The Rise and Fall of Pharma Reputations - Pharmaceutical Executive

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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.


Pharmaceutical Executive


Short-Term View Analysts view the industry from outside and are able to shift their investments rapidly to capitalize on perceived short-term opportunities. So it is not surprising that their opinions of pharma companies deteriorated rather sharply following the Vioxx withdrawal. Before the news, 64 percent of analysts agreed that Merck "is an excellent company." After the announcement, only 13 percent still felt that way. The number of analysts willing "to invest in Merck" showed a similar pattern. (See "The Vioxx Factor.")


Ethical behavior ranking
Given the publicity surrounding the recall and the questions raised about other anti-inflammatory drugs, it is not surprising that the event also had a strong effect on analysts' opinions of other companies in the industry. Among analysts interviewed before the announcement, an average of 64 percent said they agreed (or strongly agreed) that the 18 pharmas (excluding Merck) were excellent companies. After the announcement, the average dropped to 53 percent.

It is important to note, however, that analysts' opinions of both company excellence and investment willingness were more sanguine in 2004 before Vioxx than they were in the 2003 study. At that time, only 45 percent of analysts said they would be willing to invest in pharma companies. In 2004, 50 percent of analysts interviewed before the Vioxx event were willing to invest in pharmas. Analysts interviewed after the announcement were significantly less willing to invest (39 percent), but that only brought the 2004 average down to equal that of 2003. Researchers speculate that before Vioxx, analysts tended to feel that the industry had passed through the challenges of 2003 and were ready to reconsider investment in this traditionally strong industry.

New Leaders Although the industry averages didn't change much, the reputations of individual companies fluctuated greatly between 2003 and 2004. (See "Overall Reputation Ranking.") To generate the Reputation Strength Scores (RSSs) for each company, researchers analyzed executive responses (no analysts) using a proprietary reputation strength model that incorporates factors such as behavioral measures and the current drivers of reputation strength. In 2004, the metrics, listed in order of relative importance, were:

1. ethical behavior

2. workforce

3. financial stability

4. leadership

5. third-party relations

6. marketing effectiveness

7. community outreach

8. strategy

9. global capabilities

10. charitable support

Eli Lilly was the biggest winner in the overall reputation rankings for 2004. The company took the top slot, and its score jumped nine points from 63 in 2003 to 72 in the current survey. That made Eli Lilly one of the highest ranked firms during the 2002-2004 period, nearly reaching the record score of 74 set by Johnson & Johnson in the 2002 study.

RRC researchers believe Lilly's strong revenue growth from new product sales may have helped to lift its 2004 score. But equally important, survey respondents pointed to significant improvements in the company's commitment to R&D, the quality of its employees, and its financial transparency as key elements of reputation strength. Said one executive: "Eli Lilly is a world class pharmaceutical company focused on many key treatments."


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