Humans have relied on drugs to overcome illness and extend health and well-being for almost as long as they’ve walked planet Earth. The roots of morphine date back some 8,000 years, and penicillin, discovered in 1928, still saves lives by killing deadly bacteria. More recently, GLP-1 therapies promise to ameliorate heart disease, lower blood pressure, and reduce other chronic health issues. Monoclonal antibodies are a major class of biologic drugs and play a particularly important role in cancer treatment. As the global population ages and more people have chronic diseases, demand for pharmaceuticals will continue to increase. At the same time, advances in AI are accelerating drug discoveries. Together, this means investment in the industry will likely continue to grow, and what follows examines what it takes to manufacture monoclonal antibody therapies competitively.
The investment case is one of ten used in the research for the McKinsey Global Institute’s report, Catalyzing competitiveness: Where investment happens and why. The report examines how variations in the basic economics of comparable projects influence investment decisions in different regions globally and the impact those decisions can have on the future of competitiveness and growth across the world.
The pharmaceutical market is growing faster than global GDP, with a growing role for biologics
Steady demand growth and shifts in underlying technologies propel pharmaceutical manufacturing. Changing demographics mean the global median age is projected to rise by about five years between now and 2050, which is expected in turn to increase global pharmaceutical sales at about 5 percent CAGR a year.1 Additionally, an increase in the number of people with chronic diseases, a corollary of demographic trends, points to long-term demand for medicines.
The pharma supply chain typically starts with research and development (R&D), including discovery, preclinical work, and clinical trials prior to regulatory approval. This phase can last as long as two decades. Patent protection is typically filed during drug development and, once obtained, lasts 20 years from the filing date. Because a portion of this 20-year period is consumed by development and regulatory review, the effective commercial exclusivity window following regulatory approval shrinks. These long timelines and finite exclusivity periods mean that time is of critical importance in the R&D stage of pharmaceutical investments.
Downstream from R&D, manufacturing is generally split into two stages, drug substance, or production of an active ingredient, and drug product, which is when a drug is formulated into its final, patient-ready form. Drug substance and drug product manufacturing may take place at the same facility or at different sites and can occur in-house or be outsourced to contract development and manufacturing organizations (CDMOs).
Additionally, the pharmaceuticals industry distinguishes between small-molecule conventional drugs and larger-molecule biologic drugs. Biologics span multiple modalities, including monoclonal antibodies, cell and gene therapies, and other complex biologics, and have different manufacturing processes and regulatory requirements. Innovation has steadily increased the market share of such advanced therapies from 30 percent of overall pharma sales in 2018 to more than 40 percent in 2024, a proportion expected to increase to roughly 45 percent by 2030. Biologics typically command higher gross margins than small-molecule drugs, reflecting greater clinical differentiation and pricing power as well as greater manufacturing complexity.
Monoclonal antibodies (mAbs) are a major class of biologics. These antibodies are immune proteins with high molecular weights that are produced in living cell cultures and designed to bind to specific biological targets, modulating the immune system, blocking signals, or targeting destruction of diseased cells. They are used in many therapeutic areas, including oncology, immunology, and treatment of autoimmune and inflammatory diseases, and they play a particularly big role in cancer treatment. Among advanced biologic modalities, monoclonal antibodies account for a major share of the biologics market; global therapeutic antibody sales exceeded $267 billion in 2024.2
Europe and the United States remain major pharma manufacturing hubs, but US investment is pulling ahead
Pharmaceutical gross value added (GVA) is historically concentrated in Europe and the United States.3 The EU-27 and the United States each account for roughly 30 percent of global pharmaceutical GVA, and China for roughly 20 percent. In investment terms, the United States represents about 30 percent of global gross financial capital formation, compared to 25 percent each for China and Europe.4
Recent greenfield announcements, however, suggest that the US share of advanced pharmaceuticals manufacturing could be growing. Greenfield expansions announced totaled about $18 billion in 2024 and jumped to $180 billion in 2025, according to McKinsey analysis. This step change in announced investment is associated with recent policy measures aimed at strengthening domestic manufacturing, including tariffs and trade restrictions for imported drugs.
Materials and labor costs determine costs in any one location, with wage differentials driving differences between locations
The investment case is based on a drug substance facility manufacturing monoclonal antibodies with an annual capacity of 1,200 kilograms. The findings may extend to other innovative modalities, such as cell and gene therapies that have similar dynamics, but are less relevant for generics, for which cost is the overriding factor due to rapid price erosion. China is the base-case location, reflecting its lower manufacturing costs and growing investment share. It is compared against similarly sized facilities using comparable technologies in Eastern Europe, Germany, and the United States, using a like-for-like comparison of levelized costs.
The levelized cost of drug substance manufacturing, which measures the average cost of production over the lifetime of a facility, is driven by a small number of items. Operating expenses dominate. Materials contribute most to costs, reflecting the use of cell culture media, resins, and single-use consumables in upstream and downstream processing, accounting for about 30 percent of the levelized cost in the base case (see sidebar, “Methodology”). The findings of this case may extend to other innovative modalities such as cell and gene therapies, which have similar dynamics, but are less relevant to generics, for which rapid price erosion makes cost the overriding factor.
Labor costs account for as much as 65 percent of the variation in costs for pharmaceutical plants across countries.
Note: Figures may not sum, because of rounding.
11,200 kg monoclonal antibody drug substance.
Wage differentials drive variations in manufacturing costs between regions more than any other factor
Labor costs are the biggest contributor to cost differences in drug substance manufacturing of monoclonal antibodies around the world, accounting for about 60 to 65 percent of the levelized cost difference between China and Germany and the United States (exhibit). Because productivity levels are very similar in state-of-the-art plants, these differences are linked primarily to wages. In the United States, wage differences account for essentially the entire labor cost gap with China. When comparing Germany and China, Germany’s productivity is about 10 percent higher. Yet its higher wages result in operating labor costs that are approximately 85 percent greater than China’s. China and Eastern Europe have only limited differences in labor costs overall, with similar wage levels and productivity.
Materials are the second-largest driver of levelized cost differences, contributing about 20 percent of the levelized cost gap. This reflects pricing pressure and a mix of sourcing strategies in the base case, including imported materials, materials manufactured locally in China by multinational companies, and locally sourced materials. By contrast, Europe and the United States are assumed to source largely from global suppliers and so pay broadly comparable prices.
Construction costs represent another meaningful source of variation in levelized cost in drug substance manufacturing of monoclonal antibodies. Differences arise from higher construction and project execution costs and from variation in time to market. Differences in construction time are mainly the result of regulatory requirements. Construction productivity is higher in Asia, while regulatory complexity in European and US markets often leads to costlier designs and longer construction periods. In China, faster permitting and approval timelines can further shorten construction timelines compared to Europe and the United States. Overall, construction cost differences account for about 5 percent of the levelized cost gap and have the largest impact in the United States.
Time-to-market differences account for an additional 5 percent of the cost gap in our example. Given that the monoclonal antibodies that are a product of drug substance manufacturing are an input for patented drugs and that effective commercial exclusivity typically ranges from 10 to 14 years following approval, construction delays can compress the commercialization window, cutting into revenues and profits. The commercial impact of time-to-market differences can vary depending on the product and market context. In oncology and immunology markets, where monoclonal antibody therapies often include high-revenue products, delays in securing manufacturing capacity may limit supply during peak launch periods, with implications for market penetration and revenue capture. In other situations, companies may mitigate timing risk by outsourcing initial volumes to CDMOs or leveraging existing manufacturing networks, in which case the impact is more limited and primarily reflected in margin dilution rather than lost sales.
Taxes and subsidies are not modeled here but can also play an important role in the economics of the drug substance manufacturing of monoclonal antibodies. Incentives for pharmaceutical manufacturing typically include fiscal and tax measures, capital grants, operating subsidies, and preferential financing. These incentives can influence decisions at two levels. At a country level, governments may offer targeted packages as part of broader strategies to attract pharma manufacturing and innovation. Once a country is selected for investment, local authorities can offer materially different incentives that shape the choice between cities or regions within that country. Given the project-specific nature and high variability over time and across locations of incentives, they are not explicitly reflected in our core levelized cost modeling. Nevertheless, they can materially affect individual business cases and final site selection decisions.
Technology and AI are increasingly playing a role in tackling these cost differences. Biologic manufacturing is inherently complex, with hundreds of variables that affect cost, quality, and productivity. Using automation and AI to manage that complexity is becoming a source of competitive advantage that is most valuable where labor is expensive. As investment flows into the United States, where labor costs are high, sites that can operate with greater autonomy become even more important. Deploying AI and automation at scale can offset the labor cost disadvantage.
Pharmaceutical intermediates are priced on the world market, offering limited differentiation
The value of monoclonal antibodies manufacturing is not determined by end-market pricing. Drug substance manufacturing is an intermediate input in the production of finished biologics and is typically transferred internally within a company’s manufacturing network or supplied under long-term business-to-business contracts. As a result, drug substance manufacturing of monoclonal antibodies does not generally have a geography-specific market price. In practice, however, lower-cost countries may offer discounts to international buyers, reflecting domestic price pressures and lower local market price expectations.
By contrast, pricing dynamics differ at the level of finished biologics. Final drug prices vary significantly across geographies, with the highest monoclonal antibody prices in the United States and lower prices in Europe and China due to differing reimbursement, negotiation, and reference-pricing mechanisms.5 These differences affect overall product-level returns but do not directly translate into differences in drug substance manufacturing economics.
Industrial policy and strategic priorities are increasingly shaping the investment footprint
Cost competitiveness remains relevant to pharmaceutical manufacturing location decisions, but recent investment patterns—particularly over the past two years—are better explained by strategic considerations than by cost alone. While China’s unit costs are low, investment in higher-value biologics manufacturing today is still concentrated in Europe and the United States, reflecting the importance of regulatory credibility and strong intellectual property protection, as well as reliable execution and proximity to leading innovation ecosystems.
For biopharma executives, widening cost differentials point to a broader shift in manufacturing competitiveness. The traditional logic of optimizing for labor and operating costs alone when allocating capital is no longer sufficient. Investment decisions increasingly reflect a resilience premium that incorporates supply-chain security, speed to market, and evolving industrial policies. For complex biologics, manufacturers often prioritize locations near R&D, clinical development, and technical talent, where colocation can accelerate process development, support faster scale-up, and improve coordination across technical, regulatory, and commercial teams during launch. These advantages can outweigh moderate operating cost differences, especially innovative or high-value products that require speed, reliability, and quality consistency. In this context, the higher costs of established biopharma hubs can be viewed as an ecosystem premium, providing access to experienced operators, CDMOs, specialized suppliers, regulatory expertise, and manufacturing know-how. To remain competitive, companies will need to complement these advantages with advanced manufacturing technologies, including AI and automation, that raise productivity and reduce reliance on labor. The leaders of the next decade are likely to be those that move beyond purely cost-optimized footprints and build manufacturing networks that balance efficiency, innovation, and resilience.
Public policy and geopolitics further reinforce this shift. In the United States, initiatives to strengthen domestic biopharmaceutical supply chains have increased incentives to manufacture for local markets. In Europe, selective grants and strategic programs support domestic production in specific cases. These dynamics are making cost an important, but increasingly secondary, factor in manufacturing footprint decisions.
