Our research found that the biopharmaceutical companies focused on patient outcomes are enjoying more commercial success and outperforming their peers. In fact, a wave of new science has driven the output of new drug launches to levels not seen since the mid-1990s.
Since Accenture’s last High Performance Business (HPB) Study of the Pharmaceutical Sector, released in January 2014, the industry outlook has continued to improve with a rise in the industry’s Enterprise Value driven by improved growth expectations.
However, at the same time, operating margins have been deteriorating, owing to the greater cost of investing in more late-stage development and new launches as well as reshaping operations and strategy. Pressures from payers and governments continue to mount, as they seek to slow drug spending growth while linking pricing directly with benefits.
Our research found that the return to growth is polarized between the High Performers, whose pipelines are poised to deliver new science-based growth, and the rest of the peer group, who are in various stages of restructuring to find a path back to sustainable growth.
Looking ahead, the challenge will be to ensure that operating models keep up with this exciting pace of innovation and can fulfill the commercial promise of the new science in a more assertive payer and patient outcome-based environment.
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Accenture’s study of the Biopharmaceutical industry is in its 10th year and has analyzed the long-term performance of “pure-play” pharmaceutical companies (those with more than 75 percent of their revenue derived from pharmaceutical products).
Our 2015 update is based on trailing 12-month Q3 2014 financials and analyzes 16 of the largest pure-play Pharmaceutical companies in the world over an eight year period. Collectively these companies had $444 billion in aggregate revenue, representing more than half the global pharmaceutical market by net sales. The results have been compared with our 2014 and 2013 studies (based on trailing 12-month Q3 2013 and year-end 2012 financials, respectively) to identify relative movements in the performance rankings. The analysis pro forma adjusts for the impact of major M&A deals and removes the impact of exceptional costs to reveal a normalized picture of ongoing core business operations.
A detailed analysis of historic financial performance averaged over 1, 3, 5 and 7 year timeframes is combined with consensus analyst forecasts to gain a forward-looking global picture of forecasted revenue growth from portfolio and new product launches as well as to gauge the impact of patent expirations and mature products.
Confidence is back; expectations are high with companies making strategic moves.
Enterprise Value is up 11 percent, and reaching 36 percent above the pre-recession peak of 2007. At the same time, this year marks the first time Future Value has been positive since 2007. This shift reflects increased investor confidence in the pharmaceutical sector returning to sustainable future growth, driven by recent and upcoming new launches.
Return to growth is predicted but polarized between High Performers and the rest.
The High Performing companies identified in the research have faster average growth forecasts than their peer group and are keeping up with or exceeding the global pharmaceutical market forecast growth of 4-7 percent from 2015 through 2019.
Capturing the value of innovation is stretching margins and the markets' capacity to pay.
Current forecasts estimate that developed markets will spend an additional $125 billion on pharmaceuticals between 2014 and 2019. This is 1/3 less than the $190B analyst growth forecast for recent and upcoming NME launches over the same period. As a result, the gap between predicted spend growth and analyst forecasted NME growth is particularly wide when considering the significant economic and demographic pressures on health budgets.
High Performers are focusing on building dominant growth positions and reshaping operations.
The High Performers are outperforming the averages for the rest of the peer group on five key important metrics: a higher replacement revenue ratio forecast, higher five-year forecast revenue growth average, higher proportion of forecast growth and average sales from new product and operating margins.
Since our study in January 2014, confidence has continued to return to the sector as a result of innovative new drug approvals on the rise. Investors continue to reward the best differentiating science, particularly in specialty areas of the market. New science-driven launches are today capturing more attention from investors than emerging markets despite the continued double-digit growth forecasts in the latter.
While growth is expected to come back in 2016, it continues to be polarized between a group of High Performers who have great science innovation and the capabilities to differentiate new launches with payers, and the remaining peer group, which struggles at various points in returning to sustainable growth. However, this innovation-driven growth boom comes at a cost and eyes will soon again be back on sliding operating margins and delivering on launch expectations.
Sustained high performance in the sector will come from those companies that can drive operational change that keep pace with innovation. The challenge ahead will be turning science into value by developing new operating models that can deliver on the commercial promise of new launches in a changing healthcare economy.
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