The dark days that biopharma shareholders experienced from 2000 to 2010 are over. Recent performance has been robust as strong pipelines and aggressive cost reductions have allowed companies to pursue new opportunities for growth and continue to create value for shareholders.
Long-term growth is the biggest driver of TSR. Those companies that can sustain TSR will be distinguished from their competitors when they build critical capabilities to:
Executives maneuvering through this challenging environment can set their companies apart in several ways. First, it’s imperative to have a very clear strategy—where will the company operate, and on what basis will it achieve better results than the competition? Then, focus energy and resources there. Value-creating biopharma businesses today are aggressively shedding those businesses that are not or cannot become a top competitor.
The M&A space is especially active as capital is readily available, companies see compelling reasons to combine, and activist investors are stimulating more aggressive moves by management teams. There is a true "predator or prey" mentality across biopharma, and all chief executives need to ensure that they are not leaving sources of value untouched—value that could be leveraged by another company in a takeover situation. Ideally, CEOs and boards should regularly ask themselves how an activist investor would look at their company, its business portfolio, and its value creation performance—and which value creation opportunities and levers such an investor would spot.
Corporate development teams at companies seeking a leadership position in today’s biopharma industry are ensuring that there is strong commitment by the top executives to externally sourced assets. Further, they must drive focus and strategy to their screening and acquisition efforts, and ensure rapid decisions with clear value creation agendas as part of any transaction. Internal assets must be as rigorously managed as alliances to ensure maximum value creation. The most effective companies are building M&A engines—internal teams that are tailored to a company's corporate and M&A strategy and are able to deliver on the growth ambitions and areas set by the board and the CEO. In today's cash-rich environment, senior executives and M&A teams should also proactively develop differentiated views on potential alternative transaction structures, such as asset swaps, in order to gain a competitive advantage.
In addition, the finance function builds the skills and resources needed to act not only as a driver of value and cost-consciousness internally but also as a “sparring partner” to the CEO in configuring corporate strategy.
Acquisitions play a key role in corporate development for biopharmaceuticals. But many deals don’t create value because companies have failed to address three critical questions.
Mergers and acquisitions and divestitures have become increasingly important to business success in biopharmaceuticals. That’s because growth drives value creation, and acquisitions offer a way to grow when organic growth is limited. The key is to manage corporate transactions as an industrial process, not as an occasional activity. To fashion a winning strategy, companies must be able to answer these three critical questions about their M&A approach.