For the sixth year in a row, Pharm Exec invites Professor Bill Trombetta of St. Joseph’s University to analyze the pharma industry's financial performance with a battery of business metrics, old and new. The highlights: Genentech pulls ahead of its longtime rival, Amgen. Forest delivers another strong performance, despite dropping revenue. Schering-Plough is building enterprise value. Biogen Idec racks up a stellar profit margin. And Merck? Well, Merck is back, baby. And the winner is…
Pharmaceutical Executive's Sixth Annual Industry Audit analyzes the 2006 performance of 16 companies that are publicly traded on stock exchanges and file 10-K reports with the Securities and Exchange Commission (or 20-F reports, in the case of foreign companies). As in past years, the audit goes beyond standard accounting and financial statements, drawing on newer and—arguably—more meaningful metrics, such as sales per employee and percentage of income driven by intellectual capital. Data were gathered primarily from 10-Ks and 20-Fs. In addition, we consulted databases, such as
http://finance.yahoo.com/ and Hoovers, and secondary sources, such as Fortune, Business Week, In Vivo, the Wall Street Journal, and the New York Times.
Aiming to compare companies' performance, this report omits a few companies that are or appear to be publicly traded but that are not comparable with the rest of the group: extremely diversified firms (such as Procter & Gamble), narrow-focus companies (such as Novo Nordisk), companies that manufacture primarily generics (such as Teva), firms with unconventional ownership structures (like Roche), and companies whose financial reporting doesn't mesh with US standards (like Japanese drug firms).
Companies were assigned scores based on their rankings over 15 metrics. The company that ranked first in a given metric received a rank score of 16, the second place company had a rank score of 15, and so on.
Not all metrics are equal. Some charts have been included to provide context, but they didn't factor into the rankings. The rest were weighted from 3 to 7, with 3 reflecting the lowest and 7 the highest weight. For example, if a company received a score of 12 out of 16 on a metric weighted at 5, it would receive 12 times 5—60—points. A company's points over each of the metrics were then totaled for a final score.
Once again, Pfizer leads the pack at $45.1 billion, and Biogen Idec brings up the rear at $1.8 billion.
The key point here is not absolute revenue but change in revenue. Maureen Dowd, in her weekly New York Times column, reminded us of the importance of growth. She recalled the classic Woody Allen movie Annie Hall, where Woody Allen's character says to Diane Keaton's character: "A relationship is like a shark. It has to constantly move forward or it dies. And I think what we got on our hands is a dead shark." Some companies in our sixth annual report are resembling dead sharks. Grow or you die.