The BioPharma Challenge: Intelligent Value Creation in R&D

A recent report from Boston Consulting Group examines the remarkable history of value destruction in biopharmaceuticals between 2006 and 2010. The report focuses on three types of biopharmaceutical companies: large-cap biopharma (relatively diverse companies with market capitalization of $30 billion or more), emerging biopharma (relatively focused companies with market capitalization between $5 billion and $30 billion), and generics (companies that derive more than 60 percent of their sales from generic drugs).

The conclusion? All three subsectors shared the experience of severe contraction of their valuation multiple during the five-year period, offset by sales growth. Near-term growth was weakest in large-cap biopharma, at 7 percent per year, and strongest in generics, at 21 percent per year.



The study also found that despite the negative trends, a handful of companies (the "outliers" as Malcolm Gladwell calls them) did fairly well, demonstrating that performance is not simply a result of market forces. 

So what makes the difference? And more importantly, from our perspective, what can companies do to change this downward trajectory and improve performance?

The report reveals the key value-drivers by type of biopharma company >>

Large-cap companies: R&D productivity, operational efficiency/margin, financial policy, and the ability to maximize the sales value of the portfolio before and after loss of exclusivity (LOE)/growth.

Emerging companies: margin, R&D productivity, debt ratio, and sales growth.

Generics companies: scale and financial stability, particularly in debt/enterprise value ratio. (From 2006 through 2010, as many innovative biopharma products lost patent protection, generics companies essentially competed in a "land grab.")

In a separate article, the following cultural aspects of productivity are singled out as the key differentiators:

• Leadership and judgment trump rules and procedures.
  
• Cooperation is valued as highly as expertise. 
• Deep employee engagement causes researchers to "go the extra mile."
  

These human dimensions of value-creation are what we call shared values.  But what if your company already has a strong, engaged culture?  What else can we do to improve value-creation success? Specifically, what can be done to improve R&D productivity?