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To Outperform In Pharma, Go Deep – Not Broad

 
• By Nils Behnke, Michael Retterath, and Tim Van Biesen

The world’s most successful pharma companies aren’t winning on the basis of absolute scale; they succeed instead thanks to their leadership in a few clearly defined product categories. That approach delivers outsized returns, while helping firms navigate a changing health care landscape where payers and providers increasingly demand evidence of treatment efficacy.

Key innovation, commercial strength and profitability in pharma are all closely linked to category leadership, analysis by Bain & Co. shows. Based on research over several years, Bain has found that companies that produce a higher share of revenue from category-leading positions have operating margins 13 percentage points higher than those that do not. Category leaders also achieved a success rate in Phase III clinical trials 27 percentage points higher than non-category leaders and peak sales from newly launched drugs are 36% higher. The combination is a powerful one, creating significant long-term competitive advantage. (See Exhibit 1.)

Why? Category leaders have a better understanding of the dynamics and evolution of the category. That’s a built-in competitive advantage....

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