Big Pharma Diversification Strategies

Big Pharma Diversification Strategies

  • March 2018 •
  • 123 pages •
  • Report ID: 5391451 •
  • Format: PDF
About this report
Pressures ranging from continually declining revenues as a result of generics and impending biosimilars launches, to slow RandD productivity and market access restrictions could cause the Big Pharma peer set to evaluate business opportunities beyond pharmaceuticals. A large majority, approximately 77%, of Big Pharma’s total annual revenues between 2013 and 2017 were from prescription drugs, and more than half of Big Pharma’s MandA activities, as well as its divestments, focused on pharmaceuticals as well.

Using a measurement called indicative profit potential (IPP), Datamonitor Healthcare has determined that remaining focused on pharmaceuticals is still the most profitable strategy, although there is no direct correlation between the level of pharmaceutical focus, based on revenue proportion, and operating margin. Still, multiple challenges, including the continuing generic erosion of sales and impending biosimilars launches, could force Big Pharma to evaluate diversified markets as a way to offset losses and grow other businesses. For instance, as in the area of diagnostics have been seen to be growing.

There are a broad range of diversification, or non-diversification, strategies currently employed by the Big Pharma peer set, ranging from the more focused, as demonstrated by Bristol-Myers Squibb and Pfizer, to intermediately focused companies, including Eli Lilly and GlaxoSmithKline, to extremely diversified firms such as Johnson&Johnson. The best option for diversification might be a mixture of both strategies, including a focus on pharmaceuticals alongside expansions into markets such as devices and diagnostics. Indeed, the devices and diagnostics sector has the second-highest IPP following prescription pharmaceuticals, potentially making it the most attractive option if a diversification strategy were to be pursued. Meanwhile, markets such as pharmaceutical wholesalers and animal health are found to be the least attractive into which the peer set could diversify.