The Rise and Fall of Pharma Reputations

In the 2004 insider survey, some Big Pharmas lost ground while fast-moving biotechs shot to the top.
Feb 01, 2005

Reputation trends
It is already passé to say that 2004 was a year of disappointments for the pharmaceutical industry. The recall of Merck's Vioxx (rofecoxib), the concern over other COX-2 inhibitors, new drugs that did not live up to expectations, and Chiron's failure to ship flu vaccine from its UK supplier—all bricks in the wall of worry. As industry observers can attest, the escalating anxiety took large unexpected bites out of the market value and reputations of many companies.

But amid the damaging press reports, pharma executives and industry analysts—in response to Rating Research LLC's (RRC) third annual insider survey—say they still view pharma companies as "excellent" and are, for the most part, still willing to personally invest in them. (See "About the Survey")

Overall reputation ranking
In an industry dependent on partnerships and licensing agreements, internal reputation is critical to success. In 2004, some of the brightest stars in past reputation surveys—most notably Merck and Pfizer—lost some of their luster. But others—Eli Lilly, Genentech, and Amgen— rose with equal and opposite flair to take their place and to keep industry averages at or above previous levels.

The vioxx factor
Executives' Long View In the 2004 survey, executives responded to more than 50 general industry questions and assessed 19 leading pharma companies individually. An average of 62 percent of the executives polled said they agreed or strongly agreed that each of the 19 pharmas is an "excellent company." That percentage was about even with the results of two previous studies. (See "Reputation Trends.")

And despite the uncertainties of 2004, a slightly greater percentage of executives this time (49 percent) said they would be willing to invest in pharma compared with past years (46 percent in 2002 and 2003). And their willingness personally to support those companies in times of controversy remained stable on average (32-34 percent). At the same time, the scores on "willing to invest in" and "willing to support" were substantially lower than the scores on "excellence." That represents a vulnerability for some pharma companies. The latter measure indicates whether industry constituencies are willing to give a company the benefit of the doubt, an issue that may be critical for companies suffering from continued negative press.

Reputation drivers
That said, there was one important sign that executives were willing to be circumspect about the events of 2004. An analysis of the executives' responses shows the Vioxx recall did not have a statistically significant impact on their opinions of pharmas in general. Regardless of whether executives were interviewed before or after the October recall, the overall pattern of opinions was essentially the same. As insiders committed to partnering with others in the pharma industry, it appears that executives who have a long-term view give less weight to current events and surprises. Not financial analysts.