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22nd Annual Industry Audit: The Pharma Value Picture

Pharmaceutical ExecutivePharmaceutical Executive: November 2023
Volume 44
Issue 11

A look at the performance of the top 15 companies across seven business-key metrics, including the latest standouts in market capitalization and creating shareholder value.

Bill Trombetta

Bill Trombetta, PhD
Professor of Healthcare
Strategy & Marketing
St. Joseph's University Haub
School of Business Philadelphia

Welcome to Pharmaceutical Executive’s 22nd annual Pharmaceutical Industry Audit. We present a unique financial performance analysis of the top 15 publicly traded biopharmaceutical companies (“The Nifty Fifteen”) based on 2022 sales revenue and other financial metrics. We focus on a number of financial performance metrics, especially critical metrics such as growth in shareholder enterprise value, enterprise value to sales (EV/S), and return on invested capital (ROIC). Regarding the last metric, we introduced the impact of weighted average cost of capital (WACC) in September 2019. WACC adjusts ROIC by assessing the difference between ROIC and WACC. The difference measures the range of creating shareholder value among companies.


This year’s Audit relies on secondary reported information for the 2021–2022 time period. The metrics are also weighted reflecting their relative importance in assessing a company’s performance. Some metrics are more important than others. For example, sales growth is important, but sales growth can occur as a result of mergers and acquisitions and in-licensing. So it takes a back seat to more critical metrics such as ROIC, which measures how well a company is managed, including margin management (the profit and loss or income statement) and asset management (the use of assets on the balance sheet), and most importantly, whether ROIC exceeds the cost of capital (the cost of debt and the opportunity cost of stock equity, which are reflected by WACC).

Two metrics are included that are not weighted: sales, general, and administrative (SG&A), or overhead; and profit per employee.

The higher a company performs on a metric is reflected in a ranking based on the number of points it receives per metric. The highest metric for this year’s Audit is 15 based on the number of firms in our Audit. For example, if a company places 14th (second highest) on the critical metric EV/S, it receives 42 points on the metric (14 rank x weight of 3). In another example, if a company comes in at a ranking of five (five places from the bottom), on the metric gross margin (pricing power), its total points would be 10 (5 rank x weight of 2). The three major financial metrics (enterprise value or shareholder value growth; EV/S; and ROIC) have a weight of 3; the remaining metrics are weighted 2.

Table 1 and Table 2

Table 1 and Table 2


Basic indices are the growth of the US economy and inflation. You have to be able to grow faster than the US economy: around 3% in 2022 and higher than inflation as measured by the Consumer Price Index (CPI), about 4% for 2022. Other important benchmark metrics for 2022 include:

  • Dow Jones Industrial Average: down 8.8%
  • Nasdaq Composite: down 33%
  • Standard & Poor’s (S&P) 500: down 19.4%


Table 1 shows sales in US dollars along with sales growth for our 15 pharmas. It is good to grow, especially organically, compared to just acquiring companies. But that’s easier said than done for companies at high sales levels such as Johnson & Johnson (J&J), Novartis, and Roche.

The average dollar sales for our 15 companies was $45.1 billion in 2022, vs. $41.9 billion in 2021: a growth rate of 7.6%. The key metric in Table 1 is sales growth, with Pfizer increasing the fastest, due in part to its outstanding vaccine numbers. Of our 15 companies, six showed a sales decrease for 2022, while four companies posted double-digit sales growth.

The Fortune 500 combined revenues grew 12.8% in 2022, outpacing our Nifty Fifteen.


This is the first of the three crunch metrics; EV/S and ROIC are the others. There are other worthy performance metrics (e.g., corporate responsibility, sustainability, the best places for women and minorities to work,etc.), but our focus is financial performance and enterprise value and growth. Did a company create or add to shareholder (enterprise) value or destroy shareholder value?

EV is the sum of an organization’s market capitalization; then add in debt and adjust for cash and other current assets. Simply put, EV is the market value or market capitalization of a company. Table 2 shows the pharma with the highest EV is J&J at $441.2 billion, a slight drop from 2022, likely due to the upcoming split off, breaking out pharma and devices from consumer health products. The company that grew its EV the most was Merck & Co. To put that in perspective, the average EV for our 15 pharmas in 2022 was $234.1 billion, an increase of 17.3%. Seven of the companies increased shareholder or enterprise value by double digits.

Audit Data Sources & Table Key

( ) Denotes loss

B = Billions of US$

Figures are rounded up where appropriate

Sources: FactSet; Evaluate Pharma; New York Times; Wall Street Journal; Business Week; Fortune; Forbes; thatswacc; guru.com. Financial data are found primarily through FactSet, which was accessed in May 2023 for the 2021–2022 time period.

Noteworthy EV performers in addition to Merck were Eli Lilly, Novo Nordisk, Novartis, Gilead, and Biogen. In terms of biggest companies by market value, J&J and Lilly place 9th and 17th, respectively, on the Fortune 500.


EV and EV growth are very important performance metrics. EV/S supplements that metric by assessing which firms are still climbing vis-à-vis so-called “value” stocks—stocks that, if not growing in upside market cap, still pay noteworthy dividends and are solid businesses.

Table 3 and Table 4

Table 3 and Table 4

Table 3 lists EV/S. The average EV/S for 2022 is 5.25. At the top for 2022 is Lilly at 12.68. Coming in a close second is Novo Noridisk at 9.28, followed by Amgen, AbbVie, and AstraZeneca. The higher the EV/S ratio, the more likelihood the company’s performance is going to get better.

Combining tables 2 and 3 encompassing EV, we see that Lilly and Biogen are lifted by progress on Alzheimer’s disease drugs. And Lilly and Novo Nordisk are riding high on their diabetes/obesity therapies, Mounjaro and Wegovy, respectively. AstraZeneca’s oncology franchise, comprised of Lynparza, Tagrisso, and Enhertu bode well, according to Evaluate Vantage. Though not nearly at the same pace as in the last two years, COVID-19 vaccine and antiviral, Cominarty and Paxlovid, respectively, will keep Pfizer’s sales growing.

EV/S is impacted by factors on the horizon for a drug manufacturer. According to a column by Evaluate Vantage’s Lisa Urquhart published in May 2022, these relatively high EV/S ratios are due to a fresher stockpile of recent introductions, or as she terms it, better prospects reflected by a company’s “freshness index”—what percentage of products is less impacted by patent erosion. It is good to be fresh. By definition, a company with two-thirds or more of its revenue coming from relatively new products is an innovator. New products would command higher prices when they come to market. According to Evaluate Vantage, the “freshest” among our Nifty 15 are Pfizer, Novo Nordisk, Roche, Lilly, Gilead, and AstraZeneca.


Yes, there is net-net and list price vs. net price, but at the end of the day, there is gross margin, which is tantamount to markup. As Warren Buffet would call it, “the moat around your castle.” Gross margin reflects an organization’s power to maintain or, even better, increase price.

This metric represents total revenue minus cost of goods sold from the income statement. This is quintessential margin management: how price is managed while simultaneously managing operating costs to produce net income. The higher the gross margin is, the more a company is able to cover operating expenses, including SG&A.

Table 4 shows Novo Nordisk at the top with a gross margin of 82.5%, a slight increase over 2021. The biotechs rule pricing as they have ever since the first Pharm Exec Industry Audit in September 2002. The gross margin average for our 15 for 2022 averaged 69.7%. Only three companies experienced a decrease in gross margin.

Table 5 and Table 6

Table 5 and Table 6


Staying with margin management, Table 5 shows pre-tax operating income, or profit to sales. Again, the higher the gross margin is, the more that contributes to improving pre-tax operating income. Operating income is total revenues minus cost of goods sold and minus operating expenses related to a firm’s typical business. It excludes one time gains and losses, dividend income, and interest income.

At the top in this metric is Novo Nordisk with pre-tax operating income of 39.1%, a slight drop from 42% in 2021. The average figure for 2022 was 24.7%. Only eight of our 15 pharmas saw their pre-tax operating incomes rise for the year.

Note the extraordinary profitability of Novo Nordisk, Biogen, and Pfizer, all in the 30s on the percentage scale. Comparing our Nifty 15 to the Fortune 500, while the latter sales increased, their combined profits dropped by 15%. In terms of absolute dollar profits, Pfizer at $38 billion, J&J at $17.9 billion, and Merck at $14.5 billion would place 7th, 13th, and 18th, respectively, on the Fortune 500 list.


Gross margin and pre-tax operating income have to do with margin management; sales to assets has to do with asset management. If a firm is at $70 billion in sales, for example, it won’t be doubling revenue anytime soon. If the company has also curtailed SG&A and disposed of assets, it won’t be cutting operating expenses in half anytime soon either. Then it turns to asset management to do a better job making use of, not necessarily owning, assets.

When you multiply profit to sales (pre-tax operating income) by sales to assets (asset management), you get a far more important measure: return on assets. A company can have a relatively low profit margin with a relatively high sales-to-assets ratio that will result in a better performance in terms of ROIC. J&J, for example, stands out for its impressive combination of margin management and asset management.

As seen in Table 6, Novo Nordisk’s sales-to-assets ratio is 0.78. For every dollar invested in assets, Novo Nordisk gets back 78 cents. Roche comes in at No. 2, getting back 67 cents for every dollar invested in assets. In our latest Audit, only six companies rank at the average sales-to-assets ratio or above regarding how productive they are in managing their assets.


Now we come to the mother of all metrics: ROIC. ROIC is net income left over to shareholders as a percent of debt and common stock. According to longtime organizational consultant Mark Van Cleaf in The New York Times, the best measure of business performance is ROIC—how much is a company generating on its capital investments, plant and equipment, minus the cost of that capital, debt, and equity? Combine this with our relatively new addition to the Audit: weighted average cost of capital (WACC). According to Van Cleaf, management should be providing value that exceeds its cost of capital. For example, two organizations can have a ROIC of 10%, but company 1 has a WACC of 12% while company 2 has a WACC of 7%. The first firm is creating shareholder value while the second one is destroying shareholder value.

Table 7 and Table 8

Table 7 and Table 8

Prior to the mid-1980s, the conventional wisdom was that debt had a cost (the rate you pay for borrowing), but issuing stock was free. But what if the peer groups an organization competes with have a higher ROIC than the company? Even though the firm shows a profit, it is destroying shareholder value if its profit is below its peers’ average. What return could an investor get by investing in an organization of equal risk? This was the brainstorm of Stern Stewart, a consulting firm based in New York City.

Our source for WACC this year is gutu.com, which relies on three years of income statements and balance sheets to arrive at a company’s WACC. Table 7 shows Novo Nordisk far out in front with a ROIC of 55.9%, a drop from 64.1% for 2021 but still a heady performance. Roche ranks second at 26.1%. Average ROIC decreased to 18.1% in 2022, from 19.1% in 2021. To avoid overstating the impact of ROIC and double-counting its value, we use the ROIC number to come up with the rankings on this metric. But the inclusion of WACC in Table 7 tells an interesting story: The greater the difference between ROIC and WACC, the greater the return to shareholders. Aside from Novo Nordisk’s outsized ROIC, the firms with the most impressive creation of shareholder wealth for 2022 (spikes of at least 10 percentage points) were Roche and Lilly, followed by Pfizer. Merck, Biogen, J&J, and Amgen. In fact, all placeholders in our Nifty 15 created shareholder value in 2022.


This metric is not weighted in the rankings. It is interesting, however, to show how profitable the pharma sector is. According to FactSet, for 2022, Pfizer produced the most profit per employee at $377,904 each, as indicated in Table 8.


SG&A (see Table 9) is another metric that does not impact the rankings. It is still important because the expenses in this category are necessary to run an organization and constitute routine spending such as rent, salaries, advertising, marketing, legal, and more. Laying off and firing workers costs money in severance before it begins to pay off. It’s also important to keep in mind that this is a one-year comparison. A company can be making investments in advertising, training its sales force, etc., and that will pay dividends down the road. One swallow does not a season make.

Opportunities exist to cut advertising costs by being more efficient with agencies and revamping supply chains. Also, SG&A can increase, but it is the goal for sales growth to grow faster, thereby lowering the SG&A-to-sales ratio. Ballooning overhead leaves

The average SG&A-to-sales ratio for our 15 pharmas in 2022 was 40.5%, a slight increase from 39.6% the previous year.

Table 9 and Table 10

Table 9 and Table 10


Table 10 on reveals the winner of this year’s Audit: Novo Nordisk, which captured the top spot for the fifth straight year. Merck finished a close second, followed by Lilly, Amgen, and AbbVie rounding out our “Fab 5.”

Finally, I want to return to a performance discussion we touched on in the past: The Dr. Bill Trombetta Hall of Fame for Outstanding Management Performance. In a few editions of the Audit we focused on two measures: profit to sales multiplied by sales to assets = profit to assets, a crude version of the more powerful performance metric: ROIC. I want to go back to such a year capsule evaluation, but in terms of a new metric, PSE— profit grows faster than sales/and sales grow faster than expenses (SG&A). I am calling this “Dr. Bill Trombetta’s Annual Pharmaceutical Executive Pharmaceutical Industry Audit Trifecta.”

What doth it profit a firm whose sales growth is exceeded by its growth in SG&A (overhead, burden)? And what if sales growth is lower than the growth in profits? Again, it would be unfair to penalize or reward a firm for its SG&A spend in a given year: the variable cost spend could be an investment that will pay off in the near future or it may be a sign of overhead bloat.

But in a given year, if a company can grow its sales faster than SG&A spending and grow its profits faster than the growth of its sales, this is worth recognizing.

Final table

Sales should grow faster than SG&A spending over time. And profit growth should exceed sales growth. What does it mean if revenue grows faster than profit? It suggests that the organization is profiting less from each dollar of sales revenue. Perhaps sales growth is growing in strategic business units or product lines that carry lower profit margins. It also could mean increasing competitive pressure.

Given the rationale above, our top Trifecta performers in no particular order for 2022 are Lilly, Sanofi, Amgen, and GSK. Hats off to this foursome for a well-managed financial performance for 2022.

About the Author

Bill Trombetta, PhD, is Professor of Healthcare Strategy & Marketing at St. Joseph’s University Haub School of Business in Philadelphia. He can be reached at trombett@sju.edu

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