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Category Focus Rewards Biopharma Shareholders

 
• By Jeff Haxer, Andy Pasternak, David Fleisch, and Todd Sangster

For decades, biopharma companies have relentlessly pursued growth, counting on pure scale and M&A cost synergies to create value. This strategy is reaching its limits and becoming counterproductive, according to Bain & Co. analysis. Megamergers that don’t produce category leaders also don’t create portfolios that are likely to deliver attractive shareholder returns over time.

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For years, biopharma industry leaders have wrestled with the limits of scale. Despite the benefits that come with size, companies with revenues of $35 billion or more have significantly underperformed smaller companies with annual revenues of between $5 billion and $35 billion in total shareholder returns (TSR). (See Exhibit 1.) Why do the largest companies struggle to deliver above-average shareholder returns? And more important, what can they do to lift a stubbornly low TSR?

The short answer: avoid complex, wide-ranging portfolios that undermine focus. Large biopharma companies compete in many categories and tend to...

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