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Industry may be its own obstacle to success in achieving the desired high-performance state.
For years, a glut of successful, well-recognized biopharmaceutical products generated extremely high profits for the industry. The patents for these products and others have expired or are set to expire in the near future. In addition, research and development (R&D) productivity has long been falling, and the industry has little prospect of replacing these blockbusters while healthcare is likely to reform further squeeze margins and drive a shift to outcome-based pricing.
As a result, the enterprise value of biopharmaceutical companies as a whole has been stagnant. Evidence from Accenture's High Performance Business research, conducted between 2007 and 2009, suggests that the investment community has become disenchanted with the biopharmaceutical industry altogether and is looking at other industries with expected high growth for future investment. This powerful mix of forces has significantly impacted the biopharmaceutical industry's ability to drive shareholder value growth, and the forces are game-changing.
Scale and diversified portfolios no longer guarantee success for the biopharmaceutical industry. Biopharmaceutial companies need to be bold and decisive to prove their future worth to a skeptical market. According to Accenture's research, which involved analzying the 16 largest pure-play biopharmaceutical companies (i.e., those with more than 75% of their revenue derived from pharmaceutical products) globally, biopharmaceutical companies must focus on what differentiates them in the marketplace and build expertise in these carefully selected areas. Through years of research, Accenture has learned that high performance is definable, quantifiable, and achievable. High performers effectively balance current needs and future opportunities. They consistently outperform peers in revenue growth, profitability, and total return to shareholders. In addition, they sustain superiority across time, business cycles, industry disruptions and changes in leadership.
Market focus and position
Specifically, large companies need to focus, invest, and divest to create the focused biopharmaceutical company of the future. This strategy includes having the following: a clear focus on the business and its strengths; discipline to sell off any pieces of the business that do not line up with the company's strategic focus; and the ability to selectively acquire, partner, and form alliances with the companies that may bolster the business's dominance in its competitive field.
Driving focus and coherence through the entire value chain—from R&D to commercial, licensing, regulatory, and medical affairs—is crucial for any business that wants to meet the challenges of today's market realities. Product life-cycle plans from a business perspective should incorporate:
Performance anatomy is about culture, leadership, and the workforce and the critical role they each play in driving mindsets, practices and results. Culture and leadership matter when it comes to explaining how some organizations achieve and sustain high levels of performance. Becoming a high-performance pharmaceutical company will require moving away from an internally focused organization to one with the ability to create a borderless culture that enables the organization to mesh quickly with external partners. For example, instead of being a company that does proprietary R&D, a pharmaceutical company may move to a model where it does significant joint development with other companies or has several partners from which to source innovation.
The time has come for large biopharmaceutical companies to make a clear choice about the business(es) in which they are in, and how they can provide more targeted solutions. They'll need to stake a dominant market position based on differentiated capabilities, divesting the assets that don't fit, acquiring those that do, and transforming their business to deliver solutions that meet customer needs. To achieve high performance in the future, companies will need to develop new or significantly improved capabilities in strategic deal-making, global expansion, analytics, and in digital and multichannel interactions. They will need to develop new organizational cohesion to ensure alignment with improved customer outcomes. They will need to make hard decisions about where to invest and what to divest. In conclusion, several factors and trends in the life-sciences industry make consolidation an inevitable reality. Only through a rigorous process of strategic target identification, due diligence, and seamless postmerger integration will tomorrow's leading companies lay the groundwork for sustainable shareholder value and high performance.
Michael Brüeckner is managing director of Management Consulting for Life Sciences, and David Sheehy is a partner responsible for global strategy in Life Sciences, both at Accenture, www.accenture.com