The Word on Methodology
This year's Audit assesses the performance of the top 23 publicly traded drug companies (by sales revenue). We assess 2010
performance against 2009, which was a good year for stocks due to the economic trough relatively receding in 2008.
3: Enterprise Value to Sales
Post mega-mergers, the industry now seems to be stuck in neutral, as major drugs are going off patent with little to replace
the blockbusters. Rather than persuing a clear new strategic direction, pharma seems to be reacting defensively by pursuing
emerging markets, narrow target segments focused on high unmet medical needs, and, as always, mergers and acquisitions.
Benchmarking the Eight
As in years past, we use eight metrics to assess industry performance: Enterprise Value growth; the ratio of Enterprise Value
to Sales; Profit to Assets; Gross Margin; Profit to Sales; Sales to Assets; Sales to Employees; and Sales Growth. The first
three metrics are more important than the remaining five and are weighted by a factor of 5, with the remaining five metrics
weighted by a factor of 3. Each company is assessed on each metric, from the highest placement (23 out of 23 companies) to
the lowest placement (one out of 23). Each metric is multiplied by its weight times placement to determine points over the
ranking. Each company's total points score is determined by adding up all points per placement times weighting, then ranking
the 23 companies with the best performance at the highest point total to uncover this year's winning company.
4: Gross Margin
Benchmark: It is interesting to compare the drug industry with macro benchmarks and other healthcare sectors. In terms of share value
growth these are the benchmark metrics:
Hence, our 23 companies, with enterprise value growth averaging 9.6 percent, are surpassed only by Healthcare Providers.