Industry Audit 2009 Sponsored By: - Pharmaceutical Executive


Industry Audit 2009
Sponsored By:

Pharmaceutical Executive

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.

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 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


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