Stealth Pharmas

Jun 01, 2008

Welcome to Pharm Exec's second annual "Stealth Pharma" audit. Once again, our aim is to learn something about how select—and very diverse—non–Big Pharmas compete vis-à-vis is their Big Pharma peers. If this sounds like a modest, not-definitive goal, that's because it is. Unlike in our annual "Industry Audit" every September, here we aren't quantifying and weighting metrics to rank the top 16 publicly traded pharmas based on performance.

And for good reason. Stealth Pharma is, by definition, an unwieldy grab-bag category because it includes any company that is not a Big Pharma. Firms specializing in biotech, franchises, orphan drugs, and generics are all in play. And when it comes to making comparisons, the diversity of stealth pharmas raises problems way more complex than apples vs. oranges. How do you rank the performance of an orphan drug superstar like Genzyme against that of a solid specialty pharma like Endo? You don't. Just sit back, relax, and enjoy our audit lite.

What the Metrics Mean

In keeping with the spirit of this exercise, we must confess that there was no rhyme or reason to the selection of these particular 12 stealths. Let's just say that this is not—repeat not—a ranking of the top 12 Stealth Pharma money makers. If anything, we chose these 12 because they are newsmakers—familiar names that earn ink more often than their 1,000 or so counterparts.

Teva, the generics king, and Novo Nordisk, the franchise giant, tower over all other stealths, with 2007 Revenues in the $8 billion–plus range. This is, of course, small change compared to the likes of Pfizer or GlaxoSmithKline, which raked in $48 billion or so last year.

Drill down to the next level of metric, and it gets even more interesting. R&D Spend Per Sales for the Big Pharmas ranges from a high of 27 percent at Biogen Idec to a low of 9 percent at Johnson & Johnson. Five stealths exceed the Big Pharma average of 16 percent, with Celgene, the cancer and immunology specialist, leading the way at 28 percent.

Enterprise Value represents the value of a company in terms of what it might sell for. It's calculated as market capitalization (total number of shares outstanding multiplied by the price of the stock that day) plus liabilities minus cash. When EV goes up, shareholder value has been created; when EV goes down, shareholder value is destroyed. As a surrogate for shareholder value, EV is arguably the most crucial performance metric.

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