The pharmaceutical industry is usually characterized as elite in terms of outsized rewards and excessive profits. But continuing
a subtle transition from last year, it's possible to see the vaunted industry performance starting to lose some of its luster,
especially Big Pharma compared to other healthcare sectors. Growth stocks no more, Big Pharma— for now—reflects value, personified
by the relatively high dividend yields from Merck and Bristol-Myers Squibb.
Overall global industry growth has slowed to single digit rates: 2004 global dollar volume was $550 billion, a 7 percent increase
over 2003—which in turn represented a 9 percent increase over 2002. US sales grew to $235.4 billion, a growth rate of 8.3
percent compared with 11.5 percent growth from 2002 to 2003. The United States accounts for 46 percent of the world's pharmaceutical
market, according to the most recent IMS data.
Comparing pharma to the stock market as a whole, the main market indices finished 2004 as follows:
Standard & Poor......... 9%
Dow Jones Industrials......... 3.1%
Dow Jones US Pharmaceuticals......... -10%
Just how far the mighty have fallen is shown by the fact that as recently as 1998, pharmas traded at 40 times Price to Earnings
ratio (P/E). Today, pharmas trade at less than 17 times its P/E.
As a whole, pharma placed 28 among the 42 industry groups tracked by Fortune; its 2003 to 2004 revenue growth of seven percent was less than the Fortune 500 median growth rate of 10.3 percent. Only pharmaceuticals, along with electronics and electrical equipment, telecommunications,
and airlines, failed to post profit growth: The industry ranked 40 out of 42 with a negative profit growth rate of –5.2 percent
compared with the Fortune median of 20.3 percent. Over the five-year period, 1999 to 2004, the pharmaceutical industry ranked 35 out of 44 industries,
with a profit growth rate of 2.8 percent vs. the Fortune median of 20.3 percent during the same time period.
Here are some additional industry comparisons from the Fortune study:
Profit to Sales Pharma ranked third out of 47 (15.8 percent compared to a median of 5.2 percent).
Profit to Assets Pharma was 12 out of 47 (8.1 percent compared to a median of 4.1 percent).
Return on Shareholder Equity The industry scored a modest 16.6 percent (13 out of 46 industries) compared with a Fortune median of 13.9 percent.
Total Return to Shareholders Pharma ranked 39 out of 47 at 2.8 percent compared with a Fortune median of 15.5 percent; pharma shareholders would have done better with their money in a certificate of deposit last year.