Tuesday, September 22, 2009

4 top-performing healthcare companies are adapting to changing market forces

The blog was written by Robb Hughes, our finance manager and one of the newest innovators on our team.

Every year BusinessWeek analyzes the trailing 36 months average return on capital (EBIT/[long-term debt + equity]) and sales growth for all of the companies listed in its sister company's S&P 500 index and then ranks fifty standouts to the BusinessWeek 50 Best Performing Companies list.

This year's “BusinessWeek 50” is teeming with game changing health sciences companies like #1 Gilead Sciences, #12 Varian Medical Systems, #22 Express Scripts and #33 Waters. Pioneering companies like Apple, Google, Starbucks and Amazon.com also met the financial criteria to be included.

Common tactics or tools used by many of the finalist on this year's list include:
  • Generous pay for performance incentives that align employee interests’ with owners
  • Employment of experimental technologies for product differentiation
  • Disruptive and innovative strategies
These traits shouldn't be surprising in view of results of a McKinsey study on performance conducted in 2002. McKinsey studied 1,000 companies over an 18-year period. The study showed that "those that made the biggest leaps in profitability were often the ones that increased their spending on acquisitions and innovation the most amid recessions."

Coincidentally, the #1 Performer on this year's list, Gilead Sciences, is a member of the pharmaceutical industry. For those new to our blog, Stinson Brand Innovation, is a global health, science, and technology brand consultancy. We help define the core strengths of brands like Gilead Sciences.

Gilead's original approach to simplifying complicated drug regimens, especially those for HIV/AIDS, has been a key factor in it successfully surpassing $5.3B in sales and better than $2B in net income.

Like many of the 33 returning companies to BW's list, Gilead is not new to the BW 50. The lucrative returns from its popular treatments for HIV/AIDS have positioned Gilead on BW's list for five years running. Sales growth over the past three years eclipsed 38% with an average return on capital exceeding 43%. These returns were the rewards for a well executed game changing strategy that put patients back in control of their lives.

Previously, HIV/AIDS patients took cocktails of medications that sometimes had to be administered intravenously. Gilead was among the first companies to invent a once-a-day-pill. According to the article, "today, nearly 8 out of every 10 new patients diagnosed with HIV in the U.S. start on Gilead drugs and, typically, remain on them for many years." Even as the company tries to grow the drug into untapped markets, the company is beginning to focus on a new strategy: broaden the usage of once-a-day pills into other disease areas such as Hep B and C that have patient pools much larger than the U.S. HIV population.

Gilead isn’t immune to the recession. It is predicting lower sales for 2009, like most companies, but instead of nailing down the hatches and playing defense, Gilead will invest $1.4B to purchase CV Therapeutics, a cardiovascular disease drug developer.

At Stinson Brand Innovation, our expertise is assisting specialty pharmaceutical companies do more than map their strategies and tactics that achieve successful commercialization and sustainable competitive advantage like Gilead has. We employ a tool called Strategic GPS® that can create an advanced guidance system for a life science brand that helps move the product adoption curve forward, faster.

For more about Stinson’s Strategic GPS® tool read our white paper #20 “How to Create a Guidance System for Life Science Brands.”

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