In the past few years, we have seen remarkable value creation among leading biopharma companies, fuelled by breakthrough innovation and the promise of offering novel, effective therapies to patients in areas of high unmet need, such as Alzheimer’s, obesity, oncology, or rare diseases.

Between 31st December 2018 and 9th October 2023, the median market capitalisation of the top 12 largest biopharma companies increased by 69%, from $131Bn to $222Bn. During this time period, three companies stood out for delivering exceptional performance (see Figure 1):

• Lilly: increased their market cap more than 4-fold, from $123Bn to $537Bn, up +338%
• Novo Nordisk: increased their market cap more than 4-fold, from $100Bn to $414Bn, up +316%
• AstraZeneca: more than doubled their market cap, from $95Bn to $207Bn, up +118%

As a result, Lilly and Novo Nordisk have been catapulted into the premier league of the top 20 largest companies globally by market cap, across all sectors, to join J&J as the only three biopharma companies among this select cohort, with J&J ranking at #19, Novo ranking at #17, while Lilly enters the top 10 at #10.

As of 9th October 2023, there were only six companies in the exclusive trillion-dollar club, with tech companies accounting for five of those six most valuable corporations in the world – Apple, Microsoft, Alphabet, Amazon, NVIDIA – plus one oil and natural gas company, Saudi Aramco.

Given the impressive momentum in value creation that we have seen in recent years, what would it take for a trillion-dollar biopharma company to emerge?

The path towards a $1-trillion valuation

To achieve the elusive trillion-dollar valuation, biopharma companies must focus on two key levers of value creation: revenue growth and margin expansion. Pharma company multiples and hence valuations in 2023 reflect the market’s growth expectations, with some companies enjoying a premium valuation due to their potential for delivering sustained growth from innovation.

As high-growth companies execute their plans and deliver on investor expectations, they grow into the valuation, therefore, we typically expect to see a degree of multiple convergence over time.

Looking ahead to 2030, enterprise value to EBITDA multiples for large biopharma companies converge to approximately 10x. While a company with average growth would need to achieve $100Bn in 2030 EBITDA to reach a trillion-dollar market valuation, this theoretical path is highly unlikely and almost impossible. Instead, a more feasible path towards a trillion-dollar valuation is through a combination of establishing high growth expectations while generating more than $50Bn EBITDA.

Such a biopharma company must generate significant, sustainable revenue streams across multiple major franchises, totalling more than $100Bn, combined with a strong pipeline of late-phase assets with blockbuster potential to fuel above average growth expectations. This would require exceptional commercial execution, as well as consistently delivering clinical successes.

Below are some illustrations of what such a company could look like:

• In-line products: Need to deliver $100Bn+ revenue across multiple major franchises driven by flawless commercial execution to hit an EBITDA target of $50Bn. For example:
  • Focus on a market creation story. By offering a step-change in patient-relevant innovation over the standard of care, such transformational assets open up entirely new markets with high value creation potential as they don’t face established competitors. The market creation story in obesity, with extension into co-morbidities, is a compelling example, with Lilly and Novo set to enjoy a dominant, structural duopoly well into the 2030s, for a potential market opportunity of more than $100Bn globally.
  • Focus on multi-indication assets. These can generate significant revenue streams through optimal indication sequencing and swift indication roll-out to capture a sizeable, collective opportunity across different markets, while often enjoying cross-indication synergies. Keytruda is a prime example, which expanded into 19 indications and generated a total revenue of $21Bn in 2022.
• Pipeline: Must underpin credible, high growth expectations to assure investors. This requires a strong pipeline of late-phase assets with blockbuster potential to fuel substantial, incremental future growth and to offset revenue gaps, e.g., due to maturing in-line franchises or LoE. Systematically prioritising pipeline opportunities across therapeutic areas, indications and technology platforms will be critical to participate in future ‘growth hot spots’. For example:
  • CNS: Fast follower or second-generation, disease-modifying therapies for Alzheimer’s may offer significant potential, while benefiting from the market development efforts of early entrants; disease-modifying treatments for Parkinson’s would likely trigger the excitement seen with the anti-amyloid therapies in Alzheimer’s.
  • Immunology: While the autoimmune segment has become very crowded across all major indications, inflammation and allergy are still less mature with plenty of white space that may have room for another Dupixent-size blockbuster.
  • NASH: Another relatively high-prevalence condition without any disease-modifying treatment options. While several MoAs are progressing through the NASH pipeline, combination therapies are the likely future for addressing different manifestation of the condition, which leaves room for a number of competitors. However, like Alzheimer’s, NASH requires considerable market development efforts, e.g., HCP and patient education, or establishing non-invasive tests for early diagnosis.
  • Oncology/ADCs: Antibody-drug conjugates (ADCs) have demonstrated great promise in oncology, with the potential for multi-indicationality as different tumours may express the same target. Pfizer’s $43Bn acquisition of Seagen serves as validation of the tremendous value represented by this technology.
  • Vaccines: Unmet need continues to exist across both prophylactic and therapeutic applications of vaccines. The arrival of new technology platforms, notably mRNA, has levelled the playing field and allows newcomers to compete with a small number of well-established incumbents.
• Geographic footprint: Must maximise the commercial opportunity for both in-line and pipeline assets. While innovative products generate the majority of sales in the developed markets, with the US, EU4/UK and Japan typically accounting for 85% of cumulative sales of New Active Substance in the first five years, optimising its overall geographic footprint is nonetheless an important lever for companies to consider. It requires adjusting the business model for specific geographies, e.g., different portfolio priorities, realised price points or distribution models. However, this may unlock new markets and thus incremental value from a company’s assets. For example:
  • The burden of disease for many cardio-metabolic conditions is growing fastest in LMICs, e.g., obesity, diabetes, and cardiovascular disease.
  • In many African countries, 10-40% of the population carry the gene for sickle-cell disease (SCD), with SCD prevalence estimated at >2%.
  • There are millions of zero-dose children across Africa and Asia.

In our view, the trillion-dollar biopharma company is more likely to have grown largely organically, supported by smaller, strategic bolt-on acquisitions and licensing deals to access external sources of innovation. This is a reflection of the current preference of biopharma companies for smaller, more targeted M&A, as we have noted in a prior blog. In addition, large-scale post-merger integration poses serious execution risk and may result in destroying significant value.

A trillion-dollar company would need to have an EBITDA margin of 50% or more, assuming a $100Bn revenue base, which represents meaningful expansion over the current average of 35-40%. Margin expansion opportunities for this company have likely been found in Selling, General & Administrative expenses (SG&A) and Research & Development (R&D), with efficiency and productivity enhancements the most important levers, e.g., utilising AI and digital tools, rather than Cost of Goods Sold (COGS), as biopharma is already a comparatively high gross margin industry.

Conclusion

All in all, the trillion-dollar biopharma company is a real possibility, however, achieving that ambition remains a tall order. While some companies already have in-line products that can generate sustainable revenues in the tens of billions of dollars, the challenge is whether they can execute their forecasts flawlessly, achieve margin expansion, and deliver the next big thing through their pipeline – the pre-requisites for reaching a trillion-dollar valuation, as we discussed herein.

Furthermore, the broader market context matters too, for example macro-economic, geopolitical or health policy related factors, which could create a more (or less) favourable environment, e.g., tailwinds from accelerating overall industry growth.

For all the impressive momentum we have seen in recent value creation, in our view a company with a $800-900Bn valuation by the end of the decade is a more likely prospect, but you never know. And inflation is on our side for the time being.

IQVIA Forecast Link; Refinitiv Workspace; IQVIA EMEA Thought Leadership desk research and analysis.