Mylan's success highlights the importance of how you grow. The company has a global strategy for generics, and is building a strong presence in 13 of the largest emerging
markets to leverage its number two position in US scrips.
By contrast, the industry's historic, high profile symbols of global innovation—Pfizer, Merck, GSK, and Sanofi-Aventis—each
scored negative growth in 2008. Schering-Plough was the notable exception among Big Pharmas, ranking number three with a 45.7
percent surge in revenue due to a strong international market presence and new product introductions. This ranking indicates
how important the planned combination with Schering-Plough is to Merck in expanding its therapeutic portfolio and geographic
footprint outside the US.
Metrics and Weights for Evaluating Company Performance
Nevertheless, Big Pharma's reliance on mergers and acquisitions provides little evidence that it will serve as a sustainable
alternative to organic growth. The attraction is capturing a viable product portfolio and lower expenses, but the flip side
is the deadly bureaucratic confusion that diverts attention and effort from what really counts. This is the focus on the
customer rather than your fellow combatants in the struggle to create a new internal hierarchy. You can count the mergers
that are truly a strategic fit, and hence worth risking the disruption in an intensely human business, on just one hand—and
you won't need all your fingers. Pfizer's big move in bidding for Wyeth is not (in the opinion of many analysts) one of them.
Enterprise value and change in enterprise value As noted, this is the Holy Grail of metrics: Companies either create shareholder value or destroy it. Similar to absolute
level of sales, the absolute value of an enterprise is a function of the sales level. We would expect a firm like Johnson
& Johnson, at $64 billion in sales, to have a much higher enterprise value than a firm like Cephalon, with only $2 billion.
Figure 3 shows the enterprise value ranking of our firms.
FIGURES 3 & 4
Change in Enterprise Value from 2007 to 2008 provides a snapshot of which of our 27 companies have their best days ahead. (See Figure 4 For this reason, Change in Enterprise
Value is weighted at 3, as over time the Industry Audit has shown that it is a nearly foolproof indicator that shareholders
are getting what they expect from the stock.
King and Mylan sport the highest shareholder value creation, at 140 percent and 137 percent, respectively, with Genentech
and Teva next in line. Again, Schering-Plough is the only Big Pharma that did not destroy value for shareholders from 2007
to 2008. Among the biotechs, Cephalon and Amgen did relatively well for shareholders as well. The rest of the 27 companies
contributed to the erosion of shareholder wealth found throughout the equity markets in 2008. Forest Labs came in last in
this metric, with a 52.3 percent reduction in shareholder value for the year due to an increasingly fragile position for its