Google “top pharmaceutical companies 2021,” and the answer is crystal clear. Or so it seems. Johnson & Johnson generated an eye-watering $56.1 billion in revenue in 2020, 5 billion more than its nearest competitor Pfizer. That’s more than the entire GDP of some small countries!
These incredible numbers relate to revenue from last year — before the company rolled out its COVID-19 vaccine. So Johnson & Johnson is the world’s most successful pharma company. Pfizer is the second. End of discussion, right?
These numbers don’t reveal the full picture. That’s because revenue is just one measurement of success.
Nearly all pharma companies report total revenues to shareholders because, seemingly, that’s how most people define success in the 21st century. But dig deeper, and there are other ways to determine a pharma company’s accomplishments.
Is Revenue Always the Best Measurement of Success?
Revenue is the total annual income generated by a pharma company. For Johnson & Johnson, that was $56 billion last year — a 0.3 percent increase from the year before. That’s a lot of money! The company’s revenue grew, in part, because of its ever-expanding immunology and oncology portfolios, as well as some shrewd acquisitions and divestitures. The FDA also approved several prescription drugs developed by the company, including BALVERSA.
Johnson & Johnson’s numbers are incredibly impressive, but every accountant knows there are other ways to measure success. What about profit? Or net income? Johnson & Johnson has enormous expenses — researching, producing, and marketing new prescription medicines, to name just a few. Other organizations do too. The average pharma company spends 17 percent of its revenue on research and development (R&D) alone.
So what happens when one accounts for these expenses? The list of the most successful pharma companies suddenly looks very different. Roche, the pharma company that generated the third-most revenue in 2020, had the highest net income in 2020 — $15.76 billion. Johnson & Johnson had a total net income of $15.12 billion in 2020, putting it in second place. Pfizer, which made second place on the revenue list, generated $9.4 billion in net income.
Now the picture becomes clearer: Revenue isn’t the most accurate way to measure success.
Top 10 Pharma Companies in 2020 By Revenue
Top 10 Pharma Companies in 2020 By Net Income
Note: This ranking refers to net income before the full roll-out of the COVID-19 vaccine, so the top pharmaceutical companies 2021 list might look very different.
What About Organizational Efficiency?
Neither revenue nor net income truly defines success. These are just numbers on a spreadsheet. And these numbers say nothing about how efficient pharma companies are. All those who work in pharma know the ‘three Ps’ define success:
- And, most importantly, people.
It’s people, not revenue or net income, that make (or break) the success of companies in the pharmaceutical industry. All those brilliant minds that develop life-saving, world-changing drugs. And all those brilliant people who support these brilliant minds — medical writers, accounts assistants, production operators, warehouse workers, etc.
There are two alternative metrics that measure success in pharma:
- Revenue Per Employee (RPE): A pharma company’s total revenue divided by its number of employees.
- Net Income Per Employee (NIPE): A pharma company’s net income divided by its number of employees.
Neither metric is perfect, but they provide fascinating insights into a company’s success. RPE and NIPE reveal organizational efficiency. (How well employees accomplish tasks without wasting time and resources.) That’s different from revenue and net income, which reveal organizational effectiveness. (How a company achieves its intended results.)
Consider Johnson & Johnson again. This company generated $56.1bn in revenue in 2020 and has 132,000 employees. That means it has an estimated RPE of $425,000. Pfizer made $51.75 billion in revenue and has 78,500 employees. That’s an estimated RPE of $659,235. Perhaps, according to this measure, Pfizer is more efficient than Johnson & Johnson.
What about NIPE? Johnson & Johnson generated $15.12 billion in net income in 2020. With 132,000 employees, that’s an estimated NIPE of $114,545. Pfizer made $9.49 billion in net income in 2020. With 78,500 employees, that’s an estimated NIPE of $120,891. Perhaps, according to this measure, Pfizer is more efficient than Johnson & Johnson. (But only just!)
There’s no definitive measurement of success in pharma, but maybe the industry should place less emphasis on revenue — the statistic shareholders love the most — and consider other factors when determining a company’s achievements. Things suddenly look very different!
SOURCE EXPLORER is where Life Science Professionals come to discover the latest case studies or white papers, find relevant webinars or podcasts for professional growth, and uncover rock star suppliers they can hire for their next project. We are Where Life Science Lives.