Unless a new drug can evidence real progression against the current standard of care, market uptake is likely to proceed at a snail's pace. Many therapies are finding that registration by itself is a false window where access to live, paying patients is concerned. Numerous additional hurdles now block the way to all those covered benefit lives. These range from practice-driven clinical treatment guidelines that drive formulary coverage to post-approval risk management obligations to health economics.
Significantly, none have much to do with scientific innovation, the traditional benchmark of industry success. Each relies instead on stakeholder or societal value, reflected in the incremental cost of therapy, as the decisive criteria in allocating resources stretched by the demographic burden of an aging population, which also happens to be less productive in generating the government taxes that fund a rising proportion of healthcare services. Hence the margin for error in meeting these "value" expectations is very thin.In this destabilizing environment, companies must do three things to maintain the growth that shareholders expect. The first is to discern: what matters most to providers and patients in those therapy areas where you choose to engage? The second is to differentiate, with a proposition that transcends the existing competitive set—not simply by demonstrating superior clinical or product characteristics, but also with process, delivery, and service innovations that carefully define the disease category and the mix of patients able to access the drug. The third is to document, at an early stage of drug development and extending well beyond registration, that evidence which is most clinically relevant in securing a positive treatment outcome, one that gives payers a clear path in allocating their limited pharmacy spend.
Even if a company succeeds on all three scores, revenue growth—and the higher margins that once seemed to follow in tandem—is not a given. The opportunities presented in today's market for medicine tend to be short-lived and are subject to constant challenge because there is so much new competition, often coming from adjacent sectors like bioengineering and retail. This model is the antithesis of the still dominant approach to business innovation in Big Pharma, where large, expensive R&D projects dependent on fixed overhead are spun out over long periods of time. Innovation today takes a different form: when you can't anticipate market cycles precisely and the motivations of your customers and the competition are unclear, there is an advantage in being able to scale up a new idea quickly or, alternatively, to abandon it just as fast.
In other words, today's race to the top of the league charts belongs to the swift, where you claim your destiny by controlling the ability to price. That's the signal message in our 12th Annual Industry Audit of the highs and lows of performance among 24 of the largest publicly traded companies prepared by Professor Bill Trombetta of the St. Joseph University Haub School of Business.
—William Looney, Editor in Chief.
The Pharm Exec Industry Audit holds a unique position in the increasingly crowded field of data sets tracking industry performance. First published in 2002, the audit adheres to a simple objective: to identify how well companies are doing in advancing shareholder value. It is a measure open to interpretation, particularly because there is no other standard accepted reference point that looks at performance from this perspective. Also, our approach is idiosyncratic, but it does reveal the importance of metrics that often escape the attention of the major investor rating institutions. One example is the return on assets against profits, which allows for the valuation of intangibles like patent holdings. Shareholder value is also a good indicator of long-term success because of its association with stability; when the investment community is happy, there is less pressure for changes in the c-suite and management has some leverage to place riskier bets on investments that may play out only over time.
Methodology: eight benchmarks
We also include one metric that is not weighted: sales, general, and administrative (SG&A) expenses to sales. SG&A is a statistic that by itself is neither good nor bad. If a firm is growing, launching new products, and entering new markets, then a rise in SG&A is good. The problem is when SG&A grows faster than sales or profits. Over time, this reflects a bloated overhead structure and operational inefficiencies.