“2026 Life Sciences Executive Outlook”, Deloitte, 2025). For instance, companies have embraced subscription-based models for digital health platforms, allowing providers access to advanced imaging software and analytics without substantial upfront investment.

This transformation presents a complex array of challenges for existing transfer pricing frameworks, which were largely developed around the manufacture and sale of tangible goods.

Under traditional models, manufacturing and quality functions were key value drivers. However, the increasing focus on patient-centricity, advanced digital capabilities, digital health tools, and the generation of real-world data introduce new forms of intellectual property (IP) and capabilities that significantly contribute to the value chain. The local sales unit, which previously might have been characterised as a limited-risk distributor, could now be performing higher-value functions, bearing operational risks associated with equipment utilisation, maintenance, and even clinical outcomes.

This may necessitate a re-evaluation of entity characterisation, potentially shifting local entities towards commensurately higher profit entitlements, reflecting their contributions to patient outcomes and data generation.

The introduction of subscription fees, pay-per-use charges, and outcome-based payments creates new intercompany transaction types that have historically not been part of the medtech operating model. Pricing the ‘use’ of equipment, embedded software, associated digital services, and the value derived from data analytics requires sophisticated valuation methodologies. Unlike tangible goods, where comparables for sales might be more readily available, finding comparable companies and/or comparable uncontrolled transactions for complex service arrangements or outcome-based payments may be challenging.

Tax authorities are likely to scrutinise how these new revenue streams are allocated across jurisdictions, demanding clear justification for intercompany pricing.

The shift to models such as outcome-based pricing can fundamentally alter risk allocation. Medtech manufacturers are increasingly sharing the financial risk with healthcare providers, as payment can be contingent on achieving defined clinical improvements. This shared risk must be accurately reflected in intercompany agreements and associated transfer pricing policies. For instance, if a local sales entity is responsible for ensuring equipment uptime or contributing to patient outcome improvements to trigger payment, it bears a greater operational risk than a traditional distributor.

The allocation of these new risks (e.g., equipment downtime, underutilisation, non-payment, or failure to meet outcome targets) may significantly influence the arm’s-length profit allocation.

The intricacy of these new models demands a granular level of data to support transfer pricing positions. For pay-per-use, this might include detailed records of equipment usage, maintenance costs, and associated service delivery. For outcome-based models, data on clinical results, patient pathways, and actual versus expected outcomes becomes paramount. Robust transfer pricing analysis and documentation are essential to meet compliance requirements and mitigate the risk of income adjustments and penalties from tax authorities, which are increasingly focused on substance over form.

In conclusion, as medtech multinationals navigate the era of global uncertainty, the shift towards innovative, value-driven business models is a strategic imperative to alleviate budget pressures and foster sustainable growth. However, this evolution may necessitate a proactive and fundamental re-evaluation of their transfer pricing approaches.

By clearly identifying new value drivers, accurately characterising entities, meticulously documenting complex intercompany transactions, and aligning risk allocation with economic reality, medtech companies can develop robust transfer pricing frameworks that support their evolving business strategies, ensure compliance, and mitigate potential tax disputes in an increasingly scrutinised global tax landscape.

Pharma multinational enterprises can be observed to actively undertake business restructurings as a strategic response to global volatility. Drivers for these reorganisations include the imperative for more resilient supply chains, especially in light of geopolitical tensions and tariffs, as well as the push for greater market access, R&D efficiency, and optimisation of manufacturing footprints. For example, companies may shift manufacturing hubs for active pharmaceutical ingredients or finished dosage forms, centralise R&D functions, or reallocate critical functions and risks to optimise their global operating models.

Such restructurings can trigger significant transfer pricing events, such as cross-border migrations of IP – for example, in relation to drug candidates and the underlying pharmaceutical technology – and the corresponding need for arm’s-length compensation. This, in turn, often leads to valuation requirements. Transfer pricing valuations in the pharma segment can be uniquely complex, particularly when the object to be valued – e.g., a new drug technology – is still in development. This uncertainty can generally stem from several sources.

• Macroeconomic risks – like many other industries, the pharma industry is exposed to economic volatility, inflation, and interest rate and currency fluctuations, which impact R&D costs, production expenses, and market demand. These are considered systematic risks, generally affecting all companies in a given market and that cannot be diversified away.

• Specific risks – these are typically unsystematic, idiosyncratic risks specific to an industry, company, or asset. Such risks are particularly pronounced in the pharma subsegment and can be diversified away by a hypothetical investor. Idiosyncratic risks in pharma include the following:

  • R&D risks – this is arguably the most significant source of uncertainty in pharma. Drug discovery and development are very costly, lengthy processes with very low success rates. A majority of drug candidates fail during clinical trials or even earlier. Depending on the therapeutic area, the combined probability of successfully completing all development phases and eventually obtaining regulatory approval can be less than 10% (Transfer Pricing in the Pharmaceutical Industry, page 16, UN, 2025).

  • Regulatory hurdles – drugs face stringent and often unpredictable approval processes from bodies such as the US Food and Drug Administration, the European Medicines Agency, and other national health authorities (Transfer Pricing in the Pharmaceutical Industry, page 18, UN, 2025). Changes in regulatory landscapes, clinical trial requirements, or post-market surveillance demands can significantly impact timelines and market access.

  • Technological obsolescence and patent cliffs – the rapid pace of scientific discovery means that ultimately approved drugs can face competition from newer, more effective treatments. Furthermore, the expiry of patent protection (so-called patent cliffs) opens the door to generic competition, which can dramatically erode revenues (Transfer Pricing in the Pharmaceutical Industry, page 43, UN, 2025).

  • Market adoption and reimbursement – the uptake of new drugs, especially innovative biologics or speciality medications, is subject to uncertainty concerning payer policies, pricing pressures, and the willingness of healthcare systems and patients to adopt new therapies.

  • Digital transformation risks – as pharma companies increasingly digitalise and integrate AI for drug discovery, real-world data analytics, and digital patient engagement platforms, new risks emerge, including data privacy, cybersecurity, and the ethical considerations surrounding data usage.

These diverse sources of uncertainty, specifically in the pharma segment, underscore the need for robust valuation methodologies and careful documentation.

The need to account for such layers of uncertainty in transfer pricing valuations is also emphasised by the OECD, which states in Chapter VI of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022: “It should be recognised in determining and evaluating discount rates that in some instances, particularly those associated with the valuation of intangibles still in development, intangibles may be among the most risky components of a taxpayer’s business” (note 6.172).

However, not all risks are to be accounted for in the same way, and a double discounting for risks is to be avoided, as also clarified by the OECD in the same guidelines: “Since certain risks can be taken into account either in arriving at financial projections or in calculating the discount rate, care should be taken to avoid double discounting for risk” (note 6.173).

In practice, the so-called risk-adjusted net present value approach is often applied in transfer pricing discounted cash flow valuations in pharma (“Biotech Asset Valuation Methods: A Practitioner’s Guide”, Chandra and Mazumdar, Journal of Investment Management, Vol. 22, No. 1, 2024). Under this approach, the discount rate, typically the weighted average cost of capital, should account for the time value of money and the level of systematic risk, reflecting correlation with market fluctuations based on peer-group analyses. Specific uncertainties related to the valuation object in question – i.e., idiosyncratic risks such as those related to regulatory approval success probabilities – are captured within the cash flow projections under this approach.

For a valuation of an early-stage drug candidate, the respective probabilities of successful completion of each clinical trial phase, the likelihood of regulatory approval, and the expected market adoption rates post-launch would, for example, need to be considered. Further uncertainties in relation to future industry developments or competition could be accounted for. This ultimately involves constructing various scenarios (e.g., optimistic, base, pessimistic) for future cash flows and assigning probabilities to each, thereby deriving a probability-weighted expected value, often referred to as a risk-adjusted net present value.

As outlined in the following, such valuation approaches, if appropriately applied and documented, may also help to take into account the OECD’s HTVI concept for pharma companies.

The OECD's guidance on HTVI is particularly pertinent to the pharma sector. Intangibles entailing products or technology that are still under development generally qualify as HTVI. As indicated above, restructurings in pharma often involve such in-development drugs or pharma technologies. HTVI regulations allow tax authorities to use ex post (hindsight) outcomes as presumptive evidence of the appropriateness of ex ante pricing arrangements under certain conditions, should actual results significantly diverge from initial projections (OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, Annex II to Chapter 6, note 2).

To mitigate the risk of ex post adjustments by tax authorities under HTVI rules, pharma companies must meticulously document all assumptions, probabilities, and scenarios considered at the time of any intercompany valuation. Such documentation should clearly articulate the uncertainties and scenarios identified and how they were reflected in the valuation. Specifically, it is recommendable for taxpayers to provide:

• All details of the forecasts used in the transfer pricing calculations;

• Sufficient evidence that any significant differences between the financial plan and realised results are due to unforeseeable developments; and

• Consideration of events, even with small probability, ex ante, recognising the complex derivation of probabilities for phase completion and sales forecasts.

As pharma multinationals navigate an era of global uncertainty and evolving R&D and commercialisation models, a proactive and sophisticated approach to transfer pricing is paramount. In cases of business restructurings, this involves accurately identifying and integrating various sources of uncertainty into valuation methodologies. By meticulously documenting valuation assumptions and conducting thorough risk and scenario analyses, taxpayers in pharma can build resilient transfer pricing frameworks to ensure compliance and mitigate potential tax disputes in an increasingly complex global tax landscape.

The above examples show that taxpayers in the life sciences and healthcare segment need to carefully consider their transfer pricing set-ups and transfer price determination.

Increased fiscal pressure in many jurisdictions is likely to translate into increased tax audit activity and more assertive tax authority positions, particularly in areas where economic uncertainty, supply chain changes, and large value transfers intersect. This is essential for life sciences companies, given the strategic importance and often high value of IP, as well as the increasing prevalence of evolved business models, supply chain restructurings, and related transfer pricing implications.

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