Gilead Sciences Inc. (GILD, Financial) tops the list of companies on the 2019 Pharmaceutical Innovation Index issued by IDEA Pharma, a U.K-based consulting firm that helps members of the industry find a path to market for their products.
The index ranks the top 30 pharmaceutical companies by their ability to bring compounds from early phase testing to regulatory approval-- and then making them a commercial success, as measured by a range of clinical, regulatory and commercial metrics.
What’s puzzling is there seems to be no correlation between Gilead’s top ranking and the performance of its stock. The same can be said for several other companies that take up the top five spots. Gilead’s share price has dropped nearly 20% in the past two years, and it’s just about flat year to date.
Investors in second-ranked AbbVie (ABBV, Financial) have watched with disappointment as the value of their shares has sunk by 20% since September 2017; year to date, its shares are off $20 from its high of about $89.
In third place, Eli Lilly (LLY, Financial) has bucked the trend with a nearly 33% jump since September 2017. Over the same period, Pfizer (PFE, Financial) has eked out a small gain, while fifth place Merck (MRK, Financial) has rewarded its faithful shareholders with a 25% increase.
According to the IDEA white paper, 2018 saw a record number of approvals of novel therapies as companies boosted productivity and worked closely with regulators to speed their drugs to market. Small to mid-size biotechs accounted for more than half the approvals. Big Pharma wasn’t sitting on its hands, though. Pfizer led the way with regulatory approvals of four innovative drugs, while Merck, Bristol-Myers Squibb (BMY, Financial), AstraZeneca (AZN, Financial) and Roche (RHHBF, Financial) made substantial progress in compounds to serve the large lung cancer market.
On a phone call, CEO Mike Rea told me IDEA focuses on the various options that are available to a drug that is in phase I or phase II.
“One of those options may well be speed, but we look at first-in-class paths, best-in-class paths, and also making sure that the client sees a variety of approaches, with risk and opportunity profiles for each,” Rea said.Â
He said the Pharmaceutical Innovation Index answers an important question: If you give the same drug to two different companies, which one would be more successful? As a result, the consulting company focuses on a type of design thinking, that is, projecting market opportunities and then designing paths to get there.
As to the biggest factors driving innovation, Rea said there are a number of strategies that seem to work well and that there may be room for each. One is to focus therapeutically so company scientists know what they’re developing. Another, he said, is the “Hollywood Model,” where a company launches many products and lets the market determine which are successful.
He said Mene Pangalos of AstraZeneca and Pfizer’s Mikeal Dolsten—real “drug people” -- are two research and development heads who have demonstrated they can be difference makers. “The key to innovation is perhaps a brace of serendipity, but the role of luck can’t be ignored,” Rea said.
Disclosure: The author has positions in Gilead Sciences and Eli Lilly.
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