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July 22, 2016
Growth has returned and is forecast to accelerate while margins have improved—but continues to be polarized at a company level
By: Anne O'Riordan

The big pharma peer group saw steadily slowing growth in the 2000’s, before a period of negative growth over the last three years, prompted by the onset of the patent cliff in 2011. Earnings growth has been negative and margins declining for the last four years. But 2015 saw a return to revenue growth albeit only 0.5 percent, which is forecast to accelerate in 2016, and margins improved, however, they still stand some way below 2011 pre patent cliff levels.

Graph

A look below this headline reveals an increasingly polarized position between the High Performers and the rest of the peer group. The High Performers are strongly correlated to higher forecast growth and pipeline replacement revenue ratios, as well as higher operating margins that have held up better in recent years. The rest of the peer group companies demonstrate widely varying performance, but on average they have lower growth forecasts and operating margins, indicating they are still in the throes of reorganizing to find a path back to sustainable profitable growth.

High Performers

The High Performers have been pulling away from the rest of the pack in recent years. The figure below shows their latest financial performance ranking (based on the last seven years) versus their growth forecast over the 2015-18 four-year period, and shows the degree of separation forming between companies.

HPB

Beyond the short term, the companies that sustain high performance in the sector, will be those that can drive operational change that can 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.

For more information on these findings, please read our latest High Performance Business Research: Affordability and value—the economics of pharma’s new science

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