2007: The last good year
2007 was the last year when the stock market was relatively strong and valuations for most biopharmaceutical companies were
robust. Hence we thought it would be useful to review progress from that relative height to the more straightened circumstances
of today, and pose the question of which company did the best in creating shareholder value over the last five years. In the
Mining Shareholder Value table, we ask who has "risen from the ashes" with good news for shareholders, as measured in growth
in enterprise value.
Sales to Employee
We performed the calculation for our 24 companies on these two metrics, enterprise value growth and enterprise value to sales,
focusing on the five years starting from 2007 as the baseline. Our smallest member in terms of sales revenue, Endo, delivered
the most in shareholder wealth, with an increase of 142.3 percent in share value over this period. Celgene was second.
Bill Trombetta’s Hall of Fame
Mining Shareholder Value 2007 – 2011
Is there a reason to explain why Endo leads in the track records of shareholder value? With its strategic focus on the continuum
of care, where its products seek to integrate within larger trends in the way health care is delivered and financed, Endo
is scratching the surface of a powerful strategy that has been pursued in other sectors since the late 1950s: category captain
management (CCM). CCM is a strategy based on the rationale that most products are similar in terms of their physical features
and characteristics. Hence there is a need to differentiate your product on more than just these directly observed attributes.
It is all about continuously adding value beyond the product. As Franz Houten, CEO of Philips puts it in a recent Wall Street
Journal interview: Selling means waiting for an order vs. transitioning to how can my company help you with your problems?
CCM is a strategy that offers a sustainable competitive advantage. CCM is competitive in that it enables strategic differentiation,
and it is sustainable in that CCM is difficult to copy by a competitor if your firm establishes it first. When your customer
is approached as a strategic partner, the end result is a relationship that endures because there are now formidable costs
to switching. CCM positions the firm as a source of competitive advantage compared to just a source of supply, where, as former
Lilly CEO Sidney Taurel put it, the drug industry is seen as nothing more than a "pill pusher."
And the winner is…
A good example of CCM in action comes from outside pharma. Kraft Foods also has a blockbuster product: string cheese! And
how can you possibly differentiate string cheese from other commodities in the business? By approaching its operations from
the customer's business perspective. Kraft has secured effective control of space in two thirds of all supermarket dairy aisles
in the country by following one principle: to make money for the retailer first. The retailer could care less what brand of cheese is in the dairy aisle, just as a hospital P&T committee or a doctor could
care less what drug is on the formulary. Instead, Kraft stoically assumed its dairy products are not all that different physically
from its competitors and then pursued a plan to improve asset turnover, boost profitability on sales per square feet, and
offer services that make life easier by treating the customer first as a partner in the management of his own supermarket.
In biopharmaceuticals, the message from this is simple: Take the relationship beyond the pill. For more on how CCM can be
applied to healthcare, see: "Category Captain Management: An Idea Whose Time Has Come in the Pharmaceutical Industry," International Journal of Pharmaceutical & Healthcare Marketing, 4 (2) 2010,
Bill Trombetta, PhD, is Professor of Pharmaceutical & Healthcare Marketing at St. Joseph University, Haub School of Business.