Stealth Pharmas

May 31, 2009
By Pharmaceutical Executive

( Chris Thomaidis/getty images)
Welcome to our yearly look at the industry's Stealth Pharmas. As with previous reports, we aim to examine a handful of pharmas and biotechs that generally fly under the radar (ergo "stealth") of the mainstream media. We define Stealth Pharmas as any company that is not a major pharma; biotechs, generics, and orphan drug firms are all in play. Not strictly the top 10 performers, these Stealths were chosen based on the slippery metric of "newsworthiness." They earn the most ink from the business press—if not always the most money. So consider this analysis a soufflé, a light dish to tide you over until September, when our main-course annual "Industry Audit" arrives to scrutinize the sales-revenue metrics of the top 16 publicly traded pharmas, and rank them accordingly.

What the Metrics Mean

Revenue (top right, this page), or sales in dollars, is the post position that we start from. More importantly, sales growth (top right of table) is a key metric in the current marketplace, where growth is hard to come by. Once again, Teva comes in number one in terms of annual dollar revenue. But Mylan's revenue growth of 221 percent rings up the largest annual increase, followed by an impressive 57 percent for Celgene.

(All financial data were taken from Income statements and balance sheets represent fiscal year ending December 31, 2008. All other metrics were pulled on April 23, 2009.)

Enterprise Value (middle right, this page) is the clincher: Either you create shareholder value or you destroy it. At the end of the day, nothing else matters. So we look critically at whether shareholder value has increased or decreased.

And to normalize absolute shareholder value—a function of size and scale—we use the powerful metric Enterprise Value to Sales (bottom right, this page). Since Teva sports the biggest revenue annually, it is not surprising to see it rank number one in Enterprise Value. But which Stealths created shareholder value? Only three: Teva, Mylan, and Cephalon. The other seven destroyed shareholder value in 2008.

EV/S is the great equalizer: It adjusts for size and scale. Celgene and Gilead score numbers one and two, respectively. Nota bene: All Stealths declined on this metric, with one exception—Teva. Also, a score of 3.00 or less on this metric indicates marginal value in terms of potential to grow sales and earnings.