Who Sees the Halo?

Insiders say pharma reputations shine. Consumers don't see the glow.
Jun 01, 2005

The pharmaceutical industry's ethical reputation has improved during the past year, at least according to pharma professionals and the financial analysts who watch industry stock prices. But most of those gains are lost on the general public, according to the latest research on ethics reputations by Rating Research. RRC, as the company is usually known, says the bad news is confined to just a few companies.

Definitions of Ethics Rating Levels
Despite the challenges stemming from problems with COX-2 inhibitors, industry peers and financial analysts gave the industry an average rating of E2, indicating a "high quality" ethical reputation, in 2005—the same grade it earned in RRC's 2003 study. (See "Ethics Beyond Corporate Governance," Pharm Exec, September 2003.)

RRC Ethics Reputation Ratings [Pharmaceutical Industry]
Once again two biotech firms, Amgen and Genentech, secured RRC's "highest quality" rating—an E1—for ethical reputation (see Figure 1). Both industry insiders and financial analysts gave the firms high marks when asked about their performance in the key components underpinning ethics reputation.

On another positive note, survey respondents upgraded the ethics ratings of Eli Lilly and Johnson & Johnson to E1. Each company moved up from a "high quality," E2, in RRC's last study.

Rankings of Pharma Company Reputation, 2005 [Executives vs. Analysts]
Eli Lilly improved so dramatically that, in the eyes of industry insiders, it tied with Genentech for top rankings from those respondents (see Figure 2). The company scored strongly in the areas of corporate governance, financial transparency, and being open and honest with the public. In addition, financial analysts awarded Lilly a solid sixth-place ranking, up significantly from the previous year.

For its part, Johnson & Johnson has shown solid, sustainable support from both executives and analysts, each of which gave the company a fourth-place ranking in ethics reputation. Its strongest performances were for CEO leadership and corporate governance.

The controversies surrounding Merck since late fall of 2004, however, sent the company's ratings plummeting—from first-place, in the opinion of industry executives in 2003, down to ninth-place currently. Financial analysts, on the other hand, maintained Merck's second-place ranking in the RRC ethics scores. But even the analysts' vote of confidence was not sufficient to prevent Merck's overall rating from sliding to E2, from E1.

Meanwhile, Bayer showed a significant drop in the estimations of both groups of respondents, as its ethics ranking dropped to number 17 (out of 19), in the eyes of industry insiders, and to 16, from the viewpoint of financial analysts. As a result, Bayer's ethics reputation rating slid to E3, from E2.

Improving Stakeholder Perceptions In the current media environment, where ethical breaches by corporations and their CEOs are in the news almost daily, it is not surprising to see ethics driving corporate reputations across America. Indeed, RRC's most recent study of reputation in the pharmaceutical industry found that ethics is now the most important driver of reputation, ahead of other key dimensions, such as workforce quality and financial stability. (See "The Rise and Fall of Pharma Reputations," Pharm Exec, February 2005.)

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