General sales and administrative expenses (GSA)
Income to Assets
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GSA has to do with the expenses a firm incurs day-to-day in operating. GSA includes marketing and sales spend but does not
normally include R&D spend. We do not include it in the survey as a metric to be weighted because in any given year a company
may be launching a new drug or retraining its sales force and these expenses will be outsized at pre-launch and early launch.
But over time, GSA should not exceed sales growth or profit growth. The norm shows that significant progress remains to be
made. While sales for the 24 companies increased by 12 percent, GSA expenses rose by an average 28.6 percent. Allergan spent
the most on GSA, but this is expected given its reliance on aesthetic products based on cash out of pocket payments. Only
five firms showed a decrease in GSA for the year: Pfizer, Roche, Watson, Hospira, and Celgene. Looking over the years, Gilead,
Mylan, Watson, and Hospira do more with less than the other companies in the survey.
And the winner is…
Biogen-Idec, which came a close second to Novo Nordisk last year, emerges at the top of the list for 2012, followed by Shire
and Novo Nordisk. Rounding out the top five are BMS and Celgene, separated by a cat whisker. Behind Biogen's success is its
consistently high performance on our top graded metrics designed to tease out a company's underlying value to the shareholder:
enterprise value growth, enterprise value to sales, and EBITDA to assets. Sales growth for Biogen, at a little more than 7
percent over 2010, was actually on the low side compared to the group as a whole. Yet its enterprise value growth rating,
at 62 percent, was by far the highest of the 24, and way ahead of runners up Shire and Endo, at 41 percent and 48 percent,
respectively. Likewise, on enterprise value to sales, it came in at second, after Celgene. All told, the readings indicate
that the market feels Biogen-Idec has a lot of upside potential: the company's future is going to be even better than the
present.
The numbers make a larger point about strategy. Those who do best in our audit—Celgene, Novo Nordisk, Gilead, Shire and, increasingly,
BMS—share several aspects of a superior business model. These include a strong focus on narrow market segments that are relatively
price insensitive and tend to have active, engaged customers. Such customers do not require extensive and costly outreach
through traditional marketing channels. Big sales forces are not required as a cost of doing business and there are rich opportunities
to deploy new, low risk technologies through social media. With Shire as the exception, our top performers kept GSA expenses
lower than average for the 24 while securing high levels of revenue growth.
Conversely, the Big Pharma companies are saddled with the unwelcome burdens of size, such as a dependence on diversification
and the blockbuster model, both of which impose enormous overhead charges. These behemoths must place equally enormous bets
on new products just to generate the minimal growth rates that Wall Street expects.
The bright spot is that the industry still remains highly profitable, with much additional room to manage expenses. Four of
our 24 surveyed companies—Watson (16), Allergan (27), Celgene (31), and Biogen–Idec (35) made the Bloomberg BusinessWeek 50 top performers in profit potential for 2011. Biogen also placed fourth in the Fortune 500 return to shareholders metric,
with a 64 percent rating, surpassed only by El Paso, an energy company, WellCare, a publicly traded managed care Medicaid
company, and Mastercard; BMS returned 39.4 percent to shareholders for 2011, a tad better than one could get on a standard
certificate of deposit. Other than Shire, our top performers kept costs lower than average in terms of GSA expenses with strong
growth.
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