Capping a tumultuous, yet successful year for the life sciences industry, a new ranking of the most innovative companies listed eight life science firms in the top fifty. Gilead, Biogen, and Roche were recognized for the first time, with Gilead ranking eighth.
But, perhaps more notably, four other firms from the industry also made the top 25: Bayer, Biogen, Johnson & Johnson, and Amgen.
The list, compiled by the Boston Consulting Group (BCG), has been released annually since 2005 and draws on industry viewpoints to identify innovation. BCG asked 1,500 senior executives to rank the most innovative companies within and outside of their own industry, in addition to analyzing five-year growth in total shareholder return. The consultancy then weighted each segment at 30%, 30% and 40%, respectively. BCG received responses from over 100 executives in biotech and pharma, approaching 10% of the overall survey population.
BioPharma Dive spoke with a co-author of the report, Michael Ringel, to understand what sparked the recognition of so many life science firms this year. For Ringel, a senior partner at BCG, all the companies were connected by “a real focus on science and, coupled with that, a real focus on good decision making and deployment of capital.”
Take Gilead for example. Their $11 billion acquisition of Phamasset in 2011 led to the development of the ground-breaking Hepatitis C drugs Solvadi and Harvoni, which cure nine out of ten patients with the most common type of the virus. At the time, the expensive acquisition was widely questioned. Yet so far this year, Gilead has earned a combined $14.2 billion in sales from the two drugs (out of $24.1 billion in revenue overall).
Ringel said that this type of acquisition is emblematic of the shared approach for firms in this list. “[The companies included] are adequately equipped to understand the science, and then they are very good about deploying capital to make the acquisition where they feel there is some good external science.”
The rest of the field:
Apart from Gilead, Biogen debuted at 17th, while Roche came in at 39th. Bayer improved dramatically, jumping to just outside the top ten at 11th. Several other drug giants, having dropped off the list in previous years, returned this year to round out the strong biopharma contingent. Johnson & Johnson ranked 20th, with Amgen at 24th and Pfizer at 44th. The medical device manufacturer Medtronic was 42nd.
BCG tracked 2013 to 2014 change in revenue, earnings before interest and tax (EBIT), and R&D spending for the firms ranked. Almost all of the life sciences companies ranked saw positive year-over-year growth in revenues and EBIT. Pfizer was the lone outlier in this regard, as both revenue and EBIT dropped (as calculated by BCG). Although these metrics were measured in the report, BCG did not include them in the weights for ranking the firms.
Instead, BCG gave weighting to five-year total shareholder return (TSR) as measured by stock appreciation and dividends (in addition to the survey responses). Among firms ranked, only Netflix delivered greater TSR than Gilead’s 104.5% return. Biogen was the second most lucrative biopharma company for shareholders with a 91.0% TSR.
When asked if this year's biopharma firms were particularly innovative compared to years past, Ringel pointed to the accruing advantages from capabilities unlocked by the Human Genome Project. Although the Project dates back 15 years, “it is really only now that we are seeing the fruits of that when people have been able to do big genome wide associational studies, and understand what drives responses,” Ringel said. As more human genomes are sequenced, biopharma firms can focus in much more narrowly on targets like PCSK9 for cholesterol.
Cost of innovation?
While the survey identified which firms were best at innovating, it did not address how that strength balances against other priorities. For life sciences, speed to market is just as critical as it is in other industries. But life sciences firms have to balance the desire to innovate quickly with ensuring a safe and effective product for consumers. Innovative drugs are crucial for companies to establish market share and earn new revenues, but those innovations are important for more than just shareholder return. They markedly affect patient well-being and survival rates.
This year has seen renewed anger and criticism over the pricing of branded prescription drugs. Gilead’s blockbuster hep C drugs, while highly effective, are expensive. Sovaldi costs approximately $1,000 per pill, while Harvoni costs over $90,000 for a full course of treatment. Recently, the Senate Finance Committee released a report slamming Gilead for deliberately pricing Solvaldi high.
But biopharma companies have pushed back, arguing their pricing levels are necessary to compensate for costly innovation and R&D. Biopharma is a for-profit industry with long lead times in drug development. Additionally, there are fewer price controls in the U.S. than in other developed economies. Larger payers like Medicare lack the ability to negotiate prices for prescription drugs, and their significant leverage goes unutilized.