And the winner is...
Gilead Sciences followed by Genentech and Biogen-Idec.
Stripped of weights and looking at things from a more intuitive perspective—who came in first, second, third, etc., and who
came in last, 26th and 25th from top to bottom—consider the strength of Gilead's performance: it scored in single digits on
7 of the 8 metrics, by definition in the top third of performance. The only metric Gilead comes up short on is its asset management.
On the other hand, note how consistent some firms are at displaying mediocre performance, by being disproportionately ranked
in the bottom third placements, from 20 to 27.
DR. BILL HALL OF FAME
Strategy: The Forgotten Buzzword
Besides its strong management metrics, Gilead Sciences earns the top nod with a novel strategic focus on what is arguably
today's most challenging therapeutic category: HIV/AIDS. In a short two decades as a publicly traded company, Gilead has
prevailed over the competition by anticipating changes in the profile of HIV/AIDS, as a priority disease and as a driver of
social policy—both of which affect the climate for reimbursement. Where others have encountered only reputational risks, Gilead
has earned the confidence of the specialist clinicians that determine success in the HIV space.
In turn, management has leveraged its weight in HIV to branch out in other therapeutic areas, including hepatitis B, and cardiovascular
and respiratory conditions. The strategy is not without costs, as building global market share is a challenge for all the
smaller "stealth pharma" companies and Gilead is no exception, as evidenced by recent pressure on the share price.
WHAT'S THE STORY ON BIOGEN-IDEC? Our number one performer for 2007 dropped to third in 2008. The company's key strength has been the ability to raise prices,
with its benchmark Avonex therapy for MS rising 22 percent, according to The Wall Street Journal. Its dominant position in
a few key therapeutic areas accounts for its 90 percent margins, the only company in this year's Audit to occupy that rarified
space. But despite its pricing prowess, shareholder value at Biogen-Idec still slumped more than 20 percent, as did Enterprise
Value to Sales, to a modest 3.47, knocking the company out of contention for a second run at the top slot. The reversal in
these key metrics are reflective of the upfront costs, risks, and management challenges in diversifying the portfolio for
long term success.
THE URGE TO GET SMALL The audit results suggest that BMS and Lilly are aiming to become pure biotechs, with an emphasis on oncology. Yet their size
and the complexity of administering a diverse portfolio of medicines could hamper their efforts to match the nimble, entrepreneurial
footing and focused orientation of a biotech. Enterprise Value to Sales decreased for both companies in 2008, to levels that
don't reflect any future prospects as hosts for a range of fledgling biotechs, and at less than 70 percent, BMS' gross margin
falls short of the margins posted by the best biotechs. While both Lilly and BMS saw improvement in Sales per Employee productivity,
their respective levels do not approach biotech levels. The rankings indicate that significant operational and philosophical
changes are needed if either company is to achieve the transformation from a small-molecule major to long term success as
a biotech powerhouse.
PFIZER'S UNTAPPED MEDICINE CABINET The world's top-selling pharmaceutical company has had a rough decade, especially in terms of shareholder value. But Pfizer
is taking steps to reposition, including a pending merger to consolidate its hold on the top sales rank and a plan to offset
the 2011 patent expiration of flagship drug Lipitor with a new focus on emerging markets. But the company's most intriguing
move is its move toward generics. Wendy Diller, in a March 2009 In Vivo article, lays out a smorgasbord of older patent-expired
drugs Pfizer owns that together make up as much in sales as Lipitor, including one drug, Medrol, which has been on the market
for 50 years, with peak sales of $400 million in 2008.
BRIDGING THE "SUPERMARKET SPREAD" Reinforcing Big Pharma's interest in generics and fast-growing emerging markets is the message behind Procter & Gamble's pullout
from the drugs sector. In a blog in
http://FinancialTimes.com/ posted in February, then-CEO A.G. Lafley remarked: "Today, shares in pharma companies trade at multiples at or below most
of our consumer staple products." Put another way, shareholder value is likely to be enhanced more by investing in Tide, Swiffer,
Crest, and Pampers, than in prescription pharmaceuticals.
Bill Trombetta is professor of pharmaceutical marketing and strategy at the Erivan K. Haub School of Business at St. Joseph's University
in Philadelphia. He can be reached at firstname.lastname@example.org