SAN FRANCISCO, CA--(Marketwire - Jan 10, 2012) - Amid a historic global market downturn, a select group of health care companies have managed to deliver superior shareholder returns by adopting new commercial models, creating high-science products, expanding smartly into emerging markets, and emphasizing patient outcomes, according to a new report by The Boston Consulting Group (BCG). The report, titled Strength in the Storm: How Biopharmaceutical and Medical Technology Companies Can Create Value in a Challenging Business Environment, is being released today.
Despite their commitment to and investment in bringing life-enhancing therapies and interventions to market, the biopharmaceutical (biopharma) and medical technology (medtech) industries have been among the worst performers in stock market returns in recent years. For the five years ending in 2010 (the most recent period for which full-year data are available), medtech ranked fifteenth of 19 industries that BCG tracks and biopharma ranked last. Nevertheless, many individual health-care companies delighted shareholders and some even achieved breakout success. For example, Chinese medtech company Shandong Wego and U.S.-based biopharma firm Perrigo topped their industries' shareholder scoreboards by delivering impressive five-year returns of 93.2 percent and 34.5 percent, respectively.
In addition to ranking the top-performing biopharma and medtech companies, Strength in the Storm identifies the factors that have driven the highest valuations in recent years and distills practical, forward-looking lessons for these fast-changing sectors. Among the key findings:
- Important value drivers for large-cap biopharma are R&D productivity, financial policies, operational efficiency, and the ability to maximize the sales value of the portfolio through effective life-cycle management. Several large-cap companies have performed impressive turnarounds in these areas.
- In medical devices, the high-touch sales model has resulted in costly SG&A. Rethinking the commercial model is a key way that the top medtech companies have driven value.
- For generics companies, competing in a "land grab" for the many blockbuster products with expiring patents, the best performers have been companies investing to rapidly gain market share without accumulating too much debt.
"In biopharma, which has been hammered by well-documented pricing, regulatory, and competitive pressures, average R&D -- the lifeblood of the sector -- is now value destroying," notes Michael Ringel, a BCG partner and a coauthor of the report. "But some companies are consistently finding ways to beat the average, and by understanding how they do that, other companies can achieve similar success."
Pursuing Sustainable Growth
While growth is essential, it cannot be pursued at any cost. Strength in the Storm concludes that for companies facing slowing growth in their core business, the best avenues for expansion are:
- Geographically -- into Emerging Markets. Growth strategies should encompass the rapidly developing economies (RDEs) with sensible margins and customized approaches to address different demographics, commercial and regulatory environments, and distribution networks.
- Value -- by Embracing Value-Based Health Care. Payers and governments increasingly demand real-world patient outcomes to measure whether a product is worth paying for. Value-based health care will have profound consequences for the products that biopharma and medtech companies sell, trials conducted, partnerships with payers and providers, and on-market efforts to contribute to better outcomes.
- New Businesses -- Spending Wisely for Growth. M&A and diversification can be attractive in the right circumstances, but markets will punish those that pursue such activities at any price.
To receive a copy of the report or to arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
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