Sales to Assets: The Drive for Productivity
6: Profit to Sales
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How Sales relate to Assets is another factor that drives profitability, but it is most useful as an indicator of operational
productivity. It showcases what management can do in leveraging efficiencies executed under its own control, rather than being
a hostage to pricing decisions determined largely by external actors. Table Seven indicates how a firm's productivity changed
from 2008 to 2009 in relation to sales revenues, divided by the assets held on its books. The higher the ratio, the more productive
a firm is over the course of the year.
7: Sales to Assets
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The majority of this year's group—19 out of 24 companies—struggled to keep pace on this metric in 2009, scoring lower ratios
against our results for 2008. The winner was Novo Nordisk, with a Sales to Assets ratio of 0.934, which means that for every
dollar it invested in Assets, the company returned 93 cents in Profit. With public and private budgets for medicine under
strain due to the fiscal crisis in mature markets, the 24 have no choice but to keep focusing on how to wrest more gains from
asset investments. The winners will be those with A) a good pricing strategy; B) a portfolio directed to the therapeutic areas
where there is an unmet medical need; and C) management that knows its business and has the execution skills to get the most
from key investments in product and operational support and services.
Finally, Profit to Assets is a stronger metric than either Profit to Sales or Sales to Assets on its own. GSK and Gilead performed
best on this metric, although the trend line on Gilead is down. Both showed that strong management led to a maximization of
profit margins—a key interest of shareholders.
8: Sales to Employee
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Sales to Employees: Job Cuts Set the Pace
- A final criterion around productivity is the ratio of Sales to Employees (Table Eight), which is a metric of growing importance
now that the industry is finally shedding large parts of its workforce. An estimated 35,000 positions in pharma and biotech
have been cut so far this year, while Pfizer and Merck ranked seventh and eighth, respectively, in a recent Wall Street Journal list of 25 big US multinationals posting the largest job cuts during the recent recession.
As a result, most companies, with sales posting healthy growth, were able to improve their performance on this metric. Not
surprisingly, specialty and biotech firms, with modest sales overhead and an ability to price to the market, outperformed
the Big Pharma companies. Gilead again took top honors, far outpacing the pack, with a Sales per Employee number in excess
of $1.8 million—twice as high as the runner-up, Endo. Conversely, Merck suffered the biggest drop in the ratio as it struggled
to absorb staff from Schering-Plough. Genzyme's performance also lagged, as a consequence of disruptions in the manufacturing
cycle for its major product; so did Pfizer, in its effort to digest Wyeth.
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