Surprises in the industry's most profitable companies

Analysis

An analysis of the industry’s most profitable companies last year throws up some surprising names within the top ten – ViroPharma tops the league table with a net income margin of 47%, generating all its profits from sales of anti-bacterial agent Vancocin. Interestingly, two Indian generic firms feature, Sun Pharmaceutical Industries and Glenmark Pharmaceuticals, perhaps dispelling the notion that margins from selling generics are always low.

Of the big pharma players, only those US groups with mature product portfolios, namely Pfizer, Merck & Co and Amgen, make it into the list. However, looking at forecast margins for the current year, the table below also reveals that Merck & Co drops out of the top ten, impacted by significantly lower sales from its cholesterol franchise. Alcon replaces Merck, suggesting one good reason why Novartis recently decided to fork out $11bn to acquire a 25% stake in the eye-care company.

This analysis from EvaluatePharma is based on dividing normalised net income (excluding exceptional items) by the total revenues, to generate a net margin percentage. It only includes companies that have reported two consecutive years of profit, with incomes in excess of $50m in both 2007 and 2008.

2007 - top 10 companies Net Margin  Net Income - Normalised ($m) Total Revenues ($m)
  2007 2006 2007 2007
 ViroPharma  47%  66  95  204
 Sun Pharmaceutical Industries  44%  159  371  837
 Gilead Sciences  38%  1,204  1,615  4,230
 Biovail  35%  428  293  843
 OSI Pharmaceuticals  32%  12  110  341
 Glenmark Pharmaceuticals  32%  68  157  493
 Amgen  32%  4,459  4,675  14,771
 Merck & Co  32%  5,506  7,624  24,198
 Pfizer  31%  14,982  15,113  48,209
 Warner Chilcott  31%  169  276  900
         
2008 - top 10 companies Net Margin Net Income - Normalised ($m) Total Revenues ($m)
  2008 2007 2008 2008
 Gilead Sciences  38%  1,615  1,954  5,157
 OSI Pharmaceuticals   36%  110  141  387
 Sun Pharmaceutical Industries  35%  371  297  860
 ViroPharma  34%  95  76  220
 Warner Chilcott  34%  276  326  949
 Pfizer  33%  15,113  15,794  48,122
 Glenmark Pharmaceuticals  32%  157  200  633
 Amgen  31%  4,675  4,397  14,351
 Alcon  30%  1,627  1,940  6,378
 Biovail  30%  293  218  732

Biovail’s consistent appearance in the lists is intriguing given the current turmoil at the Canadian group, with a tug of war between the existing management and a group of dissident shareholders over the strategic direction the company should be pursuing (see EP Vantage article: Is Biovail a "broken company",June 4, 2008).

Biovail’s respectable profitability levels suggest the parties concerned should pause for a minute and heed the old adage, “if it isn’t broken, don’t try and fix it”.

Focused strategy

The top biotech is Gilead Sciences, clearly benefitting enormously from a fast-growing and maturing portfolio of HIV drugs, lead by Atripla and Truvada. This is also a key factor as to why the biotech’s shares have shown impressive growth over the last five years, currently trading around an historic high of $55. The group’s enterprise value of $51.3bn suggests an impressive return on R&D investment of $1.67bn over the last five years, far superior to all its peers.

Another company generating impressive profits from a clearly defined strategy is Warner Chilcott, focusing on products for women’s health and the dermatology sector.

By targeting niche but lucrative markets and employing a relatively modest sales force of 400 reps, the New Jersey company, which also benefits from low tax rates due to its incorporation in Bermuda, is showing other specialty companies what can be achieved.

Projecting further forward to 2012, Celgene looks set to be the biggest riser up the league table, raising its net margin of 29.7% this year to 42% by 2012, benefitting from its recent acquisition of Pharmion and impressive forecasts for cancer agent Revlimid, which will be in its sixth year on the market by then.

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