“I like trains. I like their rhythm, and I like the freedom of being suspended between two places, all anxieties of purpose taken care of: for this moment I know where I am going.”

— Anna Funder, Stasiland: Stories from Behind the Berlin Wall

Who needs public transport? What does a metropolitan without public transportation look like?

Why would anyone care about public transport? It can’t be that important. Up until my first year of college, I didn’t realize why people wanted more public transport. I thought that cars were enough. I would go into Boston maybe a few times a year for short necessary errands in a car. Everything changed when I started to go to college. For a few bucks I could get from one part of Boston to another within minutes. I found beauty in millions of people sharing a fixed system of vehicles getting around a dense bordered land to meet their friends; to pick up their children; to go on an adventure; to meet someone you were destined to meet. What I thought was something detestable and disgusting as a child became a beautiful and necessary chaos. If a city’s people are its blood, then the subway is its heart.

What does a metropolitan without public transportation look like?

I can’t even imagine Boston or New York without its transportation. It became so integrated with the identity of the city that taking it away would be to rip away a man’s skeleton. But if we had to imagine it, what would daily life be like? What would the economic impacts be? How would rent and land value change?

Public transport doesn’t just move people; it enlarges the labor radius of a city. A worker who is outside of the urban core of a city can still reliably participate in its economy so long as trains and buses connect them from residential corridors to commercial centers. Without that, employers would have to draw from a smaller employment pool, and prospective workers would also have less potential employment diversity.

The premium on housing and real estate near or on public transportation lines exists because the cost of movement decreases along with the time spent on getting from point A to point B. A joint National Association of Realtors and APTA study found that in seven U.S. regions, households in transit-rich areas were more likely to live car-light or car-free and spent about $2,500 to $4,400 less per year on transportation. Getting around using a thorough system will almost always be faster to use than a personal vehicle. The Metropolitan Planning Council of Chicago found that sales prices and asking rents were found to be 30% higher in areas closer to rail transit. The average commercial property in rail station areas is 16% more expensive than commercial properties away from transit. A location near a station gives residents and businesses something scarce in modern cities: predictable movement. In dense metropolitan economies, predictability often matters more than distance. People may complain about public transit politically, but they pay premiums for access to it.

According to abettercity.org if the MBTA system did not exist the city would need 2300 additional lane miles of road and 400,000 new parking spots. Without that new development congestion would become a constant living breathing organism occurring at all times of the day and night. Streets would have to absorb what rail currently compresses underground. A single subway train can remove hundreds of cars from a road network in minutes. Almost 1,000,000 people’s daily commute would be disrupted in Boston. More land would be sacrificed to parking structures, wider roads, loading zones, and slower pedestrian movement. Every aspect of the city would become something unrecognizable.

“A developed country is not a place where the poor have cars. It’s where the rich use public transportation.”

— Gustavo Petro

What is wrong with American public transportation right now?

There are many issues with American public transportation systems, but they can be understood through three recurring problems: cost disease, weak accountability, and ridership inefficiency.

American transportation networks burn through cash and then complain about underfunding while still asking for more without the rider experience improving. Labor has become the heaviest burden upon these networks, and the inefficiency is difficult to ignore when placed beside international systems. According to its 2025 Integrated Report, the Tokyo Metro transported 2.49 billion passengers in FY2025 while operating with just 11,328 employees, and doing so at a 21.3% operating income margin while actively constructing new lines.

By contrast, the Chicago Transit Authority served 338 million riders in 2025 across over 1,500 bus route miles and 224 miles of rail track while employing 10,869 workers, a staffing level that Tokyo Metro nearly matches while moving roughly seven times as many people. Meanwhile, Transport for London carried over 570 million journeys on the Elizabeth line alone in 2024/25, making it the busiest single railway in the UK, while continuing to expand its network. RATP in Paris served over 3.1 billion trips in 2024 while actively building new metro extensions.

This pattern repeats across nearly every major American system. Even where staffing totals appear similar internationally, each worker abroad tends to move far more people through the network each year. To fix this problem would be a fight with the transportation labor unions. But even France, with their massive union revolts, still manages to serve a significantly greater number of people with lower labor costs, higher efficiency and cleanliness while continuing to build more and upkeep their existing lines.

According to McKinsey, from 2002 to 2022 operational expenditures at US transit agencies grew by 50 percent while the actual hours of service provided grew by only 8 percent, costs rising at over six times the rate of output. The Federal Transit Administration reports that in 2024, US transit agencies collectively required over $55 billion in operating subsidies while still carrying fewer riders than in 2019. Washington Metro, New York’s MTA, and NJ Transit, which carries nearly 12,000 employees against a structural deficit approaching $1 billion, all reflect systems where labor costs consume revenue before ridership can hope to replenish it. Philadelphia’s SEPTA was forced to approve a 45% service cut and a 21.5% fare increase in June 2025 to fill a $213 million recurring deficit.

The wage burden amplifies the imbalance further. The Empire Center reports that MTA employees collected an average pay of $98,892 in 2024, a figure 47 percent above the US average and 80 percent above the US median salary, with overtime alone accounting for 17 percent of total payroll. Higher wages alone are not proof of waste, but when paired with weak productivity they create operating structures with no sustainable path forward.

I want to shift your attention to as far back as 2013, where a sobering pattern was already clear. A Bloomberg review of major U.S. systems showed that even some of the country’s biggest rail networks were still losing roughly a dollar per trip, while weaker systems were losing more than $5 per ride. While agencies such as Tokyo Metro, Taipei Metro, and several European operators sustain positive or near break-even margins over long periods, most major American agencies remain deeply negative even before major capital expansion is considered. Boston, Chicago, Philadelphia, San Francisco, and Washington all operate with persistent deficits that have become a standard with no change in sight.

The weak accountability becomes clear from the deficits becoming expectations every year. There is no financial pressure to make difficult decisions such as mass firing and a full internal audit. Federal support is assumed to come through against the losses that are constant. Unlike other transport systems that must justify expansion through projected returns and a strong balance sheet, many American agencies face little internal consequence when costs continue to rise.

In New York, this problem has repeatedly surfaced through investigations into overtime abuse, payroll inflation, fraud and embezzlement within the Metropolitan Transportation Authority. In one 2025 MTA Inspector General report, a station agent at 59th Street/5th Avenue was captured on surveillance video taking cash from riders, letting them through the turnstile, and pocketing the money; the report documented four suspicious transactions and noted that the employee retired during the investigation. Audits have shown workers receiving extraordinary overtime payments, supervisors approving excessive hours, and maintenance work being billed without equivalent visible progress in service delivery. In several cases, overtime earnings pushed individual compensation far beyond already high base salaries, yet these findings rarely go punished. In another 2025 incident the MTA Inspector General uncovered a broader fraud operation within the Long Island Rail Road where employees used cloned identification cards and fraudulent timekeeping records to clock each other in and out while absent from work. Investigators found duplicate cards being used across multiple facilities, including Ronkonkoma and Hillside, allowing employees to be paid for hours they did not work. The report described it not as isolated abuse but as a pattern spread across several locations. Earlier federal prosecutions exposed another form of abuse: senior MTA and Long Island Rail Road workers claimed overtime hours that prosecutors argued were physically impossible, with some reporting hundreds of overtime hours while attending outside activities, including bowling leagues, during the same periods they were supposedly working. One employee earned roughly $461,000 in a single year, far above his base salary, largely through overtime claims later challenged as fraudulent.

When no serious punishment follows inefficiency, it becomes tolerable and easier to repeat. A transit agency will remain underperforming for years while still receiving emergency cash injections because its collapse is politically unacceptable. Ironically the only way to fix the system would be with an iron fist and a willingness to let it fail. It’s said that the dead bird under the nest never learned to fly; American transit systems must be thrown out of the nest and forced to fly or fail.

Ridership inefficiency is the final problem. American systems are not only expensive; they are expensive while moving fewer people per employee, per mile, and per operating dollar. The issue is therefore not simply that transit costs money. Every transit system costs money. The issue comes from the high costs not yielding any gains in output.

“Watch the costs and the profits will take care of themselves”

— Andrew Carnegie

Why should profit be the marker of success in public transport?

It all comes down to profit. The Taipei metro, Tokyo metro, Madrid metro and Paris RER all chase profit but have the best on time performance with the highest ridership. It is not an optional outcome to them; it is a discipline that is constantly upheld. This is directly in opposition to the American systems who claim that in order to keep a system alive, any cost must be accepted. Though there are other measures of success such as land value gains, environmental gains, an expansion of the labor market and reduced congestion, they all come down stream of the pursuit of profit. And that pursuit doesn’t mean the highest amount of monetary extraction from riders but rather forcing a positive relation between costs and output.

State support for systems is not inherently a bad thing. With the high costs of building new lines, network expansion, station remodeling and fleet upgrades coming into the fray, it is necessary for expansion. In Tokyo, major capital projects still require outside funding, but every expansion must be justified through projected ridership, long-term maintenance cost, and expected financial return. They are cut no slack. Financial viability must be demonstrated to secure any external funding. They also have to prove that they can cover the long-term maintenance and operating costs without subsidies. And even after all of that, the national government does not subsidize the entire cost of construction. The Tokyo Metro as an agency must come up with a part of the funding on their own, whether through profits, bonds or bank loans. If a project underperforms or overruns, the agency won’t get its money back and they must live with that. It is a brutal reality but one that has caused it to become one of the best systems globally. A profitable system isn’t one that never receives help but rather one that cannot hide its inefficiency behind the need to stay running for the good of the public.

In some cases there are lines that should exist even if they are not profitable: outer borough lines, social access routes, and low-income corridors. These lift up a city by providing equal and complete access. But it should be an exception rather than the standard. And by doing so, it is possible that in the long term the growth and economic activity caused because of the access can make those lines profitable, if only by a single cent.

Why do international metro systems work better?

To understand why international metro systems are working better than our domestic ones we have to look at what their systems are doing right.

Tokyo metro is not only setting financial goals but beating their expectations while still building new lines. In its mid-term management plan, Tokyo Metro explicitly sets capital-efficiency targets, including ROE, and ties profitability not only to the rail business but also to real-estate and station-area development. Along with this the private rail companies, JR East and JR West are also expanding through the property plus model. This is where rail from farther away is connected directly to retail and employment hubs built into the station including shopping centers, office buildings, and food/restaurant halls. The value that is created from passenger movement is not left to escape. It is cultivated to allow for new ways to profit for the private rail companies in order to offer even more service.

The Madrid metro shows us a different angle to profit: spending less. They display superb cost control without sacrificing the usefulness of the network. The system avoids excess architectural construction and hyperfocus’s on throughput and simplicity.

The Moscow metro offers another model where high-capacity movement exists alongside strong centralized planning. Its stations are among the busiest in the world, trains arrive at extremely short intervals, and the system is designed around moving very large passenger volumes continuously. What I want to point out here is the beauty of the stations. It has been said that walking through their stations feels like walking through a museum. I have always held the contention that even in utilitarian objects, beauty should not be forgotten. Beauty inspires the people of a city; of a nation. A dull, muted, modern construction may serve its purpose, but it will not be revered as a thing of beauty for generations to come. Even if one day the utility of the Moscow Metro ends, it will not be torn down because it would become an artifact to treasure and preserve. I cannot say the same for the concrete tunnels of other networks.

In Paris, the public transportation is thorough and integrated with a unison of buses, trams, subway and commuter rail networks. As one of the international systems I have personally used, I found it to be clean, and quick. Suburban connections allowed me to efficiently make my way into the city. Just because a subway itself is dense doesn’t mean bus routes and dedicated tram routes should not be developed. Trams can even run along similar routes above ground as the trains underneath because they serve different purposes. Underground heavy rail leaves you slightly disconnected from the environment above you but for short distances Trams feel like an extension of walking where you can hop on and off, going from one street to another.

“I’m not sure he’s wrong about automobiles,” he said. “With all their speed forward they may be a step backward in civilization -- that is, in spiritual civilization. It may be that they will not add to the beauty of the world, nor to the life of men’s souls.”

— Booth Tarkington, The Magnificent Ambersons

Why did America choose roads?

The weakness in American public transport was formed through a century of policy decisions that made roads simple to fund, easy to expand and politically easier to defend. Car ownership and the picket fence was sold as the American dream. Materialism and individualism spread and mutated causing what we have now: unwalkable urban sprawl and endless asphalt.

The decisive shift ensued with highways becoming a federal priority. The Federal Aid Highway Act of 1956 committed massive national resources to interstate road construction. Roads were built so fast that city transit agencies couldn’t keep up. The political benefits came from promised construction jobs, suburban growth, military mobility, and immediate public symbolism. A highway could be opened, photographed, named, and politically claimed in ways a maintenance budget for rail couldn’t.

Suburbanization also changed daily life for Americans. Cities sprawled out further and further away from metropolitans. When they did so, not having a car wasn’t an option. It became a necessary part of movement and also a sign of American achievement. Low-density neighborhoods, separated commercial zones, and expanding residential developments made rail less convenient unless it had already been built first. Once suburbs spread beyond older rail corridors, roads became the default infrastructure because they adapted more easily to dispersed settlement.

This shift was reinforced by powerful industrial interests. Automobile manufacturers, oil companies, tire producers, and road construction firms all benefited from a transportation system where each household depended on private vehicle ownership. The more cars were sold, the more Americans drove, the more roads required expansion, and the more fuel was consumed. Federal transportation funding increasingly reflected this bias, with vast long-term commitments directed toward highways while urban transit systems often depended on fragmented municipal budgets and delayed federal assistance.

Before this transition most American cities had dense webs of streetcars. From about 1890 to 1930, streetcar suburbs spread across the United States, and by 1907 the country had more than 34,000 miles of electric streetcar track. They were electric rail vehicles running through city streets connecting neighborhoods to commercial districts. As cars running through the cities increased, public opinion on them changed from being useful to being a nuisance for drivers. Streetcars became vulnerable as the roads of cities were shifted to serve cars. The tracks would occupy valuable road space. The mixed traffic would cause more congestion and increase commute times. The maintenance cost rose but municipal governments delayed reinvestment. As Governing put it, the rise and fall of the streetcar suburb is partly the story of how government dollars, or the lack of them, reshape urban planning and housing development. The streetcars were left to deteriorate and fell into such bad shape it became more optimal to rip it all out and dispose of them than to fix the system. They were many times replaced by bus service which had low short-term costs and a greater flexibility, but the systems were not equal. There were tradeoffs, and what has now transformed into BRT (Bus Rapid Transit) systems have their own issues but that is for another time.

When roads were widened, intersections redesigned, and parking expanded, the street itself was gradually redefined around cars rather than shared public movement. Social corners were destroyed. Natural footpaths and the chaos of the street was replaced with depersonalized metal hulls shooting down long straightaways. What disappeared was an entire way of city life.

What can we do now?

For public transportation in America to get better, it must first be forced through a period of failure that can no longer be hidden behind subsidies, excuses, and endless promises of future improvement. More money will not save systems that have forgotten how to use money well. Before new expansion, before ribbon cuttings, before another request for emergency funding, there must be a reckoning inside the institutions already running the networks. A cleansing is overdue.

A full internal audit should not be optional. Every overtime record, every delayed maintenance contract, every project paid for but unfinished, every fraudulent abuse of payroll must be dragged into daylight. Agencies that have treated annual deficits as normal should be forced to explain exactly where the money went and why the rider continues to tolerate dirtier stations, slower trains, and weaker service. Where abuse is found, people should lose jobs. Where fraud is proven, punishment should be severe enough that the next person thinks twice before trying it again.

The current management must also be overhauled. Those that have let disarray continue without any protest must be let go. Transit systems cannot keep operating through layers of committees where responsibility disappears the moment failure appears. Someone must hold direct authority, and that authority must come tied to consequences. If service collapses, if budgets are blown through, if projects stall for years, there should be no hiding place inside bureaucracy.

Current levels of employment are unacceptable and unnecessary. And the pay received for the work that is being done is much higher than can be sustained by an agency that hopes to be transparent and profitable. The unions that have heralded this unrealistic standard must be fought with and pushed out.

The truth is that some comforts will have to disappear. New contracts must be written around service to the rider and taxpayer. Fares may have to rise in order to fix what has been blatant neglect, but the new influx of cash would clearly have to result in a better experience for users of the system. Riders should not be asked to pay more into systems that still tolerate waste as routine.

Then comes rebuilding. Train cars and stations must be cleaned until they feel civilized again. The small things: broken lights, jammed doors, dirty floors and tracks, and graffiti that have not been taken care of must be fixed. Maintenance that should have happened years ago must finally be done. Railcars must run so reliably that riders stop checking schedules and proceed with a sense of confidence. Only once a strong and healthy balance sheet has been created, can expansion be allowed whether on new lines or new hiring but not both at the same time. This expansion would be to reconnect disconnected districts, build tram corridors above ground, and turn stations into places of commerce and beauty rather than dead, dirty, dilapidated concrete waiting rooms.

The most pragmatic lesson I learned during my master’s degree in finance was understanding forecasting as the development of a structured hypothesis to understand how a business functions.

This allowed me to deepen my comprehension and make corrections when reality began to deviate from my forecast.

Forecasting Provides a Structured Hypothesis

Financial models contain a structured hypothesis based on various assumptions made in developing the model:

• Revenue drivers growing rates, pricing power, or customer demand.

• Cost Behavior: Variable and fixed costs, or efficiency.

• Operating Conditions: The market is stable or competitive and the quality of execution.

When developing these assumptions, you will utilize historical data as presented to you, but they will remain static until the end of the forecast period. Markets can change, customers can change what they are currently purchasing and how they purchase things, and the execution of your business may not be as smooth as planned.

When your actual results do not match your forecast, this is not a failure; rather it is valuable data that provides you with information. The value of the information is lost when you attempt to defend or explain away the deviations from the original forecast. Professional FP&A teams utilize forecasting as a diagnostic tool rather than a scorecard.

What Variance Analysis Actually Does: From “What” to “Why”

Variance analysis provides valuable information regarding the variations of drivers from planned or expected results. Moving away from the simplistic concept of being “over or under budget”, variance analysis allows organizations to analyze the reasons for their results by answering the following questions:

1. What caused our results to vary from what we expected? Did volume, price, or product mix cause variance?

2. Did the cost structure or efficiency cause margins to vary from what we expected?

3. Did we miscalculate our assumptions, or did conditions change from what we expected?

By breaking down the variance analysis into its component parts, variance analysis provides forward-looking insight to assist with decision-making rather than simply providing insight into what has occurred.

A Picture is Worth a Thousand Words: The Variance Bridge

The value of driver-based variance analysis can be demonstrated with a visual representation. A waterfall or “bridge” chart will display the components of a single net variance, in ways that you would not be able to see from just looking at the net data.

For example, the total revenue variance of +$10 million may consist of the following components:

• +$15 million - Increase in price due to strategic pricing changes

• -$10 million - Decrease in volume due to lower than anticipated customer demand

• +$5 million - Increase in revenue due to a change in product mix

The use of a variance bridge can provide a clearer picture of why the variances occurred as opposed to simply reporting results. The use of a well-constructed bridge chart will provide the basis for discussion in the management meeting in addition to reporting results going back to the time frame being considered.

Illustrative FP&A Example Using Public Data from Microsoft

Microsoft’s public financial results, together with their management commentary, provide a good illustration of how variance analysis supports decision-making. Microsoft has reported continued revenue growth from fiscal periods recently concluded primarily driven by Cloud Services (Azure specifically); however, there has also been noted moderation in some of the core Enterprise & Discretionary IT expenditures. Therefore, the headline growth rate could have differed from the expectations during the initial phases of the growth of the company’s business or the realization of the headline growth through execution of its business strategy; rather, the headline growth rate did not match expectations due to changes in the drivers of the growth within the business.

A variance analysis perspective helps understand the drivers of revenue, as opposed to simply aggregating revenue:

1. Revenue Mix Driver Impact: The overall revenue growth from Cloud solutions (primarily Azure/Azure-based revenue) and AI-enabled solutions has made up for slower revenue growth (in accordance with quarterly expectations) in traditional Licensing solutions.

2. Demand Timing Driver Impact: The enterprise demand for IT-related expenditure has varied in response to the macroeconomic uncertainty within their current fiscal year.

3. Margin Stability Driver Impact: Cost discipline and economies of scale are helping to maintain operating margins, despite the recent downward shift in demand for IT-related expenditure (as previously mentioned).

Although public disclosures do not divulge the detailed internal variance bridges employed by FP&A teams it is clear from the reported trends that understanding the composition of growth provides more value than focusing on headline variances alone.

Variance analysis provides a framework through which to analyze deviations from forecasted growth. Variance analysis allows FP&A professionals to reframe outcomes in terms of changes in the underlying assumptions (assumptions related to customer behavior and revenue composition). This allows the finance team to improve model forecasting capabilities, to reweight growth drivers, and to direct the allocation of resources toward higher growth segments thereby reinforcing FP&A’s role as a strategic partner as opposed to merely providing reports.

This example is purely illustrative, utilizing Microsoft Corp.’s publicly available financial disclosures and commentary pertaining to earnings.

Management by Exception vs. Overreaction

Not all variances require management intervention. The principle of management by exception, which underlies the application of FP&A principles, emphasizes the need to focus resources on those variances that are:

• Material in size

• Recurring in nature

• Structural in cause

Effective finance teams assist leadership to differentiate:

• Signal vs. noise

• Short-term disruptive forces vs. longer-term trends

• Execution slip(s) vs. flawed assumptions

Practicing this discipline either prevents or mitigates reactive decision-making and fosters development of long-term strategies.

Seeking Insight to Execute: Three Questions Analysis

Variance Analysis ultimately has value to the degree to which the variance analysis leads to informed decisions. The most important aspect of effective FP&A reporting is that it turns numbers into actions through answering the three questions:

• What has changed? - factual driver variances

• Why has it changed? - market/customer/internal

• What are we to do? - forecast updates, resource shifts, strategic pivots

For example:

• What has changed? - Cloud business performing while licensing business forces

• Why has it changed? - customers have pushed back on non-mission critical IT projects

• What am I to do? - Reallocate sales enablement from traditional application licensing business to cloud-focused migration specialists and adjust short-term growth assumptions for application licensing.

When analysis links results to decision making, finance begins to play a strategic partner role versus a historical documentation role.

A Brief Nuance: When is a “Perfect” Forecast Useful?

The employee goals are not to be incorrect. In stable and predictable environments like regulated utilities or mature SaaS portfolios having low variance is expected and desired as high variance is an indicator of a business that is well understood.

Even in these types of environments, though, it is critical to state that low variance should be a conclusion reached from analysis, rather than an assumption made prior to analysis. Depending on the nature of changes that are occurring within the business, assuming low variance is more common is detrimental to effective management by agility.

Key Takeaways

A perfect forecast is a myth. An insightful variance analysis is a competitive advantage. There is far greater value in a forecast missing and having the ability to show the inherent reasons for the miss, than in a forecast that is accurate through luck and/or manipulation. This allows finance to claim a strategic position within the company, not through predicting the future but by building a company capable of learning from what is happening today.

Forecasting is not a “guessing game”, it is the structured process of hearing what your company is communicating to you about the business (current performance) on an ongoing basis.

Definitions

Forecasting - Estimating future financial results based on historical performance, coupled with many possible assumptions and reasonable estimates of current economic conditions. The data used to estimate future results creates a dynamic, continually evolving hypothesis based on updated, real-time information.

Variance Analysis - The process of evaluating actual results against budgeted or estimated results and quantifying and explaining the variance caused by the basic business drivers.

Management By Exception - A control methodology whereby management is focused on reporting any significant, meaningful variances from the company’s financial plan rather than reporting all routine fluctuations.

RFERENCES

CFA Institute. Financial Analysis Techniques: Forecasting and Planning.

Drury, C. Management and Cost Accounting. Cengage Learning.

Horngren, C. T., Datar, S. M., & Rajan, M. V. Cost Accounting: A Managerial Emphasis. Pearson Education.

Microsoft Corporation. Form 10-K and Quarterly Earnings Releases. U.S. Securities and Exchange

Commission. https://www.sec.gov/edgar/browse/?CIK=789019

2025 turned out to be a rebirth for the entire pharmaceutical world, with the sector finally outperforming the broader market. Eli Lilly continued its historic run, becoming the first healthcare company ever to hit a trillion-dollar valuation with a 39% gain. The M&A market underwent a resurgence, posting over 100 billion in deal value, more than doubling 2024’s activity, according to RBC Capital Markets.

What is fascinating about the performance, however, is the outstanding Irony. The industry got hit with the lion’s share of tailwinds, and was shoved against the wall, but somehow the NYSE Arca Pharmaceutical Index emerged superior to the S&P 500.

Monday, April 14, 2025, the trump administration opened a section 232 investigation into how importing pharmaceuticals from other countries affects national security. Prior to this the president had explicitly mentioned numerous times how one of his core desires was to bring manufacturing back to the U.S.

The official ultimatum was a 100% duty on all imported branded pharmaceuticals, effective October 1, 2025. While this policy invoked a proliferating urgency by exempting only those firms already breaking ground on domestic plants, the industry’s response had already been reshoring for months, and that started with Eli Lilly back in February, announcing around $27 billion investment across four new domestic facilities. Impressive, was the velocity and scale of the reaction. By November, the sector had already pledged over $480 billion for new domestic manufacturing to secure its standing in the American market.

Strategic deals were struck to trade price cuts for regulatory certainty, with Pfizer’s inaugural agreement on September 30, 2025, setting the precedent for subsequent deals. List prices will be cut by an average of 50% and up to 85% across a substantial portion of its primary care treatments and certain specialty branded drugs, to ensure U.S. patients and Medicaid programs receive rates on par with the lowest prices paid in other developed economies.

Pfizer also committed to a $70 billion reshoring and R&D initiative, which is dedicated to expanding U.S. manufacturing facilities. In exchange, they secured a three-year grace period exempting its products from pharmaceutical tariffs.

By December 19, 2025, 14 of the world’s biggest drugmakers had finalized deals with the Trump administration, which include industry leaders such as Eli Lilly, Novo Nordisk, Amgen, Merck, and GSK, and mirror the framework established by Pfizer. Each company committed to “most-favored-nation” pricing for state Medicaid programs and offered discounts for direct-to-patient purchases via TrumpRx.gov.

Then came relief, and a culmination of a plan to rebalance the burden of drug prices. On December 1, 2025, the U.K. government promised to increase the net price they pay for patented drugs by 25% in exchange for the avoidance of tariffs.

In my view, this offers vital relief for the industry. Whether the massive return of manufacturing to U.S. soil is beneficial in the long run is a question for another time. The immediate fact is that regulatory uncertainty was erased, creating a situation where investors see companies delivering financially while still trading at attractive valuations.

One company managed to move the needle further than anyone else, which might come as a surprise, is none other than Johnson & Johnson. They led large-cap pharma with a 43% surge over 2025, finally breaking out after years of stagnation. That momentum has carried into 2026, with the stock climbing 54% over the last 12 months.

This was the result of years spent positioning for the future. While the rest of the industry was in the spotlight, they were busy reinforcing a foundation. Relentless discipline is a trait that has defined the company since its very first day, long before it was a giant.

Robert Wood Johnson in 1876 attended the World’s Fair in Philadelphia. It was there that he heard a lecture by Dr. Joseph Lister, the British surgeon who pioneered antiseptic surgery. At a time when surgeons often operated in their street clothes without washing their hands, Lister’s talk about using carbolic acid to kill bacteria was seen as a “radical” turning point that redefined Johnson’s entire career.

Inspired by Lister’s vision, Robert Wood Johnson partnered with his two brothers, James Wood Johnson and Edward Mead Johnson, founding the company in 1886. Operating out of a small former wallpaper factory in New Brunswick, New Jersey, they started with just 14 employees. Their mission was clear, to create the world’s first mass-produced, ready-to-use sterile surgical dressings and sutures. Before this, surgeons had to prepare their own dressings, which were often far from sterile, leading to pernicious outcomes. By 1887, Johnson & Johnson were at the forefront of innovation, manufacturing absorbent cotton, gauze, and bandages that were hermetically sealed to ensure they remained germ-free until the moment they reached the surgeon’s hands.

The company took on the role of educator as well, to ensure their innovations actually saved lives. In 1888, they published Modern Methods of Antiseptic Wound Treatment, a how-to guide that quickly became the standard text for sterile surgery worldwide. They distributed over 85,000 copies to doctors and pharmacists within months, essentially teaching the medical world how to “scrub in” and use sterile tools.

The path to Johnson & Johnson’s status as a global conglomerate was paved by a relentless, century-long strategy of acquiring specialized expertise and scaling it. This evolution from a medical supply startup into a diversified powerhouse was anchored by the 1959 acquisition of McNeil Laboratories and the 1961 purchase of Janssen Pharmaceutica. These weren’t just business deals; they were the catalysts for Johnson & Johnson’s entry into modern pharmacology.

By bringing in Dr. Paul Janssen, one of the 20th century’s most prolific innovators, Johnson & Johnson secured the intellectual property that would eventually form their Innovative Medicine pillar. This blueprint of buying into “high science” was repeated decades later with the 1999 acquisition of Centocor, which gave them the biotechnology foundation needed to dominate the immunology and oncology markets.

While they were building a pharmaceutical empire, they were simultaneously using acquisitions to redefine the surgical landscape, moving far beyond their original sterile bandages. The 1998 acquisition of DePuy and the 2012 deal for Synthes combined to create one of the world’s most comprehensive orthopedics business, effectively cornering the market on bone and joint repair.

Then entering into the future of surgery in 2019 with the acquisition of Auris Health, providing the robotic surgery platform that is now central to their MedTech identity. By consistently absorbing world class innovators, they ensure that their global footprint is at the absolute forefront of the industry.

I wanted to start with their history because it gives you a real picture of who Johnson & Johnson is at their core. In this industry, the moment a company loses sight of its identity, it starts to drift.

If you just looked at the stock price between January 2020 and the end of 2024, you might have thought they were standing still. The price saw a sustained swell in the middle of those years, but eventually, gains were erased, leaving investors right back where they started. But underneath, the company was everything but stagnant. They weren’t deviating from their identity; they were reclaiming it. Those five years were a period of intense preparation; a time spent shedding the parts of the business that didn’t fit anymore and priming the engine.

Joaquin Duato took the helm as CEO in January 2022 and immediately began drafting the blueprint for a leaner, more aggressive powerhouse. This regime change was officially codified during the Enterprise Business Review in December 2023. Duato noted that ringing the NYSE bell that morning was the “starting bell for the new Johnson & Johnson,” signaling a pivot away from diversification for its own sake and toward structural disaggregation.

On August 23, 2023, they finalized the separation of Kenvue, the company’s consumer health business. Of course, you have to recognize the legacy they will leave behind, but it is not what made them who they are. They dominated that space and introduced inaugural products, but they redrew the contours of the industry and are now focused on doing it again. Duato cleared the path for what he termed an “exclusivity of focus.” He articulated the shift clearly:

“We have entered a new era, one that is exclusively focused on medical technology and innovative pharmaceuticals... with the separation of our consumer business, we have a stronger growth and margin profile, and we are more focused and more agile.”

This wasn’t merely a strategic slimming down; it was a deliberate restructuring. Through a massive exchange offer, Johnson & Johnson accepted over 190 million shares of its own common stock in exchange for its stake in Kenvue. This move drastically reduced its outstanding share count, effectively retiring billions in equity.

This new era was solidified in September 2023 with a refreshed brand identity that united its diverse segments under a modernized Johnson & Johnson name, officially retiring the Janssen pharmaceutical brand. Numerous acquisitions followed the rebranding, which began with a $16.6 billion acquisition of heart pump maker Abiomed in late 2022.

In April 2025, Johnson & Johnson completed a $14.6 billion acquisition of Intra-Cellular Therapies to secure the blockbuster drug CAPLYTA. Finally, a $13.1 billion purchase of Shockwave Medical. Their technology, known as intravascular lithotripsy (IVL), uses sonic pressure waves to safely crack the stubborn calcium buildup that blocks blood flow, effectively using sound to do what surgeons used to have to do with force.

The full 2025 results outlined the financial reality of this new structure, where cardiovascular sales, now including the Abiomed and Shockwave integrations, surged nearly 16% to top $8.9 billion. While other units saw modest growth, this segment became the only business unit to grow by double digits, providing the momentum for Duato’s catapult year to materialize into a 2030 pipeline expected to deliver more than 10 assets with over $5 billion each in peak annual sales.

With plans already in motion to spin out the orthopedics business by mid-2027, the company is swapping its slower-moving legacy parts for a future defined by high-margin technology like the OTTAVA robotic surgical system, which was recently submitted to the FDA for review. This shift has set a new baseline for the company’s scale, with 2026 guidance now projecting reported sales to cross the historic $100 billion milestone for the first time in its 140-year history.

Willingness to embrace the radical is the fundamental composition of the firm. At a time when the denizens of the medical community dismissed antiseptic theory as an unnecessary burden, Robert Wood Johnson was amenable to a vision that others lacked the foresight to see. Johnson & Johnson’s stark restructuring toward MedTech and Innovative Medicine provides a revitalized optimism for the long-term trajectory of the company, but most importantly, places them at the forefront of innovation again.

In an era defined by an overflow of real-time data, investment research often suffers from a paradox of choice. We have more technical indicators than ever, yet our fundamental insight has rarely felt more diluted. There is a tendency to over-index on granular ratios and immediate price action, often at the expense of recognizing paradigmatic shifts, the moments when an industry fundamentally breaks from its past.

We are witnessing massive structural realignment in the soft tissue robotic surgery market in real time. For over two decades, one pioneer defined this sector. Now the one-company era is rapidly dissolving into a multi-polar competitive landscape.

To properly understand the magnitude of this shift, I want to revisit where it all started. The concept of robotic surgery has its roots in military research aimed at solving a critical problem, allowing surgeons to operate on wounded soldiers remotely on the battlefield. The U.S. Defense Advanced Projects Agency (DARPA) funded research at SRI International in the late 1980s to create a telepresence system, which became the prototype for modern surgical robotics. While early commercial systems like the PUMA 560 (1985) and the voice-controlled AESOP (1994) introduced robotics to the operating room, the true inflection point occurred when the military’s core technology was commercialized. Recognizing the immense potential of the SRI system, Dr. Federic Moll partnered with John Freund and Robert Younge to acquire intellectual property, leading to the founding of Intuitive Surgical in 1995.

The founders rapidly developed their signature product, the Da Vinci Surgical System, which received U.S. FDA approval in 2000 for general laparoscopic procedures. This marked the birth of the modern surgical robotics market. Intuitive cemented its monopoly in 2003 by merging with its primary rival, Computer Motion, Inc. (makers of the ZEUS robotic system), effectively eliminating direct competition. Having established Da Vinci as the standard of care in soft tissue specialties, Intuitive Surgical has maintained undisputed global market leadership for more than two decades.

Intuitive’s journey to dominance paved the way for robotic surgery to become an integral part of modern surgical practice. If you look back to 1995, when the company was founded, the idea that a surgeon could operate from a console and feel the push and pull of tissue with such high fidelity was a distant fantasy. Today, robotic surgery has become a standard practice, adopted by leading hospitals and medical schools globally. This monumental shift is visible on the company’s vast scale. Intuitive now has an installed base of over 10,600 robotic systems across the globe, with over 17 million procedures performed to date.

What I find so remarkable is how far they have pushed the limits from that original military vision. Intuitive’s latest system, the Da Vinci 5, represents a staggering leap forward, delivering 10,000 times the computing power of its predecessor. It introduces revolutionary Force Feedback technology (also called haptic feedback) that finally allows the surgeon to feel subtle resistance, push, and pull forces on tissue through the console controls. This ability to deliver “enhanced surgical senses” is not just about feeling; it translates into tangible patient benefits, resulting in up to 43% less force exerted on tissue in preclinical trials. Furthermore, this computational muscle powers advanced digital features, giving surgeons real-time surgical sets and data analytics, such as the Force Gauge (a speedometer-like indicator of applied force), truly setting the standard for the future of surgery.

Hospitals are performing more robotic surgeries than ever, UCSF Health alone passed 15,000 robotic procedures in 2024.Via Christi hospitals in Kansas reported having performed more than 25,000 robotic‑assisted surgeries across their network as of October 2025, but even with all that momentum, the financial weight of robotic programs has not gone away.

These systems still come with multi-million-dollar price tags, and hospitals today are being forced to think more carefully about every dollar they spend, especially as the reimbursement landscape continues to tighten. So, you end up with this strange moment where the demand for robotics is surging, the technology is accelerating, and yet the economic pressures are becoming harder to ignore. This is where I personally see a huge shift coming, where competitors are going to experience a level of demand they have never seen before. Hospitals need more affordable options, promising new systems are finally making real progress in the U.S. and abroad, and it feels like we are just at the very beginning of what could be a major reshaping of the market.

The company I want to address first is SS Innovations (NASDAQ: SSII) as it brings the story into a full circle. Remember when I mentioned Dr. Frederic Moll, the co-founder of Intuitive Surgical, and the person widely regarded as the father of surgical robotics? He now serves as Vice-Chairman of SS Innovations and holds approximately 10% of the company.

What draws me the most is what they are trying to accomplish. The company is led by Chairman and CEO Dr. Sudhir Srivastava, a pioneering robotic cardiac surgeon who has performed and trained teams in many of the world’s first robotic heart procedures. Srivastava’s approach is not about replicating Intuitive Surgical’s platform, but about fundamentally rethinking how robotic systems are designed and deployed to improve access and usability. As quoted by MedTech Dive, Srivastava said, “My whole goal was always not to copy. Although [Intuitive] created a wonderful technology, there are always opportunities to make things better. Newer ways are being discovered, and we can use our thought processes to advance it further.”

Since their NASDAQ debut on April 25th 2025, the momentum behind the company has only intensified. They have officially submitted their 510(k) application on December 5, 2025, putting them on track for potential U.S. clearance as early as mid-2026. As of December 31, 2025, their core robotic system, SSi Mantra already has 168 installed across 10 countries, with more than 7,800 procedures performed. The main distinction is their presence in areas where other systems have not yet become a major factor, specifically cardiac and telesurgery. They have already recorded 400 cardiac cases and 120 telesurgeries.

I want to pause right here because what I just mentioned is nothing short of revolutionary. If you aren’t familiar with telesurgery, it is the ability for a surgeon to operate on a patient miles, or even continents, away via a robotic interface and a high-speed data connection. This concept has been a dream since the 2001 “Lindbergh Operation,” but it is only now becoming a clinical reality. SS Innovations is not the only company with regulatory approval in this field. MicroPort MedBot has received NMPA approval in China and completed nearly 400 cases within its domestic network. However, SS Innovations has uniquely expanded the scope of the technology by successfully performing the world’s first remote cardiac surgeries, a specialty requiring extreme precision.

What truly sets them apart is the SSi Mantra Tele Surgeon Console (TSC), the world’s first portable tele-surgeon console, that allows surgeons to operate entirely outside of a traditional hospital and OR setting. By utilizing lightweight 3D glasses and magnetic controls, specialists can now provide life-saving care from a private office or even their own residence, as demonstrated by their CEO’s recent 185-mile bypass surgery. SS Innovations made history when they officially received regulatory approval for the telesurgery and teleproctoring capabilities of the SSi Mantra from India’s CDSCO back on December 10, 2024. While the industry has been evolving for years, if they secure FDA approval for telesurgery applications, it will be monumental, opening the floodgates for remote, expert-led care to scale globally.

Medtronic, (NYSE: MDT) a MedTech conglomerate based out of Dublin, Ireland has recently made a huge regulatory stride. whose timing in the market says a lot about where this field is headed. When a company generating over $33 billion in annual revenue leans further into robotics, there is a level of deep-rooted integrity and scale that smaller competitors simply cannot replicate. Medtronic began rolling out its Hugo™ robotic system in 2021, steadily building an international presence while preparing for its eventual move into the U.S. market. In just a few years, Hugo secured clearances in more than 30 countries, creating a broad clinical foundation long before crossing into the United States.

On December 3, 2025, the FDA cleared Medtronic’s Hugo (RAS) for urologic procedures. Hospitals now have access to a robotic platform backed by one of the world’s most established medical technology companies. Hugo’s modular architecture and deep integration with Medtronic’s Touch Surgery™ digital ecosystem reinforce how serious of a competitor they are.

Personally, I do not believe investors are fully pricing in how significant this U.S. clearance is. For a company of Medtronic’s size and reputation, reaching this milestone marks a major achievement, and it sets the stage for an adoption curve that is going to be fascinating to watch over the next decade.

Johnson & Johnson (NYSE: JNJ) is also preparing an entrance into the market with the OTTAVA™ Robotic Surgical System, though it has not yet been commercialized. The company recently submitted the system to the U.S. Food and Drug Administration (FDA) for De Novo classification, seeking approval for multiple upper abdominal general surgery procedures, including gastric bypass, gastric sleeve, small bowel resection, and hiatal hernia repair. They have also reached a key milestone by completing its first clinical trial cases with the OTTAVA™ system on April 14, 2025, marking its initial use in real-world surgical procedures.

OTTAVA is designed as a multi-specialty soft-tissue platform capable of handling complex procedures across the upper abdomen. Its unified architecture and integration with Ethicon surgical instruments provide surgeons with familiar tools for minimally invasive procedures, potentially helping to accelerate adoption.

Just like Medtronic, this is another juggernaut of a corporation tapping into the soft-tissue robotics market. Although the companies I’ve highlighted so far are already commercialized and have multiple systems deployed in hospitals, Johnson & Johnson’s scale, resources, and expertise, in my view, solidifies that they will make significant strides once they receive authorization.

If you have noticed, the first three companies I have highlighted all have something in common besides being in the same industry, they are all publicly traded. In contrast, CMR Surgical is a fierce competitor in the private markets. Headquartered in Cambridge, United Kingdom, they have already achieved the milestone of becoming the second most adopted soft-tissue robotic system globally, positioned only behind Intuitive Surgical. Across all CMR’s robotic platforms, they have completed over 40,000 procedures, building a robust foundation.

They have made significant regulatory strides in the U.S. recently; after clearing the initial hurdle with a De Novo authorization in late 2024, they secured a critical FDA 510(k) clearance for the Versius Plus on December 16, 2025.

Back on April 2, 2025, CMR closed a $200 million funding round supported by major backers including a substantial debt investment from Trinity Capital, which brought their total capital raised to approximately $1.4 billion. Given the recent momentum in the IPO markets, the next step could very well be a public offering.

Finally, another competitor in the private markets is Moon Surgical, headquartered in both Paris and San Francisco. Dr. Frederic Moll serves as the Chair of the Moon Surgical board in addition to his role at SS Innovations. His presence on the board serves as a massive endorsement of Moon’s vision to bring robotics to the 18.8 million annual procedures currently ignored by larger telerobotic systems.

The company has moved at a breakneck pace, receiving FDA clearance for the commercial version of its Maestro™ Robotic Surgery System in June 2024. Most recently, in March 2025, they reached a major industry milestone with the FDA clearance of ScoPilot™, the first AI-enhanced intraoperative capability to run natively on a surgical robotics platform.

Powered by NVIDIA Holoscan, this physical AI allows the laparoscope to automatically follow a surgeon’s instrument tip, a breakthrough that has already supported the treatment of over 1,100 patients across the U.S. and Europe. By utilizing real-time sensing to enhance surgeon autonomy and OR efficiency, Moon Surgical is positioning itself at the absolute forefront of the digital surgery revolution.

What to expect going forward is a complete departure from the status quo. For twenty years, the soft tissue robotic industry was a one-act play. Now, we are seeing a diverse cast of competitors, from established medical giants to specialized global firms, reimagining what these systems can do. The technology has reached a point where it is a standard of care for many specialties, however its full potential remains widely untapped. Growth Global Insights predicts the global surgical robotics market will surge to more than $66.46 billion by 2035.

Looking ahead to the next 5, 10, and 15 years, the investment potential here is as significant as any other corner of technology. This field is evolving into an essential global infrastructure. While I do not expect a radical crash in costs, the entry of more versatile players will naturally introduce more flexible financial models and a gradual downward pressure on the total cost of ownership. As these newer platforms refine their capabilities and lower the barrier to entry, they are not just fighting for existing market share, but the entire pie. We are going to see businesses that are currently building their foundations to scale into heavyweights in a fast-growing industry.