A new report from specialist pharma and biotech consultancy Novasecta explores how the world’s top 100 pharma companies are shaping the future of healthcare. Through an examination of the various business models and key value drivers being applied by the top 100, a picture emerges of the successful modern pharma company; highly focused, with deep expertise in specific areas. However, the pharma industry is extremely diverse with no one-size-fits-all route to success; meaning the need for partnerships and collaborations is greater than ever.
Novasecta’s Global 100 is based on total group revenues (2018) of organisations that have pharmaceutical interests, with the aim of benchmarking industry performance in its fullest context. Companies for which pharmaceuticals is just one element of a broader healthcare portfolio – such as J&J (consumer care and devices), Fresenius (medical care), Bayer (food and crops) and Abbott (devices and nutrition) – bring a different mind-set to pure-play pharma companies and challenge the boundaries of conventional pharma. They can also, for example, use revenues from other divisions to both diversify risk and invest in pharmaceuticals.
Location, Location, Location
Despite the USA being the world’s dominant market in terms of demand for pharma products, European companies represent the largest segment of Novasecta’s Global 100 by both volume and revenue. European-headquartered companies (42) comprise more than double the number of companies than the US (20) in the top 100. European companies also account for 44% ($456bn) of the Global 100’s total aggregated revenues, putting them ahead of the US (39% with $397bn). Furthermore, 16% are headquartered in China and India, highlighting the global diversity of today’s industry.
Despite being outnumbered by their European counterparts, US pharma companies are, however, typically much larger, with a median revenue of $14.4bn, compared to $3.1bn in Japan and $2.8bn in Europe. Novasecta’s analysis puts this success down to three factors: abundant capital availability in the US, opportunities for high prices and volumes in the domestic market, and the long-term benefits of exploiting the revolution in biotechnology.
Growing and Sustaining Growth
The growth of companies in the Global 100, whether long-established or relatively young, has typically started from either a great product or a great technology. However, sustaining growth beyond this initial point is proving to be a major challenge. Successful companies are typically more complex in the way they interact with patients, payers and physicians while maintaining a focus that aligns with their chosen model. This allows them to concentrate on building selective distinctive capabilities and collaborating well for others.
The ‘focus and collaborate’ rule can apply at many levels. J&J, for example, has a diverse business portfolio and federated model. Its diverse companies share a broad ‘cultural umbrella’ and can access the larger group’s financial firepower whenever they need it. Because of this, J&J was essentially the only Big Pharma that could effectively acquire and build on the success of focused pharma Actelion.
To date though, examples of companies that can successfully maintain multiple points of focus in the pharma/healthcare context are few and far between. Indeed, there is a danger that an unwavering commitment to scale through diversifying or mega-M&A can stifle growth.
The Value Drivers
Novasecta’s analysis highlights three core value drivers that every pharma CEO must confront: capital allocation, innovation model, and commercial model.
In terms of capital allocation, the report finds that profitability across the board provides options for effective capital allocation, that bespoke business models rather than one-size-fits-all solutions are key, and that global pharma is increasingly facing a core choice between volume and value.
For innovation models, the Global 100 has – almost across the board – made major and sustained commitments to innovation. The largest companies invest heavily in innovation both as an absolute amount and as a proportion of revenues. However, R&D productivity remains an issue; the report highlights strategic collaborations as a key method in countering this.
And, in terms of commercial models, the basic thesis is that sustained growth in profitability requires top line growth. The variety of commercial models employed by the Global 100 shows that there is no single model for commercialising pharmaceuticals well and that future commercial models will continue to become even more personalised.
The Bigger Picture
The Global 100 report illustrates that there are many ways for pharmaceutical companies to be successful in what is a diverse, global and highly profitable industry. However, achieving success can take time and, regardless of size and scope, all companies must partner selectively and wisely with actors across the healthcare value chain. In what is an increasingly fragmented world, a collaborative approach is key to both shaping and improving the future of healthcare.
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