Nanobots in your bloodstream. Medical advice from machines. Smart toilets that analyze your poop. The changes happening to the pharma industry are wild, and that could put pharma in line for some big windfalls.

Investment bank Goldman Sachs expects the industry’s US profits to grow 2% annually through 2023, and EU profits to grow by 7% annually. Pharma-focused bank Torreya has looked even further ahead, and thinks pharmaceutical revenues could almost triple to $3.3 trillion by 2060. And with so many lucrative drugs on the horizon, that’s not an entirely unreasonable figure: Merck’s cancer treatment Keytruda, for one, is about to become the most lucrative drug in history with over $27 billion in forecast sales.

Still, it’s becoming all the clearer that if it wants to get in on those gains, Big Pharma’s going to need some help from, er, small biotech. Biotech firms – which independently develop their own revolutionary drugs using living products, like enzymes and bacteria – tend to be quicker at innovating. But they also often need pharma companies to help them navigate the knotty clinical trial and marketing process. So it makes sense that when one comes knocking with its series of paychecks – one to buy the company and its research, one to bankroll the trials, and one to roll its drugs out – the biotech would climb on board.

In 2019 alone, pharmaceutical firms spent over $350 billion buying smaller companies – many of them biotechs – to essentially outsource the research stages and swoop in when they sniffed profits. That strategy isn’t without its risks, though: Eli Lilly paid $1.6 billion for ARMO BioSciences in 2018, only for its flagship drug to fail clinical trials a year later.

To fund all these acquisitions, pharma firms are slimming down and selling off some of their most lucrative units. Pfizer, GlaxoSmithKline, and Novartis have all spun off their consumer health units – brands that make over-the-counter products – in recent years, and rival Sanofi is reportedly planning to do the same. That’s fine by investors, who think they’ll get more value from a stable consumer health business. Companies that do too many things, after all, typically have a lower value than the sum of their parts. Of course, that does mean investing in pharmaceutical companies is becoming even riskier: you’re just investing in the drugs themselves.

That might worry some investors, especially as risks in the pharmaceutical industry keep mounting. For one, the accelerating pace of innovation means the firms might spend ten years developing a drug, only for a new miracle cure to sneak up from behind. Acquisitions are one way to protect yourself from that, sure, but there’s always the risk you’ll be blindsided.

And then there’s regulation. Like we said, almost half of all pharmaceutical revenue comes from the US, which is partly due to drug prices that are on average 56% higher than in other wealthy countries. So the industry is naturally pretty worried by talk of drug price regulation from politicians on both sides of the aisle – not to mention the prospect of the US government cutting out PBMs altogether, or negotiating drug prices for the entire Medicare program. As a major buyer, the US government would have a strong negotiating position and likely be able to force pharma firms to accept lower prices. The Chinese government has already started doing just that, threatening profits even more.

Still, let’s not get ahead of ourselves. A big institutional change like that isn’t likely to happen any time soon, and even if it did, pharma firms can afford to lose a big chunk before they come under any financial difficulty with profit margins as healthy as they are. So if you do want to invest, you’ll need to know how…

The takeaway: Miracle cures are on the horizon, but regulation could dampen profits.