Written by Michael Ringel, Colm Foley and Olivier Wierzba for Boston Consulting Group (BCG).

The five-year period covered in this report was a stormy time for the bio-pharma sector. While sales growth remained strong, expectations for future growth declined significantly. P/E ratios for large-cap biopharma, a formidable 35x in 2000, plunged to 11x by 2010.

The challenges underlying this decline are well known and include pricing and access pressures, higher scientific hurdles, more-stringent regulatory thresholds, and intensifying competition. The average return on investment (ROI) in R&D for new products—the lifeblood of the sector—is now below the cost of capital, making average R&D value destroying. However, performance on this measure varied widely during our study period, and some companies consistently found ways tobeat the average.