Not all metrics are of equal value. They were weighted 3 through 7, with 3 reflecting the least weight and 7 the most. A
company receiving 10 ranking points on a metric weighted at 5, for example, received 50 weighted points, which were totaled
for overall rankings. Easily "managed" metrics (Price to Earnings and Earnings per Share) are weighted 3. Some values (Annual
Global Rx Sales) are not useful metrics until they are compared with other values (year-ago sales). The company with the most
weighted points is our company of the year.
NOTES ON THE METRICS
The meat of the audit is in the charts that appear on these pages. But as always, they present some features worth pointing
out in detail.
Prescription Drug Sales The two charts on the left cover 2005 Rx drug sales and change in prescription drug revenue from 2004 to 2005. In overall
Rx sales, Pfizer once again leads at $44.3 billion.
Sales growth, however, is the important metric, especially for an industry that has dropped from double- to single-digit percentage
growth. The major pharmas, with some exceptions, surpassed overall industry sales growth. Genentech grew by 47 percent, with
Novartis (35 percent) coming in second, and Forest (21 percent) third. At the bottom of the list were Merck and Abbott, with
2 percent growth rates, Johnson & Johnson at 1 percent, and two companies which lost sales: Bristol-Myers Squibb, down 2 percent,
and Pfizer, down 4 percent.
R&D Spend Pfizer places first with a total R&D spend of $7.4 billion, while Forest Labs spends the least—$293 million. But it is the
ratio of R&D spend to total drug sales that has more meaning as a metric in our audit. Intuitively, the higher that ratio,
the more the firm is proceeding strategically as an innovator.
By that standard, Biogen Idec is the industry leader, spending 46.7 percent of sales on R&D. Despite their high absolute dollar
spend on R&D, Pfizer and GSK come in toward the bottom in terms of relative strength. The average for the group was 19.8 percent.
Only Forest and Wyeth, at 9.2 percent and 8.5 percent, respectively, dipped below 10 percent.
Enterprise Value This relatively new metric (chart not pictured) has become popular because it includes the impact of a firm's debt and stock
equity in its capital structure. It is calculated as follows: market capitalization (number of shares outstanding multiplied
by stock price) plus cash, minus debt.
Enterprise Value (EV) reflects shareholder value. And change in EV (EV2005 minus EV2004), one of the categories weighted 7
for its importance, shows which firms created shareholder value and which firms destroyed it.
Pfizer's EV is the highest in the industry at $177.5 billion, reflecting a firm that does over $50 billion in sales. Sanofi-Aventis
and GSK each booked EVs of $150 billion or more in 2005. In contrast, Amgen, this year's winner, has an EV just one third
the size of Pfizer's at $62 billion, and Genentech, the runner up, booked an EV of just $29 billion. Forest, which outperformed
12 other companies in the audit, ranked 15th in EV at $15 billion.
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